Cigna 2008 Annual Report Download - page 73

53
Balance Sheet Caption /
Nature of Critical Accounting Estimate
Assumptions / Approach Used Effect if Different Assumptions Used
The significant decline in value of equity securities during
2008 has resulted in an accumulated unrecognized actuarial
loss of $1.5 billion at December 31, 2008. The actuarial loss
is adjusted for unrecognized changes in market-related asset
values and amortized over the remaining service life of
pension plan participants if the adjusted loss exceeds 10% of
the market-related value of plan assets or 10% of the
projected benefit obligation, whichever is greater. As of
December 31, 2008, approximately $0.4 billion of the
adjusted actuarial loss exceeded 10% of the projected benefit
obligation. As a result, approximately $35 million after-tax
will be expensed in 2009 net income. For the year ended
December 31, 2008, $37 million after-tax was expensed in
net income.
increase by approximately $10 million, after-tax.
If the December 31, 2008 fair values of domestic
qualified plan assets decreased by 10%, the accrued
pension benefit liability would increase by
approximately $225 million as of December 31,
2008 resulting in an after-tax decrease to
shareholders’ equity of approximately $145 million.
A favorable change is an increase in these key
assumptions and would result in impacts to annual
pension costs, the accrued pension liability and
shareholders’ equity in an opposite direction, but
similar amounts.
Investments – Fixed maturities
Recognition of losses from “other
than temporary” impairments of
public and private placement
fixed maturities
Losses for “other than temporary” impairments of
fixed maturities must be recognized in net income
based on an estimate of fair value by management.
Changes in fair value are reflected as an increase or
decrease in shareholders’ equity. A decrease in fair
value is recognized in net income when the
decrease is determined to be “other than
temporary.”
Determining whether a decline in value is “other
than temporary” includes an evaluation of the
reasons for and the significance of the decrease in
value of the security as well as the duration of the
decrease.
Management estimates the amount of an “other than
temporary” impairment when a decline in value is expected
to persist, using quoted market prices for public securities
with active markets and generally the present value of future
cash flows for private placement bonds and other public
securities. Expected future cash flows are based on
historical experience of the issuer and management’s
expectation of future performance. See “Quality Ratings” in
the Investment Assets section of the MD&A beginning on
page 73 for additional information.
The Company recognized "other than temporary"
impairments of investments in fixed maturities as follows (in
millions, after-tax):
• 2008 – $138
• 2007 – $20
• 2006 -- $18
See Note 12(A) to the Consolidated Financial Statements for
a discussion of the Company’s review of declines in fair
value.
For all fixed maturities with cost in excess of their
fair value, if this excess was determined to be other-
than-temporary, the Company's net income for the
year ended December 31, 2008 would have
decreased by approximately $388 million after-tax.
For private placement bonds considered impaired, a
decrease of 10% of all expected future cash flows
for the impaired bonds would reduce net income by
approximately $1 million after-tax.