STATE OF CONNECTICUT

Transcription

1 STATE OF CONNECTICUT INSURANCE DEPARTMENT ORDER ADOPTING REPORT OF EXAMINATION I, Katharine L. Wade, Insurance Commissioner of the State of Connecticut, having fully considered and reviewed the Examination Report (the "Report") of Aetna Life Insurance Company, (the "Company") as of December 31, 2015, do hereby adopt the findings and recommendations contained therein based on the following findings and conclusions, TO WIT: 1. I, Katharine L. Wade, as the Insurance Commissioner of the State of Connecticut, and as such is charged with the duty of administering and enforcing the provisions of Title 38a of the Connecticut General Statutes ("CGS"). 2. The Company is a domestic insurer authorized to transact the business of insurance in the State of Connecticut. 3. On March 3, 2017, the verified Examination Report of the Company was filed with the Connecticut Insurance Department ("Insurance Department"). 4. In accordance with Section 38a-14(e)(3) of the CGS, the Company was afforded a period of thirty (30) days within which to submit to the Insurance Department a written submission or rebuttal with respect to any matters contained in the Report. 5. On May 10, 2017, the Company notified the Insurance Department of certain responses and comments on certain items contained in the Report. 6. Following review of the Report, it was deemed necessary and appropriate to modify the Report. A copy of the Report is attached hereto and incorporated herein as Exhibit A. P.O. Box 816 Hartford, CT An Equal Opportunity Employer

2 NOW, THEREFORE, it is ordered as follows: 1. That the Report of the Company hereby is adopted as filed with the Insurance Department. 2. That the Company shall comply with all of the recommendations set forth in the Report, and that failure by the Company to so comply shall result in sanctions or administrative action as provided by Title 38a of the CGS. 3. Section 38a-14( e )( 4)(A) of the CGS requires that: "The secretary of the board of directors or similar governing body of the entity shall provide a copy of the report or summary to each director and shall certify to the commissioner, in writing, that a copy of the report or summary has been provided to each director." Please address the certification to the commissioner but send[ing] to the care/attention of William Arfanis, Supervising Examiner, of the Financial Regulation Division. 4. Section 38a-14(e)(4)(B) of the CGS requires that: "Not later than one hundred twenty days after receiving the report or summary, the chief executive officer or the chief financial officer of the entity examined shall present the report or summary to the entity's board of directors or similar governing body at a regular or special meeting. " This will be verified by the Insurance Department either through analysis or examination follow-up. Dated at Hartford, Connecticut, this 17th day of May, 2017 Katharine L. Wade Insurance Commissioner

3 Exhibit A EXAMINATION REPORT OF THE (NAIC #60054) ASOF DECEMBER 31, 2015 BY THE CONNECTICUT INSURANCE DEPARTMENT

4 TABLE OF CONTENTS Salutation Scope of Examination History Organizational Chart Management and Control Related Party Transactions Insurance Coverage Territory and Plan of Operations Reinsurance Information Technology Controls Accounts and Records Financial Statements Assets Liabilities, Surplus and Other Funds Summary of Operations Capital and Surplus Account Separate Accounts Assets Separate Accounts Liabilities and Surplus Aggregate Reserve for Life Contracts Aggregate Reserve for Accident and Health Contracts Liability for Deposit-Type Contracts Contract Claims - Life Contract Claims - Accident and Health Medical Loss Ratio Common Capital Stock Gross Paid in and Contributed Surplus Aggregate Write-ins For Special Surplus Funds Unassigned Funds (Surplus) Subsequent Event Conclusion Signature

5 March 3, 2017 The Honorable Katharine L. Wade Insurance Commissioner State of Connecticut Insurance Department 153 Market Street, 6 1 h Floor Hartford, CT Dear Commissioner: In compliance with your instructions and pursuant to the requirements of Section 3 Sa-14 of the Connecticut General Statutes (CGS), the undersigned has conducted a financial examination of the condition and affairs of: (hereinafter referred to as the Company or ALIC), a capital stock corporation incorporated under the laws of the State of Connecticut and having its statutory home office and main administrative office located at 151 Farmington Avenue, Hartford, CT. The report of such examination is submitted herewith. SCOPE OF EXAMINATION The previous examination of the Company was conducted by the Financial Regulation Division of the Connecticut Insurance Department (Department) as of December 31, The current examination, which covers the subsequent five year period through December 31, 2015, was conducted at the statutory home office of the Company. As the lead state, the Department coordinated the examination of multiple Aetna entities comprised of three subgroups and seventeen states (Aetna Group). The other Connecticut-domiciled entities examined concurrently were: Aetna Insurance Company of Connecticut; Aetna Health and Life Insurance Company (AHLIC); Aetna Health Inc. (a Connecticut corporation); and Aetna Better Health Inc. (a Connecticut corporation).

6 As part of the examination planning procedures, the Department reviewed the following materials from 2011 through 2015: Board of Director (Board) and other committee minutes; statutory audit reports completed by the Company's independent certified public accountants, KPMG LLC (KPMG); Management's Discussion and Analysis; Statements of Actuarial Opinion; documentation supporting Section 404 of the Sarbanes-Oxley Act of2002 (SOX); Form 10-K reports filed with the Securities and Exchange Commission; Annual Statements filed with the Department; and reports of the Internal Audit Department (IA). A comprehensive review was made of the financial analysis files and documents submitted to the Financial Analysis Unit of the Department, reports from the National Association of Insurance Commissioners (NAIC) database, as well as independent audit reports, all of which indicated no material concerns with respect to financial condition or regulatory compliance issues. Work papers prepared by KPMG, as of December 31, 2015, in connection with their annual statutory audits, were reviewed and relied upon to the extent deemed appropriate. Lewis & Ellis, Inc. (L&E) was engaged by the Department to conduct a risked-focused actuarial analysis of the Aetna Group's reserving, pricing and underwriting, liquidity, and reinsurance risks. Risk & Regulatory Consulting, LLC (RRC) was engaged by the Department to assist in the review of the Aetna Group's investment holdings. Examination Resources, Inc. (ERC) and Cyence, Inc. (Cyence) were engaged by the Department to assist in the review of the Aetna Group's information technology (IT) general controls. The examination was conducted on a full scope, comprehensive basis in accordance with the procedures outlined in the NAIC Financial Condition Examiners Handbook (the Handbook). The Handbook requires that we plan and perform the examination to evaluate the financial condition and identify prospective risks of the Company by obtaining information about the Company, including corporate governance, identifying inherent risks within the Company and evaluating system controls and procedures used to mitigate those risks. An examination also includes assessing the principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation, management compliance with the NAIC Accounting Practices & Procedures Manual (Manual) and the NAIC Annual Statement Instructions. 2

7 The examination considered prospective risks, those risks that existed at the balance sheet date that will impact future operations or risks associated with future business plans of the Company. Examination procedures were performed as deemed appropriate to evidence actions that the Company had taken to mitigate these risks. These risks were communicated to individuals in the Department responsible for continued monitoring. All accounts and activities of the Company were considered in accordance with the riskfocused examination process. Comments in this report are generally limited to exceptions noted or to items considered to be of a material nature. Failure of items in this report to add to totals or for totals to agree with captioned amounts is due to rounding. HISTORY ALIC is the lead operating entity for Aetna, writing approximately one half of the organization's 2015 direct premiums. ALIC is a wholly owned subsidiary of Aetna. In 1850, the Company, a subsidiary of the Aetna Fire Insurance Company (Aetna Fire), commenced business as the Annuity Fund. In May 1853, Aetna Fire obtained a charter amendment that recognized the incorporation of the Annuity Fund as ALIC, its present title. On December 30, 1964, as a result of a corporate reorganization, the Company transferred its majority interest in The Aetna Casualty and Surety Company (Aetna Surety) to a trust for the benefit of the Company's stockholders. Effective December 29, 1967, the Company became a wholly owned subsidiary of Aetna Life and Casualty Company (AL&C), pursuant to an exchange of all of its common stock for an equal number of shares of AL&C. Simultaneous with the exchange of stock, Aetna Surety merged into AL&C, with AL&C as the surviving entity. Aetna Inc. (AICT) was incorporated in Connecticut on March 25, 1996, to reorganize and align Aetna Services, Inc., formerly AL&C, and Aetna U.S. Healthcare, Inc. (AUSHI), formerly U.S. Healthcare, Inc., in accordance with the terms of the Agreement and Plan of Merger dated March 30, The merger, accounted for as a purchase, was consummated on July 19, On April 2, 1996, AlCT and its subsidiaries sold its property-casualty operations to an affiliate of The Travelers Insurance Group, Inc. 3

8 On July 15, 1998, AICT acquired New York Life Insurance Company's NYLCare health business. On August 6, 1999, AICT acquired The Prudential Insurance Company of America's health care business. On December 13, 2000, AICT spun-off AUSHI to its shareholders. Simultaneous with that transaction, AICT was acquired by ING America Insurance Holdings, Inc., a subsidiary of ING Groep N.V. of the Netherlands. AUSHI subsequently changed its name to Aetna Inc. (Aetna), a Pennsylvania corporation. Aetna acquisitions since 2005 were: On January 6, 2005, Aetna announced that it had completed its acquisition of Strategic Resource Company (SRC), a privately held administrator of group benefits headquartered in Columbia, SC. SRC specialized in providing benefits to part-time and hourly employees who have been historically unable to access employee benefits. On May 27, 2005, Aetna announced that it had completed its acquisition of ActiveHealth Management, a clinically-focused, technology-driven health management and health care data analytics company, headquartered in New York, NY. On July 18, 2005, Aetna announced that it had completed its acqms1t10n of HMS Healthcare, a regional health care network headquartered in Colorado, with operations in Michigan, Colorado and other states. On December 30, 2005, Aetna announced the completion of the transaction that gave it 100 percent ownership of Aetna Specialty Pharmacy, LLC. This was a joint venture it launched with Priority Healthcare Corporation in On April 3, 2006, Aetna announced that it had completed its acquisition of the disability and leave management business of Broadspire. Broadspire' s disability business operated as a third-party administrator offering absence management services, including short term and long-term disability administration and leave management, to employers. On August 1, 2007, Aetna announced that it had completed its acquisition of Schaller Anderson, Incorporated, a provider of health care management services for Medicaid plans. Schaller Anderson also manages commercial self-funded health plans and behavioral health services in select markets. In addition, Schaller Anderson operates risk-bearing health plans in full-risk health maintenancet organization arrangements. On October 2, 2007, Aetna announced that it had completed its acquisition of Goodhealth Worldwide, a managing general underwriter (or underwriting agent) for international private medical insurance. Goodhealth Worldwide offers expatriate benefits to individuals, small and medium enterprises and large, multinational clients around the world. Goodhealth Worldwide is a unit of Aetna International, Aetna's international 4

9 business for expatriates. Goodhealth World headquarters are in London and they also maintain offices in the Middle East and Asia. On November 3, 2009, Aetna announced that it had completed its acquisition of Horizon Behavioral Services, LLC., headquartered in Lewisville, Texas. Horizon Behavioral Services was the third-largest domestic provider of employee assistance programs services by membership with approximately 1,400 contracted employer clients representing over 5 million covered employees in all 50 states and countries around the globe. On January 3, 2011, Aetna completed the acquisition of Medicity, a health information exchange technology company, headquartered in Salt Lake City, Utah. Medicity offers a broad range of products and services that enable health systems, hospitals, physician practices and health information exchanges to securely access and exchange health care information. Medicity markets its products and services locally, regionally and nationally. On June 28, 2011, Aetna completed the acquisition of Prodigy Health Group (Prodigy), the nation's largest independent third-party administrator for self-funded plans. Prodigy operates as a separate business within Aetna. On October 3, 2011, Aetna completed the acquisition of the Medicare Supplement business of Genworth Financial, Inc., a provider of Medicare Supplement coverage that sells in 39 states. On October 3, 2011, Aetna completed its acquisition of PayFlex Holdings, Inc., one of the nation's largest independent account-based health plan administrators. On May 7, 2013, Aetna completed the acquisition of Coventry Health Care, Inc. (Coventry). Coventry is a managed health care company that offers a full portfolio of risk and fee-based products, including Medicare Advantage and Medicare Part D programs, Medicaid managed care plans, group and individual health insurance, coverage for specialty services such as workers' compensation, and network rental services. On April 22, 2014, Aetna completed the acquisition of the InterGlobal Group, a United Kingdom-based provider of international private medical insurance doing business in the Middle East, Asia, Africa and Europe On November 25, 2014, Aetna completed the acquisition of bswift which provides a technology platform that offers a retail shopping for health insurance exchanges and employers nationwide. Additionally, bswift offers benefits administration technology and services to employers. 5

10 ORGANIZATIONAL CHART The following is a partial organizational chart that identifies the relationship of the Company and its parent and affiliates as of December 31, 2015: Aetna Inc. (Pennsylvania) Aetna Life Insurance Company (Connecticut) I I Aetna Health and Life Insurance Company (Connecticut) Aetna Health Holdings, LLC (Delaware) AHP Holdings, Inc. (Connecticut) Aetna Health Inc. (a Connecticut corporation) (Connecticut) I Aetna Better Health Inc. (a Connecticut corporation) (Connecticut) Aetna Insurance Company of Connecticut (Connecticut) MANAGEMENT AND CONTROL The bylaws of the Company require the annual meeting of the stockholders of the Company to be held at the Company's home office in the City of Hartford in March or April of each year and at any time as prescribed by the Board. Special meetings of the stockholders may be called, for any purpose, by the Board, the chairman of the Board (Chairman), or by the president. The bylaws provide that the business and affairs of the Company be managed by a Board consisting of not less than three and not more than twenty-one directors. The number of directors serving the Company is resolved by vote of the stockholders or directors. Directors elected to the Board may hold office until the next annual meeting of the 6

11 stockholders and until a successor has been duly elected and qualified. Regular meetings of the Board are held at periodic intervals at any place and date as the Board may designate. Special meetings of the Board may be called by the Chairman, the president or not less than one-third of the directors then in office. A majority of the Board, but not less than two, nor less than one-third of the number of directors provided for in the bylaws, shall constitute a quorum for the transaction of business. Directors serving the Company at December 31, 2015, were as follows: Name Mark T. Bertolini Shawn M. Guertin Jean C. LaTorre Title and Principal Business Affiliation Chairman, Chief Executive Officer and President, ALIC Executive Vice President and Chief Financial Officer, ALIC Vice President & Chief Investment Officer, ALIC Committees Pursuant to the corporate bylaws, the Company's business operations may be monitored through various advisory committees approved by the Board. In addition to the Board, the Company has an Audit Committee, comprised of two directors. Aetna's Board oversees and guides its management and business. Aetna relies on its enterprise risk management process to aggregate, monitor, measure and manage risk. The Audit Committee and the Board consider the internal governance structure for managing risks, and the Board assigns responsibility for ongoing oversight of each identified risk to a specific committee of the Board or to the Board. Other committees supporting the Aetna Board as of December 31, 2015, were an Executive Committee, Compensation and Talent Management Committee, Nominating and Corporate Governance Committee, Investment and Finance Committee, and a Medical Affairs Committee. Executive officers serving the Company at December 31, 2015, were as follows: Name Mark T. Bertolini John D. Buda Judith H Jones John M. Stenson Sharon A. Virag David T. Doherty Shawn M. Guertin Jean C. LaTorre William J. Casazza Harold L. Paz Title Chairman, Chief Executive Officer and President Treasurer Corporate Secretary Chief Actuary Vice President, Controller and Chief Accounting Officer Vice President Executive Vice President and Chief Financial Officer Vice President and Chief Investment Officer Executive Vice President and General Counsel Executive Vice President and Chief Medical Officer 7

12 RELATED PARTY TRANSACTIONS Substantially all of the administrative and support functions of the Company are provided by Aetna and its affiliates. The following are examples of the related party transaction agreements: Expense Allocation Agreement Effective January 1, 2005, the Company entered into an Expense Allocation Agreement under which Aetna allocates expenses to the Company for employee benefit plans in proportion to the members covered by the Company under health benefit plans. Consolidated Tax Allocation Agreement (Agreement) The Company is included in the consolidated federal tax return of Aetna and Aetna's other wholly-owned subsidiaries pursuant to the terms of the Agreement. In accordance with the Agreement and also a supplemental tax sharing agreement, both effective January 1, 2006, the Company's current federal income tax provisions are generally computed as if the Company was filing a separate federal income tax return. Current income tax benefits, including those resulting from net operating losses, are recognized to the extent realized in the consolidated return. Pursuant to the Agreement, the Company has the enforceable right to recoup federal income taxes paid in prior years in the event of future net losses, which it may incur, or to recoup its net losses carried forward as an offset to future net income subject to federal incomes taxes. Pharmacy Agreements Effective February 1, 2003, the Company entered into a mail order pharmacy national agreement with Aetna RX Home Delivery, LLC (Pharmacy), in which Pharmacy contracted with the Company to provide pharmaceutical services on behalf of the Company and its affiliates. Under the agreement, the Company pays Pharmacy for covered services rendered to members in accordance with a compensation schedule. Effective October 7, 2005, and amended effective August 1, 2008, October 15, 2012, January 1, 2014, January 1, 2015, and September 1, 2015, the Company entered into an Amended and Restated Administrative Services Agreement (A&R Agreement) with Aetna Health Management, LLC (AHM). Under the A&R Agreement, AHM provides the Company with administrative services and resources (including pharmacy rebate management services) and the Company will in return provide AHM with administrative services and resources (including patient management and quality management services). Investment Advisory Services Agreement Effective December 1, 2004, the Company entered into an agreement with Aetna Capital Management, LLC (ACM), whereby ACM provides investment advisory services to the Company. 8

13 Commercial Revolving Promissory Note Aetna executed a Commercial Revolving Promissory Note (Aetna Note) dated April 1, 2015, pursuant to which the Company could advance to Aetna, and Aetna was required to repay the Company on demand, advances of up to $500 million together with any related interest on the unpaid principal balance. The entire unpaid principal balance of the Aetna Note, together with interest thereon and all other amounts payable were due and payable on March 31, There were no advances under the Aetna Note made during the year ended December 31, In addition, the Company executed a Commercial Revolving Promissory Note (Company Note) dated April 1, 2015, pursuant to which Aetna could advance to the Company, and the Company was required to repay Aetna on demand, advances of up to $500 million together with any related interest on the unpaid principal balance. The entire unpaid principal balance of the Company Note, together with interest thereon and all other amounts payable were due and payable on March 31, There were no advances under the Company Note made during the year ended December 31, Administrative Services Agreements Effective May 1, 2013, the Company entered into the AHLIC Agreement whereby the Company provides AHLIC with certain administrative services including accounting, cash management, human resources, and legal services. The AHLIC Agreement obligates AHLIC to pay the Company the cost of providing such services. Effective January 1, 2013, the Company entered into the Active Health Agreement with Active Health Management, Inc. (Active Health). Under the Active Health Agreement, Active Health provides the Company with certain administrative services including customer service, marketing, data processing, and disease management. INSURANCE COVERAGE The Company is covered by multiple financial institution bonds. In the first policy, the Company is insured along with affiliates of Aetna Health Holdings, LLC by St. Paul Fire & Marine Insurance Company, on a $5 million single loss limit of liability with no deductible. In the event that the loss exceeds $5 million, the Company is also insured with affiliates of Aetna on policies with various carriers up to $60 million. The aggregate limit of liability provides fidelity coverage above the prescribed minimum set forth by the Handbook's schedule of suggested minimum amounts. In addition to fidelity bond insurance coverage, the Company maintains primary and excess coverages for the following lines, with the respective insurance companies: 9

14 Company ACE American Insurance Company The Factory Mutual Insurance Company Commerce & Industry Insurance Company ACE Global Markets (Lloyd Syndicate) and Illinois Union Insurance Company Ironshore Specialty Insurance Company Self Insured Coverage Commercial general liability and Business automobile Commercial property Commercial umbrella liability Directors & officers liability and Corporate reimbursement Managed care errors and omissions Workers' compensation TERRITORY AND PLAN OF OPERATIONS The Company is licensed to write business in all states of the United States, the District of Columbia, Guam, Puerto Rico, the U.S. Virgins Islands, the Northern Mariana Islands, and Canada. The Company's three business operation segments include Health Care, Group Insurance, and Large Case Pensions (LCP). Health Care products consist of medical, pharmacy benefits management, dental, behavioral health, and vision plans, all offered on both an insured basis and an employer-funded basis. The Company's medical plans include point of service (POS), preferred provider organization (PPO) and indemnity benefit plans. Medical plans also include health savings accounts and consumer-directed plans that combine traditional POS or PPO and/or dental coverage. Group Insurance primarily includes group life, group disability and long-term care (L TC) insurance products. LCP manages a variety of retirement products primarily for defined benefit and defined contribution plans. The LCP business includes certain discontinued products. Marketing and Agency System The managed health care, indemnity, and group insurance products and services are sold primarily through the Company's sales personnel, as well as independent brokers and consultants who assist in the production and servicing of business. Sales representatives also sell to employers on a direct basis. The Company does not sell or market group pension products to any new customers. 10

15 REINSURANCE The Company, through affiliated and non-affiliated insurers, utilizes a variety of ceded reinsurance agreements. The Company's ceded reinsurance balances relate primarily to the following: Affiliated Agreements The Company cedes long-term disability business to AHLIC. The agreement is an indemnity coinsurance agreement. Effective January 27, 2015, the Company entered into a quota share reinsurance agreement with funds withheld with an affiliated captive, Health Re, Inc. (Health Re), whereby the Company cedes a portion of its liabilities for certain group and accident and health claims to Health Re. This agreement was preceded by agreements effective January 26, 2012, January 23, 2014, and January 24, Non-Affiliated Agreements Effective December 31, 1988, all of the Company's domestic non-participating individual life insurance business and settlement annuities on participating individual life insurance business was ceded to Voya Retirement Insurance and Annuity Company under indemnity reinsurance agreements. Effective October 1, 1998, all the Company's domestic participating individual life insurance business and participating single premium deferred annuity business was ceded to Lincoln National Corporation under indemnity reinsurance agreements. Effective October 1, 2008, the Company entered into a reinsurance agreement with Hannover Life Reassurance Company of America (Hannover Life Re), whereby the Company cedes a portion of its group life and group accidental death and dismemberment insurance policies. The agreement is an indemnity coinsurance agreement with funds withheld and also includes an experience refund provision. Effective January 1, 2010, the Company entered into a reinsurance agreement with US Business Canada Life Assurance Company (Canada Life), whereby the Company cedes a portion of its group and individual health insurance policies to Canada Life. The agreement is an indemnity coinsurance agreement with funds withheld and also includes an experience refund provision. Effective January 1, 2011, the Company entered into a reinsurance agreement with Canada Life, whereby the Company cedes a portion of its medical stop loss business to Canada Life. The agreement is an indemnity coinsurance agreement with funds withheld and also includes an experience refund provision. 11

16 Effective January 1, 2013, the Company entered a reinsurance agreement with Hannover Life Re, whereby the Company cedes certain individual and group Medicare Advantage Plans to Hannover Life Re. The agreement is an indemnity coinsurance agreement with funds withheld and also includes an experience refund prov1s10n. INFORMATION TECHNOLOGY CONTROLS ER and Cyence performed an evaluation of IT controls which was conducted in accordance with the guidelines and procedures set forth in Exhibit C of the Handbook (Exhibit C). The objective of the evaluation was to determine whether IT resources were properly aligned with Aetna's objectives to ensure that significant risks (strategic, operational, reporting, and compliance) arising from the IT environment were appropriately mitigated by strategies or controls as outlined in Exhibit C. The objectives were achieved through a combination of reviewing Aetna's policies and procedures, testing in key areas related to Exhibit C, interviewing Aetna's senior IT management, reviewing IT risk assessment processes, and leveraging the risk assessment procedures performed by KPMG, IA and SOX test work. In accordance with the Handbook, specific areas of review included: IT governance and organization structure; strategic planning, systems architecture and project oversight; leadership development and succession planning; IT risk management; development and maintenance of policies; budgeting; physical and logical security; E-Business; business continuity and disaster recovery planning; End User or Business Developed Applications; and cybersecurity and incident response. Based upon the risk-based assessment and review, the IT general controls were determined to be effective. ACCOUNTS AND RECORDS The Company uses the Integrated Financial System, the Aetna Group's general ledger system, resident on the Oracle network system to process and maintain its financial accounting records. The Company uses The Complete Package (TCP) software to prepare its statutory statements. There is no direct feed from the general ledger to the annual statement 12

17 reporting software. Reports are generated from the general ledger in the annual statement format and then manually input into TCP. General ledger account balances were reconciled and traced to appropriate asset, liability and income statement lines of the Annual Statement. Adjusting entries are posted on a quarterly basis. FINANCIAL STATEMENTS The following statements represent the Company's financial position, as filed by the Company as of December 31, No adjustments were made to surplus as a result of the examination. 13

18 ASSETS Account Description Assets Nonadmitted Net Admitted Assets Assets Bonds $9,017,545,850 $9,017,545,850 Preferred stocks 8,084 8,084 Common stocks 59,330,771 $4,456,610 54,874,160 Mortgage loans on real estate: First liens 1,289,767,831 1,289,767,831 Other than first liens 6,425,431 6,425,431 Real estate: Properties occupied by the company 267,063, ,063,000 Properties held for production of income 35,096,430 35,096,430 Cash, cash equivalents and short-term investments 1,082,001, 736 1,082,001,736 Contract loans 5,123,650 5,123,650 Derivatives 513, ,402 Other invested assets 1,159,786, ,333 1,159,309,592 Receivables for securities 21,229,270 21,229,270 Investment income due and accrued 105,622, ,622,134 Premiums and considerations: Uncollected premiums and agents' balances in course of collection 718,453,551 40,257, , 196,089 Deferred premiums, agents' balances and installments booked but deferred and not yet due 557, ,481 Accrued retrospective premiums 110,871, ,871,195 Reinsurance: Amounts recoverable from reinsurers 665,253, ,253,915 Other amounts receivable under reinsurance contracts 107,916, ,916,793 Amounts receivable relating to uninsured plans 117,270,776 3,546, ,724,097 Current federal and foreign income tax recoverable and interest thereon 90,738,193 90,738, 193 Net deferred tax asset 641,477, ,955, ,521,510 Guaranty funds receivable or on deposit 4,757,154 4,757, 154 Electronic data processing equipment and software 22,978,231 3,419,477 19,558,754 Furniture and equipment, including health care delivery assets 111,468, ,468,846 0 Receivables from parent, subsidiaries and affiliates 841,175,806 2,750, ,425,806 Health care and other amounts receivable 82,258,343 82,258,343 Aggregate write-ins for other than invested assets 566,021, ,610, ,410,217 Total assets excluding Separate Accounts, Segregated Accounts and Protected Cell Accounts 17,130,713, ,942,987 16,470,770,119 From Separate Accounts, Segregated Accounts and Protected Cell Accounts 4,743,333,151 4,743,333,151 Total $21!874!046!257 $659!942!987 $21!214!103!270 14

19 LIABILITIES, SURPLUS AND OTHER FUNDS Aggregate reserve for life contracts $4,372,115,089 Aggregate reserve for accident and health contracts 1,190,877,359 Liability for deposit-type contracts 821,303,738 Contract claims: Life 148,525,016 Accident and health 1,697,803,656 Policyholders' dividends due and unpaid 134,074 Provision for policyholders' dividends and coupons payable: Dividends apportioned for payment 12,287 Premiums and annuity considerations for life and accident and health contracts received in advance 12,802,428 Contract liabilities not included elsewhere: Provision for experience rating refunds 284,355,828 Other amounts payable on reinsurance 3,649 Interest Maintenance Reserve 97,821,968 Commissions to agents due or accrued 56,496,284 Commissions and expense allowances payable on reinsurance assumed 185,019 General expenses due or accrued 905,252,065 Taxes, licenses and fees due or accrued 157,286,943 Unearned investment income 75,576 Amounts withheld or retained by company as agent or trustee 83,897,527 Remittances and items not allocated 152,288,363 Net adjustment in assets and liabilities due to foreign exchange rates 21,074,462 Miscellaneous liabilities: Asset valuation reserve 277,965,515 Reinsurance in unauthorized companies 3,282,937 Funds held under reinsurance treaties with unauthorized reinsurers 283,990,677 Payable to parent, subsidiaries and affiliates 51,539,944 Drafts outstanding 4,968,851 Liability for amounts held under uninsured plans 478,135,535 Funds held under coinsurance 574,245,320 Derivatives 30,109 Payable for securities 29,210,266 Aggregate write-ins for liabilities 994,330,766 Total liabilities excluding Separate Accounts business 12,700,011,248 From Separate Accounts Statement 4,743,333,151 Total liabilities 17,443,344,400 Common capital stock 62,765,560 Gross paid in and contributed surplus 1,407,101,610 Aggregate write-ins for special surplus funds 387,790,000 Unassigned funds (surplus) 1,913,101,701 Surplus 3,707,993,311 Total capital and surplus 3,770,758,871 Total liabilities and surplus $21!214)03!270 15

20 SUMMARY OF OPERATIONS Premiums and annuity considerations for life and accident and health contracts $16,956,626,545 Net investment income 535,563,188 Amortization of Interest Maintenance Reserve (IMR) 58,146,558 Commissions and expense allowances on reinsurance ceded 678,523,007 Miscellaneous income: Income from fees associated with investment management, administration and contract guarantees from Separate Accounts 12,824,233 Charges and fees for deposit-type contracts 454,428 Aggregate write-ins for miscellaneous income 43,572,375 Totals 18,285,710,334 Death benefits 557,017,580 Annuity benefits 515,153,108 Disability benefits and benefits under accident and health contracts 12,738,650,753 Surrender benefits and withdrawals for life contracts 179,979,626 Group conversions (478) Interest and adjustments on contracts or deposit-type contract funds (121,475,990) Payments on supplementary contracts with life contingencies 3,840 Increase in aggregate reserves for life and accident and health contracts (231,911,920) Totals 13,637,416,518 Commissions on premiums, annuity considerations and deposit-type contract funds 529,818,272 Commissions and expense allowances on reinsurance assumed 21,750,403 General insurance expenses 921,804,318 Insurance taxes, licenses and fees, excluding federal income taxes 1,110,719,239 Net transfers to or (from) Separate Accounts net ofreinsurance (75,082,589) Totals 16,146,426,161 Net gain from operations before dividends to policyholders and federal income taxes 2,139,284,173 Dividends to policyholders 38,947 Net gain from operations after dividends to policyholders and before federal income taxes 2,139,245,226 Federal and foreign income taxes incurred 922,677,641 Net gain from operations after dividends to policyholders and federal income taxes and before realized capital gains or (losses) 1,216,567,585 Net realized capital gains (losses) less capital gains tax ( 4,698,341) Net income $1!211!869!244 16

21 CAPITAL AND SURPLUS ACCOUNT Capital and surplus, December 31, prior year $3,871,900,692 Net income 1,211,869,244 Change in net unrealized capital gains (losses) 19,255,311 Change in net unrealized foreign exchange capital gain (loss) (8,082,826) Change in net deferred income tax 88,977,046 Change in nonadmitted assets 13,494,764 Change in liability for reinsurance in unauthorized companies 8,776,340 Change in reserve on account of change in valuation basis 990,678 Change in asset valuation reserve (3, 181,459) Surplus adjustment: paid in 16,759,081 Dividends to stockholders (1,450,000,000) Net change in capital and surplus for the year (101,141,821) Capital and surplus, December 31, current year $3)70,758,871 SEP ARA TE ACCOUNTS ASSETS General Fair Value Account Basis Basis Total Bonds $1,735,154,004 $1,735,154,004 Preferred stocks 5,175,354 5,175,354 Common stocks 190,940, ,940,371 Cash and cash equivalents 151,358, ,358,396 Short-term investments 43,610,806 43,610,806 Derivatives 666, ,739 Other invested assets 2,575,443,197 2,575,443,197 Investment income due and accrued 17,171,999 17,171,999 Receivables for securities 23,812,285 23,812,285 Total $Q $4, 743,333) 51 $4,743,333,151 17

22 SEP ARA TE ACCOUNTS LIABILITIES AND SURPLUS General Fair Value Account Basis Basis Total Aggregate reserve for life, annuity and accident and health contracts $711,015,875 $711,015,875 Liability for deposit-type contracts 3,944,841,958 3,944,841,958 Charges for investment management, administration and contract guarantees due or accrued 101, ,201 Derivatives 501, ,537 Payable for securities 86,151,767 86,151,767 Aggregate write-ins for liabilities 720, ,813 Total liabilities 4,743,333,151 4,743,333,151 Surplus 0 0 Totals $_Q $4!743!333!151 $4!743!333!151 AGGREGATE RESERVE FOR LIFE CONTRACTS AGGREGATE RESERVE FOR ACCIDENT AND HEALTH CONTRACTS LIABILITY FOR DEPOSIT-TYPE CONTRACTS CONTRACT CLAIMS - LIFE CONTRACT CLAIMS - ACCIDENT AND HEALTH $4.372J 15!089 $1.190! $ !738 $148!525!016 $1.697! L&E performed a risk-focused actuarial analysis of reserving, pricing and underwriting, liquidity, and reinsurance risks, for medical, dental, group life, group disability, LTC, and LCP. L&E also reviewed certain aspects of the Patient Protection and Affordable Care Act (ACA). This included a review that: the reserve computations were performed correctly and the selected estimates were reasonable; the assumptions and methodologies used were accurate and appropriate; the pricing and/or underwriting practices were sufficiently established for risks assumed; there was statutory transfer of risk for ceded reinsurance agreements; and the ACA receivables and payables were appropriately calculated and reported. Information reviewed included the following: SOX controls for claim liability and reserving processes; KPMG workpapers; 18

23 interviews with Company reserving and pncmg actuaries m order to gam an understanding of the processes and procedures in place; management reports, rate filing documentation and underwriting guidelines; 2015 Annual Statement; 2015 Actuarial Memorandum; and A.M. Best Reports. L&E analysis of reserving risk analysis included: interviews with Company staff responsible for reserving and asset adequacy analysis; review of the Actuarial Opinion and Memorandum regarding cash flow testing, asset adequacy analysis, assumptions, and methodologies provided by the Company; and a review of experience studies. L&E analysis of pricing and underwriting risks included: interviews with Company pricing actuaries in order to gain an understanding of the processes and procedures in place for ensuring pricing is reasonable; review of management reports, rate filing documentation and underwriting guidelines to verify the processes are working properly; and a review of select pricing data and processes. L&E analysis of reinsurance risks included: reviewing three reinsurance treaties with respect to transfer of risk compliance with the CGS and the Manual. L&E analysis of ACA risks included: testing of certain controls regarding the Risk Corridor and the Risk Adjustment. Conclusion Based upon the risk focused assessment and review, no material findings were noted which affected the Company's reserving, pricing and underwriting, liquidity, reinsurance and certain ACA risks. MEDICAL LOSS RA TIO Within the "provision for experience rating refunds" liability, the Company reported $7,079,539, for its statutory medical loss ratio (MLR) rebate liability. The ACA requires insurers to spend a minimum percentage of premium dollars on medical services and activities designed to improve health care quality. The Department reviewed and tested the Company's processes and controls designed to mitigate specific risks associated with the determination of its MLR rebate liability. No material exceptions were identified. 19

24 COMMON CAPITAL STOCK $62,765,560 At December 31, 2015, the Company reported 33,300,000 shares of common stock authorized, with 25, 106,224 shares issued and outstanding, having a par value of $2.50 per share. All issued shares are owned by Aetna. GROSS PAID IN AND CONTRIBUTED SURPLUS $1.407, The following exhibit reflects the balance of this account during the period under review: 2015 $1,407,101, $1,390,342, $1,386,923, $1,386,923, $1,386,923,052 AGGREGATE WRITE-INS FOR SPECIAL SURPLUS FUNDS $387, The following exhibit reflects the balance of this account during the period under review: 2015 $387,790, $378,250, $750, $750, $70,688,274 Beginning January 1, 2014, SSAP No. 106 of the Manual required: (1) that the health insurer fee be recognized in full on January 1 of the fee year of the calendar year in which the assessment must be paid to the federal government; and (2) that in each data year preceding a fee year, a reporting entity pro-ratably accrue by reclassifying from unassigned funds (surplus) to the captioned account an amount equal to its estimated subsequent fee year assessment. There was no impact to total capital and surplus. Annually, this fees is reversed in full on January 1 of the fee year beginning with fee years starting on January 1, UNASSIGNED FUNDS (SURPLUS) $ The following exhibit reflects the balance of this account during the period under review: 2015 $1,913,101, $2,040,542, $1,749,430, $1,881,902, $1,526,771,832 20

25 SUBSEQUENT EVENT On July 3, 2015, Aetna announced its proposed $37 billion acquisition of Humana, Inc. (Humana). On July 21, 2016, the United States Department of Justice (DOJ) sued to block the proposed acquisition which in tum prompted Aetna and Humana to appeal the DOJ' s ruling. On December 5, 2016, the appeal trial against the DOJ commenced with the DOJ issuing a final decision to block the merger on January 23, On February 14, 2017, Aetna and Humana mutually ended their merger agreement following the DOJ ruling. CONCLUSION The results of this examination disclosed that, as of December 31, 2015, the Company had admitted assets of $21,214,103,270, liabilities of $17,443,344,400, and capital and surplus of $3,770,758,871. During the period under examination, admitted assets decreased $23,321,876, liabilities increased $388,297,187, and capital and surplus decreased $411,619,

26 SIGNATURE In addition to the undersigned, the following members of the State of Connecticut Insurance Department participated in the examination: William Arfanis, CFE; Edna Bosley; Daniel Levine, AFE, CPA; Lisa Pagliaro, APE; Kenneth Roulier, AFE, AES, CISA; William Tacy, CFE, CISA; Michael Estabrook, AFE; Kent Krajick, CFE; Cecilia Arnold, CFE; Keith Kleindienst, CFE; Michael Colburn, FSA, MAAA; and the consulting firms of RRC, ER, Cyence, and L&E. I, Jeffrey Prosperi, CFE, solemnly swear that the foregoing report on examination is hereby represented to be a full and true statement of the condition and affairs of the subject insurer as of December 31, 2015, to the best of my information, knowledge and belief. Respectfully submitted, Insurance Department State of Connecticut ss. Hartford County of Hartford Subscribed and sworn to before me, Pel t rl, c. c(f-, (-2:>1 /1.:-:k. -e ~ Notary Public on this 3"rVl day of A en. ) '2017. Notary Public My Commission Expires ~ r?km ~ 1-60' ;JO l 'i? 21