Aetna 2014 Annual Report Download - page 88

Annual Report- Page 82
Cash and Cash Equivalents
Cash and cash equivalents include cash on-hand and debt securities with an original maturity of three months or less
when purchased. The carrying value of cash equivalents approximates fair value due to the short-term maturity of
these investments.
Investments
Debt and Equity Securities
Debt and equity securities consist primarily of U.S. Treasury and agency securities, mortgage-backed securities,
corporate and foreign bonds and other debt and equity securities. Debt securities are classified as either current or
long-term investments based on their contractual maturities unless we intend to sell an investment within the next
twelve months, in which case it is classified as current on our balance sheets. We have classified our debt and
equity securities as available for sale and carry them at fair value. Refer to Note 10 beginning on page 102 for
additional information on how we estimate the fair value of these investments. The cost for mortgage-backed and
other asset-backed securities is adjusted for unamortized premiums and discounts, which are amortized using the
interest method over the estimated remaining term of the securities, adjusted for anticipated prepayments. We
regularly review our debt and equity securities to determine whether a decline in fair value below the carrying
value is other-than-temporary. When a debt or equity security is in an unrealized capital loss position, we monitor
the duration and severity of the loss to determine if sufficient market recovery can occur within a reasonable
period of time. If a decline in the fair value of a debt security is considered other-than-temporary, the cost basis
or carrying value of the debt security is written down. The write-down is then bifurcated into its credit and non-
credit related components. The amount of the credit-related component is included in our operating results, and
the amount of the non-credit related component is included in other comprehensive income, unless we intend to
sell the debt security or it is more likely than not that we will be required to sell the debt security prior to its
anticipated recovery of its amortized cost basis. We do not accrue interest on debt securities when management
believes the collection of interest is unlikely.
We lend certain debt and equity securities from our investment portfolio to other institutions for short periods of
time using securities lending transactions and repurchase agreements. Under securities lending transactions,
borrowers must post cash collateral in the amount of 102% to 105% of the fair value of the loaned securities, and
the fair value of the loaned securities is monitored on a daily basis, with additional collateral obtained or refunded
as the fair value of the loaned securities fluctuates. Under securities lending transactions, the collateral is retained
and invested by a lending agent according to our investment guidelines to generate additional income for us. We
primarily utilize repurchase agreements for short-term borrowings to meet liquidity needs. Under repurchase
agreements, we receive cash in an amount that approximates the fair value of our collateralized debt securities.
Mortgage Loans
We carry the value of our mortgage loan investments on our balance sheets at the unpaid principal balance, net of
impairment reserves. A mortgage loan may be impaired when it is a problem loan (i.e., more than 60 days
delinquent, in bankruptcy or in process of foreclosure), a potential problem loan (i.e., high probability of default)
or a restructured loan. For impaired loans, a specific impairment reserve is established for the difference between
the recorded investment in the loan and the estimated fair value of the collateral. We apply our loan impairment
policy individually to all loans in our portfolio.
The quarterly impairment evaluation described above also considers characteristics and risk factors attributable to
the aggregate portfolio. We would establish an additional allowance for loan losses if it were probable that there
would be a credit loss on a group of similar mortgage loans. We consider the following characteristics and risk
factors when evaluating if a credit loss is probable: loan to value ratios, property type (e.g., office, retail, apartment,
industrial), geographic location, vacancy rates and property condition. As a result of that evaluation, we determined
that a credit loss was not probable and did not record any additional allowance for loan losses with respect to
performing mortgage loans in 2014, 2013 or 2012.
We record full or partial charge-offs of loans at the time an event occurs affecting the legal status of the loan,
typically at the time of foreclosure or upon a loan modification giving rise to forgiveness of debt. Interest income on