Cigna 2013 Annual Report Download - page 101

PART II
ITEM 8. Financial Statements and Supplementary Data
the fair value of this reporting unit. See Note 8 for additional
information.
Property and equipment is carried at cost less accumulated
depreciation. When applicable, cost includes interest, real estate taxes
and other costs incurred during construction. Also included in this
category is internal-use software that is acquired, developed or
modified solely to meet the Company’s internal needs, with no plan to Other assets primarily consist of guaranteed minimum income
market externally. Costs directly related to acquiring, developing or benefits (‘‘GMIB’’) assets and various insurance-related assets. The
modifying internal-use software are capitalized. Company’s other intangible assets include purchased customer and
The Company calculates depreciation and amortization principally producer relationships, provider networks, and trademarks. The
using the straight-line method generally based on the estimated useful Company amortizes other intangibles on an accelerated or
life of each asset as follows: buildings and improvements, 10 to straight-line basis over periods from 1 to 30 years. Management
40 years; purchased software, one to five years; internally developed revises amortization periods if it believes there has been a change in
software, three to seven years; and furniture and equipment (including the length of time that an intangible asset will continue to have value.
computer equipment), three to 10 years. Improvements to leased Costs incurred to renew or extend the terms of these intangible assets
facilities are depreciated over the remaining lease term or the are generally expensed as incurred. See Notes 8 and 10 for additional
estimated life of the improvement. The Company considers events information.
and circumstances that would indicate the carrying value of property,
equipment or capitalized software might not be recoverable. If the
Company determines the carrying value of any of these assets is not
recoverable, an impairment charge is recorded. See Note 8 for Separate account assets and liabilities are contractholder funds
additional information. maintained in accounts with specific investment objectives. The assets
of these accounts are legally segregated and are not subject to claims
that arise out of any of the Company’s other businesses. These separate
account assets are carried at fair value with equal amounts for related
Goodwill represents the excess of the cost of businesses acquired over separate account liabilities. The investment income, gains and losses
the fair value of their net assets. The resulting goodwill is assigned to of these accounts generally accrue to the contractholders and, together
those reporting units expected to realize cash flows from the with their deposits and withdrawals, are excluded from the Company’s
acquisition, allocated to reporting units based on relative fair values Consolidated Statements of Income and Cash Flows. Fees and charges
and reported in the Global Health Care segment ($5.7 billion) and earned for asset management or administrative services and mortality
the Global Supplemental Benefits segment ($340 million). The risks are reported in premiums and fees.
Company evaluates goodwill for impairment at least annually during
the third quarter at the reporting unit level and writes it down through
results of operations if impaired. Fair value of a reporting unit is
generally estimated based on a discounted cash flow analysis using Liabilities for contractholder deposit funds primarily include deposits
assumptions that the Company believes a hypothetical market received from customers for investment-related and universal life
participant would use to determine a current transaction price. The products and investment earnings on their fund balances. These
significant assumptions and estimates used in determining fair value liabilities are adjusted to reflect administrative charges and, for
include the discount rate and future cash flows. A range of discount universal life fund balances, mortality charges. In addition, this
rates is used that corresponds with the reporting unit’s weighted caption includes: 1) premium stabilization reserves representing
average cost of capital, consistent with that used for investment experience refunds under group insurance contracts left with the
decisions considering the specific and detailed operating plans and Company to pay future premiums; 2) deposit administration funds
strategies within the reporting units. In 2013, the resulting discounted used to fund non-pension retiree insurance programs; 3) retained asset
cash flow analyses indicated that estimated fair values for the reporting accounts; and 4) annuities or supplementary contracts without
units significantly exceeded their carrying values, including goodwill significant life contingencies. Interest credited on these funds is
and other intangibles. Our Cigna-HealthSpring business contracts accrued ratably over the contract period.
with CMS and various state governmental agencies to provide
managed health care services, including Medicare Advantage plans
and Medicare-approved prescription drug plans. Revenues from the
Medicare programs are dependent, in whole or in part, upon annual Future policy benefits represent the present value of estimated future
funding from the federal government through CMS. Funding for obligations under long-term life and supplemental health insurance
these programs is dependent on many factors including general policies and annuity products currently in force. These obligations are
economic conditions, continuing government efforts to contain estimated using actuarial methods and primarily consist of reserves for
health care costs and budgetary constraints at the federal level and annuity contracts, life insurance benefits, guaranteed minimum death
general political issues and priorities. Future changes in the funding benefit (‘‘GMDB’’) contracts (see Note 7 for additional information)
for these programs by the federal government could substantially and certain health, life, and accident insurance products in our Global
reduce our revenues and profitability and have a significant impact on Supplemental Benefits segment.
CIGNA CORPORATION - 2013 Form 10-K 69
G. Property and Equipment
I. Other Assets, including Other
Intangibles
J. Separate Account Assets and Liabilities
H. Goodwill
K. Contractholder Deposit Funds
L. Future Policy Benefits