Cigna 2009 Annual Report Download - page 103

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Capital Resources
The Company’s capital resources (primarily retained earnings and the proceeds from the issuance of debt and equity securities)
provide protection for policyholders, furnish the financial strength to underwrite insurance risks and facilitate continued business
growth.
Management, guided by regulatory requirements and rating agency capital guidelines, determines the amount of capital resources that
the Company maintains. Management allocates resources to new long-term business commitments when returns, considering the
risks, look promising and when the resources available to support existing business are adequate.
The Company prioritizes its use of capital resources to:
x provide capital necessary to support growth and maintain or improve the financial strength ratings of subsidiaries;
x consider acquisitions that are strategically and economically advantageous; and
x return capital to investors through share repurchase.
The availability of capital resources will be impacted by equity and credit market conditions. Extreme volatility in credit or equity
market conditions may reduce the Company’s ability to issue debt or equity securities. Significant volatility and deterioration of the
equity markets during 2008 resulted in reduced retained earnings and the capital available for growth, acquisitions, and share
repurchase.
On May 4, 2009, the Company issued $350 million of 8.50% Notes ($349 million, net of debt discount, with an effective interest rate
of 9.90% per year). The difference between the stated and effective interest rates primarily reflects the effect of treasury locks. See
Note 13 to the Consolidated Financial Statements for further information. Interest is payable on May 1 and November 1 of each year
beginning November 1, 2009. The proceeds of this debt were used for general corporate purposes, including the repayment of some
of the Company’s outstanding commercial paper. These Notes will mature on May 1, 2019.
On March 4, 2008, the Company issued $300 million of 6.35% Notes (with an effective interest rate of 6.68% per year). The
difference between the stated and effective interest rates primarily reflects the effect of treasury locks. Interest is payable on March 15
and September 15 of each year beginning September 15, 2008. The proceeds of this debt were used for general corporate purposes,
including financing the acquisition of Great-West Healthcare. These Notes will mature on March 15, 2018.
The Company may redeem these Notes, at any time, in whole or in part, at a redemption price equal to the greater of:
x 100% of the principal amount of the Notes to be redeemed; or
x the present value of the remaining principal and interest payments on the Notes being redeemed discounted at the applicable
Treasury Rate plus 50 basis points (8.5% Notes due 2019) or 40 basis points (6.35% Notes due 2018).
On March 14, 2008, the Company entered into a commercial paper program (“the Program”). Under the Program, the Company is
authorized to sell from time to time short-term unsecured commercial paper notes up to a maximum of $500 million. The proceeds
are used for general corporate purposes, including working capital, capital expenditures, acquisitions and share repurchases. The
Company uses the credit facility described below as back-up liquidity to support the outstanding commercial paper. If at any time
funds are not available on favorable terms under the Program, the Company may use the Credit Agreement (see below) for funding. In
October 2008, the Company added an additional dealer to its Program. As of December 31, 2009, the Company had $100 million in
commercial paper outstanding, at a weighted average interest rate of 0.35% and remaining maturities ranging from 11 to 35 days.
In June 2007, the Company amended and restated its five-year committed revolving credit and letter of credit agreement for $1.75
billion, which permits up to $1.25 billion to be used for letters of credit. This agreement is diversified among 22 banks, with three
banks each having 11% of the commitment and the other 21 banks having the remaining 67% of the commitment. The credit
agreement includes options, which are subject to consent by the administrative agent and the committing banks, to increase the
commitment amount up to $2.0 billion and to extend the term of the agreement. The Company entered into the agreement for general
corporate purposes, including support for the issuance of commercial paper and to obtain statutory reserve credit for certain
reinsurance arrangements. There was a $27 million letter of credit issued as of December 31, 2009.