Aetna 2006 Annual Report Download - page 86

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Page 84
20. Discontinued Products
We discontinued the sale of our fully guaranteed large case pension products (single-premium annuities (“SPAs”)
and guaranteed investment contracts (“GICs”)) in 1993. Under our accounting for these discontinued products, a
reserve for anticipated future losses from these products was established and we review it quarterly. As long as
the reserve continues to represent our then best estimate of expected future losses, results of operations of the
discontinued products, including net realized capital gains and losses, are credited/charged to the reserve and do
not affect our results of operations. Our results of operations would be adversely affected to the extent that future
losses on the products are greater than anticipated and positively affected to the extent future losses are less than
anticipated. The current reserve reflects our best estimate of anticipated future losses.
The factors contributing to changes in the reserve for anticipated future losses are: operating income or loss
(including mortality and retirement gains or losses) and realized capital gains or losses. Operating income or loss
is equal to revenue less expenses. Realized capital gains or losses reflect the excess (deficit) of sales price over
(below) the carrying value of assets sold and any other-than-temporary impairments. Mortality gains or losses
reflect the mortality and retirement experience related to SPAs. A mortality gain (loss) occurs when an annuitant
or a beneficiary dies sooner (later) than expected. A retirement gain (loss) occurs when an annuitant retires later
(earlier) than expected.
At the time of discontinuance, a receivable from Large Case Pensions’ continuing products equivalent to the net
present value of the anticipated cash flow shortfalls was established for the discontinued products. Interest on the
receivable is accrued at the discount rate that was used to calculate the reserve. The offsetting payable, on which
interest is similarly accrued, is reflected in continuing products. Interest on the payable generally offsets the
investment income on the assets available to fund the shortfall. At December 31, 2006, the receivable from
continuing products, net of related deferred taxes payable of $138 million on the accrued interest income, was
$315 million. At December 31, 2005, the receivable from continuing products, net of the related deferred taxes
payable of $127 million on the accrued interest income, was $372 million. These amounts were eliminated in
consolidation.