Aetna 2013 Annual Report Download - page 92

Annual Report- Page 86
Realized capital gains and losses on investments supporting Health Care and Group Insurance liabilities and Large
Case Pensions products (other than experience-rated and discontinued products) are reflected in our operating
results. Realized capital gains and losses are determined on a specific identification basis. We reflect purchases and
sales of debt and equity securities and alternative investments on the trade date. We reflect purchases and sales of
mortgage loans and investment real estate on the closing date.
Realized capital gains and losses on investments supporting Large Case Pensions' experience-rated and
discontinued products are not included in realized capital gains and losses in our statements of income and instead
are credited directly to contract holders' accounts, in the case of experience-rated products, or allocated to the
reserve for anticipated future losses established at discontinuance, in the case of discontinued products. The contract
holders' accounts are reflected in policyholders' funds, and the reserve for anticipated future losses is reflected in
future policy benefits on our balance sheets.
Unrealized capital gains and losses on investments supporting Health Care and Group Insurance liabilities and
Large Case Pensions products (other than experience-rated and discontinued products) are reflected in shareholders'
equity, net of tax, as a component of accumulated other comprehensive loss.
Unrealized capital gains and losses on investments supporting Large Case Pensions' experience-rated products are
credited directly to contract holders' accounts, which are reflected in policyholders' funds on our balance sheets. Net
unrealized capital gains and losses on discontinued products are reflected in other long-term liabilities on our
balance sheets.
Refer to Note 20 beginning on page 137 for additional information on our discontinued products.
Reinsurance
We utilize reinsurance agreements primarily to reduce our required capital and to facilitate the acquisition or
disposition of certain insurance contracts. Ceded reinsurance agreements permit us to recover a portion of our
losses from reinsurers, although they do not discharge our primary liability as the direct insurer of the risks
reinsured. Failure of reinsurers to indemnify us could result in losses; however, we do not expect charges for
unrecoverable reinsurance to have a material effect on our operating results or financial position. We evaluate the
financial position of our reinsurers and monitor concentrations of credit risk arising from similar geographic
regions, activities or economic characteristics of our reinsurers. At December 31, 2013, our reinsurance
recoverables consisted primarily of amounts due from third parties that are rated consistent with companies that are
considered to have the ability to meet their obligations.
We enter into agreements with other insurance companies under which we assume reinsurance, primarily related to
our group life and health products. We do not transfer any portion of the financial risk associated with our HMO
products to third parties, except in areas where we participate in state-mandated health insurance pools. We did not
have material premiums ceded to or assumed from unrelated insurance companies in the three years ended
December 31, 2013.
Goodwill
We have made acquisitions that included a significant amount of goodwill and other intangible assets. When we
complete an acquisition, we apply the acquisition method of accounting, which among other things, requires the
recognition of goodwill (which represents the excess cost of the acquisition over the fair value of net assets acquired
and identified intangible assets).