Cigna 2008 Annual Report Download - page 85

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Other Operations Segment
Segment Description
Other Operations consist of:
• non-leveraged and leveraged corporate–owned life insurance (COLI);
• deferred gains recognized from the 1998 sale of the individual life insurance and annuity business and the 2004 sale of the
retirement benefits business; and
• run-off settlement annuity business.
The COLI portion of this business has contributed the majority of the earnings in 2008, 2007 and 2006 for Other Operations. Federal
legislation enacted in 1996 affected certain policies sold by the COLI business by eliminating on a prospective basis the tax deduction
for policy loan interest for most leveraged COLI products. There have been no sales of this particular product since 1997. As a result
of an Internal Revenue Service initiative to settle tax disputes regarding leveraged products, some customers have surrendered their
policies and management expects earnings associated with these products to continue to decline. Management does not expect this to
have a significant impact on the future operating results of the segment.
From April 1, 2004 through March 31, 2006, the Company had a modified coinsurance arrangement relating to the single premium
annuity business sold to the buyer of the retirement benefits business. Under that arrangement, the Company retained the invested
assets supporting the reinsured liabilities. These invested assets were held in a business trust established by the Company. Effective
April 1, 2006, the buyer converted this modified coinsurance arrangement to an indemnity reinsurance structure and took ownership of
the trust assets.
Results of Operations
(In millions)
Financial Summary 2008 2007 2006
Premiums and fees $ 113 $ 108 $ 113
Net investment income 414 437 467
Other revenues 71 82 102
Segment revenues 598 627 682
Benefits and expenses 468 473 531
Income before taxes 130 154 151
Income taxes 43 45 45
Segment earnings $ 87 $ 109 $ 106
Realized investment gains (losses), net of taxes $(27) $(2) $ 13
Special items (after-tax) included in segment earnings:
Completion of IRS examination $ - $ 5 $ -
Excluding the special item noted above, segment earnings for Other Operations declined in 2008 compared with 2007, reflecting
lower results from the COLI business driven by less favorable mortality and lower interest margins. Interest margins decreased due to
the movement of assets from the general account to separate accounts, and lower interest rates. In addition, the continuing decline in
deferred gain amortization associated with sold businesses contributed to lower earnings.
Excluding the special item noted above, segment earnings decreased for Other Operations in 2007, primarily reflecting expected lower
deferred gain amortization associated with the sales of the individual life insurance and annuity and retirement benefits businesses.
This decrease was partially offset by higher COLI earnings primarily reflecting favorable mortality experience.