Aetna 2006 Annual Report Download - page 88

Download and view the complete annual report

Please find page 88 of the 2006 Aetna annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 102

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102

Assets and liabilities supporting discontinued products at December 31, 2006 and 2005 were as follows: (1)
(Millions) 2006 2005
Assets:
Debt securities available for sale 2,857.4$ 3,032.3$
Equity securities available for sale 54.9 43.1
Mortgage loans 650.6 644.9
Investment real estate 77.8 103.6
Loaned securities 228.2 289.3
Other investments
(2)
625.4 603.3
Total investments 4,494.3 4,716.5
Collateral received under securities loan agreements 236.4 295.4
Current and deferred income taxes 110.3 88.9
Receivable from continuing products
(3)
452.7 498.8
Total assets 5,293.7$ 5,599.6$
Liabilities:
Future policy benefits 3,771.1$ 3,908.4$
Policyholders' funds 23.4 23.5
Reserve for anticipated future losses on discontinued products 1,061.1 1,052.2
Collateral payable under securities loan agreements 236.4 295.4
Other liabilities 201.7 320.1
Total liabilities 5,293.7$ 5,599.6$
(1) Assets supporting the discontinued products are distinguished from assets supporting continuing products.
(2) Includes debt securities on deposit as required by regulatory authorities of $22.0 million and $21.3 million at December 31, 2006
and 2005, respectively. These securities are considered restricted assets and were included in long-term investments on the
Consolidated Balance Sheets.
(3) The receivable from continuing products is eliminated in consolidation.
The discontinued products investment portfolio has changed since inception. Mortgage loans have decreased from
$5.4 billion (37% of the investment portfolio) at December 31, 1993 to $651 million (14% of the investment
portfolio at December 31, 2006). This was a result of maturities, prepayments and the securitization and sale of
commercial mortgages. Also, real estate decreased from $.5 billion (4% of the investment portfolio) at December
31, 1993 to $78 million (2% of the investment portfolio at December 31, 2006), primarily as a result of sales. The
resulting proceeds were primarily reinvested in debt and equity securities.
The change in the composition of the overall investment portfolio resulted in a change in the quality of the portfolio
since 1993. As our exposure to commercial mortgage loans and real estate has diminished, additional investment
return has been achieved by increasing the risk in the bond portfolio. At December 31, 1993, 60% of the debt
securities had a quality rating of AAA or AA, and at December 31, 2006, 26% of the debt securities had a quality
rating of AAA or AA. However, management believes the level of risk in the total portfolio of assets supporting
discontinued products was lower at December 31, 2006 than at December 31, 1993 due to the reduction of the
portfolio’ s exposure to mortgage loan and real estate investments.
At December 31, 2006 and 2005, net unrealized capital gains on debt securities available-for-sale are included
above in other liabilities and are not reflected in consolidated shareholders’ equity. The reserve for anticipated
future losses is included in future policy benefits on the Consolidated Balance Sheets.
The reserve for anticipated future losses on discontinued products represents the present value (at the risk-free rate
of return at the time of discontinuance, consistent with the duration of the liabilities) of the difference between the
expected cash flows from the assets supporting discontinued products and the cash flows expected to be required
to meet the obligations of the outstanding contracts. Calculation of the reserve for anticipated future losses
requires projection of both the amount and the timing of cash flows over approximately the next 30 years,
including consideration of, among other things, future investment results, participant withdrawal and mortality
rates and the cost of asset management and customer service. Since 1993, there have been no significant changes
to the assumptions underlying the calculation of the reserve related to the projection of the amount and timing of
cash flows, except as noted below.
Page 86