Aetna 2013 Annual Report Download - page 93

Annual Report- Page 87
We evaluate goodwill for impairment (at the reporting unit level) annually, or more frequently if circumstances
indicate a possible impairment, by comparing an estimate of the fair value of the applicable reporting unit to its
carrying value, including goodwill. If the carrying value exceeds fair value, we compare the implied fair value of
the applicable goodwill to its carrying amount to measure the amount of goodwill impairment, if any. Impairments,
if any, would be classified as an operating expense. There were no goodwill impairment losses recognized, and the
fair value of each reporting unit substantially exceeded its carrying value in each of the three years ended
December 31, 2013, 2012 or 2011.
Our annual impairment tests were based on an evaluation of future discounted cash flows. These evaluations
utilized the best information available to us at the time, including supportable assumptions and projections we
believe are reasonable. Collectively, these evaluations were our best estimates of projected future cash flows. Our
discounted cash flow evaluations used discount rates that correspond to a weighted-average cost of capital
consistent with a market-participant view. The discount rates are consistent with those used for investment
decisions and take into account the operating plans and strategies of the Health Care and Group Insurance segments.
Certain other key assumptions utilized, including changes in membership, revenue, health care costs, operating
expenses, impacts of health care reform fees, assessments and taxes and effective tax rates, are based on estimates
consistent with those utilized in our annual planning process that we believe are reasonable. If we do not achieve
our earnings objectives, the assumptions and estimates underlying these goodwill impairment evaluations could be
adversely affected, and we may impair a portion of our goodwill, which would adversely affect our operating results
in the period of impairment.
Property and Equipment and Other Acquired Intangible Assets
We report property and equipment and other acquired intangible assets at historical cost, net of accumulated
depreciation or amortization. At December 31, 2013 and 2012, the historical cost of property and equipment was
approximately $852 million and $1.1 billion, respectively, and the related accumulated depreciation was
approximately $130 million and $563 million, respectively. Refer to Note 7 beginning on page 99 for cost and
accumulated amortization associated with other acquired intangibles. We calculate depreciation and amortization
primarily using the straight-line method over the estimated useful lives of the respective assets ranging from two to
forty years.
In connection with the acquisition of Genworth Financial, Inc.'s (“Genworth's”) Medicare Supplement and related
blocks of in-force business we recognized an asset for the valuation of business acquired (“VOBA”). VOBA
represents the present value of the future profits embedded in the acquired businesses, and was determined by
estimating the net present value of future cash flows from the contracts in force at the date of acquisition. VOBA is
amortized in proportion to estimated premiums arising from the acquired contracts over their expected life.
We regularly evaluate whether events or changes in circumstances indicate that the carrying value of property and
equipment or other acquired intangible assets may not be recoverable. If we determine that the carrying value of
an asset may not be recoverable, we group the asset with other assets and liabilities at the lowest level for which
independent identifiable cash flows are available and estimate the future undiscounted cash flows expected to
result from future use of the asset group and its eventual disposition. If the sum of the expected undiscounted
future cash flows is less than the carrying value of the asset group, we recognize an impairment loss for the amount
by which the carrying value of the asset group exceeds its fair value. There were no material impairment losses
recognized in the three years ended December 31, 2013, 2012 or 2011.
Separate Accounts
Separate Account assets and liabilities in the Large Case Pensions business represent funds maintained to meet
specific objectives of contract holders who bear the investment risk. These assets and liabilities are carried at fair
value. Net investment income and net realized capital gains and losses accrue directly to such contract holders.
The assets of each account are legally segregated and are not subject to claims arising from our other businesses.
Deposits, withdrawals, net investment income and net realized and net unrealized capital gains and losses on
Separate Account assets are not reflected in our statements of income or cash flows. Management fees charged to
contract holders are included in fees and other revenue and recognized over the period earned.