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PART II
ITEM 8. Financial Statements and Supplementary Data
The following table summarizes the changes in separate account assets reported in Level 3 for the years ended December 31, 2015 and 2014.
(In millions)
2015 2014
Balance at January 1 $ 1,158 $ 1,035
Policyholder gains
(1)
95 85
Purchases, issuances, settlements:
Purchases 198 266
Sales – (2)
Settlements (230) (226)
Total purchases, sales and settlements (32) 38
Transfers into/(out of) Level 3:
Transfers into Level 3 16 20
Transfers out of Level 3 (12) (20)
Total transfers into/(out of) Level 3: 4–
Balance at December 31 $ 1,225 $ 1,158
(1) Included in this amount were gains of $95 million attributable to instruments still held at December 31, 2015 and gains of $85 million attributable to instruments still held at December 31,
2014.
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, 2015 and 2014. 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 $16 million, after-tax in 2015
and $10 million, after-tax in 2014.
December 31, 2015 December 31, 2014
Classification in
Fair Value Fair Carrying Fair Carrying
(In millions)
Hierarchy Value Value Value Value
Commercial mortgage loans Level 3 $ 1,911 $ 1,864 $ 2,168 $ 2,081
Contractholder deposit funds, excluding universal life products Level 3 $ 1,151 $ 1,148 $ 1,136 $ 1,124
Long-term debt, including current maturities, excluding capital leases Level 2 $ 5,515 $ 5,020 $ 5,740 $ 4,967
As explained in Note 2(B), in the fourth quarter of 2015, the loan-to-value ratio and other factors. Fair values of impaired mortgage
Company retrospectively adopted ASU 2015-03 that requires debt loans are based on the estimated fair value of the underlying collateral
issuance costs to be netted against the carrying value of the debt. The generally determined using an internal discounted cash flow model.
carrying value presented above for 2014 has been retrospectively The fair value measurements were classified in Level 3 because the
adjusted to conform to the new guidance. The fair values for all cash flow models incorporate significant unobservable inputs.
financial instruments presented in the table above have been estimated Contractholder deposit funds, excluding universal life products.
using 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 65% 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
Commercial mortgage loans. The Company estimates the fair value amount estimated to be payable to the customer as of the reporting
of commercial mortgage loans generally by discounting the date, which is generally the carrying value. Most of the remaining
contractual cash flows at estimated market interest rates that reflect contractholder deposit funds are reinsured by the buyers of the
the Company’s assessment of the credit quality of the loans. Market individual life and annuity and retirement benefits businesses. The
interest rates are derived by calculating the appropriate spread over fair value for these contracts is determined using the fair value of these
comparable U.S. Treasury rates based on the property type, quality buyers’ assets supporting these reinsured contracts. The Company had
rating and average life of the loan. The quality ratings reflect the reinsurance recoverables equal to the carrying value of these reinsured
relative risk of the loan considering debt service coverage, the contracts. These instruments were classified in Level 3 because certain
CIGNA CORPORATION - 2015 Form 10-K 89