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2011 CIGNA ANNUAL REPORT
HELPING YOU BE YOU.

Table of contents

  • Page 1
    Helping you be you. 2011 cigna annual report

  • Page 2
    contents 2 5 6 8 to our sHareHolders cigna in tHe global community How we go individual How we go deep 10 How we go global 12 cigna in perspective 14 corporate and board of directors information

  • Page 3
    ... or lowering their cholesterol ...running marathons or running companies ...raising their heart rates or raising their families ...planning for the future or leaving old habits behind. We are all different when it comes to our health, well-being and sense of security. Cigna revels in that difference...

  • Page 4
    ... to innovate and create more effective and sustainable solutions. At Cigna, we view this environment and its challenges as opportunities to improve health, quality of life and productivity for our clients and customers worldwide. As a leading health service company, we actively participate in the...

  • Page 5
    ... with 29 percent higher return-to-work rates than the industry average, and a reduction in the length of short-term disabilities by four days. plan with multi-lingual customer service representatives available 24/7/365, and customers can reach us by phone or through www.Cigna.com, mobile devices or...

  • Page 6
    ... to lean forward, listening closely to clients and customers to find new and effective ways to promote wellness and David M. Cordani President and Chief Executive Officer * Adjusted income (loss) from operations is a non-GAAP measure used to describe the Company's financial results. A definition of...

  • Page 7
    ... to the Service to the Armed Forces fund of the American Red Cross. Employee donations and company matches total nearly $32,000 to date. ï,Ÿ The Cigna Foundation provided $30,000 to Achilles International, a non-profit organization that helps veterans and others with disabilities participate in...

  • Page 8
    ... about bringing to market highly personalized health solutions and services that benefit individual consumers With help from her Cigna nurse advocate and vocational rehabilitation counselor, Mary Ramirez was able to stay at work after a car accident. mary ramireZ collections manager, 50 years old...

  • Page 9
    ... fantastic job of helping me create an eating and exercise plan. I've lost about 140 pounds, I'm off diabetes medication and my self-image is better! " Cigna, with a longstanding group health business in Spain, introduced private medical insurance in 2010 to serve individual citizens of Spain like...

  • Page 10
    ... lives " on line, on target Cigna knows that insurance is complex enough - the last thing our customers want is to be confused when they visit our website. In 2011, we re-designed our website, www.mycigna.com, to make it easier for our customers to find doctors, review their claim activity and...

  • Page 11
    ...of young designers who are fairly healthy, other insurers never considered that in terms of how our health care costs were allocated back to us. Cigna gave us the chance to receive back a share of the medical expenses we didn't use in a particular year in the form of a credit. For the first time, we...

  • Page 12
    ... programs that Cigna offers to help customers make lifestyle changes and manage chronic medical conditions. CignaTTK will be headquartered in Mumbai. Initial product offerings are planned to include individual private medical insurance, supplemental health and accident products, and health benefits...

  • Page 13
    ...long-term market opportunity that will be three times the size of the total U.S. market. growing in cHina In 2003, Cigna formed its joint venture in China with China Merchants Bank to sell individual health, life and accident products. In the nine years that have followed, this successful operation...

  • Page 14
    ...% Health, Life and Accident 51% premiums and fees (in millions) $ 2,990 Year Ended December 31, 2011 cigna Healthcare provides health plans and services to both companies and individuals. Cigna offers an integrated suite of medical, dental, behavioral health, pharmacy and vision care coverage. We...

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

  • Page 16
    ...distributor WILLIAM D. ZOLLARS Retired Chairman, President and Chief Executive Officer YRC Worldwide Inc., a holding company whose subsidiaries provide regional, national and international transportation and related services JANE E. HENNEY, MD Professor of Medicine University of Cincinnati College...

  • Page 17
    ... Vice President and Chief Information Officer Cigna Corporation DAVID D. GUILMETTE President National, Pharmacy and Products NICOLE S. JONES Executive Vice President and General Counsel Cigna Corporation MATTHEW G. MANDERS President U.S. Service Regional and Operations otHer officers LINDSAY...

  • Page 18
    ... an enrollment authorization form, contact BNY Mellon Shareowner Services at 800.760.8864 or outside the United 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. stocK listing Cigna's common...

  • Page 19
    ... 2011 or tranSition rePort PUrSUant to Section 13 or 15(d) oF the SecUritieS exchange act oF 1934 For the transition period from _____ to _____ commission file number 1â€'8323 cigna corPoration (Exact name of registrant as specified in its charter) deLaware 06â€'1059331 (State or other jurisdiction...

  • Page 20
    ... J. K. 1 business ...1 Description of Business...1 Financial Information about Business Segments ...1 Strategy ...2 Health Care ...3 Disability and Life ...11 International ...13 Run-off Reinsurance ...15 Other Operations ...16 Investments and Investment Income ...17 Regulation ...17 Miscellaneous...

  • Page 21
    ...of Certain beneficial owners and Management and related Stockholder Matters...128 Certain relationships, related transactions and Director independence ...128 principal accounting fees and Services ...128 Part iV 129 item 15 exhibits and financial Statement Schedules...129 SignatUreS ...130 index...

  • Page 22
    Q Contents

  • Page 23
    ..., mail order pharmacy, other revenues and investment income. The financial results of Cigna's businesses are reported in the following segments: • health Care; • Disability and Life; • international; • run-off reinsurance; and • other operations, including Corporate-owned Life insurance...

  • Page 24
    ... integrated clinical approach and national network of health care providers. in the Middle Market segment (companies with over 250 and less than 5,000 employees), Cigna focuses on clients that value the Company's integrated product suite, broad range of funding options, and competitive medical costs...

  • Page 25
    ... drugs, through managed care health plans. healthSpring also operates a national stand-alone prescription drug plan in accordance with Medicare part D. Commercial Medical Cigna healthCare provides a wide array of products and services to meet the needs of employers, other sponsors of health benefit...

  • Page 26
    ... to provide enhanced benefits and a drug list tailored to clients' specific needs. retirees benefit from broad network access and value-added services that help keep them well and save them money. as a result of the acquisition of healthSpring, Cigna will now offer Medicare part D prescription drug...

  • Page 27
    ..., government entities and other groups sponsoring health benefit plans. Cigna behavioral health focuses on integrating its programs and services with medical, pharmacy and disability programs to facilitate customized, holistic care. as of December 31, 2011, Cigna's behavioral national network had...

  • Page 28
    ... a guaranteed cost pricing methodology reflects assumptions about future claims, health care inflation (unit cost, location of delivery of care and utilization), effective medical cost management, expenses, enrollment mix, investment returns, and profit margins. 6 CIGNA CORpORATION - 2011 Form 10...

  • Page 29
    ... 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 may purchase stop loss insurance from Cigna healthCare...

  • Page 30
    ... information and a Medicare "toolkit", as well as easy access to plan information in english and Spanish. Reserves in addition to paying current benefits and expenses under hMo and health insurance policies, Cigna healthCare establishes reserves for amounts estimated to fund reported claims...

  • Page 31
    ..., 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 their provider networks and care management services. in addition, Cigna...

  • Page 32
    ... of clients and their employees; price; total cost management; technology; and effectiveness of marketing and sales. financial strength of the insurer, as indicated by ratings issued by nationally recognized rating agencies, is also a competitive factor. Cigna healthCare believes that its health...

  • Page 33
    ... 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 34
    ... 2011, 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 35
    ... provided through group benefits programs to employees of businesses and other organizations in the united Kingdom and Spain. These products and services include pricing, Reserves and Reinsurance premium rates for Cigna international's supplemental health, life and accident insurance products...

  • Page 36
    ... affect Cigna international's health care businesses are underwriting and pricing, relative operating efficiency, relative effectiveness in network development and medical cost management, product innovation and differentiation, broker relations, and the quality of claims and customer service. in...

  • Page 37
    .... for additional information related to the effects of health Care reform on the global health benefits business, see the regulation section of this form 10-K beginning on page 17. G. Run-off Reinsurance principal products and Services until 2000, Cigna offered reinsurance coverage for part or...

  • Page 38
    ... benefits business; and • run-off settlement annuity business. The products and services related to these operations are offered by subsidiaries of Cigna Corporation. Contents pricing, Reserves, and Reinsurance fees for universal life insurance products consist of mortality, administrative...

  • Page 39
    ... support certain corporate-owned life insurance, health care and disability and life products. J. Regulation subject to numerous state and federal regulations related to their business operations, including, but not limited to: • the form and content of customer contracts including benefit...

  • Page 40
    ... reform will not become effective until 2013 or beyond, including: (1) the annual health insurer fee 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; (2) the guaranteed issue...

  • Page 41
    ... companies and hMos. States regulate the form and content of statutory financial statements, the type and concentration of permitted investments, and corporate governance over financial reporting. Cigna's insurance and hMo subsidiaries are required to file periodic financial reports and schedules...

  • Page 42
    ... for these Cigna subsidiaries vary by country and are subject to change. Employee Retirement Income Security Act Cigna subsidiaries sell most of their products and services to sponsors of employee benefit plans that are governed by eriSa. as a result of health Care reform, Cigna subsidiaries are...

  • Page 43
    ... state antitrust laws and regulations. These activities include the administration of strategic alliances with competitors, information sharing with competitors and provider contracting. Anti-Money Laundering Regulations Certain Cigna products ("Covered products" as defined in the bank Secrecy act...

  • Page 44
    ... benefits that may impact the Company's current business model, including its relationship with current and future customers, producers and health care providers, products, services, processes and technology. health Care reform includes, among other requirements, provisions for guaranteed coverage...

  • Page 45
    ... as effectively comply with the various existing regulations applicable to its business. existing or future laws and rules could force Cigna to change how it does business, restrict revenue and enrollment growth, increase health care, technology and administrative costs, including pension costs and...

  • Page 46
    ... 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 47
    ... to run its business. Cigna's business strategy requires providing customers and health care professionals with internet-enabled products and information to meet their needs. Cigna's ability to adequately price its products and services, establish reserves, provide effective and efficient service to...

  • Page 48
    ... to those Cigna faces with its health care business. Cigna's pharmacy benefit management business is subject to federal and state regulation, including federal and state anti-remuneration laws, eriSa, hipaa and laws related to the operation of internet and mail-service pharmacies. noncompliance with...

  • Page 49
    ... of clinical resources, claims administration services and medical management programs, and quality, sufficiency and cost effectiveness of health care professional network relationships, Cigna expects that price will continue to be a significant basis of competition. Cigna's customer contracts are...

  • Page 50
    ... 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 competitive position of insurance companies and health benefits companies. ratings information by nationally...

  • Page 51
    ... be limited, its flexibility in planning for or reacting to changes in its business and market conditions may be reduced, or its access to capital markets may be limited such that additional capital may not be available or may only be available on unfavorable terms. CIGNA CORpORATION - 2011 Form 10...

  • Page 52
    ..., domestic office locations, including various support operations, along with Disability and Life insurance, health Services, Core Medical and Service operations and the domestic office of Cigna international are the Wilde building located at 900 Cottage grove road in bloomfield, Connecticut (Cigna...

  • Page 53
    ... g. ManDerS, 50, president, regional and operations beginning november 2011; president, u.S. Service, Clinical and Specialty beginning January 2010; president of Cigna healthCare, total health, productivity, network & Middle Market from June 2009 until January 2010; and Customer Segments from July...

  • Page 54
    ... the Company's equity compensation plans. Employees tendered 12,829 shares in November and 670 shares in December 2011. (2) Cigna has had a repurchase program for many years, and has had varying levels of repurchase authority and activity under this program. The program has no expiration date. Cigna...

  • Page 55
    ... (5) 1,118 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 56
    ... markets, Cigna offers supplemental health, life and accident insurance products and international health care coverage and services to businesses, governmental and non-governmental organizations and individuals. in addition to its ongoing operations described above, the Company also has certain run...

  • Page 57
    ... and international customer segments of its ongoing health care, disability and life, and international businesses. in addition, the increase in revenue reflects the effect of the programs to hedge equity and growth interest rate exposures in the run-off reinsurance operations. See the run-off...

  • Page 58
    ... health Care reform; • interest rates, equity market returns, foreign currency fluctuations and credit market volatility, including the availability and cost of credit in the future; and • federal, state and international regulation. 36 CIGNA CORpORATION - 2011 Form 10-K Contents The Company...

  • Page 59
    ..., representing an estimated cost of approximately $3.8 billion. healthSpring provides Medicare advantage coverage in 11 states and the District of Columbia as well as a large, national stand-alone Medicare prescription drug business. The Company funded the acquisition with internal cash resources...

  • Page 60
    ...' income from continuing operations and adjusted income from operations. premiums and fees net investment income Mail order pharmacy revenues other revenues realized investment gains (losses) total revenues benefits and expenses income from continuing operations before taxes income taxes...

  • Page 61
    ... 16% in 2010 compared with 2009 primarily due to strong earnings growth in the ongoing business segments (health Care, Disability and Life and international), reflecting focused execution of the Company's strategy, which includes a growing global customer base as well as higher net investment income...

  • Page 62
    ... equity and growth interest rate risks in the Company's run-off reinsurance operations. See the run-off reinsurance section of the MD&a beginning on page 51 for more information on this program. excluding the impact of these swaps and futures contracts, other revenues declined 38% in 2011, compared...

  • Page 63
    ...information on significant accounting policies that impact the Company. These liabilities are estimates of the present value of net amounts expected to be paid, less the present value of net future premiums expected to be received. The amounts to be paid represent the excess of the guaranteed death...

  • Page 64
    ...two external • 50 basis point decrease in interest rates (rates aligned with Libor) used reinsurers, which covers 55% of the exposures on these contracts. for projecting market returns and discounting, net of the impact of hedging programs - $20 million Liabilities related to these contracts as of...

  • Page 65
    ... service to date) net of the fair value of plan assets. The accrued pension benefit liability as of December 31 was as follows (in millions): if discount rates for the qualified and nonqualified pension plans decreased by 50 basis points: • 2011 - $1,769 • 2010 - $1,528 • annual pension costs...

  • Page 66
    ... in fair value, including information regarding the Company's accounting policies for fixed maturities. Contents effect if different assumptions Used typically, the most significant input in the measurement of fair value is the market interest rate used to discount the estimated future cash flows...

  • Page 67
    ... per member; and • medical expense as a percentage of premiums (medical care ratio) in the guaranteed cost business. Results of Operations Financial Summary (In millions) premiums and fees net investment income Mail order pharmacy revenues other revenues Segment revenues Mail order pharmacy cost...

  • Page 68
    ...Other revenues for the health Care segment consist of revenues earned on direct channel sales of certain specialty products, including behavioral health and disease management. other revenues decreased 12% in 2011 compared with 2010 mostly due to the sale of the Cigna government Services business in...

  • Page 69
    ...health 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 70
    ...-rated members. Also, includes certain non-participating cases for which special customer level reporting of experience is required. (3) Excludes members in the International and Disability and Life Segments. the health Care segment's overall medical membership as of December 31, 2011 increased...

  • Page 71
    ... by the Company's exit from two large, non-strategic assumed government life insurance programs and the sale of the renewal rights for the student and participant accident business. Revenues Premiums and fees increased 4% in 2011 compared with 2010 reflecting disability and life sales growth and...

  • Page 72
    ... health benefits business and higher net investment income, partially offset by higher administrative expenses. The increase also reflects a lower effective tax rate in 2010 as a result of the capital management strategy discussed below. During the first quarter of 2010, the Company's international...

  • Page 73
    ... acquired firstassist group holdings Limited ("firstassist") for approximately $115 million. firstassist is based in the united Kingdom ("u.K.") and provides travel and protection insurance services that the Company expects will enhance its supplemental health, life and accident business around the...

  • Page 74
    ...at the close of each reporting period including interest rates (Libor swap curve) and market-implied volatilities. See note 10 to the Consolidated financial Statements 52 CIGNA CORpORATION - 2011 Form 10-K for additional information about assumptions and asset and liability balances related to gMib...

  • Page 75
    ... of changes in equity markets and interest rates, as well as mortality and policyholder behavior. any of these claim payments can extend many years into the future, and the amount of the ceding companies' ultimate claims, and therefore the amount of the Company's CIGNA CORpORATION - 2011 Form 10...

  • Page 76
    ... expense related to the Company's frozen pension plans. Revenues Premiums and fees reflect fees charged primarily on universal life insurance policies in the CoLi business. Such amounts were relatively flat reflecting a stable block of business. Net investment income decreased 1% in 2011 compared...

  • Page 77
    ... compared with 2009 primarily reflecting: • higher net interest expense, primarily driven by a higher long-term debt balance; • tax adjustments related to postretirement benefits and compensation resulting from health care reform; • pension expense related to the Company's frozen pension plans...

  • Page 78
    ... significant claim run-out from the Medicare ipffS business, that the Company exited in 2011. Cash flows from operating activities decreased by $252 million in 2011 compared with 2010. excluding the results of the gMDb equity hedge program (that did not affect net income), cash flows from operating...

  • Page 79
    .... Sources of Capital Equity Financing on november 16, 2011, the Company issued 15.2 million shares of its common stock at $42.75 per share. proceeds were $650 million ($629 million net of underwriting discount and fees). The proceeds were used to fund the healthSpring acquisition in January 2012...

  • Page 80
    ... any shares in 2009. Arbor funding The Company deployed $150 million of capital to its subsidiary, Cigna arbor Life insurance Company ("arbor") in support of an internal reinsurance transaction related to the gMDb and gMib businesses. See page 51 of this MD&a under "run-off operations" for...

  • Page 81
    ... and fees, represent estimated net benefit payments for health, life and disability insurance policies and annuity contracts. recorded contractholder deposit funds reflect current fund balances primarily from universal life customers. Contractual cash obligations for these universal life contracts...

  • Page 82
    ... by the investor, hybrid and trading securities. fair values are based on quoted market prices when available. When market prices are not available, fair value is generally estimated using discounted cash flow analyses, incorporating current market inputs for similar financial instruments with...

  • Page 83
    ...$1,564 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, 2011 were as follows...

  • Page 84
    ... Company had no direct investments in monoline 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, 2011 were: guarantor (In millions) national public finance...

  • Page 85
    ... real estate property. net potential problem investments represent .8% of total investments excluding policy loans at December 31, 2011. net potential problem investments decreased by $160 million during 2011, reflecting results from the annual in-depth commercial mortgage loan portfolio review...

  • Page 86
    .... 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 of local currencies for foreign operations. The Company generally...

  • Page 87
    ... information. The Company uses futures contracts as part of a gMDb equity hedge program to substantially reduce the effect of equity market changes on certain reinsurance contracts that guarantee minimum death benefits based on unfavorable changes in underlying variable annuity account values...

  • Page 88
    ... operational deficiencies or service issues as well as loss or suspension of state pharmacy licenses; 7. 8. 9. 10. significant changes in interest rates or sustained deterioration in the commercial real estate markets; 11. downgrades in the financial strength ratings of the Company's insurance...

  • Page 89
    ...including health care reform legislation and regulation that could, among other items, affect the way the Company does business, increase costs, limit the ability to effectively estimate, price for and manage medical costs, and affect the Company's products, services, market segments, technology and...

  • Page 90
    ...fees net investment income Mail order pharmacy revenues other revenues realized investment gains (losses) 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...

  • Page 91
    ... funds future policy benefits unpaid claims and claim expenses health Care medical claims payable unearned premiums and fees total insurance and contractholder liabilities accounts payable, accrued expenses and other liabilities Short-term debt Long-term debt Separate account liabilities totaL...

  • Page 92
    ...stock for employee benefit plans effects of acquisition of noncontrolling interest issuance of common stock additional Paidâ€'in capital, end of year accumulated other comprehensive Loss, beginning of year implementation effect of updated guidance on other-than-temporary impairments (see note 2) net...

  • Page 93
    ... on sales of businesses (excluding discontinued operations) (income) from discontinued operations net changes in assets and liabilities, net of non-operating effects: premiums, accounts and notes receivable reinsurance recoverables Deferred policy acquisition costs other assets insurance liabilities...

  • Page 94
    ... markets, Cigna offers supplemental health, life and accident insurance products and international health care coverage and services to businesses, governmental and non-governmental organizations and individuals. in addition to its ongoing operations described above, the Company also has certain run...

  • Page 95
    ...2011 addressing certain troubled debt restructurings. adoption of the new guidance did not have a material effect to the Company's results of operations or financial condition. See note 11 for additional information related to commercial mortgage loans. Contents Fair value measurements in May 2011...

  • Page 96
    ... of new equity from a third-party investor, the asset is accounted for as an investment in good standing reported in other long-term investments. Contents Derivative financial instruments The Company applies hedge accounting when derivatives are designated, qualify and are highly effective as...

  • Page 97
    ... relate to, the Company records acquisition costs in different ways. acquisition costs for: • Universal life products are deferred and amortized in proportion to the present value of total estimated gross profits over the expected lives of the contracts. • Supplemental health, life and accident...

  • Page 98
    .... The Company discounts certain claim liabilities related to group longterm disability and workers' compensation because benefit payments may be made over extended periods. Discount rate assumptions are based on projected investment returns for the asset portfolios that support these liabilities...

  • Page 99
    ...monthly exchange rates during the year to translate revenues and expenses into u.S. dollars. R. premiums and Fees, Revenues and Related Expenses premiums for group life, accident and health insurance and managed care coverages are recognized as revenue on a pro rata basis over the contract period...

  • Page 100
    ... and fees received for the Company's Medicare advantage plans and Medicare part D products from customers and the Centers for Medicare and Medicaid Services (CMS) are recognized as revenue ratably over the contract period. CMS provides risk adjusted premium payments for the Medicare advantage plans...

  • Page 101
    .... healthSpring provides Medicare advantage coverage in 11 states and the District of Columbia, as well as a large, national stand-alone Medicare prescription drug business. The Company funded the acquisition with internal cash resources, including cash generated from the issuance of commercial paper...

  • Page 102
    ... of Vanbreda international are included in the Company's Consolidated financial Statements from the date of acquisition. The pro forma effect on total revenues and net income assuming the acquisition had occurred as of January 1, 2009 was not material to the Company's total revenues and shareholders...

  • Page 103
    ... shareholders' net income. for the Company's retrospectively experience-rated business only adjustments to medical claims payable on accounts in deficit affect shareholders' net income. an increase or decrease to medical claims payable on accounts in deficit, CIGNA CORpORATION - 2011 Form 10-K 81

  • Page 104
    ...accrue directly to the policyholder with no impact on the Company's shareholders' net income. an account is in surplus when the accumulated premium received exceeds the accumulated medical costs and administrative charges, including profit charges. NOTE 6 Guaranteed Minimum Death Benefit Contracts...

  • Page 105
    ... interest rate hedge programs to reduce equity market and certain interest rate exposures. The majority of the Company's exposure arises under annuities that guarantee that the benefit received at death will be no less than the highest historical account value of the related mutual fund investments...

  • Page 106
    ... insurance and annuity business through indemnity reinsurance arrangements. The Lincoln national Life insurance Company and Lincoln Life & annuity of new York must maintain a specified minimum credit or claims paying rating or they will be required to fully secure the outstanding recoverable balance...

  • Page 107
    ..., 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 108
    ...international segment ($290 million) and increased by $45 million during 2011 primarily as a result of the other intangible assets were comprised of the following at December 31: Contents acquisition of firstassist. The fair values of the Company's health Care segment and international's reporting...

  • Page 109
    ...' equity. The increase in the liability was primarily due to a decrease in the discount rate and actual investment returns significantly less than expected in 2011. pension benefits The Company's pension plans were underfunded by $1.8 billion in 2011 and $1.5 billion in 2010 and had related...

  • Page 110
    ... the estimated rate would have changed 2011 reported amounts as follows: increase 1 13 decrease (1) (11) effect on total service and interest cost effect on postretirement benefit obligation $ $ $ $ plan assets The Company's current target investment allocation percentages (37% equity securities...

  • Page 111
    ... 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 • fixed maturities valued using recent trades of similar securities or pricing models as...

  • Page 112
    ...deposit account contract $ 24 3 - 3 12 - $ 39 $ (In millions) balance at January 1, 2011 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/out of Level 3 balance...

  • Page 113
    ... Contents to measure pension costs, the Company uses a market-related asset valuation for domestic pension plan assets invested in non-fixed income investments. The market-related value of these pension assets recognizes the difference between actual and expected long-term returns in the portfolio...

  • Page 114
    ... the Company's pension plan assets. Quoted Prices in active markets for Significant other identical assets observable inputs (Level 1) (Level 2) Significant Unobservable inputs (Level 3) december 31, 2011 (In millions) total financial assets at fair value: fixed maturities: federal government and...

  • Page 115
    ... 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 their classification in Level 2. CIGNA CORpORATION - 2011 Form...

  • Page 116
    ... a change in the estimated fair values. Guaranteed minimum income benefit contracts. because cash flows of the gMib liabilities and assets are affected by equity markets and interest rates but are without significant life insurance risk and are settled in lump sum payments, the Company reports these...

  • Page 117
    ... associated with these contracts represent net receivables in connection with reinsurance that the Company has purchased from two external reinsurers and are reported in the Company's Consolidated balance Sheets in other assets, including other intangibles. Changes in Level 3 Financial Assets and...

  • Page 118
    ... rates) and the rate used for projecting market returns and discounting (Libor swap curve). gMib fair value losses of $55 million for 2010, were primarily due to declining interest rates, partially offset by increases in underlying account values resulting from favorable equity and bond fund returns...

  • Page 119
    ... 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 flows at estimated market interest rates as...

  • Page 120
    ...reinsured contracts. Long-term debt, including current maturities, excluding capital leases. The fair value of long-term debt is based on quoted market prices for recent trades. When quoted market prices are not available, fair value is estimated using a discounted cash flow analysis and the Company...

  • Page 121
    ... and equity securities on the Company's Consolidated balance Sheets. These securities are carried at fair value with changes in fair value reported in other realized investment gains (losses) and interest and dividends reported in net investment income. The Company's hybrid investments include...

  • Page 122
    ... 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: • length of time and severity of decline; • financial health and specific near term prospects of the issuer; • changes...

  • Page 123
    ... period. Mortgage origination 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...

  • Page 124
    ...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 request from the borrower for restructuring. in addition, loans are considered potential problems if principal or interest payments are...

  • Page 125
    ... government securities of $137 million and money market funds of $40 million. The increase during 2011 is primarily due to proceeds from the Company's debt and equity issuances that were used to partially fund the healthSpring acquisition. See note 3 for further information. F. Concentration...

  • Page 126
    ... financial instruments under a dynamic hedge program designed to substantially reduce domestic and international equity market exposures resulting from changes in variable annuity account values based on underlying mutual funds for certain reinsurance contracts that guarantee minimum death benefits...

  • Page 127
    ...other realized investment gains and losses as interest or principal payments are received. net interest cash flows are reported in operating activities. Cash flows. under the terms of these various contracts, the Company periodically exchanges cash flows between variable and fixed interest rates and...

  • Page 128
    ... indicated periods: Fair Value effect on the Financial Statements (In millions) other Longâ€'term investments instrument interest rate swaps foreign currency swaps Combination interest rate and foreign currency swaps totaL $ as of december 31, 2011 7 3 10 $ 2010 10 6 16 $ accounts Payable, accrued...

  • Page 129
    ...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 $ $ $ net investment income for separate accounts (which is not reflected in the Company's revenues) was...

  • Page 130
    ... 31 were as follows: Separate accounts investment gains required to adjust future policy benefits for the run-off settlement annuity business $ $ 2011 210 8 $ $ 2010 191 18 $ $ 2009 (25) 51 Sales information for available-for-sale fixed maturities and equity securities, for the years ended December...

  • Page 131
    ... long-term debt, short-term debt and capital leases was $202 million in 2011, $182 million in 2010, and $166 million in 2009. NOTE 16 Common and preferred Stock as of December 31, the Company had issued the following shares: (Shares in thousands) 2011 2010 Common: par value $0.25 600,000 shares...

  • Page 132
    ...ii ITEM 8 Financial Statements and Supplementary Data Q on november 16, 2011, the Company issued 15.2 million shares of its common stock at $42.75 per share. proceeds of $650 million ($629 million net of underwriting discount and fees) were used to fund the healthSpring acquisition in January 2012...

  • Page 133
    ...assumption and plan changes and experience net postretirement benefits liability adjustment $ $ $ NOTE 18 Shareholders' Equity and Dividend Restrictions State insurance departments and foreign jurisdictions that regulate certain of the Company's subsidiaries prescribe accounting practices (which...

  • Page 134
    ... tax expense at nominal rate tax-exempt interest income effect of permanently invested foreign earnings Dividends received deduction resolution of federal tax matters State income tax (net of federal income tax benefit) Change in valuation allowance other totaL income taxeS $ $ 2011 689 (29) (23...

  • Page 135
    ... & affordable Care act, including the reconciliation act of 2010, included provisions limiting the tax deductibility of certain future retiree benefit and compensation related payments. The effect of these provisions reduced shareholders' net income in 2011 by $8 million. The Company will continue...

  • Page 136
    ... stock price volatility. The Company does not consider volatility implied in the market prices of traded options to be a good indicator of future volatility because remaining maturities of traded options are less than one year. 114 CIGNA CORpORATION - 2011 Form 10-K The risk-free interest rate is...

  • Page 137
    ... Company also has several outsourced service arrangements with third parties, primarily for human resource and information technology support services. The initial service periods under these arrangements range from seven to eight years and their related costs are reported consistent with operating...

  • Page 138
    ...Care offers insured and self-insured 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...

  • Page 139
    ... 2009 health care premiums and fees: Medical: guaranteed cost (1) (2) experience-rated (2) (3) Stop loss Dental Medicare Medicare part D other (4) total medical Life and other non-medical total premiums fees (2) (5) total premiums and fees Mail order pharmacy revenues other revenues net investment...

  • Page 140
    ... fees: health Care Supplemental health, Life, and accident total other revenues net investment income Segment revenues income taxes equity in income of investees Segment earnings runâ€'off reinsurance premiums and fees and other revenues net investment income Segment revenues income taxes (benefits...

  • Page 141
    ... Data Q (In millions) Contents premiums and fees, mail order pharmacy revenues and other revenues by product type were as follows for the years ended December 31: Medical Disability Supplemental health, Life, and accident Mail order pharmacy other totaL $ 2011 14,568 1,280 3,103 1,447 392 20...

  • Page 142
    ... funded their bank account. The Company contracts on an aSo basis with customers who fund their own claims. The Company charges these customers administrative fees based on the expected cost of administering their self-funded programs. in some cases, the Company provides performance guarantees...

  • Page 143
    ... proposals related to health care issues, that could increase cost and affect the market for the Company's health care products and services; • changes in employee retirement income Security act of 1974 ("eriSa") regulations resulting in increased administrative burdens and costs; • additional...

  • Page 144
    ...to the use of data from ingenix, inc., the Company improperly underpaid claims, an industrywide issue. all of the class actions were consolidated into Franco v. Connecticut General Life Insurance Company et al., which is pending in the united States District Court for the District of new Jersey. The...

  • Page 145
    ... of the public Company accounting oversight board (united States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was...

  • Page 146
    ... taxes Shareholders' net income Shareholders' net income per share: basic Diluted 2010 total revenues income from continuing operations before income taxes Shareholders' net income Shareholders' net income per share: basic Diluted Stock and Dividend Data 2011 price range of common stock - high - low...

  • Page 147
    ...-year Cumulative Total Shareholder Return* December 29, 2006 - December 30, 2011 Contents $150 $100 $50 Cigna S&p 500 Index S&p Managed Health Care, Life & Health Ins. Indexes** $0 12/29/06 12/31/07 12/31/08 12/31/09 12/31/10 12/30/11 * Assumes that the value of the investment in Cigna common...

  • Page 148
    ... that information required to be disclosed by Cigna in the reports that it files or submits under the exchange act is recorded, processed, summarized and reported, within the time periods specified in the SeC's rules and forms. B. Internal Control Over Financial Reporting Management's Annual Report...

  • Page 149
    ... Cigna's directors, officers (including the chief executive officer, chief financial officer and chief accounting officer) and employees. The Code of ethics is posted on the Corporate governance section found on the "about Cigna" page of the Company's website, www.cigna.com. in the event the Company...

  • Page 150
    ... Services The information under the captions "policy for the pre-approval of audit and non-audit Services" and "fees to independent registered public accounting firm" in Cigna's proxy statement to be dated on or about March 16, 2012 is incorporated by reference. 128 CIGNA CORpORATION - 2011 Form...

  • Page 151
    ... financial Statements. report of independent registered public accounting firm. (2) The financial statement schedules are listed in the index to financial Statement Schedules on page fS-1. (3) The exhibits are listed in the index to exhibits beginning on page e-1. CIGNA CORpORATION - 2011 Form...

  • Page 152
    ... duly authorized. cigna corPoration Date: february 23, 2012 by: /s/ ralph J. nicoletti name: ralph j. nicoletti title: Executive Vice President and Chief Financial Officer (Principal Financial Officer) pursuant to the requirements of the Securities exchange act of 1934, this report has been signed...

  • Page 153
    ... to FinanciaL Statement SchedULeS Report of Independent Registered public Accounting Firm on Financial Statement Schedules...FSâ€'2 Schedules I - Summary of Investments-other than Investments in Related parties - December 31, 2011 ...FSâ€'3 II - Condensed Financial Information of Cigna Corporation...

  • Page 154
    ... of the effectiveness of internal control over financial reporting referred to in our report dated february 23, 2012 (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...

  • Page 155
    ...Exhibits and Financial Statement Schedules Q Contents Cigna Corporation and Subsidiaries Schedule I - Summary of Investments-other than Investments in Related parties - December 31, 2011 (In millions) type of investment fixed maturities: bonds: united States government and government agencies and...

  • Page 156
    ... parent company equity in income of subsidiaries from continuing operations Shareholders' income from continuing operations income from discontinued operations, net of taxes SharehoLderS' net income See Notes to Financial Statements on pages FS-7 through FS-9. FS-4 CIGNA CORpORATION - 2011 Form 10...

  • Page 157
    ... 14,952 ASSETS: investments in subsidiaries other assets totaL aSSetS LIABILITIES: intercompany Short-term debt Long-term debt other liabilities totaL LiaBiLitieS SHAREHOLDERS' EQUITy: Common stock (shares issued, 366; 351; authorized, 600) additional paid-in capital net unrealized appreciation...

  • Page 158
    ... equity in income of subsidiaries (income) from discontinued operations Dividends received from subsidiaries other liabilities other, net net cash provided by operating activities Cash flows from financing activities: net change in intercompany debt repayment of debt net proceeds on issuance of long...

  • Page 159
    ...17 300 83 500 2,180 $ $ on november 10, 2011, the Company issued $2.1 billion of long-term debt as follows: $600 million of 5-Year notes due november 15, 2016 at a stated interest rate of 2.75% ($600 million, net of discount, with an effective interest rate of 2.936% per year), $750 million of 10...

  • Page 160
    .... There were letters of credit of $118 million issued as of December 31, 2011. in March 2011, the Company issued $300 million of 10-Year notes due March 15, 2021 at a stated interest rate of 4.5% ($298 million, net of discount, with an effective interest rate of 4.683% per year) and $300 million of...

  • Page 161
    ... payable balance with Cigna holdings and ultimately used to fund the healthSpring acquisition in 2012. interest was accrued at an average monthly rate of 0.63% for 2011 and 0.61% for 2010. note 4-as of December 31, 2011, the Company had guarantees and similar agreements in place to secure payment...

  • Page 162
    ... and Life international run-off reinsurance other operations Corporate totaL Year ended December 31, 2009: health Care Disability and Life international run-off reinsurance other operations Corporate totaL $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ FS-10 CIGNA CORpORATION - 2011 Form 10...

  • Page 163
    ... include Health Care medical claims expense and other benefit expenses. Other operating expenses include mail order pharmacy cost of goods sold, GMIB fair value (gain) loss and other operating expenses, and excludes amortization of deferred policy acquisition expenses. CIGNA CORpORATION - 2011 Form...

  • Page 164
    ... 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 and annuities accident and health insurance totaL FS-12 CIGNA CORpORATION - 2011 Form 10-K

  • Page 165
    ...asset valuation allowance reflects effects of the acquisition of First Assist in November 2011. (3) 2011 and 2010 amounts for commercial mortgage loans primarily reflects charge-offs upon sales and repayments, as well as transfers to foreclosed real estate. CIGNA CORpORATION - 2011 Form 10-K FS-13

  • Page 166
    ... and Financial Statement Schedules Q Contents Index to Exhibits number 2.1 description agreement and plan of Merger dated as of october 24, 2011 by and among Cigna Corporation, Cigna Magnolia Corp. and healthSpring, inc.* Voting agreement dated as of october 24, 2011 among Cigna Corporation...

  • Page 167
    ...Cigna Corporation financial Services program Schedule regarding amended Deferred Stock unit agreements effective December 31, 2008 with Mr. Murabito and form of amended Deferred Stock unit agreement form of Cigna Long-term incentive plan: nonqualified Stock option and grant Letter form of Cigna Long...

  • Page 168
    ... of Chief financial officer of Cigna Corporation pursuant to rule 13a-14(b) or rule 15d-14(b) and 18 u.S.C. Section 1350 method of Filing furnished herewith. Contents 32.2 furnished herewith. * Schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company agrees...

  • Page 169
    ...Financial Statement Schedules Q ExHIBIT 12 Year ended december 31, (Dollars in millions) Contents Cigna Corporation - Computation of Ratio of Earnings to Fixed Charges 2011... operations before income taxes $ adjustments: Loss (income) from equity investee...CIGNA CORpORATION - 2011 Form 10-K E-4

  • Page 170
    ..., constitute a "significant subsidiary" of Cigna Corporation, as 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 insurance Company, inc...

  • Page 171
    ... Services (uK) Limited (united Kingdom) (d) Cigna global insurance Company Limited (guernsey, C.i.) (e) Cigna hayat Sigorta a.S. (turkey) (f ) Cigna health Solutions india pvt. Ltd. (india) (g) Cigna international Services australia pty Ltd. (australia) (h) Cigna Life insurance Company of europe...

  • Page 172
    ... February 23, 2012 Contents Cigna Corporation of our reports dated february 24, 2011 relating to the financial statements, the financial statement schedules and the effectiveness of internal control over financial reporting, which appear in this form 10-K. E-7 CIGNA CORpORATION - 2011 Form 10-K

  • Page 173
    ... ability to record, process, summarize and report financial information; and any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. b) Date: CIGNA CORpORATION - 2011 Form 10-K E-8

  • Page 174
    ... ability to record, process, summarize and report financial information; and any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. b) Date: E-9 CIGNA CORpORATION - 2011 Form 10-K

  • Page 175
    ... and belief, the annual report on form 10-K of Cigna Corporation for the fiscal period ending December 31, 2011 (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 fairly presents, in...

  • Page 176
    ... and belief, the annual report on form 10-K of Cigna Corporation for the fiscal period ending December 31, 2011 (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 fairly presents, in...

  • Page 177
    Q Contents

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    Q Contents

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  • Page 180
    ... 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...