Aetna 2013 Annual Report Download - page 20

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Annual Report- Page 14
The table presented below reconciles net income attributable to Aetna to operating earnings:
(Millions) 2013 2012 2011
Net income attributable to Aetna $ 68.8 $ 17.4 $ 21.8
Net realized capital losses (gains), net of tax 8.3 .4 (1.1)
Reduction of reserve for anticipated future losses on discontinued products, net of tax (1) (55.9) — —
Operating earnings $ 21.2 $ 17.8 $ 20.7
(1) In 1993, we discontinued the sale of our fully guaranteed large case pension products and established a reserve for anticipated future
losses on these products, which we review quarterly. In 2013, we reduced the reserve for anticipated future losses on discontinued
products by $55.9 million ($86.0 million pretax). We believe excluding any changes in the reserve for anticipated future losses on
discontinued products from operating earnings provides more useful information as to our continuing products and is consistent with the
treatment of the operating results of these discontinued products, which are credited or charged to the reserve and do not affect our
operating results. Refer to Note 20 of Notes to Consolidated Financial Statements beginning on page 137 for additional information on
the reduction of the reserve for anticipated future losses on discontinued products.
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); so we
established a reserve for anticipated future losses at the time of discontinuance. As of December 31, 2013, our
remaining GIC liability was not material. We provide additional information on the reserve for anticipated future
losses, including key assumptions and other important information, in Note 20 of Notes to Consolidated Financial
Statements beginning on page 137.
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 anticipated future losses on discontinued products, as long as our
expected future losses remain consistent with prior projections, the results of our discontinued products are applied
against the reserve and do not impact net income attributable to Aetna 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 attributable to Aetna. If actual or expected future losses are less than we currently estimate, we
may decrease the reserve, which could favorably impact net income attributable to Aetna. In those cases, we
disclose such adjustment separately in the operating summary. Management reviews the adequacy of the
discontinued products reserve quarterly. As a result of this review, $55.9 million ($86.0 million pretax) of the
reserve was released in the year ended December 31, 2013. This reserve release was primarily due to favorable
investment performance as well as favorable retirement experience compared to assumptions we previously made in
estimating the reserve. The current reserve 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 for the last three years (pretax)
was:
(Millions) 2013 2012 2011
Reserve, beginning of period $ 978.5 $ 896.3 $ 884.8
Operating income (loss) 1.0 (2.0) (16.9)
Net realized capital gains 86.0 84.2 28.4
Reduction of reserve for anticipated future losses on discontinued products (86.0) — —
Reserve, end of period $ 979.5 $ 978.5 $ 896.3