Aetna 2009 Annual Report Download - page 48

Annual Report – Page 42
credit markets, and governments’ monetary policy, particularly the easing of U.S. monetary policy, can significantly
and adversely affect the value of our investment portfolio, our profitability and/or our financial position by:
 Significantly reducing the value of the debt securities we hold in our investment portfolio, and creating net realized
capital losses that reduces our operating results and/or net unrealized capital losses that reduce our shareholders’
equity.
 Reducing interest rates on high quality short-term debt securities and thereby materially reducing our net
investment income and operating results.
 Making it more difficult to value certain of our investment securities, for example if trading becomes less frequent,
which could lead to significant period-to-period changes in our estimates of the fair values of those securities and
cause period-to-period volatility in our operating results and shareholders’ equity.
 Reducing our ability to issue short-term debt securities at attractive interest rates, thereby increasing our interest
expense and decreasing our operating results.
 Reducing our ability to issue other securities.
Although we seek, within guidelines we deem appropriate, to match the duration of our assets and liabilities and to
manage our credit exposures, a failure to adequately do so could adversely affect our results of operations and our
financial condition.
We outsource and obtain certain information technology systems or other services from independent third
parties, and also delegate selected functions to independent practice associations and specialty service
providers; portions of our operations are subject to their performance.
Although we take steps to monitor and regulate the performance of independent third parties who provide services to
us or to whom we delegate selected functions, these arrangements may make our operations vulnerable if those third
parties fail to satisfy their obligations to us, whether because of our failure to adequately monitor and regulate their
performance, or changes in their own financial condition or other matters outside our control. In recent years, certain
third parties to whom we delegated selected functions, such as independent practice associations and specialty services
providers, have experienced financial difficulties, including bankruptcy, which may subject us to increased costs and
potential health benefits provider network disruptions, and in some cases cause us to incur duplicative claims expense.
In addition, certain of our vendors have been responsible for releases of sensitive information of our members and
employees, which has caused us to incur additional expenses and given rise to litigation against us. Certain legislative
authorities have in recent years also discussed or proposed legislation that would restrict outsourcing and, if enacted,
could materially increase our costs. We also could become overly dependent on key vendors, which could cause us to
lose core competencies if not properly monitored.
Our pension plan expenses are affected by general market conditions, interest rates and the accuracy of
actuarial estimates of future benefit costs.
We have pension plans that cover a large number of current employees and retirees. Unfavorable investment
performance, interest rate changes or changes in estimates of benefit costs, if significant, could adversely affect our
operating results or financial condition by significantly increasing our pension plan expense and obligations. For
example, due to market driven unfavorable investment performance in 2008, our pension expense increased in 2009.
We also face other risks that could adversely affect our business, results of operations or financial condition,
which include:
 Health benefits provider fraud that is not prevented or detected and impacts our medical cost trends or those of
our self-insured customers. In addition, during an economic downturn, our businesses may see increased
fraudulent claims volume, which may lead to additional costs because of an increase in disputed claims and
litigation;
 A significant failure of internal control over financial reporting;
 Failure of our corporate governance policies or procedures, for example significant financial decisions being
made at an inappropriate level in our organization;
 Financial loss from inadequate insurance coverage due to self insurance levels or unavailability of insurance
and reinsurance coverage for credit or other reasons; and
 Failure to protect our proprietary information.