Cigna 2014 Annual Report Download - page 103

PART II
ITEM 8. Financial Statements and Supplementary Data
deductibles, changes in provider practices and changes in consumer
R. Premiums and Related Expenses
demographics and consumption behavior.
Premiums for group life, accident and health insurance and managed
For each reporting period, the Company compares key assumptions care coverages are recognized as revenue on a pro rata basis over the
used to establish the medical claims payable to actual experience. contract period. Benefits and expenses are recognized when incurred,
When actual experience differs from these assumptions, medical and for our Global Health Care business, medical claims expense is
claims payable are adjusted through current period shareholders’ net presented net of pharmaceutical manufacturer rebates. For
income. Additionally, the Company evaluates expected future experience-rated contracts, premium revenue includes an adjustment
developments and emerging trends that may impact key assumptions. for experience-rated refunds which is calculated according to contract
The estimation process involves considerable judgment, reflecting the terms and using the customer’s experience (including estimates of
variability inherent in forecasting future claim payments. These incurred but not reported claims).
estimates are highly sensitive to changes in the Company’s key
Premium revenue also includes an adjustment to reflect the estimated
assumptions, specifically completion factors and medical cost trends.
effect of rebates due to customers under the commercial minimum
medical loss ratio provisions of Health Care Reform. These rebates are
O. Redeemable Noncontrolling Interest
settled in the year following the policy year.
The Company offers products and services in Turkey and India Premiums received for the Company’s Medicare Advantage Plans and
through joint venture entities. The redeemable noncontrolling Medicare Part D products from customers and the Centers for
interest on our consolidated balance sheet represents our joint venture Medicare and Medicaid Services (‘‘CMS’’) are recognized as revenue
partners’ preferred and common stock interests in these entities. Our ratably over the contract period. CMS provides risk-adjusted
joint venture partners may, at their election, require the Company to premium payments for Medicare Advantage Plans and Medicare
purchase their redeemable noncontrolling interests. We also have the Part D products, based on the demographics and health severity of
right to require our joint venture partners to sell their redeemable enrollees. The Company recognizes periodic changes to risk-adjusted
noncontrolling interests to us. The redeemable noncontrolling premiums as revenue when the amounts are determinable and
interests were recorded at fair value on the dates of purchase. When collection is reasonably assured. Additionally, Medicare Part D
the estimated redemption value for a redeemable noncontrolling includes payments from CMS for risk sharing adjustments. The risk
interest exceeds its carrying value, an adjustment to increase the sharing adjustments that are estimated quarterly based on claim
redeemable noncontrolling interest is recorded and its effect is experience, compare actual incurred drug benefit costs to estimated
included in shareholders’ net income per share. costs submitted in original contracts and may result in more or less
revenue from CMS. Final revenue adjustments are determined and
settled with CMS in the year following the contract year. Premium
P. Accounts Payable, Accrued Expenses
revenue also includes an adjustment to reflect the estimated effect of
and Other Liabilities
rebates due to CMS under the Medicare Advantage and Medicare
Part D minimum medical loss ratio provisions of Health Care
Accounts payable, accrued expenses and other liabilities consist
Reform.
principally of liabilities for pension, other postretirement and
postemployment benefits (see Note 9), GMIB contracts (see Premiums for individual life, accident and supplemental health
Note 10), self-insured exposures, management compensation, cash insurance and annuity products, excluding universal life and
overdraft positions and various insurance-related liabilities, including investment-related products, are recognized as revenue when due.
experience-rated refunds, the minimum medical loss ratio rebate Benefits and expenses are matched with premiums.
accrual under Health Care Reform and reinsurance contracts. Legal
costs to defend the Company’s litigation and arbitration matters are Revenue for universal life products is recognized as follows:
expensed when incurred in cases where the Company cannot Net investment income on assets supporting universal life products
reasonably estimate the ultimate cost to defend. In cases where the is recognized as earned.
Company can reasonably estimate the cost to defend, a liability for
these costs is accrued when the claim is reported. Charges for mortality, administration and policy surrender are
recognized in premiums as earned. Administrative fees are
considered earned when services are provided.
Q. Translation of Foreign Currencies
Benefits and expenses for universal life products consist of benefit
The Company generally conducts its international business through claims in excess of policyholder account balances. Expenses are
foreign operating entities that maintain assets and liabilities in local recognized when claims are submitted, and income is credited to
currencies that are generally their functional currencies. The policyholders in accordance with contract provisions.
Company uses exchange rates as of the balance sheet date to translate
assets and liabilities into U.S. dollars. Translation gains or losses on The unrecognized portion of premiums received is recorded as
functional currencies, net of applicable taxes, are recorded in unearned premiums.
accumulated other comprehensive income (loss). The Company uses
average monthly exchange rates during the year to translate revenues
and expenses into U.S. dollars.
CIGNA CORPORATION - 2014 Form 10-K 71
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