Cigna 2009 Annual Report Download - page 127

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Additionally, other long-term investments include interest rate and foreign currency swaps carried at fair value. See Note 13 for
information on the Company’s accounting policies for these derivative financial instruments.
Short-term investments. Investments with maturities of less than one year from time of purchase are classified as short-term, available
for sale and carried at fair value, which approximates cost.
Derivative financial instruments. Note 13 discusses the Company’s accounting policies for derivative financial instruments.
Net investment income. When interest and principal payments on investments are current, the Company recognizes interest income
when it is earned. The Company stops recognizing interest income when interest payments are delinquent or when certain terms
(interest rate or maturity date) of the investment have been restructured. Net investment income on these investments is only
recognized when interest payments are actually received. Interest and dividends earned on trading and hybrid securities are included
in net investment income.
Investment gains and losses. Realized investment gains and losses result from sales, investment asset write-downs, changes in the
fair values of trading and hybrid securities and certain derivatives and changes in valuation reserves, based on specifically identified
assets. Realized investment gains and losses on the disposition of certain directly owned real estate investments are eliminated from
ongoing operations and reported in discontinued operations when the operations and cash flows of the underlying assets are clearly
distinguishable and the Company has no significant continuing involvement in their operations.
Unrealized gains and losses on fixed maturities and equity securities carried at fair value (excluding trading and hybrid securities) and
certain derivatives are included in accumulated other comprehensive income (loss), net of:
x amounts required to adjust future policy benefits for the run-off settlement annuity business; and
x deferred income taxes.
D. Cash and Cash Equivalents
Cash equivalents consist of short-term investments with maturities of three months or less from the time of purchase that are classified
as held to maturity and carried at amortized cost. The Company reclassifies cash overdraft positions to “accounts payable, accrued
expenses and other liabilities” when the legal right of offset does not exist.
E. Premiums, Accounts and Notes Receivable and Reinsurance Recoverables
Premiums, accounts and notes receivable are reported net of an allowance for doubtful accounts of $43 million as of December 31,
2009 and $50 million as of December 31, 2008. Reinsurance recoverables are estimates of amounts that the Company will receive
from reinsurers and are recorded net of an allowance for unrecoverable reinsurance of $15 million as of December 31, 2009 and $23
million as of December 31, 2008. The Company estimates these allowances for doubtful accounts for premiums, accounts and notes
receivable, as well as for reinsurance recoverables, using management's best estimate of collectibility, taking into consideration the
aging of receivables, historical collection patterns and other economic factors.
F. Deferred Policy Acquisition Costs
Acquisition costs include sales compensation, commissions, direct response marketing, telemarketing, premium taxes and other costs
that the Company incurs in connection with new and renewal business. Depending on the product line they relate to, the Company
records acquisition costs in different ways. Acquisition costs for:
x Universal life products are deferred and amortized in proportion to the present value of total estimated gross profits over the
expected lives of the contracts.
x Annuity and other individual life insurance (primarily international) and group health indemnity products are deferred and
amortized, generally in proportion to the ratio of periodic revenue to the estimated total revenues over the contract periods.
x Other products are expensed as incurred.