Cigna 2011 Annual Report Download - page 38

16 CIGNA CORPORATION2011 Form10K
PARTI
ITEM 1 Business
H. Other Operations
Cigna’s Other Operations segment includes the following businesses:
•corporate owned life insurance;
•
deferred gains recognized from the 1998 sale of the individual life
insurance and annuity business and the 2004 sale of the retirement
benets business; and
•run-o settlement annuity business.
e products and services related to these operations are oered by
subsidiaries of Cigna Corporation.
Corporate-owned Life Insurance (“COLI”)
Principal Products and Services
e principal products of the COLI business are permanent insurance
contracts sold to corporations to provide coverage on the lives of certain
employees for the purpose of funding employer-paid future benet
obligations. Permanent life insurance provides coverage that, when
adequately funded, does not expire after a term of years. e contracts
are primarily non-participating universal life policies.
Universal life policies typically provide exible coverage and exible
premium payments. Policy cash values uctuate with the amount of
the premiums paid, mortality and expense charges assessed, and interest
credited to the policy. Variable universal life policies are universal life
contracts in which the cash values vary directly with the performance
of a specic pool of investments underlying the policy.
e principal services provided by the COLI business are issuance and
administration of the insurance policies (e.g., maintenance of records
regarding cash values and death benets, claims processing,etc.) as
well as oversight of the investment management for separate account
assets that support the variable universal life product.
Product Features
COLI policies provide a death benet for which Cigna collects fees to
cover mortality risk. Mortality risk is retained according to guidelines
established by Cigna. To the extent a given policy carries mortality
risk that exceeds these guidelines, reinsurance is purchased from third
parties for the balance. COLI policies also allow policy owners to
borrow against a portion of their cash surrender value.
Cash values on universal life policies are credited interest at a declared
interest rate that reects the anticipated investment results of the assets
backing these policies and may vary with the characteristics of each
product. Universal life policies generally have a minimum guaranteed
declared interest rate which may be cumulative from the issuance date
of the policy. e declared interest rate may be changed monthly, but
is generally changed less frequently.
Cash values on variable universal life policies vary directly with the
performance of a specic pool of investments underlying the policy.
A limited number of variable universal life policies guarantee that the
realized investment performance for a quarter, excluding the impact
of unrealized gains/losses and the impact of credit-related events, will
not be negative.
Pricing, Reserves, and Reinsurance
Fees for universal life insurance products consist of mortality,
administrative and surrender charges assessed against the policyholder’s
fund balance. Interest credited and mortality charges for universal life and
mortality charges on variable universal life may be adjusted prospectively
to reect expected interest and mortality experience. For universal life
insurance, Cigna establishes reserves for deposits received and interest
credited to the policyholder, less mortality and administrative charges
assessed against the policyholder’s fund balance. In order to reduce its
exposure to large individual and catastrophe losses, Cigna purchases
reinsurance from unaliated reinsurers.
Markets and Distribution
e Company continues to develop and enhance its product portfolio
to pursue new business. e principal markets for COLI products are
regional to national account-sized corporations, including banks. Cigna’s
COLI products are oered through a select group of independent
brokers with particular expertise in the bank market and in the use of
COLI for the nancing of benet plan liabilities.
Competition
e principal competitive factors that aect Cigna’s COLI business
are pricing, service, product innovation and access to third-party
distribution. For Cigna’s COLI business, competitors are primarily
major life insurance companies. Cigna expects that the competitive
environment will intensify as the economy recovers and competitors
develop new investment strategies and product designs, and aggressively
price their oerings to build distribution capacity and gain market share.
Industry Developments and Strategic Initiatives
e COLI regulatory environment continues to evolve, with various
federal budget related proposals recommending changes in policyholder
tax treatment. Although regulatory and legislative activity could adversely
impact our business and policyholders, management does not expect
the impact to materially aect the Company’s results of operations,
liquidity or nancial condition.
Individual Life Insurance & Annuity
and Retirement Benefits Businesses
Cigna sold its individual life insurance and annuity business in 1998
and its retirement benets business in 2004. Portions of the gains from
these sales were deferred because the principal agreements to sell these
businesses were structured as reinsurance arrangements. e remaining
deferred gain balance is being recognized at the rate that earnings from
the sold businesses would have been expected to emerge.
For more information regarding the sale of these businesses and the
arrangements which secure Cigna’s reinsurance recoverables, see Note7
of the Consolidated Financial Statements beginning on page84 of
this Form10-K.
Contents
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