Humana 2015 Annual Report Download - page 89

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81
higher end of the below investment-grade rating scale. Our investment policy limits investments in a single issuer and
requires diversification among various asset types.
Tax-exempt municipal securities included pre-refunded bonds of $178 million at December 31, 2015 and $199
million at December 31, 2014. These pre-refunded bonds were secured by an escrow fund consisting of U.S. government
obligations sufficient to pay off all amounts outstanding at maturity. The ratings of these pre-refunded bonds generally
assume the rating of the government obligations at the time the fund is established. Tax-exempt municipal securities
that were not pre-refunded were diversified among general obligation bonds of U.S. states and local municipalities as
well as special revenue bonds. General obligation bonds, which are backed by the taxing power and full faith of the
issuer, accounted for $1.0 billion of these municipals in the portfolio. Special revenue bonds, issued by a municipality
to finance a specific public works project such as utilities, water and sewer, transportation, or education, and supported
by the revenues of that project, accounted for $1.4 billion of these municipals. Our general obligation bonds are
diversified across the U.S. with no individual state exceeding 11%. In addition, certain monoline insurers guarantee
the timely repayment of bond principal and interest when a bond issuer defaults and generally provide credit enhancement
for bond issues related to our tax-exempt municipal securities. We have no direct exposure to these monoline insurers.
We owned $173 million and $484 million at December 31, 2015 and 2014, respectively, of tax-exempt securities
guaranteed by monoline insurers. The equivalent weighted average S&P credit rating of these tax-exempt securities
without the guarantee from the monoline insurer was AA.
Our direct exposure to subprime mortgage lending is limited to investment in residential mortgage-backed securities
and asset-backed securities backed by home equity loans. The fair value of securities backed by Alt-A and subprime
loans was $1 million at December 31, 2015 and 2014. There are no collateralized debt obligations or structured
investment vehicles in our investment portfolio. The percentage of corporate securities associated with the financial
services industry was 25% at December 31, 2015 and 21% at December 31, 2014.
Gross unrealized losses and fair values aggregated by investment category and length of time that individual
securities have been in a continuous unrealized loss position were as follows at December 31, 2015:
Less than 12 months 12 months or more Total
Fair
Value
Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
(in millions)
December 31, 2015
U.S. Treasury and other U.S. government
corporations and agencies:
U.S. Treasury and agency
obligations $ 195 $ (1) $ 14 $ — $ 209 $ (1)
Mortgage-backed securities 1,484 (20)86 (3) 1,570 (23)
Tax-exempt municipal securities 843 (3)52 (1) 895 (4)
Mortgage-backed securities:
Residential 2 — 4 — 6 —
Commercial 626 (13) 265 (28) 891 (41)
Asset-backed securities 258 (2) — — 258 (2)
Corporate debt securities 918 (45)63(10) 981 (55)
Total debt securities $ 4,326 $ (84) $ 484 $ (42) $ 4,810 $ (126)
Under the other-than-temporary impairment model for debt securities held, we recognize an impairment loss in
income in an amount equal to the full difference between the amortized cost basis and the fair value when we have the
intent to sell the debt security or it is more likely than not we will be required to sell the debt security before recovery
of our amortized cost basis. However, if we do not intend to sell the debt security, we evaluate the expected cash flows