Aetna 2012 Annual Report Download - page 80

Annual Report- Page 74
experienced financial difficulties, including bankruptcy, which may subject us to increased costs and potential
health care benefits provider network disruptions, and in some cases cause us to incur duplicative claims expense.
Adverse conditions in the U.S. and global capital markets can significantly and adversely affect the value of
our investments in debt and equity securities, mortgage loans, alternative investments and other investments,
our operating results and/or our financial position.
The global capital markets, including credit markets, continue to experience volatility, uncertainty and disruption.
As an insurer, we have a substantial investment portfolio that supports our policy liabilities and surplus and is
comprised largely of debt securities of issuers located in the U.S. As a result, the income we earn from our
investment portfolio is largely driven by the level of interest rates in the U.S., and to a lesser extent the international
financial markets; and volatility, uncertainty and/or disruptions in the global capital markets, particularly the U.S.
credit markets, and governments' monetary policy, particularly U.S. monetary policy, can significantly and
adversely affect the value of our investment portfolio, our operating results and/or our financial position by:
• Significantly reducing the value of the debt securities we hold in our investment portfolio and creating
realized capital losses that reduce our operating results and/or unrealized capital losses that reduce our
shareholders' equity.
• Keeping interest rates low on high-quality short-term or medium-term debt securities (such as we have
experienced during recent years) and thereby materially reducing our net investment income and operating
results as the proceeds from securities in our investment portfolio that mature or are otherwise disposed of
continue to be reinvested in lower yielding securities.
• Making it more difficult to value certain of our investment securities, for example if trading becomes less
frequent, which could lead to significant period-to-period changes in our estimates of the fair values of
those securities and cause period-to-period volatility in our net income and shareholders' equity.
• Reducing our ability to issue short-term debt securities at attractive interest rates, thereby increasing our
interest expense and decreasing our operating results.
• Reducing our ability to issue other securities.
Although we seek, within guidelines we deem appropriate, to match the duration of our assets and liabilities and to
manage our credit exposures, a failure to adequately do so could adversely affect our net income and our financial
condition.
Our pension plan expenses are affected by general financial market conditions, interest rates and the
accuracy of actuarial estimates of future benefit costs.
We have pension plans that cover a large number of current employees and retirees. Even though our employees
stopped earning future pension service credits in the Aetna Pension Plan effective December 31, 2010, the Aetna
Pension Plan continues to operate. Therefore, unfavorable investment performance, interest rate changes or
changes in estimates of benefit costs, if significant, could adversely affect our operating results or financial
condition by significantly increasing our pension plan expense and obligations.
We also face other risks that could adversely affect our business, operating results or financial condition,
which include:
• Health care benefits provider fraud that is not prevented or detected and impacts our medical cost trends or
those of our self-insured customers. In addition, in an uncertain economic environment, whether in the
United States or abroad, our businesses may see increased fraudulent claims volume, which may lead to
additional costs because of an increase in disputed claims and litigation;
• Failure of our corporate governance policies or procedures, for example significant financial decisions
being made at an inappropriate level in our organization;
• Financial loss from inadequate insurance coverage due to self-insurance levels or unavailability of
insurance and reinsurance coverage for credit or other reasons; and
• Failure to protect our proprietary information.