Aetna 2012 Annual Report Download - page 19

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Annual Report- Page 13
Operating Summary
(Millions) 2012 2011 2010
Premiums $ 165.7 $ 161.0 $ 151.0
Group annuity contract conversion premium (1) 941.4 — —
Net investment income 327.0 326.6 362.4
Other revenue 10.9 11.0 11.2
Net realized capital (losses) gains (.5) 1.6 (1.2)
Total revenue 1,444.5 500.2 523.4
Current and future benefits 475.5 463.1 476.8
Benefit expense on group annuity contract conversion (1) 941.4 — —
General and administrative expenses 12.6 14.3 12.6
Total benefits and expenses 1,429.5 477.4 489.4
Income before income taxes 15.0 22.8 34.0
Income (benefits) taxes (2.4) 1.0 5.0
Net income $ 17.4 $ 21.8 $ 29.0
(1) In the fourth quarter of 2012, pursuant to a contractual right exercised by a contract holder, an existing group annuity contract converted
from a participating to a non-participating contract. Upon conversion, we recorded a $941.4 million one-time non-cash group annuity
conversion premium for this contract and a corresponding $941.4 million one-time non-cash benefit expense on group annuity
conversion for this contract.
The table presented below reconciles net income to operating earnings:
(Millions) 2012 2011 2010
Net income $ 17.4 $ 21.8 $ 29.0
Net realized capital losses (gains) .4 (1.1) (1.2)
Operating earnings $ 17.8 $ 20.7 $ 27.8
Operating earnings declined in each of the last two years, which is consistent with the run-off nature of this
segment.
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. We provide
additional information on this reserve, including key assumptions and other important information, in Note 20 of
Notes to Consolidated Financial Statements beginning on page 131.
The operating summary for Large Case Pensions above includes revenues and expenses related to our discontinued
products, with the exception of net realized capital gains and losses which are recorded as part of current and future
benefits. Since we established a reserve for future losses on discontinued products, as long as our expected future
losses remain consistent with prior projections, the results of the discontinued products are applied against the
reserve and do not impact net income for Large Case Pensions. 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. In those cases, we disclose such adjustment separately in the operating summary. Management reviews
the adequacy of the discontinued products reserve quarterly. The current reserve reflects management's best
estimate of anticipated future losses, and is included in future policy benefits on our balance sheet.