Aetna 2015 Annual Report Download - page 100

Annual Report- Page 94
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).
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. The fair value of each reporting unit substantially exceeded its
carrying value in each of the years in the three-year period ended December 31, 2015, and therefore there were no
goodwill impairment losses recognized in any of those years.
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, 2015 and 2014, the historical cost of property and equipment was
$761 million and $807 million, respectively, and the related accumulated depreciation was $131 million and $137
million, respectively. Refer to Note 7 beginning on page 102 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 three 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 any of the three years ended December 31, 2015, 2014 or 2013.
Separate Accounts
Separate Accounts 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.