Cigna 2012 Annual Report Download - page 122

PART II
ITEM 8 Financial Statements and Supplementary Data
(In millions)
Balance at January 1, 2011 $ 594
Policyholder gains
(1)
114
Purchases, issuances, settlements:
Purchases 257
Sales (51)
Settlements (152)
Total purchases, sales and settlements 54
Transfers into/(out of ) Level 3:
Transfers into Level 3 4
Transfers out of Level 3 (16)
Total transfers into/(out of ) Level 3: (12)
Balance at December 31, 2011 $ 750
(1) Included in this amount are gains of $96 million attributable to instruments still held at the reporting date.
down to their fair values, resulting in realized investment losses of
Assets and Liabilities Measured at Fair Value under
$15 million after-tax.
Certain Conditions
Some financial assets and liabilities are not carried at fair value each
Fair Value Disclosures for Financial Instruments Not
reporting period, but may be measured using fair value only under
certain conditions, such as investments in real estate entities and
Carried at Fair Value
commercial mortgage loans when they become impaired. During Most financial instruments that are subject to fair value disclosure
2012, impaired commercial mortgage loans representing less than 1% requirements are carried in the Company’s Consolidated Financial
of total investments were written down to their fair values, resulting in Statements at amounts that approximate fair value. The following
realized investment losses of $7 million after-tax. table provides the fair values and carrying values of the Company’s
During 2011, impaired commercial mortgage loans and real estate financial instruments not recorded at fair value that are subject to fair
entities representing less than 1% of total investments were written value disclosure requirements at December 31, 2012 and
December 31, 2011.
December 31, 2012 December 31, 2011
Classification in
Fair Value Fair Carrying Fair Carrying
(In millions) Hierarchy Value Value Value Value
Commercial mortgage loans Level 3 $ 2,999 $ 2,851 $ 3,380 $ 3,301
Contractholder deposit funds, excluding universal life products Level 3 $ 1,082 $ 1,056 $ 1,056 $ 1,035
Long-term debt, including current maturities, excluding capital leases Level 2 $ 5,821 $ 4,986 $ 5,319 $ 4,984
The fair values presented in the table above have been estimated using amount estimated to be payable to the customer as of the reporting
market information when available. The following is a description of date, which is generally the carrying value. Most of the remaining
the valuation methodologies and inputs used by the Company to contractholder deposit funds are reinsured by the buyers of the
determine fair value. individual life and annuity and retirement benefits businesses. The
fair value for these contracts is determined using the fair value of these
Commercial mortgage loans. The Company estimates the fair value buyers’ assets supporting these reinsured contracts. The Company had
of commercial mortgage loans generally by discounting the a reinsurance recoverable equal to the carrying value of these reinsured
contractual cash flows at estimated market interest rates that reflect contracts. These instruments were classified in Level 3 because certain
the Company’s assessment of the credit quality of the loans. Market inputs are unobservable (supported by little or no market activity) and
interest rates are derived by calculating the appropriate spread over significant to their resulting fair value measurement.
comparable U.S. Treasury rates, based on the property type, quality
rating and average life of the loan. The quality ratings reflect the Long-term debt, including current maturities, excluding capital
relative risk of the loan, considering debt service coverage, the leases. The fair value of long-term debt is based on quoted market
loan-to-value ratio and other factors. Fair values of impaired mortgage prices for recent trades. When quoted market prices are not available,
loans are based on the estimated fair value of the underlying collateral fair value is estimated using a discounted cash flow analysis and the
generally determined using an internal discounted cash flow model. Company’s estimated current borrowing rate for debt of similar terms
The fair value measurements were classified in Level 3 because the and remaining maturities. These measurements were classified in
cash flow models incorporate significant unobservable inputs. Level 2 because the fair values are based on quoted market prices or
other inputs that are market observable or can be corroborated by
Contractholder deposit funds, excluding universal life products. market data.
Generally, these funds do not have stated maturities. Approximately
Fair values of off-balance-sheet financial instruments were not
55% of these balances can be withdrawn by the customer at any time
material.
without prior notice or penalty. The fair value for these contracts is the
100 CIGNA CORPORATION - 2012 Form 10-K