Aetna 2006 Annual Report Download - page 26

(Decrease) Increase Decrease (Increase) in (Decrease) Increase Decrease (Increase) in
in Factor Results of Operations in Factor Results of Operations
(4%) (110.4)$
(.75%) 56.9$ (3%) (82.8)
(.5%) 37.9 (2%) (55.2)
(.25%) 18.9 (1%) (27.6)
.25% (18.9) 1% 27.6
.5% (37.7) 2% 55.2
.75% (56.5) 3% 82.8
4% 110.4
Completion Factors (1) Health Care Cost Trend Rates (2)
(1) Reflects estimated impact of a (decrease) increase in weighted average completion factors prior to the most recent three months. An
increase in the completion factor results in a decrease in the remaining estimated reserves for claims.
(2) Reflects estimated impact of a (decrease) increase in health care cost trend rates for the most recent three months.
Health care costs payable as of December 31, 2006 and 2005 consisted of the following:
(Millions) 2006 2005
Commercial Risk 1,793.1$ 1,737.3$
Medicare 128.7 79.5
Medicaid 5.7 .2
Total health care costs payable 1,927.5$ 1,817.0$
Premium Deficiency Reserves
In cases where we project future health care costs will exceed our existing reserves plus anticipated future
premiums, we establish premium deficiency reserves for the amount of the expected loss in excess of expected
future premiums. Anticipated investment income is considered in the calculation of expected losses for certain
contracts. Any such reserves established would normally cover expected losses until the next policy renewal dates
for the related policies. We did not have any material premium deficiency reserves for our Health business at
December 31, 2006.
Other Insurance Liabilities
We establish insurance liabilities other than health care costs payable for benefit claims related to our Group
Insurance segment. We refer to these liabilities as other insurance liabilities. These liabilities relate to our life,
disability and long-term care products.
Life and Disability
The liabilities for our life and disability products reflect benefit claims that have been reported to us but not yet
paid, estimates of claims that have been incurred but not yet reported to us and future policy benefits earned under
insurance contracts. We develop these reserves and the related benefit expenses are developed using actuarial
principles and assumptions that consider, among other things, discount, recovery and mortality rates (each
discussed below). Completion factors are also evaluated when estimating our reserves for claims incurred but not
yet reported for life products. We also consider the benefit payments from the U.S. Social Security Administration
for which our disability members may be eligible and which may offset our liability for disability claims (this is
known as the Social Security offset). Each period, we estimate these factors, to the extent relevant, based primarily
on historical data, and use these estimates to determine the assumptions underlying our reserve calculations. Given
the extensive degree of judgment and uncertainty used in developing these estimates, it is possible that our
estimates could develop either favorably or unfavorably.
Page 24