Aetna 2013 Annual Report Download - page 136

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Annual Report- Page 130
million and $390 million, respectively, of collateralized excess of loss reinsurance coverage on a portion of Aetna’s
group Commercial Insured Health Care business.
In May 2013, we entered into two agreements with unrelated reinsurers to reinsure a portion of our Medicare
Advantage business and a portion of our group Commercial Insured Health Care business, respectively. These
contracts did not qualify for reinsurance accounting under GAAP, and consequently are accounted for using deposit
accounting.
In 2008, as a result of the liquidation proceedings of Lehman Re, a subsidiary of Lehman Brothers Holdings Inc.,
we recorded an allowance against our reinsurance recoverable from Lehman Re of $27.4 million ($42.2 million
pretax). This reinsurance was placed in 1999 and was on a closed book of paid-up group whole life insurance
business. In September 2008, we took possession of assets supporting the reinsurance recoverable, which
previously were held as collateral in a trust. In 2013, we sold our claim against Lehman Re to an unrelated third
party (including the reinsurance recoverable) and terminated the reinsurance arrangement. Upon the sale of the
claim and termination of the arrangement, we released the related allowance thereby reducing other general and
administrative expenses by $27.4 million ($42.2 million pretax) and recognized a $4.7 million ($7.2 million pretax)
gain on the sale in fees and other revenue.
18. Commitments and Contingencies
Guarantees
We have the following significant guarantee and indemnification arrangements at December 31, 2013.
• ASC Claim Funding Accounts - We have arrangements with certain banks for the processing of claim
payments for our ASC customers. The banks maintain accounts to fund claims of our ASC customers. The
customer is responsible for funding the amount paid by the bank each day. In these arrangements, we
guarantee that the banks will not sustain losses if the responsible ASC customer does not properly fund its
account. The aggregate maximum exposure under these arrangements is $250 million. We can limit our
exposure to this guarantee by suspending the payment of claims for ASC customers that have not
adequately funded the amount paid by the bank.
• Indemnification Agreements - In connection with certain acquisitions and dispositions of assets and/or
businesses, our various issuances of long-term debt and our reinsurance relationships with Vitality Re
Limited, Vitality Re II Limited, Vitality Re III Limited and Vitality Re IV Limited, we have incurred certain
customary indemnification obligations to the applicable seller, purchaser, underwriters and/or various other
participants. In general, we have agreed to indemnify the other party for certain losses relating to the assets
or business that we or they purchased or sold or for other matters on terms that are customary for similar
transactions. Certain portions of our indemnification obligations are capped at the applicable transaction
price, while other arrangements are not subject to such a limit. At December 31, 2013, we do not believe
that our future obligations under any of these agreements will be material to our financial position.
• Separate Accounts assets - Certain Separate Accounts assets associated with the Large Case Pensions
business represent funds maintained as a contractual requirement to fund specific pension annuities that we
have guaranteed. Minimum contractual obligations underlying the guaranteed benefits in these Separate
Accounts were $2.2 billion and $2.8 billion at December 31, 2013 and 2012, respectively. Refer to Note 2
beginning on page 83 for additional information on Separate Accounts. Contract holders assume all
investment and mortality risk and are required to maintain Separate Accounts balances at or above a
specified level. The level of required funds is a function of the risk underlying the Separate Accounts'
investment strategy. If contract holders do not maintain the required level of Separate Accounts assets to
meet the annuity guarantees, we would establish an additional liability. Contract holders' balances in the
Separate Accounts at December 31, 2013 exceeded the value of the guaranteed benefit obligation. As a
result, we were not required to maintain any additional liability for our related guarantees at December 31,
2013.