Cigna 2012 Annual Report Download - page 97

PART II
ITEM 8 Financial Statements and Supplementary Data
In addition, for the more recent months, the Company also relies on postemployment benefits (see Note 10), the loss position of certain
medical cost trend analysis, which reflects expected claim payment derivatives, primarily for GMIB contracts (see Note 13), self-insured
patterns and other relevant operational considerations. Medical cost exposures, management compensation and various insurance-related
trend is primarily impacted by medical service utilization and unit items, including experience rated refunds, the minimum medical loss
costs, which are affected by changes in the level and mix of medical ratio rebate accrual under Health Care Reform, amounts related to
benefits offered, including inpatient, outpatient and pharmacy, the reinsurance contracts and insurance-related assessments that
impact of copays and deductibles, changes in provider practices and management can reasonably estimate. Accounts payable, accrued
changes in consumer demographics and consumption behavior. expenses and other liabilities also include certain overdraft positions.
Legal costs to defend the Company’s litigation and arbitration matters
Despite reflecting both historical and emerging trends in setting are expensed when incurred in cases that the Company cannot
reserves, it is possible that the actual medical trend for the current reasonably estimate the ultimate cost to defend. In cases that the
period will develop differently from expectations, which could have a Company can reasonably estimate the cost to defend, these costs are
material impact on the Company’s medical claims payable and recognized when the claim is reported.
shareholders’ net income.
For each reporting period, the Company evaluates key assumptions by
R. Translation of Foreign Currencies
comparing the assumptions used in establishing the medical claims
payable to actual experience. When actual experience differs from the The Company generally conducts its international business through
assumptions used in establishing the liability, medical claims payable foreign operating entities that maintain assets and liabilities in local
are increased or decreased through current period shareholders’ net currencies, which are generally their functional currencies. The
income. Additionally, the Company evaluates expected future Company uses exchange rates as of the balance sheet date to translate
developments and emerging trends which may impact key assets and liabilities into U.S. dollars. Translation gains or losses on
assumptions. The estimation process involves considerable judgment, functional currencies, net of applicable taxes, are recorded in
reflecting the variability inherent in forecasting future claim accumulated other comprehensive income (loss). The Company uses
payments. These estimates are highly sensitive to changes in the average monthly exchange rates during the year to translate revenues
Company’s key assumptions, specifically completion factors, and and expenses into U.S. dollars.
medical cost trends.
S. Premiums and Fees, Revenues and
O. Unearned Premiums and Fees Related Expenses
Premiums for life, accident and health insurance are recognized as Premiums for group life, accident and health insurance and managed
revenue on a pro rata basis over the contract period. Fees for mortality care coverages are recognized as revenue on a pro rata basis over the
and contract administration of universal life products are recognized contract period. Benefits and expenses are recognized when incurred.
ratably over the coverage period. The unrecognized portion of these Premiums and fees include revenue from experience-rated contracts
amounts received is recorded as unearned premiums and fees. that is based on the estimated ultimate claim, and in some cases,
administrative cost experience of the contract. For these contracts,
premium revenue includes an adjustment for experience-rated refunds
P. Redeemable Noncontrolling Interest
which is calculated according to contract terms and using the
The redeemable noncontrolling interest comprises the preferred and customer’s experience (including estimates of incurred but not
common stock interests not purchased by the Company in its reported claims). Beginning in 2011, premium revenue also includes
acquisition of Finans Emeklilik in 2012 (see Note 3A for further an adjustment to reflect the estimated effect of rebates due to
information.) This redeemable noncontrolling interest relates to the customers under the minimum medical loss ratio provisions of Health
right of the holder to require the Company to purchase the holder’s Care Reform.
49% interest at a redemption value equal to its net assets in Finans
Premiums for individual life, accident and supplemental health
Emklilik and the value of its inforce business in 15 years. Cigna also
insurance and annuity products, excluding universal life and
has the right to require the holder to sell its 49% interest to Cigna for
investment-related products, are recognized as revenue when due.
the same value in 15 years. The redeemable noncontrolling interest
Benefits and expenses are matched with premiums.
was recorded at fair value on the date of purchase. Subsequently, if the
estimated redemption value exceeds the recorded value for the Premiums and fees received for the Company’s Medicare Advantage
redeemable noncontrolling interest, an adjustment to increase the Plans and Medicare Part D products from customers and the Centers
redeemable noncontrolling interest will be recorded and impact for Medicare and Medicaid Services (CMS) are recognized as revenue
income available to common shareholders. ratably over the contract period. CMS provides risk adjusted premium
payments for the Medicare Advantage Plans and Medicare Part D
products, based on the demographics and health severity of enrollees.
Q. Accounts Payable, Accrued Expenses
The Company recognizes periodic changes to risk adjusted premiums
and Other Liabilities
as revenue when the amounts are determinable and collection is
Accounts payable, accrued expenses and other liabilities consist reasonably assured. Additionally, Medicare Part D includes payments
principally of liabilities for pension, other postretirement and from CMS for risk sharing adjustments. The risk sharing adjustments,
CIGNA CORPORATION - 2012 Form 10-K 75