Aetna 2013 Annual Report Download - page 22

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Annual Report- Page 16
Debt and Equity Securities
The debt securities in our investment portfolio had an average credit quality rating of A at both December 31, 2013
and 2012, with approximately $4.5 billion and $4.6 billion at December 31, 2013 and 2012, respectively, rated
AAA. The debt securities that were rated below investment grade (that is, having a quality rating below BBB-/
Baa3) were $1.2 billion and $1.1 billion at December 31, 2013 and 2012, respectively (of which 17% and 19% at
December 31, 2013 and 2012, respectively, supported our experience-rated and discontinued products).
At December 31, 2013 and 2012, we held approximately $747 million and $694 million, respectively, of municipal
debt securities that were guaranteed by third parties, representing approximately 3% of our total investments at each
date. These securities had an average credit quality rating of A and A+ at December 31, 2013 and 2012,
respectively, with and without the guarantee. We do not have any significant concentration of investments with
third party guarantors (either direct or indirect).
At both December 31, 2013 and 2012, approximately 1% of our investment portfolio was comprised of investments
that were either European sovereign, agency, or local government debt or European corporate issuers of countries
which, in our judgment based on an analysis of market-yields, are experiencing economic, fiscal or political strains
such that the likelihood of default may be higher than if those factors did not exist.
We classify our debt and equity securities as available for sale, and carry them at fair value on our balance
sheet. Approximately 1% of our debt and equity securities at both December 31, 2013 and 2012 were valued using
inputs that reflect our own assumptions (categorized as Level 3 inputs in accordance with GAAP). Refer to Note 10
of Notes to Consolidated Financial Statements beginning on page 107 for additional information on the
methodologies and key assumptions we use to determine the fair value of investments.
At December 31, 2013 and 2012, our debt and equity securities had net unrealized capital gains of $756 million and
$1.9 billion, respectively, of which $231 million and $540 million, respectively, related to our experience-rated and
discontinued products.
Refer to Note 8 of Notes to Consolidated Financial Statements beginning on page 100 for details of gross unrealized
capital gains and losses by major security type, as well as details on our debt securities with unrealized capital
losses at December 31, 2013 and 2012. We regularly review our debt securities to determine if a decline in fair
value below the carrying value is other-than-temporary. If we determine a decline in fair value is other-than-
temporary, we will write down the carrying value of the security. The amount of the credit-related impairment is
included in our operating results, and the non-credit component is included in other comprehensive income unless
we intend to sell the security or it is more likely than not that we will be required to sell the debt security prior to its
anticipated recovery. Accounting for other-than-temporary impairment (“OTTI”) of our debt securities is
considered a critical accounting estimate. Refer to “Critical Accounting Estimates - Other-Than-Temporary
Impairment of Debt Securities” on page 28 for additional information.
Net Realized Capital Gains and Losses
Net realized capital losses were $9 million in 2013. Net realized capital gains were $109 million in 2012 and $168
million in 2011. The net realized capital losses in 2013 were primarily attributable to yield-related OTTI on debt
securities, primarily on U.S. Treasury securities that we had the intent to sell, partially offset by gains from the sales
of debt securities. The net realized capital gains in 2012 and 2011 were primarily attributable to the sale of debt
securities partially offset by losses on derivative transactions.
In 2013, we recognized yield-related OTTI losses of $33 million related to our debt securities that we had the intent
to sell. Yield-related OTTI losses were not significant in 2012 or 2011. In addition, we had no individually material
realized capital losses on debt or equity securities that impacted our operating results in 2013, 2012 or 2011.