Cigna 2012 Annual Report Download - page 61

PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
Balance Sheet Caption / Nature of Critical Accounting Estimate Effect if Different Assumptions Used
Accounts payable, accrued expenses and other liabilities – pension Using past experience, the Company expects that it is reasonably
liabilities possible that a favorable or unfavorable change in assumptions for the
discount rate or expected return on plan assets of 50 basis points could
These liabilities are estimates of the present value of the qualified and occur. An unfavorable change is a decrease in these key assumptions
nonqualified pension benefits to be paid (attributed to employee with resulting impacts as discussed below.
service to date) net of the fair value of plan assets. The accrued pension
benefit liability as of December 31 was as follows (in millions): If discount rates for the qualified and nonqualified pension plans
decreased by 50 basis points:
2012 – $1,602
2011 – $1,769 annual pension costs for 2013 would decrease by approximately
$5 million, after-tax; and
See Note 10 to the Consolidated Financial Statements for assumptions
and methods used to estimate pension liabilities. the accrued pension benefit liability would increase by approximately
$280 million as of December 31, 2012 resulting in an after-tax
decrease to shareholders’ equity of approximately $180 million as of
December 31, 2012.
If the expected long-term return on domestic qualified pension plan
assets decreased by 50 basis points, annual pension costs for 2013
would increase by approximately $11 million after-tax.
If the Company used the market value of assets to measure pension
costs as opposed to the market-related value, annual pension cost for
2013 would decrease by approximately $9 million after-tax.
If the December 31, 2012 fair values of domestic qualified plan assets
decreased by 10%, the accrued pension benefit liability would increase
by approximately $365 million as of December 31, 2012 resulting in
an after-tax decrease to shareholders’ equity of approximately
$235 million.
An increase in these key assumptions would result in impacts to annual
pension costs, the accrued pension liability and shareholders’ equity in
an opposite direction, but similar amounts.
Global Health Care medical claims payable In 2012, actual experience differed from the Company’s key
assumptions as of December 31, 2011, resulting in $200 million of
Medical claims payable for the Global Health Care segment include favorable incurred claims related to prior years’ medical claims payable
both reported claims and estimates for losses incurred but not yet or 2.2% of the current year incurred claims as reported in 2011. In
reported. 2011, actual experience differed from the Company’s key assumptions
as of December 31, 2010, resulting in $140 million of favorable
Liabilities for medical claims payable as of December 31 were as
incurred claims related to prior years’ medical claims, or 1.5% of the
follows (in millions):
current year incurred claims reported in 2010. Specifically, the
2012 – gross $1,856; net $1,614 favorable impact is due to faster than expected completion factors and
2011 – gross $1,305; net $1,056 lower than expected medical cost trends, both of which included an
assumption for moderately adverse experience.
These liabilities are presented above both gross and net of reinsurance
and other recoverables and generally exclude amounts for The impact of this favorable prior year development was an increase to
administrative services only business. shareholders’ net income of $66 million after-tax ($101 million
pre-tax) in 2012. The change in the amount of the incurred claims
See Notes 2 and 5 to the Consolidated Financial Statements for
related to prior years in the medical claims payable liability does not
additional information regarding assumptions and methods used to
directly correspond to an increase or decrease in shareholders’ net
estimate this liability.
income as explained in Note 5 to the Consolidated Financial
Statements.
CIGNA CORPORATION - 2012 Form 10-K 39
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