Aetna 2009 Annual Report Download - page 57

Annual Report – Page 51
Net Investment Income and Realized Capital Gains and Losses
Net investment income and realized capital gains and losses on investments supporting Health Care’ s and Group
Insurance’ s liabilities and Large Case Pensions’ products (other than experience-rated and discontinued products) are
reflected in our results of operations. Realized capital gains and losses are determined on a specific identification
basis. Unrealized capital gains and losses (other than experience-rated and discontinued products) are reflected in
shareholders’ equity, net of tax, as a component of accumulated other comprehensive loss. We reflect purchases and
sales of debt and equity securities and alternative investments on the trade date. We reflect purchases and sales of
mortgage loans and investment real estate on the closing date.
Experience-rated products are products in the Large Case Pensions business where the contract holder, not us, assumes
investment and other risks, subject to, among other things, minimum guarantees provided by us. The effect of
investment performance is allocated to contract holders’ accounts daily, based on the underlying investment’ s
experience and, therefore, does not impact our results of operations (as long as minimum guarantees are not triggered).
Realized and unrealized capital gains and losses on investments supporting experience-rated products in the Large
Case Pensions business are reflected in policyholders’ funds in our balance sheets. Net investment income supporting
Large Case Pensions’ experience-rated products is included in net investment income in our statements of income and
is credited to contract holders in current and future benefits.
When we discontinued the sale of our fully-guaranteed Large Case Pensions products, we established a reserve for
anticipated future losses from these products and segregated the related investments. These investments are managed
as a separate portfolio. Net investment income and realized capital gains and losses on this separate portfolio are
ultimately credited/charged to the reserve and, therefore, do not impact our results of operations. Unrealized capital
gains or losses on this separate portfolio are reflected in other current liabilities in our balance sheets. Refer to Note 20
beginning on page 82 for additional information on our discontinued products.
Reinsurance
We utilize reinsurance agreements primarily to facilitate the acquisition or disposition of certain insurance contracts.
Ceded reinsurance agreements permit us to recover a portion of our losses from reinsurers, although they do not
discharge our primary liability as direct insurer of the risks reinsured. Failure of reinsurers to indemnify us could
result in losses; however, we do not expect charges for unrecoverable reinsurance to have a material effect on our
results of operations or financial position. We evaluate the financial position of our reinsurers and monitor
concentrations of credit risk arising from similar geographic regions, activities or economic characteristics of our
reinsurers. At December 31, 2009, our reinsurance recoverables consisted primarily of amounts due from third
parties that are rated consistent with companies that are considered to have the ability to meet their obligations.
In the normal course of business, we enter into agreements with other insurance companies under which we assume
reinsurance, primarily related to our group life and health products (refer to Note 17 beginning on page 76 for
additional information). We do not transfer any portion of the financial risk associated with our HMO products to
third parties, except in areas that we participate in state-mandated health insurance pools. We did not have material
premiums ceded to or assumed from other insurance companies in the three years ended December 31, 2009.
Goodwill
We evaluate goodwill for impairment (at the reporting unit level) annually, or more frequently if circumstances
indicate a possible impairment, by comparing an estimate of the fair value of the applicable reporting unit to its
carrying value, including goodwill. If the carrying value exceeds fair value, we compare the implied fair value of the
applicable goodwill to its carrying amount to measure the amount of goodwill impairment, if any. Our reporting units
with goodwill are our Health Care and Group Insurance segments. Impairments, if any, would be classified as an
operating expense. After performing our analysis, we determined that there was no impairment of goodwill in each of
the three years ended December 31, 2009.
Our annual impairment tests were based on an evaluation of future discounted cash flows. These evaluations utilized
the best information available to us at the time, including supportable assumptions and projections we believe are
reasonable. Collectively, these evaluations were our best estimates of projected future cash flows. Our discounted
cash flow evaluations used a range of discount rates that corresponds to our weighted-average cost of capital. This
discount rate range is consistent with that used for investment decisions and takes into account the specific and detailed
operating plans and strategies of the Health Care and Group Insurance reporting units. Certain other key assumptions