Cigna 2015 Annual Report Download - page 141

PART II
ITEM 8. Financial Statements and Supplementary Data
Contingencies and Other Matters
The Company, through its subsidiaries, is contingently liable for calculated exposure, without considering any reinsurance coverage,
various guarantees provided in the ordinary course of business. using the following hypothetical assumptions:
no annuitants surrendered their accounts;
A. Financial Guarantees: Retiree and Life
all annuitants lived to elect their benefit;
Insurance Benefits
all annuitants elected to receive their benefit on the next available
date (2016 through 2021); and
Separate account assets are contractholder funds maintained in
accounts with specific investment objectives. The Company records all underlying mutual fund investment values remained at the
separate account liabilities equal to separate account assets. In certain December 31, 2015 value of $944 million with no future returns.
cases, the Company guarantees a minimum level of benefits for The Company has reinsurance coverage in place that covers the
retirement and insurance contracts written in separate accounts. The exposures on these contracts. Using these hypothetical assumptions,
Company establishes an additional liability if management believes GMIB exposure is $776 million, which is lower than the recorded
that the Company will be required to make a payment under these liability for GMIB calculated using fair value assumptions. See
guarantees. Notes 7, 10 and 12 for further information on GMIB contracts.
The Company guarantees that separate account assets will be
sufficient to pay certain life insurance or retiree benefits. The
C. Certain Other Guarantees
sponsoring employers are primarily responsible for ensuring that assets
are sufficient to pay these benefits and are required to maintain assets The Company had indemnification obligations to lenders of up to
that exceed a certain percentage of benefit obligations. This $173 million as of December 31, 2015, related to borrowings by
percentage varies depending on the asset class within a sponsoring certain real estate joint ventures that the Company either records as an
employer’s portfolio (for example, a bond fund would require a lower investment or consolidates. These borrowings, that are nonrecourse to
percentage than a riskier equity fund) and thus will vary as the the Company, are secured by the joint ventures’ real estate properties
composition of the portfolio changes. If employers do not maintain with fair values in excess of the loan amounts and mature at various
the required levels of separate account assets, the Company or an dates beginning in 2016 through 2021. The Company’s
affiliate of the buyer of the retirement benefits business (Prudential indemnification obligations would require payment to lenders for any
Retirement Insurance and Annuity Company) has the right to redirect actual damages resulting from certain acts such as unauthorized
the management of the related assets to provide for benefit payments. ownership transfers, misappropriation of rental payments by others or
As of December 31, 2015, employers maintained assets that exceeded environmental damages. Based on initial and ongoing reviews of
the benefit obligations. Benefit obligations under these arrangements property management and operations, the Company does not expect
were $495 million as of December 31, 2015 and approximately 13% that payments will be required under these indemnification
of these are reinsured by an affiliate of the buyer of the retirement obligations. Any payments that might be required could be recovered
benefits business. The remaining guarantees are provided by the through a refinancing or sale of the assets. In some cases, the
Company with minimal reinsurance from third parties. There were no Company also has recourse to partners for their proportionate share of
additional liabilities required for these guarantees as of December 31, amounts paid. There were no liabilities required for these
2015. Separate account assets supporting these guarantees are indemnification obligations as of December 31, 2015.
classified in Levels 1 and 2 of the GAAP fair value hierarchy. See As of December 31, 2015, the Company guaranteed that it would
Note 10 for further information on the fair value hierarchy. compensate the lessors for a shortfall of up to $41 million in the
The Company does not expect that these financial guarantees will market value of certain leased equipment at the end of the lease.
have a material effect on the Company’s consolidated results of Guarantees of $16 million expire in 2016 and $25 million expire in
operations, liquidity or financial condition. 2022. The Company had liabilities for these guarantees of
$14 million as of December 31, 2015.
B. Guaranteed Minimum Income Benefit
The Company does not expect that these guarantees will have a
material adverse effect on the Company’s consolidated results of
Contracts
operations, financial condition or liquidity.
Under these guarantees, future payment amounts are dependent on
The Company had indemnification obligations as of December 31,
underlying mutual fund investment values and interest rate levels
2015 in connection with acquisition, disposition and reinsurance
prior to and at the date of annuitization election that must occur
transactions. These indemnification obligations are triggered by the
within 30 days of a policy anniversary after the appropriate waiting
breach of representations or covenants provided by the Company,
period. Therefore, the future payments are not fixed and determinable
such as representations for the presentation of financial statements,
under the terms of these contracts. Accordingly, the Company
actuarial models, the filing of tax returns, compliance with law or the
identification of outstanding litigation. These obligations are typically
subject to various time limitations, defined by the contract or by
CIGNA CORPORATION - 2015 Form 10-K 111
NOTE 23
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