Cigna's investment portfolio consists of a broad range of investments including fixed maturities and equity securities, commercial mortgage loans, other long-term investments and short-term investments. The sections below provide more detail regarding our accounting policies, investment balances, net investment income and realized investment gains and losses. See Note 10 for information about the valuation of the Company's investment portfolio.

Accounting policy. Fixed maturities (including bonds, mortgage and other asset-backed securities and preferred stocks redeemable by the investor) and most equity securities are classified as available for sale and are carried at fair value with changes in fair value recorded in accumulated other comprehensive income (loss) within shareholders' equity. Net unrealized appreciation on investments supporting the Company's run-off settlement annuity business is reported in future policy benefit liabilities rather than accumulated other comprehensive income (loss).

Equity securities include hybrid investments consisting of preferred stock with call features that are carried at fair value with changes in fair value reported in other realized investment gains (losses) and dividends reported in net investment income. As of December 31, 2016, fair values of these securities were $36 million and amortized cost was $49 million. As of December 31, 2015, fair values of these securities were $52 million and amortized cost was $66 million.

The Company records impairment losses in net income for fixed maturities with fair value below amortized cost that meet either of the following conditions:

The amortized cost and fair value by contractual maturity periods for fixed maturities were as follows at December 31, 2016:

	Amortized		Fair
(In millions)	Cost		Value
Due in one year or less	$	1,570	$	1,574
Due after one year through five years		6,481		6,731
Due after five years through ten years		8,036		8,189
Due after ten years		3,394		3,981
Mortgage and other asset-backed securities		461		486
Total	$	19,942	$	20,961

Actual maturities of these securities could differ from their contractual maturities used in the table above. This could occur because issuers may have the right to call or prepay obligations, with or without penalties.

Gross unrealized appreciation (depreciation) on fixed maturities by type of issuer is shown below.

(In millions)				December 31, 2016
			Unrealized		Unrealized
	Amortized		Appre-		Depre-		Fair
	Cost		ciation		ciation		Value
Federal government and agency	$	658	$	223	$	(4)	$	877
State and local government		1,342		99		(6)		1,435
Foreign government		1,998		129		(14)		2,113
Corporate		15,483		716		(149)		16,050
Mortgage and other asset-backed		461		29		(4)		486
Total	$	19,942	$	1,196	$	(177)	$	20,961
(In millions)		December 31, 2015
Federal government and agency	$	528	$	251	$	-	$	779
State and local government		1,496		147		(2)		1,641
Foreign government		1,870		147		(3)		2,014
Corporate		14,022		632		(206)		14,448
Mortgage and other asset-backed		540		41		(8)		573
Total	$	18,456	$	1,218	$	(219)	$	19,455

The above table includes investments with a fair value of $2.7 billion at December 31, 2016 and 2015 supporting liabilities of the Company's run-off settlement annuity business. These investments had gross unrealized appreciation of $539 million and gross unrealized depreciation of $15 million at December 31, 2016, compared with gross unrealized appreciation of $521 million and gross unrealized depreciation of $38 million at December 31, 2015.

As of December 31, 2016, the Company had commitments to purchase $26 million of fixed maturities, all of which bear interest at a fixed market rate.

Review of declines in fair value. Management reviews fixed maturities with a decline in fair value from cost for impairment based on criteria that include:

The table below summarizes fixed maturities with a decline in fair value from amortized cost at December 31, 2016 by the length of time these securities have been in an unrealized loss position. These fixed maturities are primarily corporate securities with a decline in fair value that reflects an increase in market yields since purchase.

	Fair		Amortized		Unrealized		Number
(Dollars in millions)	Value		Cost		Depreciation		of Issues
Fixed maturities:
One year or less:
Investment grade	$	4,346	$	4,475	$	(129)	992
Below investment grade	$	724	$	736	$	(12)	591
More than one year:
Investment grade	$	308	$	327	$	(19)	53
Below investment grade	$	186	$	203	$	(17)	28

Equity securities include an investment of approximately $400 million in an exchange traded fund (“ETF”) with a gross unrealized loss of $5 million at December 31, 2016. The underlying assets of the ETF are primarily U.S. investment grade corporate bonds and the gross unrealized loss is due to an increase in market yields since purchase. There were no other available for sale equity securities with a significant unrealized loss reflected in accumulated other comprehensive income at December 31, 2016.

Mortgage loans held by the Company are made exclusively to commercial borrowers and are diversified by property type, location and borrower. Loans are generally issued at a fixed rate of interest and are secured by high quality, primarily completed and substantially leased operating properties.

Accounting policy. Commercial mortgage loans are carried at unpaid principal balances or, if impaired, the lower of unpaid principal or fair value of the underlying real estate. See the “Impaired commercial mortgage loans” section below for the Company's accounting policy for impaired commercial mortgage loans.

At December 31, commercial mortgage loans were distributed among the following property types and geographic regions:

(In millions)	2016		2015
Property type
Office buildings	$	592	$	697
Apartment buildings		428		366
Industrial		302		322
Hotels		205		259
Retail facilities		139		213
Other		-		7
Total	$	1,666	$	1,864
U.S. geographic region
Pacific	$	714	$	738
South Atlantic		268		366
New England		227		276
Central		239		205
Middle Atlantic		186		227
Mountain		32		52
Total	$	1,666	$	1,864

At December 31, 2016, scheduled commercial mortgage loan maturities were as follows:

Actual maturities could differ from contractual maturities for several reasons: borrowers may have the right to prepay obligations with or without prepayment penalties; the maturity date may be extended; and loans may be refinanced.

As of December 31, 2016, the Company had commitments to extend credit under commercial mortgage loan agreements of $69 million.

Credit quality. The Company regularly evaluates and monitors credit risk, beginning with the initial underwriting of a mortgage loan and continuing throughout the investment holding period. Mortgage origination professionals employ an internal credit quality rating system designed to evaluate the relative risk of the transaction at origination that is then updated each year as part of the annual portfolio loan review. The Company evaluates and monitors credit quality on a consistent and ongoing basis, classifying each loan as a loan in good standing, potential problem loan or problem loan.

Quality ratings are based on our evaluation of a number of key inputs related to the loan, including real estate market-related factors such as rental rates and vacancies, and property-specific inputs such as growth rate assumptions and lease rollover statistics. However, the two most significant contributors to the credit quality rating are the debt service coverage and loan-to-value ratios. The debt service coverage ratio measures the amount of property cash flow available to meet annual interest and principal payments on debt, with a ratio below 1.0 indicating that there is not enough cash flow to cover the required loan payments. The loan-to-value ratio, commonly expressed as a percentage, compares the amount of the loan to the fair value of the underlying property collateralizing the loan.

The following tables summarize the credit risk profile of the Company's commercial mortgage loan portfolio based on loan-to-value and debt service coverage ratios, as of December 31, 2016 and 2015:

(In millions)	Debt Service Coverage Ratio
	December 31, 2016
		1.30x or		1.20x to		1.10x to		1.00x to		Less than
Loan-to-Value Ratio		Greater		1.29x		1.19x		1.09x		1.00x		Total
Below 50%	$	335	$	15	$	-	$	-	$	-	$	350
50% to 59%		517		46		-		30		-		593
60% to 69%		624		14		-		-		-		638
70% to 79%		-		-		29		-		35		64
80% to 89%		-		-		-		-		-		-
90% to 100%		-		-		-		-		21		21
Total	$	1,476	$	75	$	29	$	30	$	56	$	1,666
	December 31, 2015
Below 50%	$	261	$	2	$	-	$	67	$	-	$	330
50% to 59%		683		-		-		24		-		707
60% to 69%		590		14		-		19		-		623
70% to 79%		-		-		-		30		36		66
80% to 89%		40		-		-		-		-		40
90% to 100%		-		-		-		-		98		98
Total	$	1,574	$	16	$	-	$	140	$	134	$	1,864

The Company's annual in-depth review of its commercial mortgage loan investments is the primary mechanism for identifying emerging risks in the portfolio. The most recent review was completed by the Company's investment professionals in the second quarter of 2016 and included an analysis of each underlying property's most recent annual financial statements, rent rolls, operating plans, budgets, a physical inspection of the property and other pertinent factors. Based on historical results, current leases, lease expirations and rental conditions in each market, the Company estimates the current year and future stabilized property income and fair value and categorizes the investments as loans in good standing, potential problem loans or problem loans. The results of the 2016 review showed improvement from the prior review in each of the key metrics and confirmed the overall strength of the portfolio. Based on property values and cash flows estimated as part of this review, and considering updates for loans where material changes were subsequently identified, the portfolio's average loan-to-value ratio improved to 57% at December 31, 2016 from 58% at December 31, 2015. The portfolio's average debt service coverage ratio improved to 1.95 at December 31, 2016 from 1.78 at December 31, 2015. These improvements are primarily attributable to improvements in property operations and the relative stability of these metrics is primarily due to low portfolio turnover.

The Company will reevaluate a loan's credit quality between annual reviews if new property information is received or an event such as delinquency or a borrower's request for restructure causes management to believe that the Company's estimate of financial performance, fair value or the risk profile of the underlying property has been impacted.

Potential problem mortgage loans are considered current (no payment is more than 59 days past due), but they exhibit certain characteristics that increase the likelihood of future default. The characteristics management considers include, but are not limited to, the deterioration of debt service coverage below 1.0, estimated loan-to-value ratios increasing to 100% or more, downgrade in quality rating and requests from the borrower for restructuring. In addition, loans are considered potential problems if principal or interest payments are past due by more than 30 but less than 60 days. Problem mortgage loans are either in default by 60 days or more or have been restructured as to terms that could include concessions on interest rate, principal payment or maturity date. The Company monitors each problem and potential problem mortgage loan on an ongoing basis, and updates the loan categorization and quality rating when warranted.

Problem and potential problem mortgage loans, net of valuation reserves, totaled $21 million at December 31, 2016 and $139 million at December 31, 2015.

Impaired commercial mortgage loans. A commercial mortgage loan is considered impaired when it is probable that the Company will not collect all amounts due according to the terms of the original loan agreement. These loans are included in either problem or potential problem loans. The Company monitors credit risk and assesses the impairment of loans individually and on a consistent basis for all loans in the portfolio. Impaired loans are carried at the lower of unpaid principal balance or the fair value of the underlying real estate. The Company estimates the fair value of the underlying real estate using internal valuations generally based on discounted cash flow analyses. Certain commercial mortgage loans without valuation reserves are considered impaired because the Company will not collect all interest due according to the terms of the original agreements; however, the Company expects to recover the unpaid principal because it is less than the fair value of the underlying real estate. Because of the risk profile of the underlying investment, the Company recognizes interest income on impaired mortgage loans only when payment is actually received.

The carrying value of the Company's impaired commercial mortgage loans and related valuation reserves were as follows:

(In millions)		2016					2015
		Gross		Reserves		Net		Gross		Reserves		Net
Impaired commercial mortgage loans with valuation reserves	$	26	$	(5)	$	21	$	113	$	(15)	$	98
Impaired commercial mortgage loans with no valuation reserves		-		-		-		-		-		-
Total	$	26	$	(5)	$	21	$	113	$	(15)	$	98

The average recorded investment in impaired loans was $72 million during 2016 and $126 million during 2015. The decrease in the average recorded investment was partially due to the foreclosure of one impaired loan. Interest income on impaired commercial mortgage loans was not significant for 2016 or 2015.

Changes in valuation reserves for commercial mortgage loans were not material for the years ended December 31, 2016 and 2015.

Accounting policy. Other long-term investments include investments in unconsolidated entities. These entities include certain limited partnerships and limited liability companies holding real estate, securities or loans. These investments are carried at cost plus the Company's ownership percentage of reported income or loss in cases where the Company has significant influence; otherwise the investment is carried at cost. Income from certain entities is reported on a one quarter lag depending on when their financial information is received. Other long-term investments are considered impaired, and written down to their fair value, when cash flows indicate that the carrying value may not be recoverable. Fair value is generally determined based on a discounted cash flow analysis.

Other long-term investments also include investment real estate carried at depreciated cost less any impairment write downs to fair value when cash flows indicate that the carrying value may not be recoverable. Depreciation is generally recorded using the straight-line method based on the estimated useful life of each asset. Investment real estate as of December 31, 2016 and 2015 is expected to be held longer than one year and includes real estate acquired through the foreclosure of commercial mortgage loans.

Additionally, other long-term investments include interest rate and foreign currency swaps carried at fair value. See Note 12 for information on the Company's accounting policies for these derivative financial instruments.

The Company expects to disburse approximately 26% of the committed amounts in 2017.

Accounting policy. Security investments with maturities of greater than three months to one year from time of purchase are classified as short-term, available for sale and carried at fair value that approximates cost. Cash equivalents consist of short-term investments with maturities of three months or less from the time of purchase and are carried at cost that approximates fair value.

Short-term investments and cash equivalents included corporate securities of $2.2 billion, federal government securities of $378 million and money market funds of $11 million as of December 31, 2016. The Company's short-term investments and cash equivalents as of December 31, 2015 included corporate securities of $925 million, federal government securities of $220 million and money market funds of $55 million.

As of December 31, 2016 and 2015, the Company did not have a concentration of investments in a single issuer or borrower exceeding 10% of shareholders' equity.

Accounting policy. When interest and principal payments on investments are current, the Company recognizes interest income when it is earned. The Company recognizes interest income on a cash basis when interest payments are delinquent based on contractual terms or when certain terms (interest rate or maturity date) of the investment have been restructured.

The components of pre-tax net investment income for the years ended December 31 were as follows:

(In millions)	2016		2015		2014
Fixed maturities	$	899	$	879	$	876
Equity securities		4		3		3
Commercial mortgage loans		91		112		133
Policy loans		72		72		72
Other long-term investments		98		116		105
Short-term investments and cash		26		14		17
Total investment income		1,190		1,196		1,206
Less investment expenses		43		43		40
Net investment income	$	1,147	$	1,153	$	1,166

Real estate investments and securities partnerships with a carrying value of $220 million at December 31, 2016 and $277 million at December 31, 2015 were non-income producing during the preceding twelve months.

Net investment income for separate accounts that is excluded from the Company's revenues was $236 million for 2016, $262 million for 2015, and $225 million for 2014.

Accounting policy. Realized investment gains and losses are based on specifically identified assets and result from sales, investment asset write-downs, changes in the fair values of certain derivatives and changes in valuation reserves on commercial mortgage loans.

The following realized gains and losses on investments for the years ended December 31 exclude amounts required to adjust future policy benefits for the run-off settlement annuity business.

(In millions)	2016		2015		2014
Fixed maturities	$	23	$	(82)	$	14
Equity securities		(1)		36		13
Commercial mortgage loans		4		(2)		(6)
Other investments, including derivatives		143		105		133
Net realized investment gains, before income taxes		169		57		154
Less income taxes		60		17		48
Net realized investment gains	$	109	$	40	$	106

Included in these realized investment gains (losses) were pre-tax asset write-downs as follows:


(In millions)	2016		2015		2014
Other-than-temporary impairments on fixed maturities:
Credit-related	$	(19)	$	(11)	$	-
Non credit-related⁽¹⁾		(16)		(101)		(36)
Total other-than-temporary impairments on fixed maturities		(35)		(112)		(36)
Other asset write-downs⁽²⁾		(23)		(28)		(16)
Total	$	(58)	$	(140)	$	(52)

(1) These write-downs pertain to other-than-temporary declines in fair values due to increases in market yields (widening of credit spreads), particularly within the energy sector, for certain below investment grade fixed maturities with an increased probability of sales activity prior to recovery of amortized cost basis.
(2) Other asset write-downs include other-than-temporary declines in the fair values of equity securities, increases in valuation reserves on commercial mortgage loans, and asset write-downs related to security partnerships and real estate investments.

Realized investment gains in other investments, including derivatives, represent primarily gains on sale of real estate properties held in joint ventures.

Realized investment gains that are excluded from the Company's revenues for the years ended December 31 were as follows:

(In millions)	2016		2015		2014
Separate accounts	$	16	$	117	$	376
Investment gains required to adjust future policy benefits for the run-off settlement annuity business	$	63	$	114	$	86

The following table presents sales information for available-for-sale fixed maturities and equity securities for the years ended December 31. Gross gains on sales and gross losses on sales exclude amounts required to adjust future policy benefits for the run-off settlement annuity business.