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2010 CIGNA ANNUAL REPORT
a healthier world one
person
at a
time

Table of contents

  • Page 1
    2010 CIGNA ANNUAL REPORT a healthier world one person at a time

  • Page 2
    CONTENTS 2 To Our Shareholders 8 A Culture of Caring and Service in the Global Community 10 Awards and Recognition 12 CIGNA in Perspective 14 Corporate and Board of Directors Information

  • Page 3
    we see people as individuals At CIGNA, we understand that people are unique, and so, too, is their health. In a world of many millions, we see each person defining a healthy life on his or her own terms. It's our aim to be part of that journey, helping people achieve better health and peace of mind ...

  • Page 4
    ... our shareholders CIGNA's 2010 results were strong, with significant contributions from each of our ongoing businesses, powered by a team of 30,000 employees around the world. The CIGNA team is a source of pride as our employees fulfill the global goal of improving life and health for customers and...

  • Page 5
    ... this strategy served us well as we ended 2010 with 11.4 million HealthCare customers, 3.6 percent higher than at year-end 2009. This customer growth was driven by our sales to mid-sized employers and companies with 51 - 250 employees, along with attractive growth in our Disability business. Outside...

  • Page 6
    ... Group Disability and Life segment, our results show the direct benefit of our leading disability management programs. These programs help employees return to work faster, which increases workforce productivity, and importantly, drives cost savings for clients, (employers) and customers (employees...

  • Page 7
    ... lower interest rate. Cash and short-term investments at the parent company were $810 million as of December 31, 2010. In 2010, we acquired Kronos Optimal Health to add to our suite of health coaching resources, and we sold our non-core Intracorp workers' compensation case management business. Both...

  • Page 8
    We provide information to help people make good decisions about their health, but we don't view our customers in terms of data and numbers. We see each customer as a complete individual. For example, in the U.S., we launched Chronic Care Support for mid-sized employers, a program that takes an ...

  • Page 9
    ... operations, particularly in alternative distribution methods and supplemental market capabilities. We distribute our Health, Life and Accident products directly to individuals through telemarketing, direct response TV and the internet, rather than traditional captive broker or agent models...

  • Page 10
    ... in dental coverage, the CIGNA team has taken this cause on the road in an effort to bring quality care and education to the underprivileged - free of charge. In 2010, CIGNA Korea teamed up with the Seoul National University Dental Hospital to support the Mobile Dental Care (MDC) program. The dental...

  • Page 11
    ... health care customers instant access to expert health support (in English and Spanish) when they're on the go; anywhere, anytime, right from their phones. Customers can use CIGNA Mobile to cost-compare medications covered by CIGNA pharmacy benefit plans; search real-time prices at 60,000 pharmacies...

  • Page 12
    ... Quality of Bare • The New York Business Group on Health honored CIGNA for outstanding performance in providing high-quality and high-value health care solutions in the New York metropolitan area. • All 23 CIGNA HealthCare HMO and Point of Service plans are NCQA-Accredited, and 17 currently hold...

  • Page 13
    ... To receive this certification, a company must "demonstrate truly exceptional outcomes with respect to the numbers of women in leadership positions." • Connecticut Magazine recognized CIGNA in its November 2010 issue as one of 20 Great Places to Work in Connecticut. • CIGNA's Eden Prairie-based...

  • Page 14
    ...e Medical 93% Dental 6% Life & Other 1% Premiums and Fees (in millions) $13,319 Cigna gRoup insuRanCe Life 46% Disability 44% Accident & Other 10% Premiums and Fees (in millions) $2,667 C i g n a i n t e R n at i o n a l Health Care 54% Life, Accident & Health 46% Premiums and Fees (in millions...

  • Page 15
    ..., dental, behavioral, vision, pharmacy, personal accident, disability, business travel and life insurance, as well as wellness programs for expatriate employees • Health Care: medical and related products provided through employer group benefits programs in select countries • Individual Private...

  • Page 16
    ... D. ZOLLARS Chairman, President and Chief Executive Officer YRC Worldwide Inc., a holding company whose subsidiaries provide regional, national and international transportation and related services standing Board Committees executive Committee ISAIAH HARRIS, JR. Chairperson DAVID M. CORDANI JOHN...

  • Page 17
    ... Acting Chief Financial Officer CIGNA Corporation MATTHEW G. MANDERS President U.S. Service Clinical and Specialty JOHN M. MURABITO Executive Vice President Human Resources and Services CIGNA Corporation CAROL ANN PETREN Executive Vice President and General Counsel CIGNA Corporation BERTRAM L. SCOTT...

  • Page 18
    ... States and Canada at 201.680.6535. You can access your account online through the BNY Mellon Shareowner services website: www.bnymellon. com/shareowner/isd. direct stock purchase plan Shareholders can automatically reinvest their annual dividend and make optional cash purchases of common shares...

  • Page 19
    UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2010 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF ...

  • Page 20
    ... and issuer purchases of equity securities ...31 Selected Financial Data ...32 Management's Discussion and Analysis of Financial Condition and Results of Operations...33 Quantitative and Qualitative Disclosures About Market Risk ...72 Financial Statements and Supplementary Data ...73 Changes in and...

  • Page 21
    ... major providers of medical, dental, disability, life and accident insurance and related products and services. In the U.S., the majority of these products and services are offered through employers and other groups (e.g. unions and associations) and in selected international markets, CIGNA offers...

  • Page 22
    ... medical, dental, behavioral health, vision, and prescription drug benefit plans, health advocacy programs and other products and services that may be integrated to provide comprehensive health care benefit programs. CIGNA HealthCare companies offer these products and services in all 50 states...

  • Page 23
    ... point of service ("POS"), Network POS Open Access and Open Access Plus plans ("OAP") cover health care services provided by participating, and non-participating health care professionals, but the customers' cost-sharing obligation is generally greater for out-ofnetwork care. CIGNA Choice Fund...

  • Page 24
    ... prescription drug program, CIGNA Medicare Rx®, provides a number of plan options as well as service and information support to Medicare and Medicaid eligible customers. CIGNA Medicare Rx is available in all 50 states and the District of Columbia. CIGNA Onsite Health CIGNA Onsite Health was formed...

  • Page 25
    ...life, increased productivity and fewer treatment claims and associated costs over time. CIGNA Dental Health offers customers a dental treatment cost estimator to educate individuals on oral health and aid them in their dental health care decision-making. CIGNA Specialty Pharmacy Management Clients...

  • Page 26
    ... state laws may restrict or limit the use of rating methods. • Premium rates for groups and individuals are subject to state and/or HHS review for unreasonable increases. Administrative Services Only CIGNA HealthCare contracts with employers, unions and other groups sponsoring self-insured plans...

  • Page 27
    ... 24-hour help line; 24/7 call center; case management; disease management; pharmacy benefit management; behavioral health care management services (through its provider networks); or any combination of these services. • The self-insured plan sponsor is responsible for self-funding all claims, but...

  • Page 28
    ... instances, CIGNA HealthCare contracts directly with the participating hospital, health care professional or other facility to provide covered services to customers at agreed-upon rates of reimbursement. In some instances, however, CIGNA HealthCare companies contract with third parties for access to...

  • Page 29
    .... CIGNA HealthCare also employs representatives to sell utilization review services, managed behavioral health care and employee assistance services directly to insurance companies, HMOs, third party administrators and employer groups. As of December 31, 2010, the field sales force for the products...

  • Page 30
    ... insurance products and their related services: group long-term and short-term disability insurance, group life insurance and accident and specialty insurance. These products and services are provided by subsidiaries of CIGNA Corporation. CIGNA Disability and Life markets products in all 50 states...

  • Page 31
    ...2010, CIGNA is one of the top five providers of group disability, life and accident insurance in the United States, based on premiums. Industry Developments and Strategic Initiatives The group insurance market remains highly competitive as the rising cost of providing medical coverage to employees...

  • Page 32
    ...and services include medical indemnity insurance coverage, with some offerings having managed care or administrative service aspects. These products and services generally provide an alternative or supplement to government provided national health care programs. 12 CIGNA CORPORATION  2010 Form...

  • Page 33
    ...care businesses include medical products, which are provided through group and individual benefits programs in the United Kingdom and Spain as well as to individual expatriates and high net worth globally mobile individuals. For CIGNA International's supplemental health, life and accident insurance...

  • Page 34
    ... recognized from the 1998 sale of the individual life insurance and annuity business and the 2004 sale of the retirement benefits business; and • run-off settlement annuity business. 14 CIGNA CORPORATION  2010 Form 10K The products and services related to these operations are offered by...

  • Page 35
    ... and administration of the insurance policies (e.g., maintenance of records regarding cash values and death benefits, claims processing, etc.) as well as oversight of the investment management for separate account assets that support the variable universal life product. Markets and Distribution...

  • Page 36
    ... insurance, health care and disability and life products. Types of Investments CIGNA invests in a broad range of asset classes, including domestic and international fixed maturities and common stocks, commercial mortgage loans, real estate, mezzanine and private equity partnerships and short-term...

  • Page 37
    ...and Life segment are also structured to emphasize investment income, and provide necessary liquidity to meet cash ï¬,ow requirements. Invested Assets supporting longer-term group disability insurance benefits and group life International Portfolios - Investment Strategy As of December 31, 2010 the...

  • Page 38
    ... health, insurance and managed care departments, state boards of pharmacy and the Center for Medicare & Medicaid Services to assess compliance with applicable laws and regulations. In addition, CIGNA's current and past business practices are subject to review by, and from time to time the Company...

  • Page 39
    ..., Indemnity Funds, Risk Pools and Administrative Funds Most states and certain non-U.S. jurisdictions require insurance companies to support guaranty associations or indemnity funds, which are established to pay claims on behalf of insolvent insurance companies. In the United States, these...

  • Page 40
    ... federal government requires Medicare and Medicaid providers to file detailed cost reports for health care services provided. These reports may be audited in subsequent years. CIGNA HMOs that contract to provide community-rated coverage to participants in the Federal Employees Health Benefit Plan...

  • Page 41
    ...change and compliance will continue to require significant resources. parties, and requires financial institutions, including insurers, to provide customers with notice regarding how their non-public personal information is used, including an opportunity to "opt out" of certain disclosures. State...

  • Page 42
    ...employees; • effectively managing balance sheet exposures, including evaluating potential solutions for the Company's run-off reinsurance business and pension funding obligation; • improving medical cost competitiveness in targeted markets; and • reducing CIGNA HealthCare's medical operating...

  • Page 43
    ... projects and key vendors is important to its business. To improve operating costs, productivity and efficiencies, CIGNA outsources selected functions to third parties. CIGNA takes steps to monitor and regulate the performance of independent third parties who provide services or to whom the Company...

  • Page 44
    ...could reduce CIGNA's ability to process and dispense prescriptions and provide products and services to customers. The Company employs physicians, nurse practitioners, nurses and other health care professionals at onsite low acuity and primary care clinics it operates for the Company's customers (as...

  • Page 45
    ...regulators of health care and group disability insurance industry business and reporting practices. CIGNA is frequently the subject of regulatory market conduct and other reviews, audits and investigations by state insurance and health and welfare departments, attorneys general, Centers for Medicare...

  • Page 46
    ... costs of doing business and could adversely affect its profitability. CIGNA's business is regulated at the international, federal, state and local levels. The laws and rules governing CIGNA's business and related interpretations are increasing in number and complexity, subject to frequent change...

  • Page 47
    ...business, and a downgrade in CIGNA's debt ratings would increase the cost of borrowed funds and affect ability to access capital. Financial strength, claims paying ability and debt ratings by recognized rating organizations are an important factor in establishing the CIGNA CORPORATION  2010 Form...

  • Page 48
    ... 1A Risk Factors competitive position of insurance companies and health benefits companies. Ratings information by nationally recognized ratings agencies is broadly disseminated and generally used throughout the industry. CIGNA believes the claims paying ability and financial strength ratings of...

  • Page 49
    ..., provider or member fraud that is not prevented or detected could impact CIGNA's medical costs or those of its selfinsured customers. Further, during an economic downturn, CIGNA's segments, including HealthCare, Disability and Life and International, may see increased fraudulent claims volume...

  • Page 50
    ...and corporate risk management beginning April 2003; and Treasurer of CIGNA from July 2008 until January 2011. MATTHEW G. MANDERS, 49, President of CIGNA, US Service, Clinical and Specialty beginning January 2010; President of CIGNA HealthCare, Total Health, Productivity, Network & Middle Market from...

  • Page 51
    ...options and the vesting of restricted stock granted under the Company's equity compensation plans. Employees tendered 224 shares in October, 2,391 shares in November, and 598 shares in December. (2) CIGNA has had a repurchase program for many years, and has had varying levels of repurchase authority...

  • Page 52
    ...(4) 1,155 Revenues Premiums and fees and other revenues Net investment income Mail order pharmacy revenues Realized investment gains (losses) TOTAL REVENUES Results of Operations: Health Care Disability and Life International Run-off Reinsurance Other Operations Corporate Realized investment gains...

  • Page 53
    ... major providers of medical, dental, disability, life and accident insurance and related products and services. In the U.S., the majority of these products and services are offered through employers and other groups (e.g. unions and associations) and in selected international markets, CIGNA offers...

  • Page 54
    ...Company's customer knowledge, differentiated service model, product portfolio and distribution model; (2) engaging those national account employers who share and will benefit from the Company's value proposition of using health advocacy and employee engagement to increase productivity, performance...

  • Page 55
    ... to the Company's stated strategy. • In the Disability and Life segment, CIGNA's strategy is to grow its Disability business by fully leveraging the key components of its industry-leading disability management model to reduce costs for its clients and return their employees to work sooner through...

  • Page 56
    .... Health Care Reform will require the assessment of fees and excise taxes on health services companies such as CIGNA and others in the health care industry to help fund the additional insurance benefits and coverages provided by this legislation. The amount which the Company will be required to pay...

  • Page 57
    ... Add: change in estimate to severance accrual Less: 2010 Payments First Quarter Second Quarter Third Quarter Fourth Quarter Balance, December 31, 2010 $ Severance 44 14 10 20 44 55 33 6 10 8 7 5 $ Real Estate 11 3 8 1 5 1 1 $ Total 55 14 10 20 44 58 41 6 11 13 8 6 $ 9 $ - $ 9 The Health...

  • Page 58
    ... directly comparable GAAP measure, which is shareholders' income from continuing operations. Summarized below is a reconciliation between shareholders' income from continuing operations and adjusted income from operations. Premiums and fees Net investment income Mail order pharmacy revenues Other...

  • Page 59
    ...16% in 2010 compared with 2009 primarily due to strong earnings growth in the ongoing business segments (Health Care, Disability and Life and International), reï¬,ecting focused execution of the Company's strategy, which includes a growing global customer base as well as higher net investment income...

  • Page 60
    ...ecting membership growth in the Health Care segment's risk businesses as well as growth in the International segment. Premiums and fees increased by 10% in 2010 compared with 2009 after excluding the Medicare Private Fee for Service ("Medicare PFFS") Individual business, from which the Company has...

  • Page 61
    ... uncertain at the time the estimate was made; and • changes in the estimate or different estimates that could have been selected could have a material effect on the Company's consolidated results of operations or financial condition. Management has discussed the development and selection of its...

  • Page 62
    ... rates (mean investment performance and discount rate), and volatility. These assumptions are based on the Company's experience and future expectations over the long-term period. The Company monitors actual experience to update these estimates as necessary. 42 CIGNA CORPORATION  2010 Form...

  • Page 63
    PART II ITEM 7 Management's Discussion and Analysis of Financial Condition and Results of Operations Assumptions/Approach Used The Company develops estimates for Health Care medical claims payable using actuarial principles and assumptions consistently applied each reporting period, and recognizes...

  • Page 64
    ... model using many scenarios to determine the fair value of amounts estimated to be paid, less the fair value of net future premiums estimated to be received, adjusted for risk and profit charges that the Company anticipates a hypothetical market participant would require to assume this business...

  • Page 65
    ... equity of approximately $145 million as of December 31, 2010. If the expected long-term return on domestic qualified pension plan assets decreased by 50 basis points, annual pension costs for 2011 would increase by approximately $10 million after-tax. If the Company used the market value of assets...

  • Page 66
    ... industry or geographic region; and • the Company's intent to sell or the likelihood of a required sale prior to recovery. Management estimates other-than-temporary impairments based on fair values using quoted market prices for public securities with active markets and generally the present value...

  • Page 67
    ... will not collect • financial statements, budgets and operating amounts due according to the terms of the plans for the property; original loan agreement, a loan is considered • inspection reports of the property completed impaired and the Company must estimate the fair by third party servicers...

  • Page 68
    ... medical, dental, behavioral health, vision, and prescription drug benefit plans, health advocacy programs and other products and services that may be integrated to provide comprehensive health care benefit programs. CIGNA HealthCare companies offer these products and services in all 50 states...

  • Page 69
    ... new sales in targeted market segments. The increase in fees primarily reï¬,ects growth in specialty products. These increases reï¬,ect the success of the Company's efforts to enhance customer access, improve the quality of care and provide cost effective products and services. Premiums and fees...

  • Page 70
    ... Care segment (excluding members in the International and Disability and Life segments) is defined as a person who falls within one of the following categories: • is covered under an insurance policy or service agreement issued by the Company; • has access to the Company's provider network...

  • Page 71
    ... "National" market segment (multi-site, multi-state commercial employers with generally more than 5,000 employees), the Company will selectively focus on clients that value its differentiated product offering. These clients include those seeking engagement and incentive based programs designed to...

  • Page 72
    ... business strategies including investing in areas that are critical to the Company's growth initiatives and segment expansions, ensuring continued excellence in customer service and clinical programs, and leveraging technology to drive further operating efficiencies. Disability and Life Segment...

  • Page 73
    ...for the student and participant accident business. Revenues Premiums and fees increased 1% in 2010 compared with 2009. The segment's revenue growth was somewhat tempered by the Company's exit from two large, non-strategic assumed government life insurance programs and the sale of the renewal rights...

  • Page 74
    ... health, life and accident insurance products and international health care products and services, including those offered to expatriate employees of multinational corporations and other organizations. The key factors for this segment are: • premium growth, including new business and customer...

  • Page 75
    ... attributable to new sales growth in the supplemental health, life and accident insurance operations, particularly in Taiwan and South Korea, and rate actions in the expatriate employee benefits business. Net investment income increased by 19% in 2010, compared with 2009. The increase was primarily...

  • Page 76
    PART II ITEM 7 Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Financial Summary (In millions) Premiums and fees Net investment income Other revenues Segment revenues Benefits and expenses Income (loss) before income taxes (benefits) ...

  • Page 77
    ... represent what management believes will ultimately be required as this business runs off. However, significant declines in mutual fund values that underlie the contracts (increasing the exposure to the Company) together with declines in the 7-year treasury rates (used to determine claim payments...

  • Page 78
    ... of the following businesses: • corporate-owned life insurance ("COLI"); • deferred gains recognized from the 1998 sale of the individual life Results of Operations Financial Summary (In millions) Premiums and fees Net investment income Other revenues Segment revenues Benefits and expenses...

  • Page 79
    ... caused by an increase in the Company's stock price during 2009 compared with a decrease during 2008; and • spending on certain strategic initiatives. Liquidity and Capital Resources Financial Summary (In millions) Short-term investments Cash and cash equivalents Short-term debt Long-term debt...

  • Page 80
    ... (which include universal life insurance liabilities) because such liabilities are considered financing activities with policyholders. from operating activities increased by $873 million. This increase in 2010 primarily reï¬,ects premium growth in the Health Care segment's risk businesses as noted...

  • Page 81
    ... 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: • provide capital...

  • Page 82
    ... program ("the Program"). Under the Program, the Company is authorized to sell short-term unsecured commercial paper notes from time to time up to a maximum of $500 million. The proceeds are used for general corporate purposes, including working capital, capital expenditures, acquisitions and share...

  • Page 83
    ... form of the National Association of Insurance Commissioners ("NAIC") model solvency-related laws and risk-based capital rules ("RBC rules") for life and health insurance companies. The RBC rules recommend a minimum level of capital depending on the types and quality of investments held, the types...

  • Page 84
    ... Condition and Results of Operations On-Balance Sheet • Insurance liabilities. Contractual cash obligations for insurance liabilities, excluding unearned premiums and fees, represent estimated net benefit payments for health, life and disability insurance policies and annuity contracts. Recorded...

  • Page 85
    ... million, of the Company's total investments in state and local government securities were guaranteed by monoline bond insurers, providing additional credit quality support. The quality ratings of these investments with and without this guaranteed support as of December 31, 2010 were as follows: As...

  • Page 86
    ... bond insurers. Guarantees provided by various monoline bond insurers for certain of the Company's investments in state and local governments and other asset-backed securities as of December 31, 2010 were: As of December 31, 2010 Indirect Exposure $ 1,217 589 176 37 2,019 National Public Finance...

  • Page 87
    ... to perform under their contractual terms, resulting in an aggregate default rate of 2.5%. The Company has $518 million of loans maturing in the next twelve months. Given the quality and diversity of the underlying real estate, positive debt service coverage and significant borrower cash investment...

  • Page 88
    ... the disposal of problem assets were not material to the Company's results of operations. Net potential problem investments represent 1.7% of total investments excluding policy loans. Net potential problem investments increased $4 million during 2010 reï¬,ecting: • $188 million increase due to the...

  • Page 89
    ... support generally shorter-term life and health liabilities. Medium-term, fixed-rate investments support interest-sensitive and health liabilities. Longer-term investments generally support products with longer pay out periods such as annuities and long-term disability liabilities. • Use...

  • Page 90
    ... premium rates in the Company's Health Care operations, including increased use and costs of medical services; 2. increased medical, administrative, technology or other costs resulting from new legislative and regulatory requirements imposed on the Company's businesses; challenges and risks...

  • Page 91
    ... the Company does business, increase cost, limit the ability to effectively estimate, price for and manage medical costs, and affect the Company's products, services, market segments, technology and processes; 17. amendments to income tax laws, which could affect the taxation of employer provided...

  • Page 92
    ...registered public accounting firm, PricewaterhouseCoopers, has audited the effectiveness of the Company's internal control over financial reporting, as stated in their report located on page 125 in this Form 10-K. ITEM 7A Quantitative and Qualitative Disclosures About Market Risk The information...

  • Page 93
    ...) Other-than-temporary impairments on fixed maturities, net Other realized investment gains Total realized investment gains (losses) TOTAL REVENUES Benefits and Expenses Health Care medical claims expense Other benefit expenses Mail order pharmacy cost of goods sold GMIB fair value (gain) loss...

  • Page 94
    ...share amounts) 2010 2009 ASSETS Investments: Fixed maturities, at fair value (amortized cost, $13,445; $12,580) Equity securities, at fair value (cost, $144; $137) Commercial mortgage loans Policy loans Real estate Other long-term investments Short-term investments Total investments Cash and cash...

  • Page 95
    ... Income and Changes in Total Equity For the years ended December 31, (In millions, except per share amounts) 2010 Comprehensive Income Common Stock, beginning and end of year Additional Paid-In Capital, beginning of year Effect of issuance of stock for employee benefit plans Additional Paid...

  • Page 96
    ... payments from contractholder deposit funds Change in cash overdraft position Net change in short-term debt, primarily commercial paper Net proceeds on issuance of long-term debt Repayment of long-term debt Repurchase of common stock Issuance of common stock Common dividends paid NET CASH PROVIDED...

  • Page 97
    ... major providers of medical, dental, disability, life and accident insurance and related products and services. In the U.S., the majority of these products and services are offered through employers and other groups (e.g. unions and associations) and in selected international markets, the Company...

  • Page 98
    ... stocks redeemable by the investor. Equity securities include common stocks and preferred stocks that are non-redeemable or redeemable only at the option of the issuer. These investments are primarily classified as available for sale and are carried at fair value with changes in fair value recorded...

  • Page 99
    ... to impairment and assesses impairment when cash ï¬,ows indicate that the carrying value may not be recoverable. Depreciation is generally calculated using the straight-line method based on the estimated useful life of the particular real estate asset. • Real estate is "held for sale" when a buyer...

  • Page 100
    ... universal life and other individual products, management estimates the present value of future revenues less expected payments. For group health and accident insurance products, management estimates the sum of unearned premiums and anticipated net investment income less future expected claims and...

  • Page 101
    ... are estimates of payments to be made under insurance coverages (primarily long-term disability, workers' compensation and life and health) for reported claims and for losses incurred but not yet reported. The Company develops these estimates for losses incurred but not yet reported using actuarial...

  • Page 102
    ... according to contract terms and using the customer's experience (including estimates of incurred but not reported claims). Premiums for individual life, accident and health insurance and annuity products, excluding universal life and investment-related products, are recognized as revenue when due...

  • Page 103
    ... when claims are submitted, and income is credited to policyholders in accordance with contract provisions. Contract fees and expenses for administrative services only programs and pharmacy programs and services are recognized as services are provided. Mail order pharmacy revenues and cost of...

  • Page 104
    ...West Healthcare primarily sells medical plans on a self-funded basis with stop loss coverage to select and regional employer groups. Great-West Healthcare's offerings also include the following specialty products: stop loss, life, disability, medical, dental, vision, prescription drug coverage, and...

  • Page 105
    ... and other amounts payable to providers. Incurred but not yet reported comprises the majority of the reserve balance as follows: 2010 1,067 164 15 1,246 2009 790 114 17 921 Medical claims payable for the Health Care segment reï¬,ects estimates of the ultimate cost of claims that have been incurred...

  • Page 106
    ... increase determined appropriate to address moderately adverse conditions for the current year incurred claims, the Company does not consider that offset amount as having any impact on shareholders' net income. Second, while changes in reserves for the Company's guaranteed cost products do directly...

  • Page 107
    ...changes in equity markets on the GMDB liability. In addition, the Company uses foreign currency futures contracts to reduce the international equity market and foreign currency risks associated with this business. The hedge program involves detailed, daily monitoring CIGNA CORPORATION  2010 Form...

  • Page 108
    .... During 2010, current short-term interest rates had declined from the level anticipated at December 31, 2009, leading the Company to increase reserves. Interest rate risk is not covered by the GMDB equity hedge program discussed above. The Company also updated the lapse assumption for policies that...

  • Page 109
    ... 31. The net amount at risk is the death benefit coverage in force or the amount that the Company would have to pay if all contractholders died as of the specified date, and represents the excess of the guaranteed benefit amount over the fair value of the underlying mutual fund investments. 2010...

  • Page 110
    ... of business for its Health Care, Disability and Life, and International segments as well as the corporate-owned life insurance business. Reinsurance recoverables of $282 million as of December 31, 2010 are expected to be collected from more than 70 reinsurers. The Company reviews its reinsurance...

  • Page 111
    ..., non-strategic assumed government life insurance programs as well as the transfer of policies assumed in the acquisition of Great-West Healthcare directly to one of the Company's insurance subsidiaries in 2010. The effects of reinsurance on written premiums and fees for short-duration contracts...

  • Page 112
    ...(37) - - - 419 24 2 (2) - - 24 (395) The Company and certain of its subsidiaries provide pension, health care and life insurance defined benefits to eligible retired employees, spouses and other eligible dependents through various domestic and foreign plans. The effect of its foreign pension and...

  • Page 113
    ... to provide for mortality improvement, partially offset by 2010 investment returns in excess of expectations. As a result of the adoption of the Patient Protection and Affordable Care Act ("Health Care Reform") in 2010, the Company has decided to discontinue its Medicare Advantage Private Fee for...

  • Page 114
    ... a share of the total pool of investments. Plan assets in Level 1 include exchange-listed equity securities. Level 2 assets primarily include: • fixed income and international equity funds priced using their daily net asset value which is the exit price; and 94 CIGNA CORPORATION  2010 Form 10...

  • Page 115
    ... Contract $ 257 $ 29 53 - 53 37 - - 347 2 - 2 (7) - - 24 (In millions) Balance at January 1, 2010 Actual return on plan assets: Assets still held at the reporting date Assets sold during the period Total actual return on plan assets Purchases, sales, settlements, net Transfers into Level...

  • Page 116
    ...on plan assets were developed considering actual long-term historical returns, expected long-term market conditions, plan asset mix and management's investment strategy, which includes a significant allocation of domestic and foreign equity securities. Expected long-term market conditions take into...

  • Page 117
    ... a hypothetical market participant would use to determine a current transaction price. These valuation techniques involve some level of estimation and judgment by the Company which becomes significant with increasingly complex instruments or pricing models. The Company's financial assets and...

  • Page 118
    ... approximates cost. On a regular basis the Company compares market prices for these securities to recorded amounts to validate that current carrying amounts approximate exit prices. The short-term nature of the investments and corroboration of the reported amounts over the holding period support...

  • Page 119
    ...ected by equity markets and interest rates but are without significant life insurance risk and are settled in lump sum payments, the Company reports these liabilities and assets as derivatives at fair value. The Company estimates the fair value of the assets and liabilities for GMIB contracts using...

  • Page 120
    ... these policies. • The risk and profit 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. The Company regularly evaluates each of the assumptions used in establishing these assets and liabilities...

  • Page 121
    ... in Active Markets for Identical Assets (Level 1) $ 286 1,947 $ 2,233 $ $ Total 1,704 6,204 7,908 (1) Non-guaranteed separate accounts include $2.8 billion in assets supporting the Company's pension plan, including $557 million classified in Level 3. CIGNA CORPORATION  2010 Form 10K 101

  • Page 122
    ... in Level 3. Separate account assets in Level 1 include exchange-listed equity securities. Level 2 assets primarily include: • corporate and structured bonds valued using recent trades of similar securities or pricing models that discount future cash ï¬,ows at estimated market interest rates as...

  • Page 123
    ... these contracts is the amount estimated to be payable to the customer as of the reporting date, which is generally the carrying value. Most of the remaining contractholder deposit funds are reinsured by the buyers of the individual life insurance and annuity and retirement benefits businesses. The...

  • Page 124
    ... Management reviews fixed maturities with a decline in fair value from cost for impairment based on criteria that include: • length of time and severity of decline; • financial health and specific near term prospects of the issuer; • changes in the regulatory, economic or general market...

  • Page 125
    ... professionals employ an internal rating system developed from the Company's experience in real estate investing and mortgage lending. A quality rating, designed to evaluate the relative risk of the transaction, is assigned at each loan's origination and is updated each year as part of the annual...

  • Page 126
    ... primary mechanism for identifying emerging risks in the portfolio. This review is performed by the Company's investment professionals and includes an analysis of each underlying property's most recent annual financial statements, rent rolls, operating plans, budgets, a physical inspection of the...

  • Page 127
    .... E. Short-Term Investments and Cash Equivalents Short-term investments and cash equivalents included corporate securities of $1.1 billion, federal government securities of $137 million and money market funds of $40 million as of December 31, 2010. The Company's short-term investments and cash...

  • Page 128
    ...annuity business. Purchased options - Interest rate $312 million of cash surrender value of related life insurance policies To hedge the possibility of early policyholder cash surrender when the amortized cost of underlying invested assets is greater than their fair values. The Company pays a fee...

  • Page 129
    ...millions) Other Long-Term Investments As of December 31, 2010 2009 Interest rate swaps $ 3 $ 4 Written options Equity and interest rate The Company has written (GMIB liability) - reinsurance contracts with $1,134 million issuers of variable annuity (2010) and contracts that provide annuitants $1,183...

  • Page 130
    ... December 31 were as follows: (In millions) Fixed maturities Equity securities Commercial mortgage loans Policy loans Real estate Other long-term investments Short-term investments and cash Less investment expenses NET INVESTMENT INCOME $ $ 2010 788 6 221 90 (2) 29 11 1,143 38 1,105 $ $ 2009...

  • Page 131
    ...in the Company's revenues for the years ended December 31 were as follows: 2010 191 18 2009 (25) 51 2008 (146) 8 Separate accounts Investment gains required to adjust future policy benefits for the run-off settlement annuity business $ $ $ $ $ $ Sales information for available-for-sale fixed...

  • Page 132
    ...short-term and long-term debt outstanding. NOTE 17 Common and Preferred Stock As of December 31, the Company had issued the following shares: (Shares in thousands) 2010 2009 Common: Par value $0.25 600,000 shares authorized Outstanding - January 1 Issued for stock option and other benefit plans...

  • Page 133
    ... Company maintains a share repurchase program, which was authorized by its Board of Directors. The decision to repurchase shares depends on market conditions and alternative uses of capital. The Company has, and may continue from time to time, to repurchase shares on the open market through a Rule...

  • Page 134
    ...to the South Korea and Hong Kong operations using the tax rates of 114 CIGNA CORPORATION  2010 Form 10K the foreign jurisdictions, as compared to the higher U. S. statutory tax rate. This change, adopted in 2009 for South Korea and earlier in 2010 for Hong Kong, was based upon a determination...

  • Page 135
    ...and liabilities as of December 31 are shown below. Deferred tax assets Employee and retiree benefit plans Investments, net Other insurance and contractholder liabilities Deferred gain on sale of business Policy acquisition expenses Loss carryforwards Other accrued liabilities Bad debt expense Other...

  • Page 136
    ...Incentive Plans The People Resources Committee ("the Committee") of the Board of Directors awards stock options, restricted stock, deferred stock and, beginning in 2010, strategic performance shares to certain employees. To a very limited extent, the Committee has issued common stock instead of cash...

  • Page 137
    ... The weighted average fair value of options granted under employee incentive plans was $11.56 for 2010, $4.60 for 2009 and $14.33 Dividend yield Expected volatility Risk-free interest rate Expected option life for 2008, using the Black-Scholes option-pricing model and the following assumptions...

  • Page 138
    ... performance. The Company presents segment information as follows: Health Care includes medical, dental, behavioral health, prescription drug and other products and services that may be integrated to support consumer-focused health care programs. This segment also includes group disability and life...

  • Page 139
    ... minimum premium revenue is recorded in fees. Also includes certain non-participating cases for which special customer level reporting of experience is required. (4) Other medical premiums include risk revenue for specialty products. (5) Represents administrative service fees for medical members and...

  • Page 140
    ...) 2010 2009 2008 Disability and Life Premiums and fees: Life Disability Other Total Other revenues Net investment income Segment revenues Income taxes Segment earnings International Premiums and fees: Health Care Supplemental Health, Life, and Accident Total Other revenues Net investment income...

  • Page 141
    ... Statements and Supplementary Data Premiums and fees, mail order pharmacy revenues and other revenues by product type were as follows for the years ended December 31: (In millions) Medical Disability Supplemental Health, Life, and Accident Mail order pharmacy Other TOTAL $ $ 2010 14,253 1,162...

  • Page 142
    ...31, 2010. As part of the reinsurance and administrative service arrangements, the Company pays claims for the group medical and long-term disability business of Great-West Healthcare and collects related amounts due from their third-party reinsurers. Any uncollected amounts will represent additional...

  • Page 143
    ... with the proper use of medical information for research, coordination of medical care and disease and disability management; • additional variations among state laws mandating the time periods and administrative processes for payment of health care provider claims; • legislation that would...

  • Page 144
    ...a new non-profit company that will compile and provide the data currently provided by Ingenix. In addition, on March 28, 2008, the Company received a voluntary request for production of documents from the Connecticut Attorney General's office seeking certain out-of-network claim payment information...

  • Page 145
    ... on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. A company's internal control over financial reporting is a process designed to provide reasonable...

  • Page 146
    ... revenues Income from continuing operations before income taxes Shareholders' net income (loss) Shareholders' net income (loss) per share: Basic Diluted Stock and Dividend Data 2010 Price range of common stock - high - low Dividends declared per common share 2009 Price range of common stock - high...

  • Page 147
    ...12/31/2010 $99 $112 $75 $100 $100 $100 Assumes that the value of the investment in CIGNA common stock and each index was $100 on December 30, 2005 and that all dividends were reinvested. Weighted average of S&P Managed Health Care (75%) and Life & Health Insurance (25%) Indexes. ITEM 9 Changes in...

  • Page 148
    ... The Company's management report on internal control over financial reporting under the caption "Management's Annual Report on Internal Control over Financial Reporting" on page 71 in this Form 10-K. Attestation Report of the Registered Public Accounting Firm The attestation report of CIGNA...

  • Page 149
    ... acting chief financial officer and chief accounting officer) and employees. The Code of Ethics is posted on the Corporate Governance section found on the "About Us" page of the Company's website, www.cigna. com. In the event the Company substantively amends its Code of Ethics or waives a provision...

  • Page 150
    ...close of business on December 31, 2010 for future issuance under the CIGNA Long-Term Incentive Plan as shares of restricted stock, shares in payment of dividend equivalent rights, shares in lieu of cash payable under a Qualifying Plan, or shares in payment of strategic performance units or strategic...

  • Page 151
    ... Statements. Report of Independent Registered Public Accounting Firm. The financial statement schedules are listed in the Index to Financial Statement Schedules on page FS-1. The exhibits are listed in the Index to Exhibits beginning on page E-1. CIGNA CORPORATION  2010 Form 10K 131

  • Page 152
    ...Schedules Signatures Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CIGNA... Director Director 132 CIGNA CORPORATION  2010 Form 10K

  • Page 153
    ... Schedules INDEX TO FINANCIAL STATEMENT SCHEDULES Report of Independent Registered Public Accounting Firm on Financial Statement Schedules Schedules I Summary of Investments - Other Than Investments in Related Parties as of December 31, 2010 ...FS- 3 II Condensed Financial Information of CIGNA...

  • Page 154
    ...ectiveness of internal control over financial reporting referred to in our report dated February 25, 2011 (which report and consolidated financial statements are included under Item 8 in this Annual Report on Form 10-K) also included an audit of the financial statement schedules listed in Item...

  • Page 155
    ... MATURITIES Equity securities: Common stocks: Industrial, miscellaneous and all other Non redeemable preferred stocks TOTAL EQUITY SECURITIES Commercial mortgage loans on real estate Policy loans Real estate investments Other long-term investments Short-term investments TOTAL INVESTMENTS Cost Fair...

  • Page 156
    ... ASSETS LIABILITIES: Intercompany Short-term debt Long-term debt Other liabilities TOTAL LIABILITIES SHAREHOLDERS' EQUITY: Common stock (shares issued, 351; authorized, 600) Additional paid-in capital Net unrealized appreciation - fixed maturities Net unrealized appreciation - equity securities...

  • Page 157
    ... net Net cash provided by operating activities Cash Flows from Financing Activities: Net change in intercompany debt Net change in short-term debt Net proceeds on issuance of long-term debt Repayment of long-term debt Issuance of common stock Common dividends paid Repurchase of common stock Net cash...

  • Page 158
    ... statements, CIGNA Corporation's (the Company) wholly owned and majority owned subsidiaries are recorded using the equity basis of accounting. Certain reclassifications have been made to prior years' amounts to conform to the 2010 presentation. Note 2 - Short-term and long-term debt consisted...

  • Page 159
    ... of its high-deductible self-insurance programs to indemnify the insurer for claim liabilities that fall within deductible amounts for policy years dating back to 1994. • The Company also provides solvency guarantees aggregating $34 million under state and federal regulations in support of its...

  • Page 160
    ... Medical claims payable and unpaid claims $ 1,400 3,180 288 244 159 (8) 5,263 1,098 3,122 228 288 161 (8) 4,889 1,138 3,104 205 356 158 - 4,961 Unearned premiums and fees $ 80 17 288 - 31 - 416 76 32 282 - 37 - 427 70 36 265 - 43 - 414 Year Ended December 31, 2010: Health Care Disability and Life...

  • Page 161
    ...Statements included in CIGNA's 2010 Annual Report on Form 10-K. The allocation of net investment income is based upon the investment year method, the identification of certain portfolios with specific segments, or a combination of both. Benefit expenses include Health Care medical claims expense and...

  • Page 162
    ... to net 1.8% 5.7% 2.6% 2.9% 12.6% 15.9% 5.7% 6.9% 23.7% 17.2% 6.6% 7.8% Year Ended December 31, 2010: Life insurance in force Premiums and fees: Life insurance and annuities Accident and health insurance TOTAL Year Ended December 31, 2009: Life insurance in force Premiums and fees: Life insurance...

  • Page 163
    ... effective April 28, 2010 Filed herewith. CIGNA Corporation Non-Employee Director Compensation Program amended and restated effective January 1, 2011 Filed herewith. 10.3 CIGNA Restricted Share Equivalent Plan for Non-Employee Filed as Exhibit 10.3 to the registrant's Form 10-K for the year...

  • Page 164
    ... Grant and Grant Letter Filed herewith. Form of CIGNA Long-Term Incentive Plan: Restricted Stock Unit Grant and Grant Letter Filed herewith. Asset and Stock Purchase Agreement by and among Great-West Life & Annuity Insurance Company, et al and Connecticut General Life Filed as Exhibit 10.23 to the...

  • Page 165
    ... 1,870 $ 1,870 13.6 13.6 $ Income from continuing operations before income taxes Adjustments: Loss (income) from equity investee Loss (income) attributable to noncontrolling interest Income before income ... interest credited to contractholders $ $ $ $ $ CIGNA CORPORATION  2010 Form 10K E-3

  • Page 166
    ... that term is defined in Rule 1-02(w) of Regulation S-X. CIGNA Holdings, Inc. (Delaware) I.Connecticut General Corporation (Connecticut) A. Benefits Management Corporation (Montana) (1) Allegiance Life & Health Company, Inc. (Montana) (2) Allegiance Re, Inc. (Montana) B. CIGNA Arbor Life Insurance...

  • Page 167
    ... State (Colorado) (3) Great-West HealthCare - Illinois (Illinois) G. CIGNA Health Management, Inc. (Delaware) H. CIGNA Life Insurance Company of Canada (Canada) I. CIGNA Life Insurance Company of New York (New York) J. Connecticut General Life Insurance Company (Connecticut) (1) CIGNA Health & Life...

  • Page 168
    ... in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information, and any fraud, whether or not material, that involves management or other employees who...

  • Page 169
    ... in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information, and any fraud, whether or not material, that involves management or other employees who...

  • Page 170
    ... best of my knowledge and belief, the Annual Report on Form 10-K of CIGNA Corporation for the fiscal period ending December 31, 2010 (the "Report"): (1) complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report...

  • Page 171
    our mission To help the people we serve improve their health, well-being and sense of security.

  • Page 172
    ... in the United States and throughout the world. Its subsidiaries are major providers of employee benefits offered through the workplace, with products and services including health care; group life, accident and disability insurance; dental; vision; behavioral health; and pharmacy. "CIGNA" and the...