Cigna 2010 Annual Report Download - page 37

CIGNA CORPORATION  2010 Form 10K 17
PARTI
ITEM 1 Business
from three to fi ve years unless management considers a near-term sale
preferable. As of December 31, 2010, CIGNA held one foreclosed
property with a carrying value of $59 million.
Mezzanine and Private Equity Partnerships
CIGNA invests in limited partnership interests in partnerships
formed and managed by seasoned, experienced fund managers with
diverse mezzanine and private equity strategies.
Derivative Instruments
 e Company uses derivative fi nancial instruments primarily as
part of a strategy to reduce the equity market exposures relating to
guaranteed minimum death benefi t contracts. Derivative fi nancial
instruments are also used by the Company as a part of its investment
strategy to manage the characteristics of investment assets to meet
the varying demands of the related insurance and contractholder
liabilities. CIGNA has also written derivative instruments to
minimize certain insurance customers’ market risks. For information
about CIGNA’s use of derivative fi nancial instruments, see Note 13 to
CIGNA’s Consolidated Financial Statements beginning on page 107
of this Form 10-K.
See also the “Investment Assets” section of the MD&A beginning
on page 65, and Notes 2, 11, 12, 14, and 15 to the Consolidated
Financial Statements beginning on pages 77, 97, 103, 110, and 110,
respectively, of this Form 10-K for additional information about
CIGNA’s investments.
Domestic Portfolios — Investment Strategy
As of December 31, 2010, the Domestic Portfolios had $19.0 billion
in General Account Invested Assets, allocated among fi xed maturity
investments (68%); commercial mortgage loan investments (18%);
and policy loans, real estate investments, short-term investments and
mezzanine and private equity partnership investments (14%).
CIGNA’s objective is to maximize risk-adjusted yields for the portfolios
while generally managing the characteristics of these assets to refl ect
the underlying characteristics of related insurance and contractholder
liabilities and capital requirements, as well as regulatory and tax
considerations pertaining to those liabilities and state investment
laws. CIGNA’s domestic insurance and contractholder liabilities
as of December 31, 2010, excluding liabilities of businesses sold
through the use of reinsurance arrangements, were associated with
the following products, and the General Account Invested Assets are
allocated proportionally as follows: other life and health, 51%; fully
guaranteed annuity, 19%; and interest-sensitive life insurance, 30%.
While the businesses and products supported are described elsewhere
in this Form 10-K, the General Account Invested Assets supporting
the insurance and contractholder liabilities of each of the Company’s
segments are as follows:
•assets supporting CIGNA’s Health Care segment are structured to
emphasize investment income, and provide the necessary liquidity
to meet cash fl ow requirements.
•assets supporting CIGNA’s Disability and Life segment are also
structured to emphasize investment income, and provide necessary
liquidity to meet cash fl ow requirements. Invested Assets supporting
longer-term group disability insurance benefi ts and group life
waiver of premium benefi ts are generally managed to an aggregate
duration similar to that of the related benefi t cash fl ows.
•assets supporting the Run-off Reinsurance segment with respect
to reinsurance provided for guaranteed minimum death benefi t
contracts and guaranteed minimum income benefi t contracts
are structured to emphasize investment income and provide the
necessary liquidity to meet cash fl ow requirements. For information
about CIGNA’s use of derivative fi nancial instruments in the
Run-off Reinsurance segment, see Notes 7 and 11 to CIGNA’s
Consolidated Financial Statements beginning on pages 87 and 97
of this Form 10-K.
•assets supporting CIGNA’s Other Operations segment are
associated primarily with fully guaranteed annuities (primarily
settlement annuities) and interest-sensitive life insurance (primarily
corporate-owned life insurance products). Because settlement
annuities generally do not permit withdrawal by policyholders prior
to maturity, the amount and timing of future benefi t cash fl ows
can be reasonably estimated so funds supporting these products
are invested in fi xed income investments whose aggregate duration
generally matches the cash fl ows of the related benefi ts. As of
December 31, 2010, the average duration of assets that supported
these liabilities was approximately 12 years. General Account
Invested Assets supporting interest-sensitive life insurance products
are primarily fi xed income investments and policy loans. Fixed
income investments emphasize investment yield while meeting the
liquidity requirements of the related liabilities.
Investment strategy and results are aff ected by the amount and
timing of cash available for investment, competition for investments,
economic conditions, interest rates and asset allocation decisions.
CIGNA routinely monitors and evaluates the status of its
investments, obtaining and analyzing relevant investment-specifi c
information as well as assessing current economic conditions, trends
in capital markets and other factors. Such factors include industry
sector considerations for fi xed maturity investments and mezzanine
and private equity partnership investments, and geographic and
property-type considerations for commercial mortgage loan and real
estate investments.
International Portfolios — Investment Strategy
As of December 31, 2010 the International Portfolios had $1.9 billion
in Invested Assets, allocated among fi xed maturity investments
(93%), short-term investments (5%) and other investments (2%).
 e International Portfolios are primarily managed by external
managers with whom CIGNA’s subsidiaries contract.
 e characteristics of these assets are generally managed to refl ect the
underlying characteristics of related insurance and contractholder
liabilities, as well as regulatory and tax considerations in the countries
where CIGNA’s subsidiaries operate. CIGNA International’s
Invested Assets are generally invested in the currency of related
liabilities, typically the currency in which the subsidiaries operate
and with an aggregate duration generally matching the duration
of insurance liabilities. CIGNA’s investment policy allows the
investment of subsidiary assets in U.S. dollars to the extent permitted
by applicable regulation. CIGNA International’s Invested Assets as
of December 31, 2010 were held primarily in support of statutory
surplus and liabilities associated with the health, life and accident
and healthcare products described in Section F on page 12 of this
Form 10-K.