Aetna 2014 Annual Report Download - page 78

Annual Report- Page 72
our ratings, should they occur, could adversely affect our reputation, business, cash flows, financial condition and
operating results.
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 condition.
The global capital markets, including credit markets, continue to experience volatility and uncertainty. 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 United States. As a result, the income we earn from our
investment portfolio is largely driven by the level of interest rates in the United States, and to a lesser extent the
international financial markets; and volatility, uncertainty and/or disruptions in the global capital markets,
particularly the United States credit markets, and governments’ monetary policy, particularly United States
monetary policy, can significantly and adversely affect the value of our investment portfolio, our operating results
and/or our financial condition by:
• Significantly reducing the value and/or liquidity 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;
• Reducing the fair values of our investments if interest rates rise;
• Causing non-performance or defaults on their obligations to us by third parties, including customers, issuers
of securities in our investment portfolio, mortgage borrowers and/or reinsurance and/or derivatives
counterparties;
• 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; and
• 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 and counterparty exposures, a failure to adequately do so could adversely affect our net income
and our financial condition and, in extreme circumstances, our cash flows.
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.