Cigna 2008 Annual Report Download - page 32

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Other Products and Services
CIGNA Disability and Life offers personal accident insurance coverage, which consists primarily of accidental death and
dismemberment and travel accident insurance to employers. Group accident insurance may be employer-paid or employee-paid.
CIGNA Disability and Life also offers specialty insurance services that consist primarily of life, accident, student accident
medical and disability insurance to professional associations, financial institutions, schools and participant organizations.
Voluntary benefits are those paid by the employee and are offered at the employer’s worksite. CIGNA Disability and Life plans
provide, among other services, flexible enrollment options, list billing, medical underwriting, and individual record keeping. CIGNA
Disability and Life designed its voluntary offerings to offer employers a complete and simple way to manage their benefits, including
personalized enrollment communication and administration of the benefits program.
Pricing, Reserves and Reinsurance
Premiums and fees charged for disability and life insurance products are generally established in advance of the policy period and
are generally guaranteed for one to three years, but policies may be subject to early termination.
Premium rates reflect assumptions about future claims, expenses, credit risk, investment returns and profit margins. Assumptions
may be based in whole or in part on prior experience of the account or on a pool of accounts, depending on the group size and the
statistical credibility of the experience, which varies by product.
Fees for universal life insurance products consist of mortality, administrative and surrender charges assessed against the
policyholder’s fund balance. Interest credited and mortality charges for universal life, and mortality charges on variable universal life,
may be adjusted prospectively to reflect expected interest and mortality experience.
In addition to paying current benefits and expenses, CIGNA Disability and Life establishes reserves in amounts estimated to be
sufficient to pay reported claims not yet paid, as well as claims incurred but not yet reported. For liabilities with longer-term pay-out
periods such as long-term disability, reserves represent the present value of future expected payments. CIGNA Disability and Life
discounts these expected payments using assumptions for interest rates and the length of time over which claims are expected to be
paid. The annual effective interest rate assumptions used in determining reserves for most of the long-term disability insurance
business is 4.75% for claims that were incurred in 2008 and 2007. For universal life insurance, CIGNA Disability and Life establishes
reserves for deposits received and interest credited to the policyholder, less mortality and administrative charges assessed against the
policyholder’s fund balance.
The profitability of this segment’s products depends on the adequacy of premiums charged relative to claims, including the degree
to which future experience deviates from mortality and morbidity assumptions, expenses and investment returns. CIGNA Disability
and Life’s previous claim experience and industry data indicate a correlation between disability claim incidence levels and economic
conditions, with submitted claims rising under adverse economic conditions. The effectiveness of return to work programs and
mortality levels also impact the profitability of disability insurance products.
In order to reduce its exposure to large individual and catastrophic losses under group life, disability and accidental death policies,
CIGNA Disability and Life purchases reinsurance from unaffiliated reinsurers.
Markets and Distribution
CIGNA Disability and Life markets the group insurance products and services described above to employers, employees,
professional and other associations and groups. In marketing these products, CIGNA Disability and Life employs a captive sales force
to target customers with 50 or more employees and the products and services of this segment are primarily distributed through
insurance brokers and consultants, along with some direct sales. As of December 31, 2008, the field sales force for the products and
services of this segment consisted of approximately 200 sales professionals in 27 field locations.