PART II ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations Effect if Different Assumptions Used Balance Sheet Caption / Nature of Critical Accounting Estimate Accounts payable, accrued expenses and other liabilities – pension liabilities These liabilities are estimates of the present value of the qualified and nonqualified pension benefits to be paid (attributed to employee service to date) net of the fair value of plan assets. The accrued pension benefit liability as of December 31 was as follows (in millions): See Note 10 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 qualified and nonqualified pension plans decreased by 50 basis points: If the expected long-term return on domestic qualified pension plan assets decreased by 50 basis points, annual pension costs for 2013 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 2013 would decrease by approximately $9 million after-tax. If the December 31, 2012 fair values of domestic qualified plan assets decreased by 10%, the accrued pension benefit liability would increase by approximately $365 million as of December 31, 2012 resulting in an after-tax decrease to shareholders’ equity of approximately $235 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. In 2012, actual experience differed from the Company’s key assumptions as of December 31, 2011, resulting in $200 million of favorable incurred claims related to prior years’ medical claims payable or 2.2% of the current year incurred claims as reported in 2011. In 2011, actual experience differed from the Company’s key assumptions as of December 31, 2010, resulting in $140 million of favorable incurred claims related to prior years’ medical claims, or 1.5% of the current year incurred claims reported in 2010. Specifically, 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. Medical claims payable for the Global 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): These 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. The impact of this favorable prior year development was an increase to shareholders’ net income of $66 million after-tax ($101 million pre-tax) in 2012. The 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. CIGNA CORPORATION -  2012 Form  10-K 39 2012 – gross $1,856; net $1,614 GLYPH<127> 2011 – gross $1,305; net $1,056 GLYPH<127> annual pension costs for 2013 would decrease by approximately $5 million, after-tax; and GLYPH<127> the accrued pension benefit liability would increase by approximately $280 million as of December 31, 2012 resulting in an after-tax decrease to shareholders’ equity of approximately $180 million as of December 31, 2012. GLYPH<127> 2012 – $1,602 GLYPH<127> 2011 – $1,769 GLYPH<127> Global Health Care medical claims payable