Aetna 2009 Annual Report Download - page 27

Annual Report – Page 21
point decrease in the assumed discount rate would increase our annual pension costs by approximately $37 million
after tax and would have a negligible effect on our annual OPEB costs.
At December 31, 2009, the pension and OPEB plans had aggregate actuarial losses of $2.5 billion. These losses are
primarily due to investment losses incurred in 2008. The accumulated actuarial loss is amortized over the remaining
service life of pension plan participants (estimated at 9.4 years at December 31, 2009) and the expected life of OPEB
plan participants (estimated at up to 15.8 years at December 31, 2009) to the extent the loss is outside of a corridor
established in accordance with GAAP. The corridor is established based on the greater of 10% of the plan assets or
10% of the projected benefit obligation. At December 31, 2009, $1.9 billion of the actuarial loss was outside of the
corridor, resulting in amortization of approximately $206 million after tax in our 2010 pension and OPEB expense.
Our expected return on plan assets and discount rate discussed above will not affect the cash contributions we are
required to make to our pension and OPEB plans because we have met all minimum funding requirements. We will
not have a minimum funding requirement for our pension or OPEB plans in 2010. However, we currently intend to
make a voluntary pension contribution of approximately $45 million in 2010.
Refer to Note 11 of Notes to Consolidated Financial Statements beginning on page 67 for additional information on
our defined benefit pension and other postretirement benefit plans.
Other-Than-Temporary Impairment of Debt Securities
We regularly review our debt securities to determine whether a decline in fair value below the carrying value is other
than temporary. If a decline in fair value is considered other than temporary, the cost basis or carrying amount of the
security is written down. The write-down is then bifurcated into its credit and non-credit related components. The
credit-related component is included in our results of operations and the non-credit related component is included in
other comprehensive loss if we do not intend to sell the security. We analyze all facts and circumstances we believe
are relevant for each investment when performing this analysis, in accordance with applicable accounting guidance
promulgated by the Financial Accounting Standards Board and the United States Securities and Exchange
Commission.
Among the factors we consider in evaluating whether a decline is other than temporary are whether the decline in fair
value results from a change in the quality of the investment security itself, whether the decline results from a
downward movement in the market as a whole and the prospects for realizing the carrying value of the security based
on the investment’ s current and short-term prospects for recovery. For unrealized losses determined to be the result of
market conditions (for example, increasing interest rates and volatility due to conditions in the overall market) or
industry-related events, we determine whether we intend to sell the security or if it is more likely than not that we will
be required to sell the security before recovery of its cost basis. If either case is true, we recognize an OTTI and the
cost basis/carrying amount of the security is written down to fair value.
Securities in an unrealized loss position for which we believe we will not recover the amortized cost due to the quality
of the security or the credit-worthiness of the issuer are categorized as credit-related OTTI.
The risks inherent in assessing the impairment of an investment include the risk that market factors may differ from our
projections and the risk that facts and circumstances factored into our assessment may change with the passage of time.
Unexpected changes to market factors and circumstances that were not present in past reporting periods are among the
factors that may result in a current period decision to sell securities that were not impaired in prior reporting periods.
Revenue Recognition (Allowance for Estimated Terminations and Uncollectable Accounts)
Our revenue is principally derived from premiums and fees billed to customers in the Health Care and Group Insurance
businesses. In Health Care, revenue is recognized based on customer billings, which reflect contracted rates per
employee and the number of covered employees recorded in our records at the time the billings are prepared. Billings
are generally sent monthly for coverage during the following month. In Group Insurance, premium for group life and
disability products is recognized as revenue, net of allowances for uncollectable accounts, over the term of coverage.
Amounts received before the period of coverage begins are recorded as unearned premiums.
Health Care billings may be subsequently adjusted to reflect changes in the number of covered employees due to
terminations or other factors. These adjustments are known as retroactivity adjustments. We estimate the amount of