Cigna 2012 Annual Report Download - page 44

PART I
ITEM 1A Risk Factors
Supplemental Benefits segment. South Korea generated 54% of the outsources selected services or selected functions to third parties in
segment’s revenues and 90% of the segment’s earnings in 2012. Due foreign jurisdictions, the Company could be exposed to risks inherent
to the concentration of business in South Korea, the Global in conducting business outside of the United States, including
Supplemental Benefits segment is exposed to potential losses resulting international economic and political conditions, and the additional
from economic and geopolitical developments in that country, as well costs associated with complying with foreign laws and fluctuations in
as foreign currency movements affecting the South Korean currency, currency values.
that could have a significant impact on the segment’s results and the The expanding role of third party service vendors may also require
Company’s consolidated financial results. Further, expansion into new changes to Cigna’s existing operations and the adoption of new
markets may require considerable management time before any procedures and processes for retaining and managing these providers,
significant revenues and earnings are generated, that could divert as well as redistributing responsibilities as needed, in order to realize
management’s attention from other strategic activities. the potential productivity and operational efficiencies. Effective
International operations also require the Company to devote management, development and implementation of its outsourcing
significant management resources to implement its controls and strategies are important to Cigna’s business and strategy. If there are
systems in new markets, to comply with the U.S. anti-bribery and delays or difficulties in enhancing business processes or its third party
anti-corruption as well as anti-money laundering provisions and providers do not perform as anticipated, Cigna may not fully realize
similar laws in local jurisdictions and to overcome logistical and other on a timely basis the anticipated economic and other benefits of the
challenges based on differing languages, cultures and time zones. outsourcing projects or other relationships it enters into with key
Violations of these laws and regulations could result in fines, criminal vendors, which could result in substantial costs or regulatory
sanctions against the Company, its officers or employees, prohibitions compliance issues, divert management’s attention from other strategic
on the conduct of its business, and reputational harm. Cigna must activities, negatively affect employee morale or create other
regularly reassess the size, capability and location of its global operational or financial problems for the Company. Terminating or
infrastructure and make appropriate changes, and must have effective transitioning arrangements with key vendors could result in
change management processes and internal controls in place to additional costs and risks of operational delays, potential errors and
address changes in its business and operations. Cigna’s success possible control issues as a result of the termination or during the
depends, in part, on its ability to anticipate these risks and manage transition phase.
these difficulties, and the failure to do so could have a material adverse
effect on Cigna’s business, results of operations, financial condition,
Acquisitions, including HealthSpring, involve risks
liquidity and long-term growth.
and the Company may not realize the expected
benefits because of integration difficulties,
Successful management of Cigna’s outsourcing underperformance relative to Cigna’s expectations
projects and key vendors including taking steps to and other challenges.
ensure that third parties that obtain access to
As part of the Company’s growth strategy, Cigna regularly considers
sensitive personal information maintain its
strategic transactions, including acquisitions, with the expectation
confidentiality and security, is important to its
that these transactions will result in various benefits. Cigna’s ability to
business.
achieve the anticipated benefits of acquisitions is subject to a number
of uncertainties, including whether Cigna integrates its acquired
To improve operating costs, productivity and efficiencies, Cigna
companies in an efficient and effective manner, the performance of
outsources selected functions to third parties. Cigna takes steps to
the acquired businesses and general competitive factors in the
monitor and regulate the performance of independent third parties
marketplace. Failure to achieve these anticipated benefits could result
who provide services or to whom the Company delegates selected
in increased costs, decreases in expected revenues, goodwill
functions. These third parties include information technology system
impairment charges, and diversion of management’s time and energy.
providers, independent practice associations, providers of medical
management services, call center and claim service providers and In January 2012, Cigna acquired HealthSpring, an operator of
various types of other service providers. Medicare Advantage coordinated care plans in 13 states and the
District of Columbia. The success of the HealthSpring acquisition
Arrangements with key vendors may make Cigna’s operations
depends on Cigna’s ability to integrate HealthSpring with its existing
vulnerable if third parties fail to satisfy their obligations to the
businesses and the performance of the acquired business. The
Company, including their obligations to maintain and protect the
potential difficulties of integrating the operations of HealthSpring and
security and confidentiality of the Company’s information and data,
achieving the performance expected of the acquired businesses
as a result of their performance, changes in their own operations,
include: implementing the Company’s business plan for the combined
financial condition, or other matters outside of Cigna’s control. The
business; executing Cigna’s growth plans by leveraging its capabilities
Company has limited control over the actions of third-party providers
and those of the businesses acquired in serving the Seniors segment;
even though contracts provide certain protections. Noncompliance
unanticipated issues in integrating logistics, information,
with any privacy or security laws and regulations or any security
communications and other systems; changes in applicable laws and
breach involving one of its third-party service providers could have a
regulations or conditions imposed by regulators; retaining key
material adverse effect on its business, results of operations, financial
employees; operating risks inherent in HealthSpring’s business and
condition, liquidity and reputation. In addition, to the extent Cigna
22 CIGNA CORPORATION - 2012 Form 10-K