Aetna 2012 Annual Report Download - page 137

Download and view the complete annual report

Please find page 137 of the 2012 Aetna annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 152

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152

Annual Report- Page 131
The following is a reconciliation of revenue from external customers to total revenues included in our statements of
income in 2012, 2011 and 2010:
(Millions) 2012 2011 2010
Revenue from external customers $ 35,568.9 $ 32,681.1 $ 32,962.2
Net investment income 918.3 930.8 1,056.3
Net realized capital gains 108.7 167.9 227.5
Total revenue $ 36,595.9 $ 33,779.8 $ 34,246.0
Long-lived assets, which are principally within the U.S., were $535 million and $557 million at December 31, 2012
and 2011, 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 to Large Case Pensions
customers, 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 losses over their life (which is currently greater than 30 years for SPAs and less than 2
years for GICs); 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.
Key assumptions in setting the reserve for anticipated losses include future investment results, payments to retirees,
mortality and retirement rates and the cost of asset management and customer service. In 2012, we modified the
mortality tables used in order to reflect a more up-to-date 2000 Retired Pensioner’s Mortality table. The mortality
tables were previously modified in 1995, in order to reflect a more up-to-date 1994 Uninsured Pensioner's Mortality
table. In 1997, we began the use of a bond default assumption to reflect historical default experience. 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 against the
reserve and do not impact net income. If actual or expected future losses are greater than we currently estimate, we
may increase the reserve, which could adversely impact net income. If actual or expected future losses are less than
we currently estimate, we may decrease the reserve, which could favorably impact net income. As a result of this
review, the reserve at each of December 31, 2012 and December 31, 2011 reflects management's best estimate of
anticipated future losses, and is included in future policy benefits on our balance sheet.
The activity in the reserve for anticipated future losses on discontinued products in 2012, 2011 and 2010 was as
follows (pretax):
(Millions) 2012 2011 2010
Reserve, beginning of period $ 896.3 $ 884.8 $ 789.2
Operating loss (2.0) (16.9) (15.4)
Net realized capital gains 84.2 28.4 111.0
Reserve, end of period $ 978.5 $ 896.3 $ 884.8