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CIGNA CORPORATION2010 Form 10K
100
PART II
ITEM 8 Financial Statements and Supplementary Data
• e annual annuity election rate assumption refl ects experience that
diff ers by the company issuing the underlying variable annuity contracts
and depends on the annuitant’s age, the relative value of the guarantee
and whether a contractholder has had a previous opportunity to elect
the benefi t. Immediately after the expiration of the waiting period, the
assumed probability that an individual will annuitize their variable
annuity contract is up to 80%. For the second and subsequent annual
opportunities to elect the benefi t, the assumed probability of election is
up to 30%. Actual data is still emerging for the Company as well as the
industry and the estimates are based on this limited data.
• e nonperformance risk adjustment is incorporated by adding an
additional spread to the discount rate in the calculation of both
(1) the GMIB liability to refl ect a hypothetical market participant’s
view of the risk of the Company not fulfi lling its GMIB obligations,
and (2) the GMIB asset to refl ect a hypothetical market participant’s
view of the reinsurers’ credit risk, after considering collateral.  e
estimated market-implied spread is company-specifi c for each
party involved to the extent that company-specifi c market data
is available and is based on industry averages for similarly rated
companies when company-specifi c data is not available.  e spread
is impacted by the credit default swap spreads of the specifi c parent
companies, adjusted to refl ect subsidiaries’ credit ratings relative to
their parent company and any available collateral.  e additional
spread over LIBOR incorporated into the discount rate ranged
from 5 to 110 basis points for the GMIB liability and from 10 to
85 basis points for the GMIB reinsurance asset for that portion of
the interest rate curve most relevant to these policies.
• e risk and profi t charge assumption is based on the Company’s
estimate of the capital and return on capital that would be required
by a hypothetical market participant.
e Company regularly evaluates each of the assumptions used
in establishing these assets and liabilities by considering how a
hypothetical market participant would set assumptions at each
valuation date. Capital markets assumptions are expected to change at
each valuation date refl ecting currently observable market conditions.
Other assumptions may also change based on a hypothetical market
participant’s view of actual experience as it emerges over time or other
factors that impact the net liability. If the emergence of future experience
or future assumptions diff ers from the assumptions used in estimating
these assets and liabilities, the resulting impact could be material to the
Company’s consolidated results of operations, and in certain situations,
could be material to the Company’s fi nancial condition.
GMIB liabilities are reported in the Company’s Consolidated
Balance Sheets in Accounts payable, accrued expenses and other
liabilities. GMIB assets associated with these contracts represent
net receivables in connection with reinsurance that the Company
has purchased from two external reinsurers and are reported in the
Company’s Consolidated Balance Sheets in Other assets, including
other intangibles.
Changes in Level 3 Financial Assets and Financial
Liabilities Carried at Fair Value
e following tables summarize the changes in fi nancial assets
and fi nancial liabilities classifi ed in Level 3 for the years ended
December 31, 2010 and 2009.  ese tables exclude separate account
assets as changes in fair values of these assets accrue directly to
policyholders. Gains and losses reported in this table may include
changes in fair value that are attributable to both observable and
unobservable inputs.
(In millions)
Fixed Maturities
&Equity
Securities GMIB Assets GMIB Liabilities GMIB Net
Balance at 1/1/2010 $ 845 $ 482 $ (903) $ (421)
Gains (losses) included in income:
GMIB fair value gain/(loss) — 57 (112) (55)
Other 27———
Total gains (losses) included in shareholders’ net income 27 57 (112) (55)
Gains included in other comprehensive income 10———
Gains required to adjust future policy benefi ts for settlement annuities (1) 34———
Purchases, issuances, settlements, net (74) (59) 112 53
Transfers into/(out of) Level 3:
Transfers into Level 3 155———
Transfers out of Level 3 (64)———
Total transfers into/(out of) Level 3 91———
Balance at 12/31/2010 $ 933 $ 480 $ (903) $ (423)
Total gains (losses) included in shareholders’ net income attributable
to instruments held at the reporting date $ 18 $ 57 $ (112) $ (55)
(1) Amounts do not accrue to shareholders.