Humana Faces Possible $62M Letdown From Lehman

It's not a huge disclosure -- not even particularly close to WellPoint's admission last week that it will have to write off more than $200 million in holdings of Fannie Mae and Freddie Mac securities. But Humana has joined the financial-crisis-ripple club with the admission that it might lose as much as $62 million on investments as a result of Lehman Brothers' collapse.

Along the way, it's also provided an interesting window into some of the techniques health-insurance companies use to manage their investments.

Of course, Humana didn't describe its potential losses quite so bluntly. The health-insurance giant noted in an SEC filing that it holds $25.7 million in Lehman "direct-debt securities" -- Lehman bonds, that is, as I confirmed with Humana's VP for investor relations, Regina Nethery -- which may or may not still hold some value depending on how Lehman's bankruptcy proceedings go. The company was quick to note that those bond holdings amount to less than a half percent of its $6.6 billion portfolio.

But there's more. Humana regularly lends out stocks and other securities to interested borrowers, a plan described in its most recent annual report on page 67. (Nethery wouldn't say for what purpose, although short sales would be an obvious conclusion.) The company takes in cash collateral when it lends out securities, and it just so happens that $29.2 million of those funds are currently invested with Lehman, most likely in the form of short-term paper, money-market funds or short-term notes, Nethery told me. She didn't have any comment on the prospects of seeing any of that money again, although my guess is that it will hinge on whether and how quickly Lehman's customers are reimbursed for their holdings with the investment bank. (Exactly how that would work remains a mystery to me for the moment.)

Finally, Humana also regularly engages in interest-rate swaps (described on page 82 of its recent annual report) intended to hedge against declines in the value of its bond portfolio. The company currently holds an "asset related to an interest-rate swap agreement" with Lehman worth $7.1 million. What's the recoverability of that asset? Anyone's guess.

For good measure, Humana also noted that it holds $4.1 million in debt securities of American International Group, the increasingly troubled-looking insurer. Just in case, you know.