Cigna 2009 Annual Report Download - page 184

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The Company is required to disclose the maximum potential undiscounted future payments for GMIB contracts. Under these
guarantees, the future payment amounts are dependent on equity and bond fund market and interest rate levels prior to and at the date
of annuitization election, which must occur within 30 days of a policy anniversary, after the appropriate waiting period. Therefore, the
future payments are not fixed and determinable under the terms of the contract. Accordingly, the Company has estimated the
maximum potential undiscounted future payments using hypothetical adverse assumptions, defined as follows:
x no annuitants surrendered their accounts;
x all annuitants lived to elect their benefit;
x all annuitants elected to receive their benefit on the next available date (2010 through 2014); and
x all underlying mutual fund investment values remained at the December 31, 2009 value of $1.3 billion with no future returns.
The maximum potential undiscounted payments that the Company would make under those assumptions would aggregate $1.2 billion
before reinsurance recoveries. The Company expects the amount of actual payments to be significantly less than this hypothetical
undiscounted aggregate amount. The Company has retrocessional coverage in place from two external reinsurers which covers 55%
of the exposures on these contracts. The Company bears the risk of loss if its retrocessionaires do not meet or are unable to meet their
reinsurance obligations to the Company.
C. Certain Other Guarantees
The Company had indemnification obligations to lenders of up to $235 million as of December 31, 2009 related to borrowings by
certain real estate joint ventures which the Company either records as an investment or consolidates. These borrowings, which are
nonrecourse to the Company, are secured by the joint ventures’ real estate properties with fair values in excess of the loan amounts
and mature at various dates beginning in 2010 through 2017. The Company’s indemnification obligations would require payment to
lenders for any actual damages resulting from certain acts such as unauthorized ownership transfers, misappropriation of rental
payments by others or environmental damages. Based on initial and ongoing reviews of property management and operations, the
Company does not expect that payments will be required under these indemnification obligations. Any payments that might be
required could be recovered through a refinancing or sale of the assets. In some cases, the Company also has recourse to partners for
their proportionate share of amounts paid. There were no liabilities required for these indemnification obligations as of December 31,
2009.
As part of the reinsurance and administrative service arrangements, the Company pays claims for the group medical and long-term
disability business of Great-West Healthcare and collects related amounts due from their third-party reinsurers. Any uncollected
amounts will represent additional assumed liabilities of the Company and decrease shareholders’ net income if and when these
amounts are determined uncollectible. At December 31, 2009, there were no receivables recorded for paid claims due from third-party
reinsurers for this business and unpaid claims related to this business were estimated at $22 million.
As of December 31, 2009, the Company guaranteed that it would compensate the lessors for a shortfall of up to $44 million in the
market value of certain leased equipment at the end of each lease. Guarantees of $28 million expire in 2012 and $16 million expire in
2016. The Company had additional liabilities for these guarantees of $8 million as of December 31, 2009.
The Company had indemnification obligations as of December 31, 2009 in connection with acquisition and disposition
transactions. These indemnification obligations are triggered by the breach of representations or covenants provided by the Company,
such as representations for the presentation of financial statements, the filing of tax returns, compliance with law or the identification
of outstanding litigation. These obligations are typically subject to various time limitations, defined by the contract or by operation of
law, such as statutes of limitation. In some cases, the maximum potential amount due is subject to contractual limitations based on a
percentage of the transaction purchase price, while in other cases limitations are not specified or applicable. The Company does not
believe that it is possible to determine the maximum potential amount due under these obligations, since not all amounts due under
these indemnification obligations are subject to limitation. There were no liabilities required for these indemnification obligations as
of December 31, 2009.
The Company contracts on an administrative services only (“ASO”) basis with customers who fund their own claims. The Company
charges these customers administrative fees based on the expected cost of administering their self-funded programs. In some cases, the
Company provides performance guarantees associated with meeting certain service related and other performance standards. If these
standards are not met, the Company may be financially at risk up to a stated percentage of the contracted fee or a stated dollar amount.
The Company establishes liabilities for estimated payouts associated with these guarantees. Approximately 10% of reported ASO fees
were at risk for the periods reported, with actual reimbursements of generally less than 1% of reported ASO fees in 2009, 2008 and
2007.