Aetna 2008 Annual Report Download - page 86

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The following is a reconciliation of reportable segment revenues to total revenues included in our statements of
income in 2008, 2007 and 2006:
(Millions) 2008 2007 2006
Revenue from external customers 30,696.6$ 26,523.4$ 23,948.8$
Net investment income 910.0 1,149.9 1,164.7
Net realized capital (losses) gains (655.9) (73.7) 32.2
Total revenue 30,950.7$ 27,599.6$ 25,145.7$
Long-lived assets, principally within the U.S., were $467 million and $364 million at December 31, 2008 and 2007,
respectively.
20. Discontinued Products
Prior to 1993, we sold single-premium annuities (“SPAs”) and guaranteed investment contracts (“GICs”), primarily
to employer sponsored pension plans. In 1993, we discontinued selling these products, and now we refer to these
products as discontinued products.
We discontinued selling these products because they were generating losses for us and we projected that they would
continue to generate future losses over their life (which is greater than 30 years), so we established a reserve for
anticipated future losses at the time of discontinuance. This reserve represents the present value (at the risk-free
rate of return at the time of discontinuance, consistent with the duration of the liabilities) of the difference between
the expected cash flows from the assets supporting these products and the cash flows expected to be required to
meet the obligations of the outstanding contracts. Because we projected anticipated cash shortfalls in our
discontinued products, at the time of discontinuance we established a receivable from Large Case Pensions’
continuing products (which is eliminated in consolidation).
Key assumptions in setting this reserve include future investment results, payments to retirees, mortality and
retirement rates and the cost of asset management and customer service. In 1997, we began the use of a bond
default assumption to reflect historical default experience. In 1995, we modified the mortality tables used to reflect
a more up-to-date 1994 Uninsured Pensioner’ s Mortality table. Other than these changes, since 1993, there have
been no significant changes to the assumptions underlying the reserve.
We review the adequacy of this reserve quarterly based on actual experience. As long as our expectation of future
losses remains consistent with prior projections, the results of the discontinued products are applied to the reserve
and do not affect net income. However, if actual or expected future losses are greater than we currently estimate,
we may have to increase the reserve, which could adversely impact net income. If actual or expected future losses
are less than we currently estimate, we may have to decrease the reserve, which could favorably impact net income.
The reserve for anticipated future losses is included in future policy benefits on our balance sheets.
As noted above, we review the adequacy of the reserve quarterly and as a result, we released $44 million, $64
million and $115 million in 2008, 2007 and 2006, respectively. The 2008 reserve reduction was primarily due to
favorable mortality and retirement experience compared to assumptions we previously made in estimating the
reserve. The 2007 and 2006 reserve reductions were primarily due to favorable investment performance and
favorable mortality and retirement experience compared to assumptions we previously made in estimating the
reserve. The current reserve reflects management’ s best estimate of anticipated future losses.
The activity in the reserve for anticipated future losses on discontinued products in 2008, 2007 and 2006 was
as follows (pretax):
(Millions) 2008 2007 2006
Reserve, beginning of period 1,052.3$ 1,061.1$ 1,052.2$
Operating (loss) income (93.4) 28.5 85.7
Net realized capital (losses) gains (124.7) 27.0 38.6
Reserve reduction (43.8) (64.3) (115.4)
Reserve, end of period 790.4$ 1,052.3$ 1,061.1$
Annual Report - Page 81