Cigna 2010 Annual Report Download - page 129

Download and view the complete annual report

Please find page 129 of the 2010 Cigna annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 172

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152
  • 153
  • 154
  • 155
  • 156
  • 157
  • 158
  • 159
  • 160
  • 161
  • 162
  • 163
  • 164
  • 165
  • 166
  • 167
  • 168
  • 169
  • 170
  • 171
  • 172

CIGNA CORPORATION2010 Form 10K 109
PART II
ITEM 8 Financial Statements and Supplementary Data
Instrument/Volume
ofActivity Primary Risk Purpose Cash Flows Accounting Policy
Derivatives Not Designated As Accounting Hedges
Futures—
$892million (2010)
and $1,058million
(2009) of U.S. dollar
equivalent market
price of outstanding
contracts
Equity and foreign currency To reduce domestic and
international equity market
exposures for certain reinsurance
contracts that guarantee
minimum death benefi ts
(GMDB) resulting from changes
in variable annuity account
values based on underlying
mutual funds. Currency futures
are primarily euros, Japanese yen
and British pounds.
e Company receives (pays)
cash daily in the amount
of the change in fair value
of the futures contracts.
Cash fl ows are included
in operating activities.
Fair value changes are reported
in other revenues. Amounts
not yet settled from the
previous day’s fair value change
(daily variation margin)
are reported in premiums,
accounts and notes receivable,
net or accounts payable,
accrued expenses and other
liabilities.
Fair Value E ect on the Financial Statements (in millions)
Other Revenues
For the years ended
December31,
2010 2009
Futures $ (157) $ (283)
Interest rate swaps—
$45million (2010)
and $76million
(2009) of par value
ofrelated investments
Interest rate To hedge the interest cash fl ows
of fi xed maturities to match
associated liabilities.
e Company periodically
exchanges cash fl ows
between variable and fi xed
interest rates and these
cash fl ows are included in
investing activities.
Fair values are reported in
other long-term investments or
other liabilities, with changes
in fair value reported in other
realized investment gains and
losses.
Fair Value E ect on the Financial Statements (in millions)
Other Long-Term Investments Other Realized Investment
Gains (Losses)
As of December31, For the years ended
December31,
2010 2009 2010 2009
Interest rate swaps $ 3 $ 4 $ (2) $ (1)
Written options
(GMIB liability)—
$1,134million
(2010) and
$1,183million (2009)
of maximum potential
undiscounted future
payments as de ned
in Note24
Purchased options
(GMIB asset)—
$624million (2010)
and $651million
(2009) of
maximum potential
undiscounted future
receipts as de ned in
Note24
Equity and interest rate e Company has written
reinsurance contracts with
issuers of variable annuity
contracts that provide annuitants
with certain guarantees of
minimum income benefi ts,
resulting from the level of
variable annuity account values
compared with a contractually
guaranteed amount. Payment
by the Company depends on
the actual account value in the
underlying mutual funds and the
level of interest rates when the
contractholders elect to receive
minimum income payments.
e Company purchased
reinsurance contracts to reduce
a portion of the market risk
assumed.  ese contracts are
accounted for as written and
purchased options.
e Company periodically
receives (pays) fees based
on either contractholders’
account values or deposits
increased at a contractual
rate.  e Company will also
pay (receive) cash depending
on changes in account values
and interest rates when
contractholders fi rst elect to
receive minimum income
payments.  ese cash fl ows
are reported in operating
activities.
Fair values are reported
in other liabilities (GMIB
liability) and other assets
(GMIB asset). Changes in fair
value are reported in GMIB
fair value (gain)/loss.
Fair Value E ect on the Financial Statements (in millions)
Instrument
Other Assets, including other
intangibles
Accounts Payable, Accrued
Expenses and Other
Liabilities GMIB Fair Value (Gain)/Loss
As of December31, As of December31, For the years ended
December31,
2010 2009 2010 2009 2010 2009
Written options (GMIB
liability) $ — $ — $ 903 $ 903 $ 112 $ (669)
Purchased options (GMIB
asset) 480 482 — — (57) 365
TOTAL $ 480 $ 482 $ 903 $ 903 $ 55 $ 304