Aetna 2009 Annual Report Download - page 47

Annual Report – Page 41
We hold reserves for expected claims, which are estimated, and these estimates involve an extensive degree of
judgment; if actual claims exceed reserve estimates, our operating results could be materially adversely
affected.
Our reported health care costs payable for any particular period reflect our estimates of the ultimate cost of claims that
have been incurred by our members but not yet reported to us and claims that have been reported to us but not yet paid.
We estimate health care costs payable periodically, and any resulting adjustments are reflected in current-period
operating results within health care costs. Our estimates of health care costs payable are based on a number of factors,
including those derived from historical claim experience. A large portion of health care claims are not submitted to us
until after the end of the quarter in which services are rendered by providers to our members. As a result, an extensive
degree of judgment is used in this estimation process, considerable variability is inherent in such estimates, and the
adequacy of the estimate is highly sensitive to changes in medical claims payment patterns and changes in medical cost
trends. A worsening (or improvement) of medical cost trend or changes in claim payment patterns from those that
were assumed in estimating health care costs payable at December 31, 2009 would cause these estimates to change in
the near term, and such a change could be material. Furthermore, if we are not able to accurately estimate the cost of
incurred but not yet reported claims or reported claims that have not been paid, our ability to take timely corrective
actions may be limited, which would further exacerbate the extent of any negative impact on our results of operations.
Refer to our discussion of Critical Accounting Estimates – Health Care Costs Payable beginning on page 16 for more
information.
Any requirement to restate financial results due to the inappropriate application of accounting principles or
other matters could also have a material adverse effect on us and/or the trading price of our common stock.
The appropriate application of accounting principles in accordance with GAAP is required to ensure the soundness and
accuracy of our financial statements. An inappropriate application of these principles may lead to a restatement of our
financial results and/or a deterioration in the soundness and accuracy of our reported financial results. If we
experienced such a deterioration, users of our financial statements may lose confidence in our reported results, which
could adversely affect the trading price of our common stock and/or our access to capital markets.
We are dependent on our ability to manage, engage and retain a very large workforce.
Our products and services and our operations require a large number of employees. Our business could be adversely
affected if our retention, development, succession and other human resource management techniques are not aligned
with our strategic objectives. The impact of the external environment or other factors on employee morale and
engagement could also significantly impact the success of our company.
Epidemics, pandemics, terrorist attack, natural disasters or other extreme events or the continued threat of
these extreme events could materially increase health care utilization, pharmacy costs and/or life and disability
claims and impact our business continuity, and we cannot predict with certainty whether any such events will
occur.
Extreme events, including terrorism, can affect the U.S. economy in general, our industry and us specifically. Such
events could adversely affect our business and operating results, and in the event of extreme circumstances, our
financial condition or viability. Other than obtaining insurance coverage for our facilities, there are few, if any,
commercial options through which to transfer the exposure from terrorism away from us. In particular, in the event of
bioterrorism attacks, epidemics or other extreme events, we could face significant health care (including behavioral
health), life insurance and disability costs depending on the government’ s actions and the responsiveness of public
health agencies and other insurers. In addition, our life insurance members and our employees and those of our
vendors are concentrated in certain large, metropolitan areas which may be exposed to these events. Our business
could also be adversely affected if we do not maintain adequate procedures to ensure disaster recovery and business
continuity during and after such events.
Adverse conditions in the U.S. and global capital markets can significantly and adversely affect the value of our
investments in debt and equity securities, mortgage loans, alternative investments and other investments, our
profitability and/or our financial position.
The global capital markets, including credit markets, experienced extreme volatility, uncertainty and disruption during
2008 and 2009. As an insurer, we have a substantial investment portfolio that supports our policy liabilities and is
comprised particularly of debt securities of issuers located in the U.S. As a result, the income we earn from our
investment portfolio is largely driven by the level of interest rates in the U.S., and to a lesser extent the overseas,
financial markets, and volatility, uncertainty and/or disruptions in the global capital markets, particularly the U.S.