Cigna 2012 Annual Report Download - page 145

PART II
ITEM 8 Financial Statements and Supplementary Data
representations or covenants provided by the Company, such as
B. Guaranteed Minimum Income Benefit
representations for the presentation of financial statements, the filing
Contracts
of tax returns, compliance with law or the identification of
outstanding litigation. These obligations are typically subject to
See Notes 11 (fair value) and 13 (derivatives) for further information
various time limitations, defined by the contract or by operation of
on GMIB contracts. Under these guarantees, the future payment
law, such as statutes of limitation. In some cases, the maximum
amounts are dependent on equity and bond fund market and interest
potential amount due is subject to contractual limitations based on a
rate levels prior to and at the date of annuitization election, that must
percentage of the transaction purchase price, while in other cases
occur within 30 days of a policy anniversary, after the appropriate
limitations are not specified or applicable. The Company does not
waiting period. Therefore, the future payments are not fixed and
believe that it is possible to determine the maximum potential amount
determinable under the terms of the contract. Accordingly, the
due under these obligations, since not all amounts due under these
Company’s maximum potential undiscounted future payment of
indemnification obligations are subject to limitation. There were no
$1.1 billion was determined using the following hypothetical
liabilities for these indemnification obligations as of December 31,
assumptions:
2012.
no annuitants surrendered their accounts;
The Company does not expect that these guarantees will have a
all annuitants lived to elect their benefit; material adverse effect on the Company’s consolidated results of
all annuitants elected to receive their benefit on the next available operations, financial condition or liquidity.
date (2013 through 2018); and
all underlying mutual fund investment values remained at the
D. Regulatory and Industry Developments
December 31, 2012 value of $1.1 billion with no future returns.
Employee benefits regulation. The business of administering and
The Company has retrocessional coverage in place from two external
insuring employee benefit programs, particularly health care
reinsurers that covers 55% of the exposures on these contracts. The
programs, is heavily regulated by federal and state laws and
Company reinsured the remainder of the exposures on these contracts
administrative agencies, such as state departments of insurance and
effective February 4, 2013. The Company bears the risk of loss if its
the Federal Departments of Labor and Justice, as well as the courts.
retrocessionaires do not meet or are unable to meet their reinsurance
Regulation, legislation and judicial decisions have resulted in changes
obligations to the Company.
to industry and the Company’s business practices and will continue to
do so in the future. In addition, the Company’s subsidiaries are
C. Certain Other Guarantees
routinely involved with various claims, lawsuits and regulatory and
The Company had indemnification obligations to lenders of up to IRS audits and investigations that could result in financial liability,
$331 million as of December 31, 2012, related to borrowings by changes in business practices, or both.
certain real estate joint ventures that the Company either records as an Health care regulation and legislation in its various forms, including
investment or consolidates. These borrowings, that are nonrecourse to the implementation of the Patient Protection and Affordable Care Act
the Company, are secured by the joint ventures’ real estate properties (including the Reconciliation Act) that was signed into law during the
with fair values in excess of the loan amounts and mature at various first quarter of 2010 and found to be constitutional by the U.S.
dates beginning in 2013 through 2042. The Company’s Supreme Court in June of 2012, could have a material adverse effect
indemnification obligations would require payment to lenders for any on the Company’s health care operations if it inhibits the Company’s
actual damages resulting from certain acts such as unauthorized ability to respond to market demands, adversely affects the way the
ownership transfers, misappropriation of rental payments by others or Company does business, or results in increased medical or
environmental damages. Based on initial and ongoing reviews of administrative costs without improving the quality of care or services.
property management and operations, the Company does not expect Other possible regulatory and legislative changes or judicial decisions
that payments will be required under these indemnification that could have an adverse effect on the Company’s employee benefits
obligations. Any payments that might be required could be recovered businesses include:
through a refinancing or sale of the assets. In some cases, the
Company also has recourse to partners for their proportionate share of additional mandated benefits or services that increase costs;
amounts paid. There were no liabilities required for these legislation that would grant plan participants broader rights to sue
indemnification obligations as of December 31, 2012. their health plans;
As of December 31, 2012, the Company guaranteed that it would changes in public policy and in the political environment, that
compensate the lessors for a shortfall of up to $41 million in the could affect state and federal law, including legislative and
market value of certain leased equipment at the end of the lease. regulatory proposals related to health care issues, that could increase
Guarantees of $16 million expire in 2016 and $25 million expire in cost and affect the market for the Company’s health care products
2025. The Company had liabilities for these guarantees of $2 million and services;
as of December 31, 2012.
changes in Employee Retirement Income Security Act of 1974
The Company had indemnification obligations as of December 31, (‘‘ERISA’’) regulations resulting in increased administrative burdens
2012 in connection with acquisition and disposition transactions. and costs;
These indemnification obligations are triggered by the breach of
CIGNA CORPORATION - 2012 Form 10-K 123
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