Aetna 2009 Annual Report Download - page 70

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We also value a certain amount of debt securities using Level 3 inputs. For Level 3 debt securities, fair values
are determined by outside brokers or, in the case of certain private placement securities, are priced by our
internal staff. Outside brokers determine the value of these debt securities through a combination of their
knowledge of the current pricing environment and market flows. We obtained one non-binding broker quote
for each of these Level 3 debt securities and did not adjust any of these quotes at December 31, 2009. The total
fair value of our broker quoted securities was approximately $364 million at December 31, 2009. Examples of
these Level 3 debt securities include certain U.S. and foreign corporate securities and certain of our residential
and commercial mortgage-backed securities as well as other asset-backed securities. For some of our private
placement securities, our internal staff determine the value of these debt securities by analyzing spreads of
corporate and sector indices as well as interest spreads of comparable public bonds. Examples of these Level 3
debt securities include certain U.S. and foreign securities and certain tax-exempt municipal securities.
Equity Securities - We currently have two classifications of equity securities: those that are publicly traded
and those that are privately held. Our publicly-traded securities are classified as Level 1 because quoted prices
are available for these securities in an active market. For privately-held equity securities, there is no active
market; therefore, we classify these securities as Level 3 because we must price these securities through an
internal analysis of each investment’ s financial statements and cash flow projections.
Derivatives - Our derivative instruments are valued using models that primarily use market observable inputs
and therefore are classified as Level 2 because they are traded in markets where quoted market prices are not
readily available.
Financial assets and liabilities with changes in fair value that are measured on a recurring basis in our balance sheets at
December 31, 2009 and December 31, 2008 were as follows:
(Millions) Level 1 Level 2 Level 3 Total
December 31, 2009
Assets:
Debt securities:
U.S. government securities 1,529.4$ 317.4$ -$ 1,846.8$
States, municipalities and political subdivisions - 2,062.7 12.7 2,075.4
U.S. corporate securities - 7,056.5 128.1 7,184.6
Foreign securities - 2,545.5 199.0 2,744.5
Residential mortgage-backed securities - 1,420.2 - 1,420.2
Commercial mortgage-backed securities - 971.6 71.8 1,043.4
Other asset-backed securities - 425.4 11.0 436.4
Redeemable preferred securities - 345.8 22.9 368.7
Total debt securities 1,529.4 15,145.1 445.5 17,120.0
Equity securities 1.7 - 38.0 39.7
Derivatives - 44.0 - 44.0
Total investments 1,531.1$ 15,189.1$ 483.5$ 17,203.7$
December 31, 2008
Assets:
Debt securities 669.9$ 12,836.2$ 455.7$ 13,961.8$
Equity securities 2.2 - 29.3 31.5
Derivatives - 1.8 - 1.8
Total investments 672.1$ 12,838.0$ 485.0$ 13,995.1$
Liabilities:
Derivatives -$ 4.0$ -$ 4.0$
Annual Report – Page 64