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Statutory Information and Restrictions

12 Months Ended

Dec. 31, 2012

Reinsurance and Catastrophes and Statutory Surplus and Subsidiary Dividend Restrictions [Abstract]

Statutory Surplus and Subsidiary Dividend Restrictions

NOTE 8 - Statutory Information and Restrictions

The insurance departments of various states in which the insurance subsidiaries of HMEC are domiciled recognize as net income and surplus those amounts determined in conformity with statutory accounting principles prescribed or permitted by the insurance departments, which differ in certain respects from GAAP.

Reconciliations of statutory capital and surplus and net income, as determined using statutory accounting principles, to the amounts included in the accompanying consolidated financial statements are as follows:


	December 31,
	2012			2011
				As Adjusted

Statutory capital and surplus of insurance subsidiaries	$	754,153		$	711,983
Increase (decrease) due to:
Deferred policy acquisition costs		196,885			216,456
Difference in policyholder reserves		67,582			58,517
Goodwill		47,396			47,396
Liability for postretirement benefits other than pensions		(2,862	)		(3,326	)
Investment fair value adjustments on fixed maturities		651,071			439,944
Difference in investment reserves		101,276			84,519
Federal income tax liability		(317,875	)		(247,019	)
Net funded status of pension and other postretirement benefit obligations		(23,862	)		(25,137	)
Non-admitted assets and other, net		10,660			10,831
Shareholders’ equity (deficit) of parent company and non-insurance subsidiaries		(812	)		(1,067	)
Parent company short-term and long-term debt		(237,809	)		(237,744	)

Shareholders’ equity as reported herein	$	1,245,803		$	1,055,353


	Year Ended December 31,
	2012			2011			2010

				As Adjusted			As Adjusted
Statutory net income of insurance subsidiaries	$	93,299		$	63,986		$	77,235
Net loss of non-insurance companies		(4,726	)		(10,164	)		(4,211	)
Interest expense		(14,249	)		(14,007	)		(13,953	)
Tax benefit of interest expense and other parent company current tax adjustments		9,308			4,603			5,411

Combined net income		83,632			44,418			64,482
Increase (decrease) due to:
Deferred policy acquisition costs		16,595			8,989			11,557
Policyholder benefits		15,574			14,428			13,024
Federal income tax expense		(19,843	)		(6,639	)		(17,595	)
Investment reserves		14,021			9,903			16,167
Other adjustments, net		(6,113	)		(593	)		(7,504	)

Net income as reported herein	$	103,866		$	70,506		$	80,131

HMEC has principal insurance subsidiaries domiciled in Illinois and Texas. The statutory financial statements of these subsidiaries are prepared in accordance with accounting principles prescribed or permitted by the Illinois Department of Insurance and the Texas Department of Insurance, as applicable. Prescribed statutory accounting principles include 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 adopted risk-based capital guidelines to evaluate the adequacy of statutory capital and surplus in relation to risks assumed in investments, reserving policies, and volume and types of insurance business written. Based on current guidelines, the risk-based capital statutory requirements are not expected to have a negative regulatory impact on HMEC’s insurance subsidiaries. At December 31, 2012 and 2011, the minimum statutory-basis capital and surplus required to be maintained by HMEC’s insurance subsidiaries was $117,684 and $107,740, respectively. At December 31, 2012 and 2011, statutory capital and surplus of each of the Company’s insurance subsidiaries was above required levels. The restricted net assets of HMEC’s insurance subsidiaries were $18,565 and $18,779 as of December 31, 2012 and 2011, respectively.

HMEC relies largely on dividends from its insurance subsidiaries to meet its obligations for payment of principal and interest on debt, dividends to shareholders and parent company operating expenses, including tax payments pursuant to tax sharing agreements. Payments for share repurchase programs also have this dependency. HMEC’s insurance subsidiaries are subject to various regulatory restrictions which limit the amount of annual dividends or other distributions, including loans or cash advances, available to HMEC without prior approval of the insurance regulatory authorities. As a result, HMEC may not be able to receive dividends from such subsidiaries at times and in amounts necessary to pay desired dividends to shareholders. The aggregate amount of dividends that may be paid in 2013 from all of HMEC’s insurance subsidiaries without prior regulatory approval is approximately $84,000.

As disclosed in the reconciliation of the statutory capital and surplus of insurance subsidiaries to the consolidated GAAP shareholders’ equity, the insurance subsidiaries have statutory capital and surplus of $754,153 as of December 31, 2012, which is subject to regulatory restrictions. The parent company equity is not restricted. At December 31, 2012, HMEC had $29,554 of liquid assets, comprised of investments and cash, which could be used to fund debt interest, general corporate obligations, as well as dividend payments to shareholders. If necessary, HMEC also has other potential sources of liquidity that could provide for additional funding to meet corporate obligations or pay shareholder dividends, which include a revolving line of credit, as well as issuances of various securities.

At the time of this Annual Report on Form 10-K and during each of the years in the three year period ended December 31, 2012, the Company had no financial reinsurance agreements in effect.