Cigna 2010 Annual Report Download - page 130

CIGNA CORPORATION  2010 Form 10K
110
PART II
ITEM 8 Financial Statements and Supplementary Data
NOTE 14 Variable Interest Entities
When the Company becomes involved with a variable interest
entity and when the nature of the Company’s involvement with the
entity changes, in order to determine if the Company is the primary
benefi ciary and must consolidate the entity, it evaluates:
•the structure and purpose of the entity;
•the risks and rewards created by and shared through the entity; and
•the entity’s participants’ ability to direct the activities, receive its
benefi ts and absorb its losses. Participants include the entity’s
sponsors, equity holders, guarantors, creditors and servicers.
In the normal course of its investing activities, the Company makes
passive investments in securities that are issued by variable interest
entities for which the Company is not the sponsor or manager.  ese
investments are predominantly asset-backed securities primarily
collateralized by foreign bank obligations and commercial mortgage-
backed securities.  e asset-backed securities largely represent fi xed-
rate debt securities issued by trusts which hold perpetual fl oating-
rate subordinated notes issued by foreign banks.  e commercial
mortgage-backed securities represent senior interests in pools of
commercial or residential mortgages created and held by special-
purpose entities to provide investors with diversifi ed exposure to
these assets.  e Company owns senior securities issued by several
entities and receives fi xed-rate cash fl ows from the underlying assets
in the pools.  e Company is not the primary benefi ciary and does
not consolidate any of these entities because either:
•it had no power to direct the activities that most signifi cantly impact
the entities’ economic performance; or
•it had no right to receive benefi ts nor obligation to absorb losses
that could be signifi cant to these variable interest entities.
 e Company has not provided, and does not intend to provide,
fi nancial support to these entities.  e Company performs ongoing
qualitative analyses of its involvement with these variable interest
entities to determine if consolidation is required.  e Company’s
maximum potential exposure to loss related to these entities is
limited to the carrying amount of its investment reported in fi xed
maturities and equity securities, and its aggregate ownership interest
is insignifi cant relative to the total principal amount issued by these
entities. See Note 12A for a discussion of the Company’s process for
assessing fi xed maturities and equity securities for impairment.
NOTE 15 Investment Income and Gains and Losses
A. Net Investment Income
 e components of pre-tax net investment income for the years
ended December 31 were as follows:
(In millions) 2010 2009 2008
Fixed maturities $ 788 $ 748 $ 729
Equity securities 678
Commercial mortgage loans 221 223 219
Policy loans 90 92 86
Real estate (2) (1) 1
Other long-term investments 29 (30) 6
Short-term investments and cash 11 10 43
1,143 1,049 1,092
Less investment expenses 38 35 29
NET INVESTMENT INCOME $ 1,105 $ 1,014 $ 1,063
Net investment income for separate accounts (which is not refl ected
in the Company’s revenues) was $163 million for 2010, $22 million
for 2009, and $148 million for 2008.
B. Realized Investment Gains and Losses
 e following realized gains and losses on investments for the years
ended December 31 exclude amounts required to adjust future policy
benefi ts for the run-off settlement annuity business.
(In millions) 2010 2009 2008
Fixed maturities $ 87 $ 2 $ (237)
Equity securities 5 12 (31)
Commercial mortgage loans (23) (20) (2)
Real estate 3——
Other investments, including derivatives 3 (37) 100
Realized investment gains (losses), before income taxes 75 (43) (170)
Less income taxes (benefi ts) 25 (17) (60)
Net realized investment gains (losses) $ 50 $ (26) $ (110)