Health Net 2005 Annual Report Download - page 32

Download and view the complete annual report

Please find page 32 of the 2005 Health Net annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 145

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145

necessary for us to liquidate our investment portfolio on an accelerated basis, it could have an adverse effect on
our results of operations.
We depend, in part, on independent brokers and sales agents to market our products and services, and
recent regulatory investigations have focused on certain brokerage practices, including broker
compensation arrangements and bid quoting practices.
We market our products and services both through sales people employed by us and through independent
sales agents. Independent sales agents typically do not work with us on an exclusive basis and may market health
care products and services of our competitors. We face intense competition for the services and allegiance of
independent sales agents and we cannot assure you that these agents will continue to market our products at a
reasonable cost. Although we have a number of sales employees and agents, if key sales employees or agents or a
large subset of these individuals were to leave us, our ability to retain existing customers and members could be
impaired.
There have been a number of investigations and enforcement actions against insurance brokers and insurers
over the last several years regarding allegedly inappropriate or undisclosed payments made by insurers to brokers
for the placement of insurance business. While we are not aware of any unlawful practices by the Company or
any of our agents or brokers in connection with the marketing and sales of our products and services, current
investigations by the New York Attorney General and other regulators as well as regulatory changes initiated in
several states in response to allegedly inappropriate payment practices could result in changes in industry
practices that could have an adverse effect on our ability to market our products.
The market price of our common stock is volatile.
The market price of our common stock is subject to volatility. In 2005, the HMO Index, an index comprised
of 12 managed care organizations, including Health Net, recorded an approximate 37% rise in its value, while the
per-share value of our common stock increased by approximately 79%. There can be no assurance that the value
of our common stock will continue to increase at this pace or at all. In addition, there can be no assurance that the
trading price of our common stock will vary in a manner consistent with the variation in the HMO Index or the
Standard & Poors’ 400 Mid-Cap Index of which our common stock is also a component. The market prices of
our common stock and the securities of certain other publicly-traded companies in our industry have shown
volatility and sensitivity in response to many factors, including public communications regarding managed care,
legislative or regulatory actions, litigation or threatened litigation, health care cost trends, pricing trends,
competition, earnings or membership reports of particular industry participants, and market speculation about or
actual acquisition activity. Additionally, adverse developments affecting any one of the leading companies in our
sector could cause the price of our common stock to weaken, even if those adverse developments do not
otherwise affect us. There can be no assurances regarding the level or stability of our share price at any time or
the impact of these or any other factors on our stock price.
Natural disasters, including earthquakes, fires and floods, could severely damage or interrupt our systems
and operations and result in an adverse effect on our business, financial condition or results of operations.
Natural disasters such as fire, flood, earthquake, tornado, power loss, virus, telecommunications failure,
break-in or similar event could severely damage or interrupt our systems and operations, result in loss of data,
and/or delay or impair our ability to service our members and providers. We have in place a disaster recovery
plan which is intended to provide us with the ability to maintain fully redundant systems for our operations in the
event of a natural disaster utilizing various alternate sites provided by a national disaster recovery vendor.
However, there can be no assurance that such adverse effects will not occur in the event of a disaster. Any such
disaster or similar event could have a material adverse effect on our business, financial condition and results of
operations.
30