Aetna 2009 Annual Report Download - page 72

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Separate Accounts Measured at Fair Value in our Balance Sheets
Separate Account assets in Large Case Pensions represent funds maintained to meet specific objectives of contract
holders. Since contract holders bear the investment risk of these assets, a corresponding Separate Account liability
has been established equal to the assets. These assets and liabilities are carried at fair value. Net investment income
and capital gains and losses accrue directly to such contract holders. The assets of each account are legally segregated
and are not subject to claims arising from our other businesses. Deposits, withdrawals, net investment income and
realized and unrealized capital gains and losses on Separate Account assets are not reflected in our statements of
income, shareholders’ equity or cash flows.
Separate Account assets include debt and equity securities and derivative instruments. The valuation methodologies
used for these assets are similar to the methodologies described beginning on page 63. Separate Account assets also
include investments in common/collective trusts and real estate that are carried at fair value. The following are
descriptions of the valuation methodologies used to price these investments, including the general classification
pursuant to the valuation hierarchy.
Common/Collective Trusts – Commingled trusts invest in other collective investment funds otherwise known
as the underlying funds. The Separate Account's interests in the commingled trust funds are based on the fair
values of the investments of the underlying funds and therefore are classified as Level 2. The underlying
assets primarily consist of foreign equity securities. Investments in commingled trust funds are valued at their
respective net asset value per share/unit on the valuation date.
Real Estate - The values of the underlying real estate investments are estimated using generally accepted
valuation techniques and give consideration to the investment structure. An appraisal of the underlying real
estate for each of these investments is performed annually. In the quarters in which an investment is not
appraised or its valuation is not updated, fair value is based on available market information. The valuation of
a real estate investment is adjusted only if there has been a significant change in economic circumstances
related to the investment since acquisition or the most recent independent valuation and upon the appraiser’ s
review and concurrence with the valuation. Further, these valuations have been prepared giving consideration
to the income, cost and sales comparison approaches of estimating property value. These valuations do not
necessarily represent the prices at which the real estate investments would sell, since market prices of real
estate investments can only be determined by negotiation between a willing buyer and seller. Therefore, these
investment values are classified as Level 3.
Separate Account financial assets at December 31, 2009 and 2008 were as follows:
(Millions) Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
Debt Securities 752.3$ 2,508.0$ 97.3$ 3,357.6$ 631.5$ 2,412.1$ 365.1$ 3,408.7$
Equity Securities 1,215.1 .9 - 1,216.0 1,629.2 2.1 - 1,631.3
Derivatives - 1.2 - 1.2 - (.1) - (.1)
Common/Collective Trusts - 1,152.6 - 1,152.6 - - - -
Real Estate - - 71.4 71.4 - - 86.7 86.7
Total
(1)
1,967.4$ 3,662.7$ 168.7$ 5,798.8$ 2,260.7$ 2,414.1$ 451.8$ 5,126.6$
2009 2008
(1) Excludes $484.3 million and $793.3 million of cash and cash equivalents and other receivables at December 31, 2009 and 2008, respectively.
The changes in the balances of Level 3 Separate Account financial assets for 2009 and 2008 were as follows:
Debt
Securities Real Estate Total
Debt
Securities Real Estate Total
Beginning balance 365.1$ 86.7$ 451.8$ 291.2$ 12,541.8$ 12,833.0$
(116.7) (15.2) (131.9) (16.4) (45.6) (62.0)
Purchases, sales and maturities (114.8) (.1) (114.9) 105.2 (88.7) 16.5
Net transfers out of Level 3
(1)
(36.3) - (36.3) (14.9) - (14.9)
Transfers of Separate Account assets
(2)
- - - - (12,320.8) (12,320.8)
Ending Balance 97.3$ 71.4$ 168.7$ 365.1$ 86.7$ 451.8$
2008
(Millions)
Total losses accrued to contract holders
2009
(1) For financial assets that are transferred into (out of) Level 3, we use the fair value of the assets at the end (beginning) of the reporting period.
(2) In 1996, we entered into a contract with UBS Realty Investors, LLC (formerly known as Allegis Realty Investors, LLC) under which
mortgage loan and real estate separate account assets and corresponding liabilities transitioned out of our business.
Annual Report – Page 66