Cigna 2011 Annual Report Download - page 81

59CIGNA CORPORATION2011 Form10K
PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
signicantly change from the Company’s planned funding targets, since
discount rates used for funding purposes are based on a 24-month moving
average that is less susceptible to volatility than the rate required to be
used to compute the liability for the nancial statements.
Solvency II
Cigna’s businesses in the European Union will be subject to the directive
on insurance regulation and solvency requirements known as Solvency
II. is directive will impose economic risk-based solvency requirements
and supervisory rules and is expected to become eective in January2014,
although certain regulators are requiring companies to demonstrate
technical capability and comply with increased capital levels in advance of
the eective date. Cigna’s European insurance companies are capitalized
at levels consistent with projected Solvency II requirements and in
compliance with anticipated technical capability requirements.
Guarantees and Contractual Obligations
e Company is contingently liable for various contractual obligations entered into in the ordinary course of business. e maturities of the
Company’s primary contractual cash obligations, as of December31,2011, are estimated to be as follows:
(In millions, on an undiscounted basis) Total Less than 1year 1-3years 4-5years After 5years
On-Balance Sheet:
Insurance liabilities:
Contractholder deposit funds $ 7,251 $ 724 $ 943 $ 807 $ 4,777
Future policy benets 11,149 462 1,031 943 8,713
Health Care medical claims payable 1,095 1,071 15 1 8
Unpaid claims and claims expenses 4,617 1,466 869 598 1,684
Short-term debt 104 104 - - -
Long-term debt 9,202 247 555 1,125 7,275
Other long-term liabilities 1,337 546 237 146 408
O-Balance Sheet:
Purchase obligations 1,117 596 296 49 176
Operating leases 547 108 180 119 140
TOTAL $ 36,419 $ 5,324 $ 4,126 $ 3,788 $ 23,181
On-Balance Sheet
•
Insurance liabilities. Contractual cash obligations for insurance
liabilities, excluding unearned premiums and fees, represent estimated
net benet payments for health, life and disability insurance policies
and annuity contracts. Recorded contractholder deposit funds
reect current fund balances primarily from universal life customers.
Contractual cash obligations for these universal life contracts are
estimated by projecting future payments using assumptions for lapse,
withdrawal and mortality. ese projected future payments include
estimated future interest crediting on current fund balances based on
current investment yields less the estimated cost of insurance charges
and mortality and administrative fees. Actual obligations in any single
year will vary based on actual morbidity, mortality, lapse, withdrawal,
investment and premium experience. e sum of the obligations
presented above exceeds the corresponding insurance and contractholder
liabilities of $17billion recorded on the balance sheet because the
recorded insurance liabilities reect discounting for interest and the
recorded contractholder liabilities exclude future interest crediting,
charges and fees. e Company manages its investment portfolios
to generate cash ows needed to satisfy contractual obligations. Any
shortfall from expected investment yields could result in increases
to recorded reserves and adversely impact results of operations. e
amounts associated with the sold retirement benets and individual
life insurance and annuity businesses, as well as the reinsured workers’
compensation and personal accident businesses, are excluded from the
table above as net cash ows associated with them are not expected
to impact the Company. e total amount of these reinsured reserves
excluded is approximately $6billion.
•
Short-term debt represents commercial paper, current maturities of
long-term debt, and current obligations under capital leases.
•
Long-term debt includes scheduled interest payments. Capital
leases are included in long-term debt and represent obligations for
software licenses.
•
Other long-term liabilities. ese items are presented in accounts
payable, accrued expenses and other liabilities in the Company’s
Consolidated Balance Sheets. is table includes estimated payments for
GMIB contracts, pension and other postretirement and postemployment
benet obligations, supplemental and deferred compensation plans,
interest rate and foreign currency swap contracts, and certain tax and
reinsurance liabilities.
Estimated payments of $94million for deferred compensation, non-
qualied and International pension plans and other postretirement
and postemployment benet plans are expected to be paid in less than
one year. e Company’s best estimate is that contributions to the
qualied domestic pension plans during 2012 will be approximately
$250million. e Company expects to make payments subsequent to
2012 for these obligations, however subsequent payments have been
excluded from the table as their timing is based on plan assumptions
which may materially dier from actual activities (see Note9 to the
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