Cigna 2008 Annual Report Download - page 153

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Premiums and fees, mail order pharmacy revenues and other revenues by product type were as follows for the years ended
December 31:
(In millions) 2008 2007 2006
Medical $ 12,287 $ 11,276 $ 10,227
Disability 994 945 798
Life, Accident and Health 2,766 2,619 2,439
Mail order pharmacy 1,204 1,118 1,145
Other 957 536 523
Total $ 18,208 $ 16,494 $ 15,132
Note 22 ― Contingencies and Other Matters
The Company, through its subsidiaries, is contingently liable for various financial guarantees provided in the ordinary course of
business.
A. Financial Guarantees Primarily Associated with the Sold Retirement Benefits Business
Separate account assets are contractholder funds maintained in accounts with specific investment objectives. The Company records
separate account liabilities equal to separate account assets. In certain cases, primarily associated with the sold retirement benefits
business (which was sold in April 2004), the Company guarantees a minimum level of benefits for retirement and insurance contracts,
written in separate accounts. The Company establishes an additional liability if management believes that the Company will be
required to make a payment under these guarantees.
The Company guarantees that separate account assets will be sufficient to pay certain retiree or life benefits. The sponsoring
employers are primarily responsible for ensuring that assets are sufficient to pay these benefits and are required to maintain assets that
exceed a certain percentage of benefit obligations. This percentage varies depending on the asset class within a sponsoring employer’s
portfolio (for example, a bond fund would require a lower percentage than a riskier equity fund) and thus will vary as the composition
of the portfolio changes. If employers do not maintain the required levels of separate account assets, the Company or an affiliate of
the buyer has the right to redirect the management of the related assets to provide for benefit payments. As of December 31, 2008,
employers maintained assets that exceeded the benefit obligations. Benefit obligations under these arrangements were $1.8 billion as
of December 31, 2008. As of December 31, 2008, approximately 76% of these guarantees are reinsured by an affiliate of the buyer of
the retirement benefits business. The remaining guarantees are provided by the Company with minimal reinsurance from third parties.
There were no additional liabilities required for these guarantees as of December 31, 2008. Separate account assets supporting these
guarantees are classified in Levels 1 and 2 of the SFAS No. 157 fair value hierarchy. See Note 11 for further information on the fair
value hierarchy.
B. Guaranteed Minimum Income Benefit Contracts
The Company's reinsurance operations, which were discontinued in 2000 and are now an inactive business in run-off mode, reinsured
minimum income benefits under certain variable annuity contracts issued by other insurance companies. A contractholder can elect
the guaranteed minimum income benefit (GMIB) within 30 days of any eligible policy anniversary after a specified contractual
waiting period. The Company’s exposure arises when the guaranteed annuitization benefit exceeds the annuitization benefit based on
the policy’s current account value. At the time of annuitization, the Company pays the excess (if any) of the guaranteed benefit over
the benefit based on the current account value in a lump sum to the direct writing insurance company.
In periods of declining equity markets or declining interest rates, the Company’s GMIB liabilities increase. Conversely, in periods of
rising equity markets and rising interest rates, the Company’s liabilities for these benefits decrease.
The Company estimates the fair value of the GMIB assets and liabilities using assumptions for market returns and interest rates,
volatility of the underlying equity and bond mutual fund investments, mortality, lapse, annuity election rates, non-performance risk,
and risk and profit charges. Assumptions were updated effective January 1, 2008 to reflect the requirements of SFAS No. 157. See
Note 11 for additional information on how fair values for these liabilities and related receivables for retrocessional coverage are
determined.
The Company is required to disclose the maximum potential undiscounted future payments for guarantees related to minimum income
benefits. Under these guarantees, the future payment amounts are dependent on equity and bond fund market and interest rate levels