Health Net 2013 Annual Report Download - page 98

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We assumed a portfolio disposition period of 30 days with a confidence level of 95% for the computation of VAR
for 2013. The computation further assumes that the distribution of returns is normal. Based on such methodology and
assumptions, the computed VAR was approximately $14.6 million as of December 31, 2013.
Our calculated VAR exposure represents an estimate of reasonably possible net losses that could be recognized on
our investment portfolios assuming hypothetical movements in future market rates and are not necessarily indicative of
actual results which may occur. It does not represent the maximum possible loss nor any expected loss that may occur,
since actual future gains and losses will differ from those estimated, based upon actual fluctuations in market rates,
operating exposures, and the timing thereof, and changes in our investment portfolios during the year.
Except for those securities held by trustees or regulatory agencies (see Note 2 to our consolidated financial
statements), all of our investment securities are designated as “available-for-sale” assets. As such, they are reflected at
their estimated fair value, with the difference between cost and estimated fair value reflected in accumulated other
comprehensive income, net of tax, a component of Stockholders’ Equity (see Note 4 to our consolidated financial
statements). All of our investment securities are fixed income securities. Approximately 24% of our available-for-sale
investment securities are asset-backed securities ("ABS")/mortgage-backed securities ("MBS"). Approximately 53% of
the ABS/MBS are agency securities. Therefore, we believe that our exposure to credit-related market value risk for our
MBS is limited. Generally, in a rising interest rate environment, the estimated fair value of fixed income securities
would be expected to decrease; conversely, in a decreasing interest rate environment, the estimated fair value of fixed
income securities would be expected to increase. However, these securities may be negatively impacted by illiquidity in
the market. The recent disruptions in the credit markets have negatively impacted the liquidity of investments.
However, such disruptions did not have a material impact to the liquidity of our investments. A worsening of credit
market function or sustained market downturns could have negative effects on the liquidity and value of our investment
assets.
Borrowings under our revolving credit facility, which totaled $100.0 million as of December 31, 2013, are subject
to variable interest rates. For additional information regarding our revolving credit facility, see “—Management’s
Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.” Our
floating rate borrowings, if any, are presumed to have equal book and fair values because the interest rates paid on these
borrowings, if any, are based on prevailing market rates.
The fair value of our fixed rate borrowing, which consists of only our Senior Notes, as of December 31, 2013 was
approximately $434.5 million, which was based on quoted market prices. Where quoted market prices were not readily
available, fair values were estimated using valuation methodologies based on available and observable market
information. Such valuation methodologies include reviewing the value ascribed to the most recent financing,
comparing the security with securities of publicly traded companies in a similar line of business, and reviewing the
underlying financial performance including estimating discounted cash flows. The following table presents the expected
cash outflows relating to market risk sensitive debt obligations as of December 31, 2013. These cash outflows include
expected principal and interest payments consistent with the terms of the outstanding debt as of December 31, 2013.
2014 2015 2016 2017 2018 Thereafter Total
(Amounts in millions)
Fixed-rate borrowing:
Principal............................. $ — $ — $ — $ 400.0 $ — $ — $ 400.0
Interest................................ 25.5 25.5 25.5 10.7 — — 87.2
Cash outflow on fixed-rate
borrowing................................ $ 25.5 $ 25.5 $ 25.5 $ 410.7 $ — $ — $ 487.2
Variable-rate borrowing:
Principal............................. $ — $ — $100.0 $ — $ — $ — $ 100.0
Interest................................ 1.7 2.2 2.5 — — — 6.4
Cash outflow on variable-rate
borrowing................................ $ 1.7 $ 2.2 $102.5 $ — $ — $ — $ 106.4
Total cash outflow on
borrowings.............................. $ 27.2 $ 27.7 $128.0 $ 410.7 $ — $ — $ 593.6