Aetna 2015 Annual Report Download - page 97

Annual Report- Page 91
could change materially if different information or assumptions were used. Additionally, these estimates may not
ultimately reflect the actual amounts of the final transactions that occur.
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 11 beginning on page 111 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. In connection with our securities lending
program, we have exposure to interest rate risk on the changes in the value of our investments pledged as collateral
as well as to credit risk of the borrowers. 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. We review and approve all borrowers and assign a dollar limit on the amount each borrower
can have outstanding. We also monitor our exposure to each borrower daily. 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 sheet 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 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