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16
F. Run-off Reinsurance
Principal Products and Services
Until 2000, CIGNA offered reinsurance coverage for part or all of the risks written by other insurance companies (or “ceding
companies”) under life and annuity policies (both group and individual); accident policies (workers’ compensation, personal accident,
and catastrophe coverages); and health policies. The products and services related to these operations were offered by subsidiaries of
CIGNA Corporation.
In 2000, CIGNA sold its U.S. individual life, group life and accidental death reinsurance businesses. CIGNA placed its
remaining reinsurance businesses (including its accident, domestic health, international life and health, and annuity reinsurance
businesses) into run-off as of June 1, 2000 and stopped underwriting new reinsurance business.
CIGNA’s exposures stem primarily from its annuity reinsurance business, including its reinsurance of guaranteed minimum death
benefits (“GMDB”) and guaranteed minimum income benefits (“GMIB”) contracts. Additional exposures arise from its reinsurance
of workers’ compensation and other personal accident and catastrophic risks.
Life and Annuity Policies
Guaranteed Minimum Death Benefit Contracts
CIGNA’s reinsurance segment reinsured GMDB (also known as variable annuity death benefits (“VADBe”)), under certain
variable annuities issued by other insurance companies. These variable annuities are essentially investments in mutual funds
combined with a death benefit. CIGNA has equity and other market exposures as a result of this product. The Company purchased
retrocessional protection that covers a portion of the assumed risks. The Company also maintains a dynamic hedge program (“GMDB
equity hedge program”) to substantially reduce the equity market exposures relating to GMDB contracts by entering into exchange-
traded futures contracts.
For additional information about guaranteed minimum death benefit contracts, see “Run-off Reinsurance” beginning on page 62
and Note 7 to CIGNA’s Consolidated Financial Statements beginning on page 100 of this Form 10-K.
Guaranteed Minimum Income Benefit Contracts
In certain circumstances where CIGNA’s reinsurance operations reinsured the guaranteed minimum death benefit, CIGNA also
reinsured GMIB under certain variable annuities issued by other insurance companies. These variable annuities are essentially
investments in mutual funds combined with minimum income and death benefits. All reinsured GMIB policies also have a GMDB
benefit reinsured by the Company. When annuitants elect to receive these minimum income benefits, CIGNA may be required to
make payments which will vary based on changes in underlying mutual fund values and interest rates. CIGNA has retrocessional
coverage for 55% of the exposures on these contracts, provided by two external reinsurers.
For additional information about guaranteed minimum income benefit contracts, see “Guaranteed Minimum Income Benefits”
under “Run-off Reinsurance” beginning on page 62 and Note 11 to CIGNA’s Consolidated Financial Statements beginning on page
110 of this Form 10-K.
Workers’ Compensation, Personal Accident and Catastrophe
CIGNA reinsured workers’ compensation and other personal accident and catastrophic risks in the London market and in the
United States. CIGNA purchased retrocessional coverage in these markets to substantially reduce the risk of loss on these contracts.
Health
The health policies have been substantially run off.