Health Net 2015 Annual Report Download - page 214

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
F-53
jurisdictions and prepare statutory financial statements in accordance with accounting practices prescribed or permitted
by the respective jurisdictions' insurance regulators. Prescribed statutory accounting practices are set forth in a variety
of publications of the National Association of Insurance Commissioners ("NAIC") as well as state laws, regulations and
general administrative rules. The NAIC has developed a codified version of the statutory accounting principles,
designed to foster more consistency among the states for accounting guidelines and reporting.
Statutory reporting varies in certain respects from GAAP. Typical differences of statutory reporting as compared
to GAAP reporting are the reporting of fixed maturity securities at amortized cost, not recognizing certain assets
including those that are non-admitted for statutory purposes and certain reporting classifications. Statutory-basis capital
and surplus of our health plan subsidiaries was $184.3 million and $188.5 million at December 31, 2015 and 2014,
respectively. Statutory-basis net (loss) income of our health plan subsidiaries was approximately $(75.3) million,
$(130.5) million and $(158,000) for the years ended December 31, 2015, 2014 and 2013, respectively.
Our subsidiaries that are regulated by DMHC report their accounts in conformity with GAAP. GAAP equity of
our DMHC regulated subsidiaries was $1.6 billion and $1.3 billion at December 31, 2015 and 2014, respectively.
GAAP net income of our DMHC regulated subsidiaries was $343.7 million, $202.3 million and $140.7 million for the
years ended December 31, 2015, 2014 and 2013, respectively. We are a holding company and, therefore, our ability to
pay dividends depends on distributions received from our subsidiaries, which are subject to regulatory capital
requirements and other requirements of state law and regulation. As a result of these regulatory capital requirements and
other requirements of state law and regulation, certain regulated subsidiaries are subject to restrictions on their ability to
make dividend payments, loans or other transfers of cash to us, or their ability to do so is conditioned upon prior
regulatory approval or non-objection. Such restrictions, unless amended or waived, limit the use of any cash generated
by these subsidiaries to pay our obligations or make dividends. The maximum amount of dividends that can be paid by
the regulated subsidiaries to us without prior approval of the state regulatory authorities is subject to restrictions relating
to statutory surplus, statutory income and tangible net equity. See Note 6 for further discussion of restrictions on our
ability to pay dividends to our stockholders that are contained in our revolving credit facility.
Our regulated subsidiaries had estimated aggregate statutory capital and surplus or net worth of approximately
$1.8 billion as of December 31, 2015. The estimated statutory capital and surplus necessary to satisfy regulatory
requirements was approximately $467.3 million in the aggregate. As of December 31, 2015, the amount of capital and
surplus or net worth that was unavailable for the payment of dividends or return of capital to us was approximately
$467.3 million in the aggregate. As of December 31, 2015, the amount of restricted net assets of our regulated
subsidiaries was approximately $135.8 million in the aggregate.
Note 13—Commitments and Contingencies
Legal Proceedings
Overview
We record reserves and accrue costs for certain legal proceedings and regulatory matters to the extent that we
determine an unfavorable outcome is probable and the amount of the loss can be reasonably estimated. While such
reserves and accrued costs reflect our best estimate of the probable loss for such matters, our recorded amounts may
differ materially from the actual amount of any such losses. In some cases, no estimate of the possible loss or range of
loss in excess of amounts accrued, if any, can be made because of the inherently unpredictable nature of legal and
regulatory proceedings, which may be exacerbated by various factors, including but not limited to that they may
involve indeterminate claims for monetary damages or may involve fines, penalties or punitive damages; present novel
legal theories or legal uncertainties; involve disputed facts; represent a shift in regulatory policy; involve a large
number of parties, claimants or regulatory bodies; are in the early stages of the proceedings; involve a number of
separate proceedings, each with a wide range of potential outcomes; or result in a change of business practices. Further,
there may be various levels of judicial review available to the Company in connection with any such proceeding in the
event damages are awarded or a fine or penalty is assessed. As of the date of this report, amounts accrued for legal
proceedings and regulatory matters were not material. However, it is possible that in a particular quarter or annual
period our financial condition, results of operations, cash flow and/or liquidity could be materially adversely affected by
an ultimate unfavorable resolution of or development in legal and/or regulatory proceedings depending, in part, upon