United Healthcare 2009 Annual Report Download - page 75

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UNITEDHEALTH GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Equity Securities. Equity securities are held as available-for-sale investments. Fair value estimates for Level 1
and Level 2 publicly traded equity securities are based on quoted market prices and/or other market data for the
same or comparable instruments and transactions in establishing the prices. The fair values of Level 3
investments in venture capital portfolios are estimated using market modeling approaches that rely heavily on
management assumptions and qualitative observations. These investments totaled $282 million as of
December 31, 2009. The fair values of the Company’s various venture capital investments are computed using
limited quantitative and qualitative observations of activity for similar companies in the current market. The key
inputs utilized in the Company’s market modeling include, as applicable, transactions for comparable companies
in similar industries and having similar revenue and growth characteristics; similar preferences in the capital
structure; discounted cash flows; liquidation values and milestones established at initial funding; and the
assumption that the values of the Company’s venture capital investments can be inferred from these inputs. The
Company’s remaining Level 3 equity securities holdings of $30 million mainly consist of preferred stock for
which there is no active market.
Interest Rate Swaps. Fair values of the Company’s interest rate swaps were estimated using the terms of the
swaps and publicly available market yield curves. Because the swaps were unique and were not actively traded,
the fair values were classified as Level 2 estimates. As of December 31, 2009, the Company had no outstanding
interest rate swap contracts.
A reconciliation of the beginning and ending balances of assets measured at fair value on a recurring basis using
Level 3 inputs is as follows:
December 31, 2009 December 31, 2008
(in millions)
Debt
Securities
Equity
Securities Total
Debt
Securities
Equity
Securities Total
Balanceatbeginningofperiod..................... $ 62 $304 $366 $— $133 $133
Purchases, net ................................. 64 22 86 14 202 216
Net unrealized gains in accumulated other
comprehensive income ........................ — 7 7 — 2 2
Net realized losses in investment and other income . . . (6) (21) (27) — (54) (54)
Transfers into Level 3 .......................... — — — 48 21 69
Balance at end of period ......................... $120 $312 $432 $ 62 $304 $366
There were no significant fair value adjustments recorded during the year ended December 31, 2009 for
non-financial assets and liabilities or financial assets and liabilities that are measured at fair value on a
nonrecurring basis. These assets and liabilities are subject to fair value adjustments only in certain circumstances,
such as when the Company records impairments.
The table below includes fair values for certain financial instruments for which it is practicable to estimate fair
value. The carrying values and fair values of these financial instruments were as follows:
December 31, 2009 December 31, 2008
(in millions)
Carrying
Value
Fair
Value
Carrying
Value
Fair
Value
Assets
Debt securities — available-for-sale ............................ $13,774 $13,774 $13,472 $13,472
Equity securities — available-for-sale .......................... 577 577 477 477
Debt securities — held-to-maturity ............................. 199 203 200 210
AARP program-related investments ............................ 2,114 2,114 1,941 1,941
Interest rate swaps .......................................... — — 622 622
Liabilities
Senior unsecured notes ...................................... 11,173 11,043 12,693 10,941
73