Cigna 2012 Annual Report Download - page 49

PART I
ITEM 1A Risk Factors
During a prolonged unfavorable economic environment, state and reinsured by Berkshire Hathaway Life Insurance Company of
federal budgets could be materially and adversely affected, resulting in Nebraska on February 4, 2013.
reduced reimbursements or payments in federal and state government Under all reinsurance arrangements, reinsurers assume insured losses,
coverage programs, such as Medicare and social security. In addition, subject to certain limitations or exceptions that may include a loss
the state and federal budgetary pressures could cause the government limit. These arrangements also subject Cigna to various obligations,
to impose new or a higher level of taxes or assessments on us, such as representations and warranties with the reinsurers. Reinsurance does
premium taxes on insurance companies and health maintenance not relieve the Company of liability as the originating insurer. Cigna
organizations and surcharges or fees on select fee-for-service and remains liable to the underlying policyholders if a reinsurer defaults
capitated medical claims. Although we could attempt to mitigate or on obligations under the reinsurance arrangement. Although the
cover our exposure from such increased costs through, among other Company regularly evaluates the financial condition of reinsurers to
things, increases in premiums, there can be no assurance that we will minimize exposure to significant losses from reinsurer insolvencies,
be able to mitigate or cover all of such costs which may have a material reinsurers may become financially unsound. If a reinsurer fails to meet
adverse effect on our business, results of operations, financial its obligations under the reinsurance contract or if the liabilities
condition and liquidity. exceed any applicable loss limit, the Company will be forced to cover
the claims on the reinsured policies.
Cigna is subject to the credit risk of its reinsurers.
The collectability of amounts due from reinsurers is subject to
uncertainty arising from a number of factors, including whether the
Cigna enters into reinsurance arrangements with other insurance
insured losses meet the qualifying conditions of the reinsurance
companies, primarily to limit losses from large exposures or to permit
contract, whether reinsurers or their affiliates have the financial
recovery of a portion of direct losses. The Company may also enter
capacity and willingness to make payments under the terms of the
into reinsurance arrangements in connection with acquisition or
reinsurance contract, and the magnitude and type of collateral
divestiture transactions where the underwriting company is not being
supporting the Company’s reinsurance recoverable, such as by
acquired or sold. The run-off businesses that Cigna has effectively
sufficient qualifying assets in trusts or letters of credit issued.
exited through reinsurance include, among others: the retirement
Although a portion of the Company’s reinsurance exposures are
benefit business reinsured by Prudential Retirement Insurance and
secured, the inability to collect a material recovery from a reinsurer
Annuity Company; the individual life insurance and annuity business
could have a material adverse effect on the Company’s results of
reinsured by Lincoln National Life Insurance Company and Lincoln
operations, financial condition and liquidity.
Life and Annuity of New York; and the VADBe and GMIB businesses
CIGNA CORPORATION - 2012 Form 10-K 27