This MD&A should be read in conjunction with our audited consolidated financial statements as of and for the year ended December 31, 2011, included in this Form 10-K.
Local Group consists of those employer customers with less than 5% of eligible employees located outside of the headquarter state, as well as customers with more than 5% of eligible employees located outside of the headquarter state with up to 5,000 eligible employees. In addition, Local Group includes UniCare local group members. These groups are generally sold through brokers or consultants working with industry specialists from our in-house sales force. Local Group insurance premiums may be based on claims incurred by the group or sold on a self-insured basis. The customer’s buying decision is typically based upon the size and breadth of our networks, customer service, the quality of our medical management services, the administrative cost included in our quoted price, our financial stability, reputation and our ability to effectively service large complex accounts. Local Group accounted for 44.4%, 45.7% and 46.5% of our medical members at December 31, 2011, 2010 and 2009, respectively.
Investment income is recorded when earned. All securities sold resulting in investment gains and losses are recorded on the trade date. Realized gains and losses are determined on the basis of the cost or amortized cost of the specific securities sold.
Premium deficiencies are recognized when it is probable that expected claims and administrative expenses will exceed future premiums on existing medical insurance contracts without consideration of investment income. Determination of premium deficiencies for longer duration life and disability contracts includes consideration of investment income. For purposes of premium deficiencies, contracts are deemed to be either short or long duration and are grouped in a manner consistent with our method of acquiring, servicing and measuring the profitability of such contracts. Once established, premium deficiencies are released commensurate with actual claims experience over the remaining life of the contract. No premium deficiencies were established at December 31, 2011.
The 2009 restructuring activities were executed as a result of a strategic realignment to our corporate strategy. Activity related to these liabilities for the years ended December 31, 2011, 2010 and 2009, by segment, is as follows:
Other invested assets, current: Other invested assets, current include securities held in rabbi trusts that are classified as trading. Fair values are based on quoted market prices.
In addition to impairments for information technology assets related to our change in strategic focus in 2010, primarily in response to Health Care Reform as described in Note 4, “Restructuring Activities,” we experienced $54.8 of impairment during 2010 for information technology assets due to our decision to discontinue further use of these assets in the normal course of business.
As required by FASB guidance, we completed our annual impairment tests of existing goodwill and other intangible assets with indefinite lives during the fourth quarters of 2011, 2010 and 2009. The guidance also requires interim impairment testing to be performed when potential impairment indicators exist. These tests involve the use of estimates related to the fair value of goodwill and intangible assets with indefinite lives and require a significant degree of management judgment and the use of subjective assumptions. The fair values were estimated using the income and market value valuation methods, incorporating Level III internal estimates for inputs, including, but not limited to, revenue projections, income projections, cash flows and discount rates. The annual impairment tests are performed in the fourth quarter and, thus, are performed after the recognition of the impairment discussed in the following paragraph.
During 2011 and 2010, we incurred total settlement losses of $21.3 and $31.1, respectively, as lump-sum payments exceeded the service cost and interest cost components of net periodic benefit cost for certain of our plans.
We expect to utilize unused authorization remaining at December 31, 2011 over a multi-year period, subject to market and industry conditions.
Statutory-basis capital and surplus of our insurance and HMO subsidiaries and capital and surplus of our other regulated subsidiaries, excluding the DMHC regulated entities, was $7,681.5 and $8,089.0 at December 31, 2011 and 2010, respectively. Statutory-basis net income of our insurance and HMO subsidiaries and net income of our other regulated subsidiaries, excluding the DMHC regulated entities, was $2,402.5, $2,933.8 and $4,643,6 for 2011, 2010 and 2009, respectively. GAAP equity of the DMHC regulated entities was $1,304.2 and $1,266.9 at December 31, 2011 and 2010, respectively. GAAP net income of the DMHC regulated entities was $524.3, $414.4 and $450.8 for the years ended December 31, 2011, 2010 and 2009, respectively.