Cigna 2009 Annual Report Download - page 128

108
For universal life, annuity and other individual products, management estimates the present value of future revenues less expected
payments. For group health indemnity products, management estimates the sum of future expected claims and related costs less
unearned premiums and anticipated net investment income. If management’s estimates are less than the deferred costs, the Company
reduces deferred policy acquisition costs and records an expense. Anticipated investment income is considered in the calculation of
premium deficiency losses for short-duration contracts. The Company recorded in other operating expenses amortization for policy
acquisition costs of $299 million in 2009, $314 million in 2008 and $242 million in 2007. There are no deferred policy acquisition
costs attributable to the sold individual life insurance and annuity and retirement businesses or the run-off reinsurance operations.
G. Property and Equipment
Property and equipment is carried at cost less accumulated depreciation. When applicable, cost includes interest, real estate taxes and
other costs incurred during construction. Also included in this category is internal-use software that is acquired, developed or
modified solely to meet the Company’s internal needs, with no plan to market externally. Costs directly related to acquiring,
developing or modifying internal-use software are capitalized.
The Company calculates depreciation and amortization principally using the straight-line method based on the estimated useful life of
each asset as follows: buildings and improvements, 1 year to 40 years; and equipment and software, 1 year to 10 years. See Note 9 for
additional information.
H. Goodwill
Goodwill represents the excess of the cost of businesses acquired over the fair value of their net assets. Substantially all goodwill
relates to the Health Care segment. The Company evaluates goodwill for impairment annually during the third quarter at the reporting
unit level, based on discounted cash flow analyses and writes it down through results of operations if impaired. Consistent with prior
years, the Company’s evaluations used the best information available at the time, including reasonable assumptions and projections
consistent with those used in its annual planning process. The discounted cash flow analyses used a range of discount rates that
correspond with the Company’s weighted average cost of capital, consistent with that used for investment decisions considering the
specific and detailed operating plans and strategies within the Health Care segment. The resulting discounted cash flow analyses
indicated an estimated fair value for the reporting units of the Health Care segment exceeding their carrying values, including
goodwill and other intangibles. Finally, the Company determined that no events or circumstances occurred subsequent to the annual
evaluation of goodwill that would more likely than not reduce the fair value of the reporting units of the Health Care segment below
their carrying values. See Note 9 for additional information.
I. Other Assets, including Other Intangibles
Other assets consist of various insurance-related assets and the gain position of certain derivatives, primarily GMIB assets. The
Company’s other intangible assets include purchased customer and producer relationships, provider networks, and trademarks. The
Company amortizes other intangibles on an accelerated or straight-line basis over periods from 1 to 30 years. Management revises
amortization periods if it believes there has been a change in the length of time that an intangible asset will continue to have value.
Costs incurred to renew or extend the terms of these intangible assets are generally expensed as incurred. See Note 9 for additional
information.
J. Separate Account Assets and Liabilities
Separate account assets and liabilities are contractholder funds maintained in accounts with specific investment objectives. The assets
of these accounts are legally segregated and are not subject to claims that arise out of any of the Company’s other businesses. These
separate account assets are carried at fair value with equal amounts for related separate account liabilities. The investment income,
gains and losses of these accounts generally accrue to the contractholders and are not included in the Company’s revenues and
expenses. Fees earned for asset management services are reported in premiums and fees.
K. Contractholder Deposit Funds
Liabilities for contractholder deposit funds include deposits received from customers for investment-related and universal life products
and investment earnings on their fund balances. These liabilities are adjusted to reflect administrative charges and, for universal life
fund balances, mortality charges.