Cigna 2011 Annual Report Download - page 65

43CIGNA CORPORATION2011 Form10K
PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
Balance Sheet Caption/Nature of Critical Accounting Estimate Eect if Dierent Assumptions Used
Accounts payable, accrued expenses and other liabilities – pension
liabilities
ese liabilities are estimates of the present value of the qualied and
nonqualied pension benets to be paid (attributed to employee service to
date) net of the fair value of plan assets. e accrued pension benet liability
as of December31 was as follows (inmillions):
•2011 – $1,769
•2010 – $1,528
See Note9 to the Consolidated Financial Statements for assumptions and
methods used to estimate pension liabilities.
Using past experience, the Company expects that it is reasonably possible
that a favorable or unfavorable change in assumptions for the discount
rate or expected return on plan assets of 50basis points could occur. An
unfavorable change is a decrease in these key assumptions with resulting
impacts as discussed below.
If discount rates for the qualied and nonqualied pension plans decreased
by 50basis points:
•annual pension costs for 2012 would decrease by approximately
$4million, after-tax; and
•the accrued pension benet liability would increase by approximately
$256million as of December31,2011 resulting in an after-tax
decrease to shareholders’ equity of approximately $166million as of
December31,2011.
If the expected long-term return on domestic qualied pension plan assets
decreased by 50basis points, annual pension costs for 2012 would increase
by approximately $11million after-tax.
If the Company used the market value of assets to measure pension costs as
opposed to the market-related value, annual pension cost for 2012 would
increase by approximately $11million after-tax.
If the December31,2011 fair values of domestic qualied plan assets
decreased by 10%, the accrued pension benet liability would increase by
approximately $328million as of December31,2011 resulting in an after-
tax decrease to shareholders’ equity of approximately $213million.
An increase in these key assumptions would result in impacts to annual
pension costs, the accrued pension liability and shareholders’ equity in an
opposite direction, but similar amounts.
Health Care medical claims payable
Medical claims payable for the Health Care segment include both reported
claims and estimates for losses incurred but not yet reported.
Liabilities for medical claims payable as of December31 were as follows
(inmillions):
•2011 – gross $1,095; net $901
•2010 – gross $1,246; net $1,010
ese liabilities are presented above both gross and net of reinsurance and
other recoverables and generally exclude amounts for administrative services
only business.
See Notes2 and 5 to the Consolidated Financial Statements for additional
information regarding assumptions and methods used to estimate this
liability.
In 2011, actual experience diered from the Company’s key assumptions
as of December31,2010, resulting in $126million of favorable incurred
claims related to prior years’ medical claims payable or 1.5% of the current
year incurred claims as reported in 2010. In 2010, actual experience diered
from the Company’s key assumptions as of December31,2009, resulting
in $93million of favorable incurred claims related to prior years’ medical
claims, or 1.3% of the current year incurred claims reported in 2009.
Specically, the favorable impact is due to faster than expected completion
factors and lower than expected medical cost trends, both of which included
an assumption for moderately adverse experience.
e impact of this favorable prior year development was an increase to
shareholders’ net income of $53million after-tax ($82million pre-tax) in
2011. e change in the amount of the incurred claims related to prior years
in the medical claims payable liability does not directly correspond to an
increase or decrease in shareholders’ net income as explained in Note5 to
the Consolidated Financial Statements.
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