Aetna 2008 Annual Report Download - page 80

The changes in the balances of Level 3 Separate Account financial assets for 2008 were as follows:
Debt
Securities Real Estate Total
Beginning balance 291.2$ 12,541.8$ 12,833.0$
(16.4) (45.6) (62.0)
Purchases, sales and maturities 105.2 (88.7) 16.5
Net transfers out of Level 3
(1)
(14.9) - (14.9)
Transfers of Separate Account assets
(2)
- (12,320.8) (12,320.8)
Ending Balance 365.1$ 86.7$ 451.8$
(Millions)
Total losses accrued to contract holders
For financial assets that are transferred into Level 3, we use the fair value of the assets at the end of the reporting period. For financial
assets that are transferred out of Level 3, we use the fair value of the assets at the beginning of the reporting period.
(1)
(2) During 2008, approximately $12.4 billion of our Separate Account assets were transitioned out of our business. Refer to Note 2
beginning on page 48 for additional information concerning this transfer.
16. Dividend Restrictions and Statutory Surplus
Our business operations are conducted through subsidiaries that principally consist of HMOs and insurance
companies. In addition to general state law restrictions on payments of dividends and other distributions to
shareholders applicable to all corporations, HMOs and insurance companies are subject to further regulations that,
among other things, may require such companies to maintain certain levels of equity, and restrict the amount of
dividends and other distributions that may be paid to their parent corporations. The additional regulations
applicable to our HMO and insurance company subsidiaries are not expected to affect our ability to service our
debt or to pay dividends.
Under regulatory requirements, the amount of dividends that may be paid to Aetna by our insurance and HMO
subsidiaries without prior approval by regulatory authorities as calculated at December 31, 2008 is approximately
$1.6 billion in the aggregate. There are no such restrictions on distributions from Aetna to its shareholders.
The combined statutory net income for the years ended and combined statutory capital and surplus at December 31,
2008, 2007 and 2006 for our insurance and HMO subsidiaries, were as follows:
(Millions) 2008 2007 2006
Statutory net income 1,815.8$ 1,901.9$ 1,500.9$
Statutory capital and surplus 5,665.6 5,316.0 4,704.0
17. Reinsurance
Effective November 1, 1999, we reinsured certain policyholder liabilities and obligations related to paid-up group
whole life insurance. Effective October 1, 1998, we reinsured certain policyholder liabilities and obligations related
to individual life insurance (in conjunction with our former parent company’ s sale of this business). These
transactions were in the form of indemnity reinsurance arrangements, whereby the assuming companies
contractually assumed certain policyholder liabilities and obligations, although we remain directly obligated to
policyholders. The liability related to our obligation is recorded in future policy benefits and policyholders’ funds
on our balance sheets. Assets related to and supporting these policies were transferred to the assuming companies,
and we recorded a reinsurance recoverable. Reinsurance recoverables related to these obligations were
approximately $1.0 billion at December 31, 2008 and $1.1 billion at both December 31, 2007 and 2006.
In 2008, we recorded an allowance against our reinsurance recoverable from Lehman Re Ltd. (“Lehman Re”) of $42
million pretax in operating expenses. The reinsurance recoverable results from the 1999 transaction as described
above. In September 2008, we took possession of assets supporting the reinsurance recoverable, which previously
were held as collateral in a trust. In September 2008, Lehman Re commenced proceedings in Bermuda to liquidate
itself. We intend to pursue our claims in Lehman Re’ s liquidation proceedings. We believe our reinsurance
recoverables supporting all of these reinsurance obligations are adequate at December 31, 2008.
Annual Report - Page 75