Cigna 2008 Annual Report Download - page 38

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G. Other Operations
Other Operations consists of:
• non-leveraged and leveraged corporate-owned life insurance;
• deferred gains recognized from the 1998 sale of the individual life insurance and annuity business and the 2004 sale of the
retirement benefits business; and
• run-off settlement annuity business.
The products and services related to these operations are offered by subsidiaries of CIGNA Corporation.
Corporate-owned Life Insurance (“COLI”)
Principal Products and Services
The principal products of the COLI business are permanent insurance contracts sold to corporations to provide coverage on the
lives of certain of their employees. Permanent life insurance provides coverage that, when adequately funded, does not expire after a
term of years. The contracts are primarily non-participating universal life policies. The key distinction between leveraged and non-
leveraged COLI products is that, with leveraged COLI, the product design anticipates borrowing by the policy owner of a portion of
the surrender value, while policy loans are not a significant feature of non-leveraged COLI.
Universal life policies typically provide flexible coverage and flexible premium payments. Policy cash values fluctuate with the
amount of the premiums paid, mortality and expense charges assessed, and interest credited to the policy. Variable universal life
policies are universal life contracts in which the cash values vary directly with the performance of a specific pool of investments
underlying the policy.
The principal services provided by the corporate-owned life insurance business are issuance and administration of the insurance
policies (e.g., maintenance of records regarding cash values and death benefits, claims processing, etc.) as well as oversight of the
investment management for separate account assets that support the variable universal life product.
Product Features
Cash values on universal life policies are credited interest at a declared interest rate that reflects the anticipated investment results
of the assets backing these policies and may vary with the characteristics of each product. Universal life policies generally have a
minimum guaranteed declared interest rate which may be cumulative from the issuance date of the policy. The declared interest rate
may be changed monthly, but is generally changed less frequently. While variable universal life products may have a guaranteed
minimum crediting rate, CIGNA did not have any such contracts at December 31, 2008.
In lieu of credited interest rates, holders of certain universal life policies may elect to receive credited income based on changes in
an equity index, such as the S&P 500®. No such elections have been made since 2004.
Mortality risk is retained according to guidelines established by CIGNA. To the extent a given policy carries mortality risk that
exceeds these guidelines, reinsurance is purchased from third parties for the balance.
Pricing, Reserves, and Reinsurance
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.
For universal life insurance, CIGNA establishes reserves for deposits received and interest credited to the contractholder, less
mortality and administrative charges assessed against the contractholder’s fund balance.