Cigna 2010 Annual Report Download - page 141

CIGNA CORPORATION  2010 Form 10K 121
PART II
ITEM 8 Financial Statements and Supplementary Data
Premiums and fees, mail order pharmacy revenues and other revenues by product type were as follows for the years ended December 31:
(In millions) 2010 2009 2008
Medical $ 14,253 $ 12,089 $ 12,337
Disability 1,162 1,063 994
Supplemental Health, Life, and Accident 2,839 2,748 2,766
Mail order pharmacy 1,420 1,282 1,204
Other 399 261 907
TOTAL $ 20,073 $ 17,443 $ 18,208
Concentration of risk. For the Company’s International segment,
South Korea is the single largest geographic market. South Korea
generated 32% of the segment’s revenues and 49% of the segment’s
earnings in 2010. South Korea generated 29% of the segment’s
revenues and 49% of the segment’s earnings in 2009. Due to the
concentration of business in South Korea, the International segment
is exposed to potential losses resulting from economic and geopolitical
developments in that country, as well as foreign currency movements
aff ecting the South Korean currency, which could have a signifi cant
impact on the segment’s results and the Company’s consolidated
fi nancial results.
NOTE 24 Contingencies and Other Matters
 e Company, through its subsidiaries, is contingently liable for
various guarantees provided in the ordinary course of business.
A. Financial Guarantees Primarily
Associated with the Sold Retirement
Benefi ts Business
Separate account assets are contractholder funds maintained in accounts
with specifi c investment objectives.  e Company records separate
account liabilities equal to separate account assets. In certain cases,
primarily associated with the sold retirement benefi ts business (which
was sold in April 2004), the Company guarantees a minimum level
of benefi ts for retirement and insurance contracts, written in separate
accounts.  e Company establishes an additional liability if management
believes that the Company will be required to make a payment under
these guarantees.
 e Company guarantees that separate account assets will be suffi cient to
pay certain retiree or life benefi ts.  e sponsoring employers are primarily
responsible for ensuring that assets are suffi cient to pay these benefi ts
and are required to maintain assets that exceed a certain percentage of
benefi t obligations.  is percentage varies depending on the asset class
within a sponsoring employer’s portfolio (for example, a bond fund
would require a lower percentage than a riskier equity fund) and thus
will vary as the composition of the portfolio changes. If employers
do not maintain the required levels of separate account assets, the
Company or an affi liate of the buyer has the right to redirect the
management of the related assets to provide for benefi t payments. As
of December 31, 2010, employers maintained assets that exceeded
the benefi t obligations. Benefi t obligations under these arrangements
were $1.3 billion as of December 31, 2010. As of December 31, 2010,
approximately 75% of these guarantees are reinsured by an affi liate of the
buyer of the retirement benefi ts business.  e remaining guarantees are
provided by the Company with minimal reinsurance from third parties.
 ere were no additional liabilities required for these guarantees as of
December 31, 2010. Separate account assets supporting these guarantees
are classifi ed in Levels 1 and 2 of the GAAP fair value hierarchy. See
Note 11 for further information on the fair value hierarchy.
 e Company does not expect that these fi nancial guarantees will have
a material eff ect on the Company’s consolidated results of operations,
liquidity or fi nancial condition.
B. Guaranteed Minimum Income Benefi t
Contracts
 e Company’s reinsurance operations, which were discontinued in
2000 and are now an inactive business in run-off mode, reinsured
minimum income benefi ts under certain variable annuity contracts
issued by other insurance companies. A contractholder can elect
the guaranteed minimum income benefi t (“GMIB”) within 30
days of any eligible policy anniversary after a specifi ed contractual
waiting period.  e Company’s exposure arises when the guaranteed
annuitization benefi t exceeds the annuitization benefi t based on
the policy’s current account value. At the time of annuitization, the
Company pays the excess (if any) of the minimum benefi t guaranteed
under the contract over the benefi t based on the current account
value in a lump sum to the direct writing insurance company.
In periods of declining equity markets or declining interest rates, the
Company’s GMIB liabilities increase. Conversely, in periods of rising
equity markets and rising interest rates, the Company’s liabilities for
these benefi ts decrease.
 e Company estimates the fair value of the GMIB assets and liabilities
using assumptions for market returns and interest rates, volatility of
the underlying equity and bond mutual fund investments, mortality,
lapse, annuity election rates, non-performance risk, and risk and
profi t charges. See Note 11 for additional information on how fair
values for these liabilities and related receivables for retrocessional
coverage are determined.
 e Company is required to disclose the maximum potential
undiscounted future payments for GMIB contracts. Under these
guarantees, the future payment amounts are dependent on equity and
bond fund market and interest rate levels prior to and at the date of
annuitization election, which must occur within 30 days of a policy
anniversary, after the appropriate waiting period.  erefore, the
future payments are not fi xed and determinable under the terms of
the contract. Accordingly, the Company has estimated the maximum
potential undiscounted future payments using hypothetical adverse
assumptions, defi ned as follows:
•no annuitants surrendered their accounts;
•all annuitants lived to elect their benefi t;