Cigna 2010 Annual Report Download - page 159

CIGNA CORPORATION  2010 Form 10K FS-7
PARTIV
ITEM 15 Exhibits and Financial Statement Schedules
 e Company may redeem the Notes issued in May of 2010 and
2009, at any time, in whole or in part, at a redemption price equal
to the greater of:
•100% of the principal amount of the Notes to be redeemed; or
•the present value of the remaining principal and interest payments
on the Notes being redeemed discounted at the applicable Treasury
Rate plus 25 basis points 4.375% and 5.125% Notes due 2020 and
50 basis points for the 8.5% Notes due 2019.
Maturities of debt are as follows (in millions): $448 in 2011, none in
2012, 2013 and 2014 and the remainder in years after 2014. Interest
expense on short-term and long-term debt was $176 million in 2010,
$160 million in 2009, and $140 million in 2008.
Interest paid on short-term and long-term debt amounted to
$175 million, $153 million and $135 million for 2010, 2009 and
2008, respectively.
On March 14, 2008, the Company entered into a commercial paper
program (“the Program”). Under the Program, the Company is
authorized to sell from time to time short-term unsecured commercial
paper notes up to a maximum of $500 million.  e proceeds are used
for general corporate purposes, including working capital, capital
expenditures, acquisitions and share repurchases.  e Company uses
the credit facility entered into in June 2007, as back-up liquidity to
support the outstanding commercial paper. If at any time funds are
not available on favorable terms under the Program, the Company
may use its credit facility for funding. In October 2008, the Company
added an additional dealer to its Program. As of December 31, 2010,
the Company had $100 million in commercial paper outstanding,
at a weighted average interest rate of 0.38%, used for corporate
purposes.
In June 2007, the Company amended and restated its fi ve-year
revolving credit and letter of credit agreement for $1.75 billion,
which permits up to $1.25 billion to be used for letters of credit.
 e agreement includes options, which are subject to consent by
the administrative agent and the committing bank, to increase the
commitment amount up to $2.0 billion and to extend the term
of the agreement.  e Company entered into the agreement for
general corporate purposes, including the support for the issuance
of commercial paper and to obtain statutory reserve credit for
certain reinsurance arrangements.  ere were letters of credit issued
in the amount of $82 million as of December 31, 2010. As of
December 31, 2010, the Company had an additional $1.7 billion of
borrowing capacity within the maximum debt leverage covenant in
the line of credit agreement in addition to the $2.7 billion of short-
term and long-term debt outstanding.
Note 3 — Intercompany liabilities consist primarily of loans payable
to CIGNA Holdings, Inc. of $3.7 billion as of December 31, 2010
and $4.6 billion as of December 31, 2009. Interest was accrued at
an average monthly rate of 0.61% and 1.56% for 2010 and 2009,
respectively.
Note 4 — As of December 31, 2010, the Company had guarantees
and similar agreements in place to secure payment obligations or
solvency requirements of certain wholly owned subsidiaries as follows:
• e Company has arranged for bank letters of credit in the amount
of $37 million in support of its indirect wholly owned subsidiaries.
As of December 31, 2010, approximately $33 million of the letters
of credit were issued to support CIGNA Global Reinsurance
Company, an indirect wholly owned subsidiary domiciled in
Bermuda.  ese letters of credit primarily secure the payment
of insureds’ claims from run-off reinsurance operations. As of
December 31, 2010, approximately $4 million of the letters of
credit were issued to provide collateral support for various other
indirectly wholly owned subsidiaries of the Company.
• e Company has provided a capital commitment deed in an
amount up to $185 million in favor of CIGNA Global Reinsurance
Company.  is deed is equal to the letters of credit securing the
payment of insureds’ claims from run-off reinsurance operations.
 is deed is required by Bermuda regulators to have these letters
of credit for the London run-off reinsurance operations included as
admitted assets.
•Various indirect, wholly owned subsidiaries have obtained surety
bonds in the normal course of business. If there is a claim on a surety
bond and the subsidiary is unable to pay, the Company guarantees
payment to the company issuing the surety bond.  e aggregate
amount of such surety bonds as of December was $61 million.
• e Company is obligated under a $27 million letter of credit
required by the insurer of its high-deductible self-insurance
programs to indemnify the insurer for claim liabilities that fall
within deductible amounts for policy years dating back to 1994.
• e Company also provides solvency guarantees aggregating
$34 million under state and federal regulations in support of its
indirect wholly owned medical HMOs in several states.
• e Company has arranged a $55 million letter of credit in support
of CIGNA Europe Insurance Company, an indirect wholly owned
subsidiary.  e Company has agreed to indemnify the banks
providing the letters of credit in the event of any draw. CIGNA
Europe Insurance Company is the holder of the letters of credit.
•In addition, the Company has agreed to indemnify payment of
losses included in CIGNA Europe Insurance Company’s reserves
on the assumed reinsurance business transferred from ACE. As of
December 31, 2010, the reserve was $95 million.
In 2010, no payments have been made on these guarantees and
none are pending.  e Company provided other guarantees to
subsidiaries that, in the aggregate, do not represent a material risk to
the Company’s results of operations, liquidity or fi nancial condition.