Cigna 2009 Annual Report Download - page 40

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G. Run-off Reinsurance
Principal Products and Services
Until 2000, CIGNA offered reinsurance coverage for part or all of the risks written by other insurance companies (or “ceding
companies”) under life and annuity policies (both group and individual) and accident policies (workers’ compensation, personal
accident, and catastrophe coverages). The products and services related to these operations were offered by subsidiaries of CIGNA
Corporation.
In 2000, CIGNA sold its U.S. individual life, group life and accidental death reinsurance businesses. CIGNA placed its
remaining reinsurance businesses (including its accident, international life, and annuity reinsurance businesses) into run-off as of June
1, 2000, and stopped underwriting new reinsurance business.
CIGNA’s exposures stem primarily from its annuity reinsurance business, including its reinsurance of guaranteed minimum death
benefits (“GMDB”) and guaranteed minimum income benefits (“GMIB”) contracts. Additional exposures arise from its reinsurance
of workers’ compensation and other personal accident and catastrophic risks.
Life and Annuity Policies
Guaranteed Minimum Death Benefit Contracts
CIGNA’s reinsurance segment reinsured GMDB (also known as variable annuity death benefits (“VADBe”)), under certain
variable annuities issued by other insurance companies. These variable annuities are essentially investments in mutual funds
combined with a death benefit. CIGNA has equity and other market exposures as a result of this product. The Company purchased
retrocessional protection that covers approximately 5% of the assumed risks. The Company also maintains a dynamic hedge program
(“GMDB equity hedge program”) to substantially reduce the equity market exposures relating to GMDB contracts by entering into
exchange-traded futures contracts.
For additional information about GMDB contracts, see “Guaranteed Minimum Death Benefits” under Run-off Reinsurance
section of the MD&A beginning on page 73 and Note 7 to CIGNA’s Consolidated Financial Statements beginning on page 117 of this
Form 10-K.
Guaranteed Minimum Income Benefit Contracts
In certain circumstances where CIGNA’s reinsurance operations reinsured the GMDB, CIGNA also reinsured GMIB under
certain variable annuities issued by other insurance companies. These variable annuities are essentially investments in mutual funds
combined with minimum income and death benefits. All reinsured GMIB policies also have a GMDB benefit reinsured by the
Company. When annuitants elect to receive these minimum income benefits, CIGNA may be required to make payments which will
vary based on changes in underlying mutual fund values and interest rates. CIGNA has retrocessional coverage for 55% of the
exposures on these contracts, provided by two external reinsurers.
For additional information about GMIB contracts, see “Guaranteed Minimum Income Benefits” under Run-off Reinsurance
section of the MD&A beginning on page 73 and Note 11 to CIGNA’s Consolidated Financial Statements beginning on page 132 of
this Form 10-K.
Workers’ Compensation, Personal Accident and Catastrophe
CIGNA reinsured workers’ compensation and other personal accident and catastrophic risks in the London market and in the
United States. CIGNA purchased retrocessional coverage in these markets to reduce the risk of loss on these contracts.