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CIGNA CORPORATION2010 Form 10K
90
PART II
ITEM 8 Financial Statements and Supplementary Data
Retirement benefi ts business
e Company had reinsurance recoverables of $1.7 billion as of
December 31, 2010, and December 31, 2009 from Prudential
Retirement Insurance and Annuity Company resulting from the
2004 sale of the retirement benefi ts business, which was primarily in
the form of a reinsurance arrangement.  e reinsurance recoverable,
which is reduced as the Company’s reinsured liabilities are paid
or directly assumed by the reinsurer, is secured primarily by fi xed
maturities equal to or greater than 100% of the reinsured liabilities.
ese fi xed maturities are held in a trust established for the benefi t of
the Company. As of December 31, 2010, the fair value of trust assets
exceeded the reinsurance recoverable.
Individual life and annuity reinsurance
e Company had reinsurance recoverables totaling $4.3 billion as of
December 31, 2010 and $4.4 billion as of December 31, 2009 from
e Lincoln National Life Insurance Company and Lincoln Life
& Annuity of New York resulting from the 1998 sale of the Company’s
individual life insurance and annuity business through indemnity
reinsurance arrangements. At December 31, 2010, the $3.9 billion
reinsurance recoverable from  e Lincoln National Life Insurance
Company was secured by assets held in a trust established for the
benefi t of the Company, and was less than the market value of the
trust assets.  e remaining recoverable from Lincoln Life & Annuity
of New York of $402 million is currently unsecured, however if this
reinsurer does not maintain a specifi ed minimum credit or claims
paying rating, it is required to fully secure the outstanding balance.
As of December 31, 2010 both companies had ratings suffi cient to
avoid triggering a contractual obligation.
Other Ceded and Assumed Reinsurance
Ceded Reinsurance: Ongoing operations
e Company’s insurance subsidiaries have reinsurance recoverables
from various reinsurance arrangements in the ordinary course of
business for its Health Care, Disability and Life, and International
segments as well as the corporate-owned life insurance business.
Reinsurance recoverables of $282 million as of December 31, 2010
are expected to be collected from more than 70 reinsurers.
e Company reviews its reinsurance arrangements and establishes
reserves against the recoverables in the event that recovery is not
considered probable. As of December 31, 2010, the Company’s
recoverables related to these segments were net of a reserve of
$9 million.
Assumed and Ceded reinsurance: Run-off Reinsurance
segment
e Company’s Run-off Reinsurance operations assumed risks related
to GMDB contracts, GMIB contracts, workers’ compensation, and
personal accident business.  e Company’s Run-off Reinsurance
operations also purchased retrocessional coverage to reduce the risk
of loss on these contracts. In December 2010, the Company entered
into reinsurance arrangements to transfer the remaining liabilities
and administration of the workers’ compensation and personal
accident businesses to a subsidiary of Enstar Group Limited. Under
this arrangement, the new reinsurer also assumes the future risk
of collection from prior reinsurers. See Note 3 for further details
regarding this arrangement.
Liabilities related to GMDB, workers’ compensation and personal
accident are included in future policy benefi ts and unpaid claims.
Because the GMIB contracts are treated as derivatives under GAAP,
the asset related to GMIB is recorded in the Other assets, including
other intangibles caption and the liability related to GMIB is recorded
in Accounts payable, accrued expenses, and other liabilities on the
Company’s Consolidated Balance Sheets (see Notes 11 and 24 for
additional discussion of the GMIB assets and liabilities).
e reinsurance recoverables for GMDB, workers’ compensation,
and personal accident total $261 million as of December 31, 2010.
Of this amount, approximately 77% are secured by assets in trust or
letters of credit.
e Company reviews its reinsurance arrangements and establishes
reserves against the recoverables in the event that recovery is not
considered probable. As of December 31, 2010, the Company’s
recoverables related to this segment were net of a reserve of $1 million.
e Company’s payment obligations for underlying reinsurance
exposures assumed by the Company under these contracts are
based on the ceding companies’ claim payments. For GMDB, claim
payments vary because of changes in equity markets and interest rates,
as well as mortality and contractholder behavior. Any of these claim
payments can extend many years into the future, and the amount
of the ceding companies’ ultimate claims, and therefore the amount
of the Company’s ultimate payment obligations and corresponding
ultimate collection from retrocessionaires, may not be known with
certainty for some time.
Summary
e Company’s reserves for underlying reinsurance exposures
assumed by the Company, as well as for amounts recoverable from
reinsurers/retrocessionaires for both ongoing operations and the
run-off reinsurance operation, are considered appropriate as of
December 31, 2010, based on current information. However, it is
possible that future developments could have a material adverse eff ect
on the Company’s consolidated results of operations and, in certain
situations, such as if actual experience diff ers from the assumptions
used in estimating reserves for GMDB, could have a material adverse
eff ect on the Company’s fi nancial condition.  e Company bears the
risk of loss if its retrocessionaires do not meet or are unable to meet
their reinsurance obligations to the Company.