Aetna 2008 Annual Report Download - page 39

Annual Report - Page 34
to a slowing global economy and significantly diminished expectations for the global economy, particularly the U.S.
economy, and this is expected to continue going forward. Our customers, medical providers and the other
companies with which we do business are generally headquartered in the U.S.; however many of our largest
customers are global companies with operations around the world. As a result, adverse economic conditions in the
U.S. and abroad can significantly and adversely affect our businesses and profitability by:
• Leading to reductions in force by our customers, which would reduce both our revenues and the number of
members we serve.
• Leading our customers and potential customers, particularly those with the most members, and state and
local governments, to force us to compete more vigorously on factors such as price and service to retain or
obtain their business.
• Leading our customers and potential customers to purchase fewer products and/or products that generate less
profit for us than the ones they currently purchase or otherwise would have purchased.
• Leading our customers and potential customers, particularly smaller employers and individuals, to forego
obtaining or renewing their health and other coverage with us.
• Causing unanticipated increases and volatility in utilization of medical and other covered services by our
members and/or increases in medical unit costs, each of which would increase our costs and limit our ability
to accurately detect, forecast, manage and reserve for our and our self-insured customers’ medical cost
trends and future health care costs.
• Increasing our medical unit costs as hospitals and other providers attempt to maintain revenue levels in their
efforts to adjust to their own economic challenges.
• Causing, over time, inflation that could cause interest rates to increase and thereby increase our interest
expense and reduce our operating results, as well as decrease the value of the debt securities we hold in our
investment portfolio, which would reduce our operating results and/or financial position.
• Weakening the ability or perceived ability of the issuers and/or guarantors of the debt or other securities we
hold in our investment portfolio to perform on their obligations to us, which could result in defaults in those
securities or reduce the value of those securities and create net realized capital losses for us that reduce our
operating results.
• Weakening the ability of our customers, medical providers and the other companies with which we do
business to perform their obligations to us or causing them not to perform those obligations, either of which
could reduce our operating results.
Adverse conditions in the U.S. and global capital markets can significantly and adversely affect the value of
our investments in debt and equity securities, mortgage loans, alternative investments and other investments,
our profitability and/or our financial position, and we do not expect these conditions to improve in the near
future.
The global capital markets, including credit markets, have experienced extreme volatility, uncertainty and disruption
during 2008 and the beginning of 2009. As an insurer, we have a substantial investment portfolio that supports our
policy liabilities and is comprised particularly of debt securities of issuers located in the U.S. As a result, the income
we earn from our investment portfolio is largely driven by the level of interest rates in the U.S., and to a lesser extent
the overseas, financial markets, and volatility, uncertainty and/or disruptions in the global capital markets,
particularly the U.S. credit markets, and governments’ monetary policy, particularly the easing of U.S. monetary
policy, can significantly and adversely affect the value of our investment portfolio, our profitability and/or our
financial position by:
• Significantly reducing the value of the debt securities we hold in our investment portfolio, and creating net
realized capital losses that reduces our operating results and/or net unrealized capital losses that reduce our
shareholders’ equity.
• Reducing interest rates on high quality short-term debt securities and thereby materially reducing our net
investment income and operating results.
• Making it more difficult to value certain of our investment securities, for example if trading becomes less
frequent, which could lead to significant period-to-period changes in our estimates of the fair values of those
securities and cause period-to-period volatility in our operating results and shareholders’ equity.
• Reducing our ability to issue short-term debt securities at attractive interest rates, thereby increasing our
interest expense and decreasing our operating results.
• Reducing our ability to issue other securities.