Aetna 2012 Annual Report Download - page 129

Annual Report- Page 123
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 at December 31, 2012, the amount of dividends that may be paid by our insurance
and HMO subsidiaries without prior approval by regulatory authorities is approximately $1.6 billion in the
aggregate. There are no such restrictions on distributions from Aetna to its shareholders. Prior to completion of the
proposed Coventry acquisition, Aetna is not permitted to declare, set aside or pay any dividend or other distribution
other than a regular cash dividend to shareholders in the ordinary course of business consistent with past practice.
During 2012, our insurance and HMO subsidiaries paid approximately $2.0 billion of dividends to the Company.
The combined statutory net income for the years ended and combined statutory capital and surplus at
December 31, 2012, 2011 and 2010 for our insurance and HMO subsidiaries were as follows:
(Millions) 2012 2011 2010
Statutory net income $ 1,813.7 $ 1,871.7 $ 1,779.7
Statutory capital and surplus 6,372.8 5,938.6 6,179.2
17. Reinsurance
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.
There is not a material difference between premiums on a written basis versus an earned basis. Reinsurance
recoveries were approximately $98 million, $83 million and $66 million in 2012, 2011 and 2010, respectively.
Reinsurance recoverables related to these obligations were $919 million at December 31, 2012, and approximately
$1.0 billion at both December 31, 2011 and 2010. At December 31, 2012, reinsurance recoverables with a carrying
value of approximately $869 million were associated with three reinsurers.
Effective January 1, 2012, we renewed our agreement with an unrelated insurer to reinsure fifty percent of our
group term life and group accidental death and dismemberment insurance policies. During 2011 and 2010, we
entered into agreements to reinsure certain Health Care insurance policies. We entered into these contracts to
reduce the risk of catastrophic loss which in turn reduces our capital and surplus requirements. These contracts did
not qualify for reinsurance accounting under GAAP, and consequently are accounted for using deposit accounting.
Effective 2012 and 2011, we entered into certain three-year reinsurance agreements with unrelated insurers. At
December 31, 2012 and 2011, these agreements allowed us to reduce our required capital and provide an aggregate
of $540 million and $390 million, respectively, of collateralized excess of loss reinsurance coverage on a portion of
Aetna’s group Commercial Insured Health Care business.