Aetna 2009 Annual Report Download - page 55

Download and view the complete annual report

Please find page 55 of the 2009 Aetna annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 100

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100

Annual Report – Page 49
intention to sell a security that is in an unrealized loss position. Refer to Notes 8 and 9 beginning on pages 58 and 62,
respectively.
Upon adoption of this new guidance, we evaluated securities held at April 1, 2009 for which a previous OTTI was
recognized, and identified those securities that we did not intend to sell. As a result of this analysis, we recorded a $54
million ($83 million pretax) cumulative effect adjustment that increased retained earnings and accumulated other
comprehensive loss as of April 1, 2009.
Fair Value Measurements – Assessing Fair Value in Market Conditions That Are Not Orderly
In April 2009, the FASB released updates to the accounting guidance for measuring the fair value of assets and
liabilities. These updates provide clarification as to how to determine the fair value of assets and liabilities in distressed
economic conditions and also require greater disaggregation of debt and equity securities within our fair value
measurements disclosures (refer to Note 10 beginning on page 63). This accounting guidance was effective on June
30, 2009 and did not impact our financial position or results of operations.
Codification
In June 2009, the FASB released FASB Accounting Standards CodificationTM (“Codification”). Beginning in
September 2009, all existing accounting standard documents were superseded, and Codification became the single
source of authoritative GAAP. Codification did not result in any change in our significant accounting policies.
Cumulative Effect of New Accounting Standards in 2007
Effective January 1, 2007, we changed the measurement date of our defined benefit pension and other postretirement
plans in accordance with a new accounting standard issued by the FASB. This change resulted in a cumulative effect
adjustment to the opening balance of shareholders’ equity at January 1, 2007 comprised of a $4 million increase to
retained earnings and a $114 million decrease to accumulated other comprehensive loss. In addition, we adopted new
guidance on accounting for uncertainty in income taxes, which resulted in a cumulative effect adjustment to the
opening balance of retained earnings at January 1, 2007 of $5 million.
Future Application of Accounting Standards
Variable Interest Entities
In June 2009, the FASB released revised accounting guidance for variable interest entities (“VIEs”). This accounting
guidance removes the quantitative-based risks-and-rewards calculation previously used to assess whether a company
must consolidate a VIE and, instead, requires a variable interest holder to qualitatively assess whether it has a
controlling financial interest in the VIE. This accounting guidance became effective on January 1, 2010. We are
currently assessing the impact of this new guidance on our financial position and results of operations.
Use of Estimates
The preparation of the accompanying consolidated financial statements in conformity with GAAP requires the use of
estimates and assumptions that affect the amounts reported in the accompanying consolidated financial statements and
notes. We consider the following accounting estimates critical in the preparation of the accompanying consolidated
financial statements: health care costs payable, other insurance liabilities, recoverability of goodwill and other
acquired intangible assets, measurement of defined benefit pension and other postretirement benefit plans, other-than-
temporary impairment of debt securities and revenue recognition. We use information available to us at the time
estimates are made; however, these estimates could change materially if different information or assumptions were
used. Additionally, these estimates may not ultimately reflect the actual amounts of the final transactions that occur.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and other debt securities with a maturity of three months or less when
purchased. The carrying value of cash equivalents approximates fair value due to the short-term maturity of these
investments.
Investments
Debt and Equity Securities
Debt and equity securities consist primarily of U.S. Treasury and agency securities, mortgage-backed securities,
corporate and foreign bonds and other debt and equity securities. Debt securities are classified as either current or
long-term investments based on their contractual maturities unless we intend to sell an investment within the next