Cigna 2012 Annual Report Download - page 130

PART II
ITEM 8 Financial Statements and Supplementary Data
Accounting policy. Using cash flow hedge accounting, fair values are
Derivative instruments used in the Company’s
reported in other long-term investments or other liabilities and
investment risk management.
accumulated other comprehensive income and amortized into net
Derivative financial instruments are also used by the Company as a investment income or reported in other realized investment gains and
part of its investment strategy to manage the characteristics of losses as interest or principal payments are received.
investment assets (such as duration, yield, currency and liquidity) to Cash flows. Under the terms of these various contracts, the Company
meet the varying demands of the related insurance and contractholder
periodically exchanges cash flows between variable and fixed interest
liabilities (such as paying claims, investment returns and withdrawals).
rates and/or between two currencies for both principal and interest.
Derivatives are typically used in this strategy to reduce interest rate
Foreign currency swaps are primarily Euros, Australian dollars,
and foreign currency risks.
Canadian dollars, Japanese yen, and British pounds, and have terms
for periods of up to 9 years. Net interest cash flows are reported in
Investment Cash Flow Hedges
operating activities.
Purpose. The Company uses interest rate, foreign currency, and
combination (interest rate and foreign currency) swap contracts to
hedge the interest and foreign currency cash flows of its fixed maturity
bonds to match associated insurance liabilities.
Volume of activity. The following table provides the notional values of these derivative instruments for the indicated periods:
Notional Amount (In millions)
As of December 31,
Instrument 2012 2011
Interest rate swaps $ 58 $ 134
Foreign currency swaps 133 134
Combination interest rate and foreign currency swaps 64 64
TOTAL $ 255 $ 332
The following table provides the effect of these derivative instruments on the financial statements for the indicated periods:
Fair Value Effect on the Financial Statements (In millions)
Accounts Payable, Accrued Gain (Loss) Recognized in
Other Long-Term Expenses Other
Investments and Other Liabilities Comprehensive Income
(1)
For the years ended
As of December 31, As of December 31, December 31,
Instrument 2012 2011 2012 2011 2012 2011
Interest rate swaps $ 4 $ 7 $ - $ - $ (3) $ (3)
Foreign currency swaps 1 3 18 19 (3) (1)
Combination interest rate and foreign
currency swaps - - 13 11 (2) 1
TOTAL $ 5 $ 10 $ 31 $ 30 $ (8) $ (3)
(1) Other comprehensive income for foreign currency swaps excludes amounts required to adjust future policy benefits for the run-off settlement annuity business.
For the years ended December 31, 2012 and 2011, the amount of recognized due to ineffectiveness was not material and there were no
gains (losses) reclassified from accumulated other comprehensive amounts excluded from the assessment of hedge effectiveness.
income into income was not material. The amount of gains (losses)
108 CIGNA CORPORATION - 2012 Form 10-K