Cigna 2013 Annual Report Download - page 65

PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
agreement, resulting in an after-tax charge of $24 million that is
Our Results
reported as a special item. This agreement had an immaterial impact
During the past three years, we have generated significant increases in
to adjusted income from operations in 2013, and is expected to
revenues, adjusted income from operations and medical customers.
produce a positive contribution to earnings beginning in 2014
This growth is largely due to the continued execution on our strategy,
through improved clinical management, purchasing and
including the acquisition of HealthSpring, and continued business
administrative efficiencies.
growth in targeted markets of all of our ongoing segments.
In 2012, we completed three significant transactions targeting the
Shareholders’ net income declined 9% in 2013 compared with 2012
seniors, individual and global supplemental benefits markets:
due primarily to the $507 million after-tax charge associated with the
HealthSpring, Inc. We acquired HealthSpring, a Medicare February 4, 2013 reinsurance agreement with Berkshire. However,
Advantage provider, to assist us in serving individuals across their shareholders’ net income in 2013 increased 17% over 2011 including
life stages and deepen our presence in a number of geographic the 2013 charge. The reinsurance transaction in 2013 aligned with
markets. This acquisition brought us industry-leading physician our strategy of increasing financial flexibility by accomplishing an
partnership capabilities, deepened our existing client and customer effective exit from the run-off GMDB and GMIB businesses.
relationships, and facilitated a broader deployment of our range of
Cash flows from operating activities in 2013 declined by $1.6 billion
health and wellness capabilities and product offerings.
compared with 2012 primarily due to payments totaling $2.2 billion
Great American Supplemental Benefits. We acquired Great made in 2013 to Berkshire in connection with the reinsurance
American Supplemental Benefits to both strengthen our capabilities transaction. See the Liquidity and Capital Resources section of this
in the individual market and facilitate our expansion into the MD&A for additional information.
Medicare supplemental business.
During 2013, our unfunded pension liability decreased by
Finans-Emeklilik. We entered into a joint venture with Finansbank approximately $1.0 billion to $611 million, largely due to an increase
to expand our global footprint in Turkey. of 100 basis points in the assumed discount rate, strong asset
performance and Company contributions of $195 million. See
Note 9 to the Consolidated Financial Statements for additional
Organizational Efficiency Plans
information.
We are constantly evaluating ways to deliver our products and services
In 2013, we repurchased 13.6 million shares for $1.0 billion. From
more efficiently and at a lower cost. During 2013 and 2012, we
January 1, 2014 through February 26, 2014 we repurchased
adopted specific plans to increase our organizational efficiency as
5.0 million shares for $411 million. On February 26, 2014, the
follows.
Company’s Board of Directors increased share repurchase authority by
2013 plan. During the fourth quarter of 2013, we committed to a $500 million. Accordingly, the total remaining share repurchase
plan to increase our organizational efficiency and reduce costs through authorization as of February 26, 2014 was $901 million.
a series of actions that includes employee headcount reductions. As a Shareholders’ equity increased in 2013, reflecting strong shareholders’
result, we recognized charges in other operating expenses of net income in 2013 and the favorable effects of the pension plan,
$60 million pre-tax ($40 million after-tax) in the fourth quarter of partially offset by the effects of share repurchase and unrealized losses
2013, consisting mostly of severance costs. The Global Health Care on fixed maturities driven by rising interest rates.
segment reported $47 million pre-tax ($31 million after-tax). The
Our consolidated results of operations are discussed in detail on
remainder was reported as follows: $11 million pre-tax ($8 million
page 35 of this Form 10-K.
after-tax) in the Global Supplemental Benefits segment and
$2 million pre-tax ($1 million after-tax) in Group Disability and Life.
We expect most of the severance to be paid by the end of 2015. We
Industry Developments
expect to realize annualized after-tax savings of approximately
$45 million. A substantial portion of these savings will be realized in
Sequestration
2014. On March 31, 2013, a sequestration order under the Budget Control
2012 plan. During the third quarter of 2012, we committed to a Act of 2011 was issued that requires reductions in payments to
series of actions to further improve our organizational alignment, Medicare Advantage (‘‘MA’’) and Prescription Drug Program
operational effectiveness, and efficiency. As a result, we recognized (‘‘PDP’’) carriers. Effective April 1, 2013, payments to MA and PDP
charges in other operating expenses of $77 million pre-tax carriers were reduced by 2%, with the reduction scheduled to remain
($50 million after-tax) in the third quarter of 2012 consisting in place through 2023. The lower rates began impacting our revenue
primarily of severance costs that are expected to be mostly paid by the in the second quarter of 2013 and are expected to continue to reduce
end of the first quarter of 2014. We realized annualized after-tax revenue into 2014 and beyond. The earnings impact is mitigated
savings of approximately $60 million, the majority of which was somewhat by reductions to medical cost reimbursements to health
reinvested in the business to enhance our ability to provide superior care professionals. Sequestration will continue to lower segment
service and affordable products to our customers. earnings in 2014 in the Global Health Care segment; however, the
overall effect will depend on our ability to reduce medical cost
reimbursements to health care professionals.
CIGNA CORPORATION - 2013 Form 10-K 33
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