Cigna 2011 Annual Report Download - page 107

85CIGNA CORPORATION2011 Form10K
PART II
ITEM 8 Financial Statements and Supplementary Data
Assumed and Ceded reinsurance: Run-off Reinsurance
segment
e Company’s Run-o Reinsurance operations assumed risks related
to GMDB contracts, GMIB contracts, workers’ compensation, and
personal accident business. e Run-o Reinsurance operations also
purchased retrocessional coverage to reduce the risk of loss on these
contracts. In December2010, the Company entered into reinsurance
arrangements to transfer the remaining liabilities and administration
of the workers’ compensation and personal accident businesses to a
subsidiary of Enstar Group Limited. Under this arrangement, the new
reinsurer also assumes the future risk of collection from prior reinsurers.
See Note3 for further details regarding this arrangement.
Liabilities related to GMDB, workers’ compensation and personal
accident are included in future policy benets and unpaid claims.
Because the GMIB contracts are treated as derivatives under GAAP,
the asset related to GMIB is recorded in the Other assets, including
other intangibles caption and the liability related to GMIB is recorded
in Accounts payable, accrued expenses, and other liabilities on the
Company’s Consolidated Balance Sheets (see Notes10 and 23 for
additional discussion of the GMIB assets and liabilities).
e reinsurance recoverables for GMDB, workers’ compensation,
and personal accident total $252million as of December31,2011.
Of this amount, approximately 93% are secured by assets in trust or
letters of credit.
e Company reviews its reinsurance arrangements and establishes
reserves against the recoverables in the event that recovery is not
considered probable. As of December31,2011, the Company’s
recoverables related to this segment were net of a reserve of $1million.
e Company’s payment obligations for underlying reinsurance
exposures assumed by the Company under these contracts are based on
the ceding companies’ claim payments. For GMDB, claim payments
vary because of changes in equity markets and interest rates, as well as
mortality and contractholder behavior. Any of these claim payments
can extend many years into the future, and the amount of the ceding
companies’ ultimate claims, and therefore, the amount ofthe Company’s
ultimate payment obligations and corresponding ultimate collection
from retrocessionaires, may not be known with certainty for some time.
Summary
e Company’s reserves for underlying reinsurance exposures assumed
by the Company, as well as for amounts recoverable from reinsurers/
retrocessionaires for both ongoing operations and the run-o reinsurance
operation, are considered appropriate as of December31,2011, based
on current information. However, it is possible that future developments
could have a material adverse eect on the Company’s consolidated results
of operations and, in certain situations, such as if actual experience diers
from the assumptions used in estimating reserves for GMDB, could
have a material adverse eect on the Company’s nancial condition.e
Company bears the risk of loss if its retrocessionaires do not meet or
are unable to meet their reinsurance obligations to the Company.
In the Company’s Consolidated Income Statements, Premiums and fees
were presented net of ceded premiums, and Total benets and expenses
were presented net of reinsurance recoveries, in the following amounts:
(In millions) 2011 2010 2009
Premiums and Fees
Short-duration contracts:
Direct $ 17,423 $ 16,611 $ 13,886
Assumed 158 496 1,076
Ceded (185) (187) (192)
17,396 16,920 14,770
Long-duration contracts:
Direct 1,919 1,687 1,499
Assumed 36 36 33
Ceded:
Individual life insurance and annuity business sold (203) (195) (209)
Other (59) (55) (52)
1,693 1,473 1,271
TOTAL $ 19,089 $ 18,393 $ 16,041
Reinsurance recoveries
Individual life insurance and annuity business sold $ 310 $ 321 $ 322
Other 213 156 178
TOTAL $ 523 $ 477 $ 500
e decrease in assumed premiums in 2011 as compared to 2010
primarily reects the eect of the Company’s exit from a large, low-
margin assumed government life insurance program. e decrease in
assumed premiums in 2010 as compared to 2009 primarily reects
the eect of the Company’s exit from two large, non-strategic assumed
government life insurance programs as well as the transfer of policies
assumed in the acquisition of Great-West Healthcare directly to one of
the Company’s insurance subsidiaries in 2010. e eects of reinsurance
on written premiums and fees for short-duration contracts were not
materially dierent from the recognized premium and fee amounts
shown in the table above.
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