Aetna 2015 Annual Report Download - page 143

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Annual Report- Page 137
The combined statutory net income for the years ended and combined statutory capital and surplus at
December 31, 2015, 2014 and 2013 for our insurance and HMO subsidiaries were as follows:
(Millions) 2015 2014 2013
Statutory net income $ 2,186.2 $ 2,126.6 $ 1,750.1
Statutory capital and surplus 9,883.4 9,405.8 8,431.0
18. Reinsurance
Effective October 1, 1998, we reinsured certain policyholder liabilities and obligations related to individual life
insurance (in conjunction with our former parent company’s sale of this business). These transactions were in the
form of indemnity reinsurance arrangements, whereby the assuming companies contractually assumed certain
policyholder liabilities and obligations, although we remain directly obligated to policyholders. The liability
related to our obligation is recorded in future policy benefits and policyholders’ funds on our balance sheets.
Assets related to and supporting these policies were transferred to the assuming companies, and we recorded a
reinsurance recoverable.
There is not a material difference between premiums on a written basis versus an earned basis. Reinsurance
recoveries were $634 million, $189 million and $110 million in 2015, 2014 and 2013, respectively. Reinsurance
recoverables related to these obligations were approximately $1.2 billion at both December 31, 2015 and 2014 and
$793 million at December 31, 2013, of which $681 million was associated with two reinsurers at December 31,
2015. Additionally, at December 31, 2015 and 2014, we recorded reinsurance recoverables under Health Care
Reform’s temporary three-year reinsurance program of $394 million and $338 million, respectively. Refer to Note 2
beginning on page 88 for additional information about Health Care Reform’s temporary three-year reinsurance
program, which expires at the end of 2016.
Effective January 1, 2012, we renewed our agreement with an unrelated insurer to reinsure fifty percent of our
group term life and group accidental death and dismemberment insurance policies. During 2011 and 2010, we
entered into agreements to reinsure certain Health Care insurance policies. We entered into these contracts to
reduce the risk of catastrophic loss which in turn reduces our capital and surplus requirements. These contracts did
not qualify for reinsurance accounting under GAAP, and consequently are accounted for using deposit accounting.
In May 2013, we entered into two agreements with unrelated reinsurers to reinsure a portion of our Medicare
Advantage business and a portion of our group Commercial Insured Health Care business, respectively. These
contracts did not qualify for reinsurance accounting under GAAP, and consequently are accounted for using deposit
accounting.
In 2008, as a result of the liquidation proceedings of Lehman Re, a subsidiary of Lehman Brothers Holdings Inc.,
we recorded an allowance against our reinsurance recoverable from Lehman Re of $27.4 million ($42.2 million
pretax). This reinsurance was placed in 1999 and was on a closed book of paid-up group whole life insurance
business. In September 2008, we took possession of assets supporting the reinsurance recoverable, which
previously were held as collateral in a trust. In 2013, we sold our claim against Lehman Re to an unrelated third
party (including the reinsurance recoverable) and terminated the reinsurance arrangement. Upon the sale of the
claim and termination of the arrangement, we reversed the related allowance thereby reducing other general and
administrative expenses by $27.4 million ($42.2 million pretax) and recognized a $4.7 million ($7.2 million pretax)
gain on the sale in fees and other revenue.
Effective 2015, 2014 and 2013, we entered into certain three to five-year reinsurance agreements with unrelated
reinsurers. At December 31, 2015, 2014 and 2013, these agreements and similar agreements that have expired
allowed us to reduce our required capital and provided an aggregate of $550 million, $500 million and $690
million, respectively, of collateralized excess of loss reinsurance coverage on a portion of our group Commercial
Insured Health Care business.