Cigna 2012 Annual Report Download - page 147

PART II
ITEM 8 Financial Statements and Supplementary Data
formula. The plaintiffs allege various ERISA violations including, 2012. The Company will continue to vigorously defend its position in
among other things, that the Plan’s cash balance formula discriminates this case.
against older employees; the conversion resulted in a wear away period Ingenix. On February 13, 2008, State of New York Attorney General
(when the pre-conversion accrued benefit exceeded the Andrew M. Cuomo announced an industry-wide investigation into
post-conversion benefit); and these conditions are not adequately the use of data provided by Ingenix, Inc., a subsidiary of
disclosed in the Plan. UnitedHealthcare, used to calculate payments for services provided by
In 2008, the court issued a decision finding in favor of Cigna out-of-network providers. The Company received four subpoenas
Corporation and the Cigna Pension Plan on the age discrimination from the New York Attorney General’s office in connection with this
and wear away claims. However, the court found in favor of the investigation and responded appropriately. On February 17, 2009, the
plaintiffs on many aspects of the disclosure claims and ordered an Company entered into an Assurance of Discontinuance resolving the
enhanced level of benefits from the existing cash balance formula for investigation. In connection with the industry-wide resolution, the
the majority of the class, requiring class members to receive their Company contributed $10 million to the establishment of a new
frozen benefits under the pre-conversion Cigna Pension Plan and their non-profit company that now compiles and provides the data
post-1997 accrued benefits under the post-conversion Cigna Pension formerly provided by Ingenix.
Plan. The court also ordered, among other things, pre-judgment and The Company was named as a defendant in a number of putative
post-judgment interest. nationwide class actions asserting that due to the use of data from
Both parties appealed the court’s decisions to the United States Court Ingenix, Inc., the Company improperly underpaid claims, an
of Appeals for the Second Circuit that issued a decision on October 6, industry-wide issue. All of the class actions were consolidated into
2009 affirming the District Court’s judgment and order on all issues. Franco v. Connecticut General Life Insurance Company et al., that is
On January 4, 2010, both parties filed separate petitions for a writ of pending in the United States District Court for the District of New
certiorari to the United States Supreme Court. Cigna’s petition was Jersey. The consolidated amended complaint, filed on August 7, 2009,
granted, and on May 16, 2011, the Supreme Court issued its Opinion asserts claims under ERISA, the RICO statute, the Sherman Antitrust
in which it reversed the lower courts’ decisions and remanded the case Act and New Jersey state law on behalf of subscribers, health care
to the trial judge for reconsideration of the remedy. The Court providers and various medical associations.
unanimously agreed with the Company’s position that the lower On September 23, 2011, the court granted in part and denied in part
courts erred in granting a remedy for an inaccurate plan description the Company’s motion to dismiss the consolidated amended
under an ERISA provision that allows only recovery of plan benefits. complaint. The court dismissed all claims by the health care provider
However, the decision identified possible avenues of ‘‘appropriate and medical association plaintiffs for lack of standing to sue, and as a
equitable relief’’ that plaintiffs may pursue as an alternative remedy. result the case will proceed only on behalf of subscribers. In addition,
The case was returned to the trial court and hearings took place on the court dismissed all of the antitrust claims, the ERISA claims based
December 9, 2011 and March 29-30, 2012. Over the summer, the on disclosure and the New Jersey state law claims. The court did not
trial judge passed away after a long illness and the case was re-assigned. dismiss the ERISA claims for benefits and claims under the RICO
On December 20, 2012, the new trial judge issued a decision statute.
awarding equitable relief to the class. The court’s order requires the Plaintiffs filed a motion to certify a nationwide class of subscriber
Company to reform the pension plan to provide a substantially plaintiffs on December 19, 2011, which was denied on January 16,
identical remedy to that ordered by the first trial judge in 2008. Both 2013. Plaintiffs petitioned for an immediate appeal of the order
parties appealed the order and the judge stayed implementation of the denying class certification, that the Company opposed.
order pending resolution of the appeals. In light of the re-affirmed
It is reasonably possible that others could initiate additional litigation
remedy ordered by the District Court, the Company was required to
or additional regulatory action against the Company with respect to
re-evaluate its reserve for this case. Due to the current economic
use of data provided by Ingenix, Inc. The Company denies the
environment of low interest rates that have a significant impact on the
allegations asserted in the investigations and litigation and will
valuation of potential future pension benefits, the Company was
vigorously defend itself in these matters.
required to increase its reserve for this matter in the fourth quarter of
Subsequent Event – Reinsurance of GMDB and GMIB Business
Effective February 4, 2013, the Company entered into an agreement future claims of approximately $4 billion to be covered by the
with Berkshire Hathaway Life Insurance Company of Nebraska agreement.
(Berkshire) to reinsure the GMDB and GMIB businesses. Berkshire This reinsurance premium will be recorded in the first quarter of 2013
will reinsure 100% of the Company’s future claim payments, net of resulting in an after-tax impact to shareholders’ net income of
retrocessional arrangements in place prior to February 4, 2013, for a approximately $500 million. Premium of $725 million was paid on
reinsurance premium of $2.2 billion. The reinsurance agreement is February 4, 2013 with the remainder to be paid by April 30, 2013.
subject to an overall limit of approximately $3.8 billion plus future This premium will ultimately be funded from the sale or internal
premiums collected under the contracts being reinsured that will be transfer of investment assets that were supporting this book of
paid to Berkshire. The Company estimates that these future premium business, as well as tax benefits related to the transaction, and cash.
amounts will be from $0.1 to $0.3 billion and, accordingly, expects
CIGNA CORPORATION - 2012 Form 10-K 125
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