Cigna 2014 Annual Report Download - page 130

PART II
ITEM 8. Financial Statements and Supplementary Data
December 31, 2014. The Company’s short-term investments and cash
E. Concentration of Risk
equivalents as of December 31, 2013 included corporate securities of As of December 31, 2014 and 2013, the Company did not have a
$2.2 billion, federal government securities of $323 million and money concentration of investments in a single issuer or borrower exceeding
market funds of $35 million. 10% of shareholders’ equity.
Derivative Financial Instruments
The Company uses derivative financial instruments to manage the amount of the net liability position and predefined financial strength
characteristics of investment assets (such as duration, yield, currency or credit rating thresholds. Collateral posting requirements vary by
and liquidity) to meet the varying demands of the related insurance counterparty. The net liability positions of these derivatives were not
and contractholder liabilities (such as paying claims, investment material as of December 31, 2014 or 2013.
returns and withdrawals) and to hedge interest rate risk of its
long-term debt. The Company has written and purchased Guaranteed
Investment Cash Flow Hedges.
Minimum Income Benefit (GMIB) reinsurance contracts in its
Purpose. The Company uses interest rate, foreign currency, and
run-off reinsurance business that are accounted for as freestanding
combination (interest rate and foreign currency) swap contracts to
derivatives. The Company also used derivative financial instruments
to manage the equity, foreign currency, and certain interest rate risk hedge the interest and foreign currency cash flows of its fixed maturity
exposures of its run-off reinsurance business until the time of the bonds to match associated insurance liabilities.
Berkshire reinsurance transaction in 2013. For information on the Accounting policy. Using cash flow hedge accounting, fair values are
Company’s accounting policy for derivative financial instruments, see reported in other long-term investments or other liabilities. Changes
Note 2. Derivatives in the Company’s separate accounts are excluded in fair value are reported in accumulated other comprehensive income
from the following discussion because associated gains and losses and amortized into net investment income or reported in other
generally accrue directly to separate account policyholders. realized investment gains and losses as interest or principal payments
Collateral and termination features. The Company routinely are received.
monitors exposure to credit risk associated with derivatives and Cash flows. Under the terms of these various contracts, the Company
diversifies the portfolio among approved dealers of high credit quality periodically exchanges cash flows between variable and fixed interest
to minimize this risk. As of December 31, 2014, the Company had rates and/or between two currencies for both principal and interest.
$21 million in cash on deposit representing the upfront margin Foreign currency and combination swaps are primarily Euros,
required for the Company’s centrally-cleared derivative instruments. Australian dollars, Canadian dollars, Japanese yen and British pounds
Certain of the Company’s over-the-counter derivative instruments
and have terms for periods of up to seven years. Net interest cash flows
contain provisions requiring either the Company or the counterparty
are reported in operating activities.
to post collateral or demand immediate payment depending on the
Volume of activity. The following table provides the notional values of these derivative instruments as of December 31:
Notional Amount (In millions)
Instrument 2014 2013
Interest rate swaps $14$45
Foreign currency swaps 91 118
Combination interest rate and foreign currency swaps 40 40
TOTAL $ 145 $ 203
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
(2)
and Other Liabilities
(2)
Comprehensive Income
(1)
For the years ended
As of December 31, As of December 31, December 31,
Instrument 2014 2013 2014 2013 2014 2013
Interest rate swaps $ – $ 2 $ – $ – $ (2) $ (2)
Foreign currency swaps 5 1 1 13 13 1
Combination interest rate and foreign
currency swaps – – – 2 3 10
TOTAL $ 5 $ 3$ 1$ 15$ 14$ 9
(1) Other comprehensive income for foreign currency swaps excludes amounts required to adjust future policy benefits for the run-off settlement annuity business.
(2) There were no amounts offset in the Consolidated Balance Sheets at December 31, 2014 or 2013.
98 CIGNA CORPORATION - 2014 Form 10-K
NOTE 12