Cigna 2014 Annual Report Download - page 125

PART II
ITEM 8. Financial Statements and Supplementary Data
The following table summarizes the change in separate account assets reported in Level 3 for the years ended December 31, 2014 and 2013.
(In millions) 2014 2013
Balance at January 1 $ 1,035 $ 1,005
Policyholder gains
(1)
85 82
Purchases, issuances, settlements:
Purchases 266 173
Sales (2) (14)
Settlements (226) (209)
Total purchases, sales and settlements 38 (50)
Transfers into/(out of ) Level 3:
Transfers into Level 3 20 5
Transfers out of Level 3 (20) (7)
Total transfers into/(out of) Level 3: – (2)
Balance at December 31 $ 1,158 $ 1,035
(1) Included in this amount were gains of $85 million attributable to instruments still held at December 31, 2014 and gains of $76 million attributable to instruments still held at
December 31, 2013.
Assets and Liabilities Measured at Fair Value under Fair Value Disclosures for Financial Instruments Not
Certain Conditions Carried at Fair Value
Some financial assets and liabilities are not carried at fair value each The following table includes the Company’s financial instruments not
reporting period, but may be measured using fair value only under recorded at fair value that are subject to fair value disclosure
certain conditions, such as investments in real estate entities and requirements at December 31, 2014 and 2013. Financial instruments
commercial mortgage loans when they become impaired. Impaired that are carried in the Company’s Consolidated Financial Statements
real estate entities and commercial mortgage loans representing less at amounts that approximate fair value are excluded from the
than 1% of total investments were written down to their fair values, following table.
resulting in realized investment losses of $10 million, after-tax in 2014
and $12 million, after-tax in 2013.
December 31, 2014 December 31, 2013
Classification in
Fair Value Fair Carrying Fair Carrying
(In millions) Hierarchy Value Value Value Value
Commercial mortgage loans Level 3 $ 2,168 $ 2,081 $ 2,338 $ 2,252
Contractholder deposit funds, excluding universal life products Level 3 $ 1,136 $ 1,124 $ 1,081 $ 1,072
Long-term debt, including current maturities, excluding capital leases Level 2 $ 5,740 $ 4,993 $ 5,550 $ 4,997
The fair values presented in the table above have been estimated using Contractholder deposit funds, excluding universal life products.
market information when available. The following valuation Generally, these funds do not have stated maturities. Approximately
methodologies and inputs are used by the Company to determine fair 60% of these balances can be withdrawn by the customer at any time
value. without prior notice or penalty. The fair value for these contracts is the
amount estimated to be payable to the customer as of the reporting
Commercial mortgage loans. The Company estimates the fair value date, which is generally the carrying value. Most of the remaining
of commercial mortgage loans generally by discounting the contractholder deposit funds are reinsured by the buyers of the
contractual cash flows at estimated market interest rates that reflect individual life and annuity and retirement benefits businesses. The
the Company’s assessment of the credit quality of the loans. Market fair value for these contracts is determined using the fair value of these
interest rates are derived by calculating the appropriate spread over buyers’ assets supporting these reinsured contracts. The Company had
comparable U.S. Treasury rates, based on the property type, quality reinsurance recoverables equal to the carrying value of these reinsured
rating and average life of the loan. The quality ratings reflect the contracts. These instruments were classified in Level 3 because certain
relative risk of the loan, considering debt service coverage, the inputs are unobservable (supported by little or no market activity) and
loan-to-value ratio and other factors. Fair values of impaired mortgage significant to their resulting fair value measurement.
loans are based on the estimated fair value of the underlying collateral
generally determined using an internal discounted cash flow model. Long-term debt, including current maturities, excluding capital
The fair value measurements were classified in Level 3 because the leases. The fair value of long-term debt is based on quoted market
cash flow models incorporate significant unobservable inputs. prices for recent trades. When quoted market prices are not available,
fair value is estimated using a discounted cash flow analysis and the
Company’s estimated current borrowing rate for debt of similar terms
CIGNA CORPORATION - 2014 Form 10-K 93