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2014 ANNUAL REPORT
C R E ATI N G
CONNECTIONS
MEANINGFUL

Table of contents

  • Page 1
    CREATING MEANINGFUL CONNECTIONS 2014 ANNUAL REPORT

  • Page 2
    POWERFUL

  • Page 3
    ... that channel the best in you, helping you take first steps after surgeries or final steps over finish lines. Through meaningful connections, we're joining you together with the people, programs and services that help you achieve what matters most to your health, well-being and sense of security.

  • Page 4
    ... global environment, Cigna has demonstrated consistent success by addressing our customers' desire for affordable and personalized solutions which - consistent with Cigna's mission - help improve their health, well-being and sense of security. TO OUR SHAREHOLDERS This remained the case in 2014...

  • Page 5
    ... Officer Cigna Corporation 3 "CIGNA WILL DOUBLE THE SIZE OF OUR BUSINESS IN 7 TO 8 YEARS." We also continue to innovate through meaningful investments ranging from new clinical programs and aligned customer incentives, to the expanded use of enabling technologies and programs for health care...

  • Page 6
    ...LD ERS Business Segment Performance Highlights Each of Cigna's business segments - Global Health Care, Global Supplemental Benefits, and Group Disability and Life - delivered strong growth in 2014 over the prior year, as we grew our number of customer relationships to more than 85 million worldwide...

  • Page 7
    ... a leader in group disability product sales, and we maintain a strong share of the market for group disability, life and accident solutions as well as for leave of absence programs such as Family and Medical Leave Act (FMLA) administration. Creating a more sustainable health care environment We are...

  • Page 8
    6 PERSONAL

  • Page 9
    ... on health care in the United States, exploring how employer groups, government and health care suppliers can work together to build a sustainable system better equipped to provide quality, affordable care over the long term - a system which transcends its historic focus on sick care and addressing...

  • Page 10
    ... require choices of effective and efficient health and productivity services, including more benefit choices that are valued by their employees, ranging from employer-funded base offerings to employee-paid voluntary benefits; and innovative engagement tools, including incentive and network programs...

  • Page 11
    ...share repurchase. A good, recent example of this is our agreement to purchase QualCare Alliance Networks - an acquisition directly aligned with our Go Deep strategy, and our physician-partnership strategy. We also have a strong track record of generating high levels of free cash flow, which provides...

  • Page 12
    10 ACCESSIBLE

  • Page 13

  • Page 14
    ... on our long-term Earnings Per Share growth objective of between 10 to 13 percent compound growth on an annual basis. › New buying segments and service expansions, such as Medical Service Organization offerings for the benefit of integrated health care professionals. Cigna is well-positioned to...

  • Page 15
    13 PRODUCTIVE

  • Page 16
    ..., millions of United States Cigna customers were introduced to Cigna Health Matters , a way to make health management more interesting by combining our health coaches, mobile applications, social media and games to help customers and their families evaluate their health, find tools to improve their...

  • Page 17
    ... Through Heyday, seniors enjoy various health and wellness programs and services with no membership fee. Wherever Cigna customers are, we're showing that we listen and we care, connecting them to the people, products and programs that help them improve their health, well-being and sense of security.

  • Page 18
    ... years lower than in other surrounding neighborhoods. This work involves looking at the root causes of high emergency room use by residents, as well as how home visits and better housing and employment options can improve health. Additionally in 2014, Cigna employees organized the company's largest...

  • Page 19
    ... raises funds to help the needy get life-saving surgeries around the world. 2 The New York Botanical Garden helps doctors understand their patients' use of plantbased remedies. 3 Cigna employees in Hartford, CT run for the March of Dimes®. 4 Community Solutions improves health and wellness in...

  • Page 20
    ...customers were cured after completing treatment. And for the eighth year in a row, a Cigna Choice Fund® study demonstrated that an accountbased approach - in which customers use savings and reimbursement accounts in higher deductible plans - is helping millions of customers reduce their health care...

  • Page 21
    ... lower rate than individuals enrolled in HMO and PPO plans. Choice Fund products provide tools and information accessible online and via mobile devices to empower customers to make costconscious decisions about their health and health spending. health care system. A Cigna nurse case manager took...

  • Page 22
    20 COLLABORATIVE

  • Page 23
    ... Corporate Responsibility Report, available online at Cigna. com/CorporateResponsibility. Cigna's first CR report provides a detailed look at the company's environmental, social and governance policies and priorities, and explores how they support the company's core businesses and benefit Cigna...

  • Page 24
    .... Commercial offers a broad line of insured and self-insured medical, dental, behavioral health, vision, prescription drug benefit plans, health coaching programs and other products and services that may be integrated to provide comprehensive global health care benefit programs to employers and...

  • Page 25
    23 31% Government - 31% COMMERCIAL SEGMENT Medical - 63% Dental - 6% GLOBAL HEALTH CARE BY PRODUCT PREMIUMS AND FEES AND OTHER REVENUES IN MILLIONS $24,714 6% 63% 15% South Korea - 52% Taiwan - 10% Europe - 10% United States - 13% Other - 15% 13% GLOBAL SUPPLEMENTAL BENEFITS BY COUNTRY 52%...

  • Page 26
    ...a communications services company David M. Cordani President and Chief Executive Officer Cigna Corporation Eric J. Foss Chairman, President and Chief Executive Officer ARAMARK Corporation, a provider of food services, facilities management and uniform services Michelle D. Gass Chief Customer Officer...

  • Page 27
    ... Chief Accounting Officer Jane E. Henney, MD Chair Eric J. Foss Michelle D. Gass William D. Zollars FINANCE COMMITTEE Matthew G. Manders John M. Partridge Chair Roman Martinez IV James E. Rogers Eric C. Wiseman Donna F. Zarcone President, U.S. Commercial Markets and Global Health Care Operations

  • Page 28
    ... authorization form, contact Computershare at 800.760.8864, or outside the United States and Canada at 201.680.6535. You can access your account online through the Computershare website: Computershare.com. STOCK LISTING 900 Cottage Grove Road Bloomfield, CT 06002 860.226.6000 LIFE INSURANCE COMPANY...

  • Page 29
    ... CIGNA CORPORATION (Exact name of registrant as specified in its charter) Delaware 06-1059331 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 900 Cottage Grove Road, Bloomfield, Connecticut 06002 (Address of principal executive offices) (Zip Code...

  • Page 30
    Table of Contents Page CAUTIONARY STATEMENT PART I Item 1. Business 1 Overview ...1 Global Health Care ...2 Global Supplemental Benefits ...8 Group Disability and Life ...9 Other Operations ...11 Investments and Investment Income ...12 Regulation...12 Miscellaneous ...17 Item 1A. Risk Factors...

  • Page 31
    ... Officers and Corporate Governance...117 A. Directors of the Registrant ...117 B. Executive Officers of the Registrant ...117 C. Code of Ethics and Other Corporate Governance Disclosures ...117 D. Section 16(a) Beneficial Ownership Reporting Compliance ...117 Executive Compensation...117 Security...

  • Page 32
    ..., but are not limited to: our ability to achieve our financial, strategic and operational plans or initiatives; our ability to predict and manage medical costs and price effectively and develop and maintain good relationships with physicians, hospitals and other health care providers; our ability to...

  • Page 33
    ...program. Government • Offers Medicare Advantage, Medicare Part D and Medicaid plans. Global Supplemental Benefits Group Disability and Life 9% 11% Offers supplemental health, life and accident insurance products in selected international markets and the U.S. Provides group long-term and short-term...

  • Page 34
    ...year pharmacy benefit management services agreement with Catamaran Corporation (''Catamaran''). Under this agreement, we utilize Catamaran's technology and service platforms, retail network contracting and claims processing services. • In February 2013, we effectively exited our Run-off guaranteed...

  • Page 35
    ... Managed Care Plans including Network, Network Open Access and Open Access Plus. We offer a product line of Health Maintenance Approximately 90% of our commercial medical customers are in funding arrangements where lower medical costs directly benefit our corporate clients and employees who share...

  • Page 36
    ..., Health Care Reform subjects individual and small group policy rate increases above an identified threshold to review by the United States Department of Health and Human Services (''HHS'') and requires payment of premium refunds on individual and group medical insurance products if minimum medical...

  • Page 37
    ... our medical and dental product offerings. Our national vision care network, consisting of approximately 69,700 health care providers in over 24,800 locations, includes private practice ophthalmologist and optometrist offices, as well as retail eye care centers. Service and Quality Customer Service...

  • Page 38
    ... Medical Group holds the highest level of this accreditation (level 3). Cigna Medical Group has the greatest number of practices and physicians in the state of Arizona with this accreditation. • Cigna Onsite Health. Our onsite services include more than 150 health centers at various employer sites...

  • Page 39
    ... unions and other groups or individuals. We also employ representatives to sell utilization review services, behavioral health care and pharmacy management, and employee assistance services directly to insurance companies, HMOs, third party administrators and employer groups. As of December 31, 2014...

  • Page 40
    ... major insurance companies and hospitals; and • national managed pharmacy, behavioral health and utilization review services companies. The primary competitors of the international health care business include U.S. and European health insurance companies with global health benefits operations. The...

  • Page 41
    ... customer attitudes toward direct marketing of insurance and other financial services. Group Disability and Life Our Group Disability and Life segment provides group long-term and short-term disability insurance, group life insurance, accident and specialty insurance and related services. We market...

  • Page 42
    ... also provide a number of voluntary products and services that are typically paid by the employee and offered at the employer's worksite. Our plans provide employers with administrative solutions designed to provide employers with a complete and simple way to manage their benefits program. Recently...

  • Page 43
    ... life insurance provides coverage that, when adequately funded, does not expire after a term of years. The contracts are primarily non-participating universal life policies. Fees for universal life insurance products consist primarily of mortality and Run-off Reinsurance Our reinsurance operations...

  • Page 44
    ... business operations, including, but not limited to: • the form and content of customer contracts including benefit mandates (including special requirements for small groups); • premium rates and medical loss ratios; • the content of agreements with participating providers of covered services...

  • Page 45
    ... from customers; • risk sharing arrangements with providers; • reimbursement or payment levels for Medicare services; • advertising; and • the operation of consumer-directed plans (including health savings accounts, health reimbursement accounts, flexible spending accounts and debit cards...

  • Page 46
    ... include reduced Medicare Advantage premium rates, the requirement to cover preventive services with no enrollee cost-sharing, banning the use of lifetime and annual limits on the dollar amount of essential health benefits, increasing restrictions on rescinding coverage and extending coverage of...

  • Page 47
    ... Department of Labor, as well as the courts. Our domestic subsidiaries are subject to requirements imposed by ERISA affecting claim payment and appeals procedures for individual health insurance and insured and self-insured group health plans and for the insured dental, disability, life and accident...

  • Page 48
    ... governmental agencies, including applicable state departments of insurance. We expect to continue to allocate significant resources to our compliance, ethics and fraud, waste and abuse programs to comply with the laws and regulations governing Medicare Advantage and prescription drug plan programs...

  • Page 49
    ...Control of the Department of the Treasury, which administers and Miscellaneous Premiums and fees from CMS represented 21% of our total consolidated revenues for the year ended December 31, 2014 under a number of contracts. We are not dependent on business from one or a few customers. Other than CMS...

  • Page 50
    ... health care coverage for their employees; • restricting revenue, premium and customer growth in certain products and markets or expansion into new markets; • increasing health care or other benefit costs through enhanced or guaranteed coverage requirements; 18 CIGNA CORPORATION - 2014 Form...

  • Page 51
    ... coding practices and fraud and abuse enforcement practices through audits designed to detect and correct improper payments. There also continues to be heightened review by federal and state regulators of business and reporting practices within the health care and disability insurance industry...

  • Page 52
    ...managed health care services, including Medicare Advantage plans and Medicareapproved prescription drug plans. Revenues from Medicare programs are dependent, in whole or in part, upon annual funding from the federal government through CMS and/or applicable state or local 20 CIGNA CORPORATION - 2014...

  • Page 53
    ... changes in funding, such as the application of sequestration by the federal or state governments, could substantially reduce our revenues and profitability. The Medicare program has been the subject of recent regulatory reform initiatives, including Health Care Reform. The premium rates...

  • Page 54
    ...respect to outsourced services or functions to third parties in foreign jurisdictions, we also are exposed to risks inherent in conducting business outside of the United States. Outsourcing also may require us to change our existing operations, adopt new processes for managing these providers and/or...

  • Page 55
    ... benefits upon completion. In addition, our business is highly dependent upon our ability to perform, in an efficient and uninterrupted fashion, necessary business functions, such as claims processing and payment, internet support and customer call centers, and processing new and renewal business...

  • Page 56
    .... Further, federal and state regulatory agencies may restrict our ability to implement changes in premium rates. For example, Health Care Reform includes an annual rate review requirement to prohibit unreasonable rate increases in the individual and small group health insurance markets. Fiscal...

  • Page 57
    ... criteria, provider contracting, utilization management and product design. We record medical claims reserves on our balance sheet for estimated future payments. While we continually review estimates of future payments relating to medical claims costs for services incurred in the current and prior...

  • Page 58
    ... as Medicare and Social Security. These state and federal budgetary pressures also could cause the government to impose new or a higher level of taxes or assessments on us, such as premium taxes on insurance companies and HMOs and surcharges or fees on select fee-for-service and capitated medical...

  • Page 59
    ..., along with Group Disability and Life Insurance, Health Services, Core Medical and Service Operations and the domestic office of our Global Supplemental Benefits business are the Wilde Building located at 900 Cottage Grove Road in Bloomfield, Connecticut (our corporate headquarters) and Two...

  • Page 60
    ... development, and management of run-off reinsurance from February 2003 until July 2013; Acting Chief Financial Officer from September 2010 until June 2011, and Treasurer from July 2008 until June 2011. MATTHEW G. MANDERS, 53, President, U.S. Commercial Markets and Global Health Care Operations...

  • Page 61
    ...Company's Board of Directors increased share repurchase authority by $500 million on February 25, 2015. Remaining authorization under the program was $966 million as of February 25, 2015. (3) Approximate dollar value of shares is as of the last date of the applicable month. CIGNA CORPORATION - 2014...

  • Page 62
    ... Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Five Year Cumulative Total Shareholder Return* December 31, 2009 - December 31, 2014 $350 $300 $250 $200 $150 $100 $50 $0 12/31/09 12/31/10 Cigna S&P 500 Index S&P Managed Health Care, Life...

  • Page 63
    ... 30,600 Revenues Premiums and fees and other revenues Net investment income Mail order pharmacy revenues Realized investment gains TOTAL REVENUES Results of Operations: Global Health Care Global Supplemental Benefits Group Disability and Life Other Operations(1) Corporate Realized investment gains...

  • Page 64
    ...of security. To execute on our mission, Cigna's strategy is to ''Go Deep'', ''Go Global'' and ''Go Individual'' with a differentiated set of medical, dental, disability, life and accident insurance and related products and services offered by our subsidiaries. For further information on our business...

  • Page 65
    ... care benefit program. Government Offers Medicare Advantage, Medicare Part D and Medicaid plans. • Global Supplemental Benefits Group Disability and Life 9% 11% Offers supplemental health, life and accident insurance products in selected international markets and the U.S. Offers group long-term...

  • Page 66
    ...and health care providers, the design of products and services, and pricing and delivery systems. In 2013, the industry saw government-prescribed reductions to Medicare reimbursement rates (i.e., sequestration), ongoing payment reductions for Medicare Advantage plans by the Centers for Medicare and...

  • Page 67
    ... dollar per customer levy that applies to insurers and self-insured major medical plans excluding Medicare Advantage and Medicare Part D products. Proceeds from the fee will be used to fund the reinsurance program for non-grandfathered individual business sold either on or off the public exchanges...

  • Page 68
    ...(12) (18) (9) 100 (9)% Premiums Fees and other revenues Net investment income Mail order pharmacy revenues Realized investment gains Total revenues Global Health Care medical claims expense Other benefit expenses Mail order pharmacy costs Other operating expenses Benefits and expenses Income before...

  • Page 69
    ... business growth in the Global Supplemental and Group Disability and Life segments. • Mail order pharmacy costs. The increases in both 2014 and 2013 are due to volume increases for specialty medications (injectibles) and higher unit costs. • Other operating expenses. In 2014, the increase...

  • Page 70
    ... for employee compensation and benefits, information technology and real estate. Our subsidiaries normally meet their operating requirements by: • maintaining appropriate levels of cash, cash equivalents and short-term investments; • using cash flows from operating activities; • selling...

  • Page 71
    ... • return capital to investors through share repurchase. The availability of capital resources will be impacted by equity and credit market conditions. Extreme volatility in credit or equity market conditions may reduce our ability to issue debt or equity securities. CIGNA CORPORATION - 2014 Form...

  • Page 72
    ... premiums, 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 73
    ... in increases to recorded reserves and adversely impact results of operations. The amounts associated with the sold retirement benefits and individual life insurance and annuity businesses, as well as the reinsured workers' compensation, personal accident and supplemental benefits businesses, are...

  • Page 74
    ..., including estimates of liabilities for future policy benefits, as well as estimates with respect to unpaid claims and claim expenses, postemployment and postretirement benefits other than pensions, certain compensation accruals, and income taxes. Management believes the current assumptions used to...

  • Page 75
    ..., taxes, capital levels and long-term growth rates. Our Cigna-HealthSpring business (reported in the Government operating segment that is also the reporting unit) contracts with CMS and various state governmental agencies to provide managed health care services, including Medicare Advantage plans...

  • Page 76
    ... the accrued pension benefit liability would increase by approximately $415 million as of December 31, 2014 resulting in an after-tax decrease to shareholders' equity of approximately $270 million. The impacts of these hypothetical changes on pension expense or minimum funding requirements would not...

  • Page 77
    ... shareholders' equity. Fair value is defined as the price at which an asset could be exchanged in an orderly transaction between market participants at the balance sheet date. Determining fair value for a financial instrument requires management judgment. The degree of judgment involved generally...

  • Page 78
    ...Health Care Global Supplemental Benefits Group Disability and Life Other Operations Corporate Total Net realized investment gains, net of taxes Shareholders' net income Adjusted Income (Loss) From Operations (In millions) For the Years Ended December 31, Increase/(Decrease) Increase/(Decrease) 2014...

  • Page 79
    ... primarily driven by increased specialty contributions, including strong pharmacy results, partially offset by lower earnings in our government segment primarily due to taxes and fees mandated by Health Care Reform and a higher medical care ratio in our Medicare Part D business. In addition, results...

  • Page 80
    ... our insured to self-insured products and our exit from the limited benefits business. Premiums increased in 2013, compared with 2012, in the U.S. Commercial segment due to customer growth and rate increases consistent with underlying medical cost trends. In addition, Medicare Advantage premiums...

  • Page 81
    ... following criteria: • is covered under an insurance policy or service agreement issued by the Company; • has access to the Company's provider network for covered services under their medical plan; or • has medical claims that are administered by the Company. CIGNA CORPORATION - 2014 Form 10...

  • Page 82
    ...Total government Total risk Service, including international health care TOTAL MEDICAL CUSTOMERS (excluding limited benefits) Limited benefits TOTAL MEDICAL CUSTOMERS (1) 2013 and 2012 exclude limited benefits customers. (1) As required by Health Care Reform, we exited the limited benefits business...

  • Page 83
    ... each prior year. When applying 2014 exchange rates to 2013 and 2012 results, premiums increased by 13% in 2014 and 25% in 2013. These increases were primarily attributable to new sales, particularly in South Korea and the U.S. reflecting both customer growth and sales CIGNA CORPORATION - 2014 Form...

  • Page 84
    .... In 2014, our Global Supplemental Benefits segment operations in South Korea represented 4% of our total consolidated revenues and 8% of shareholders' net income. Group Disability and Life Segment Key factors for this segment are: • premium growth, including new business and customer retention...

  • Page 85
    ... in the run-off reinsurance business. The favorable after-tax effects of reserve reviews were $52 million in 2014 and $60 million in 2013. Revenues Premiums. The increases in both 2014 and in 2013 reflected new business growth due to disability and life sales and continued strong customer retention...

  • Page 86
    ... run-off settlement annuity business, as well as the remaining deferred gains recognized from the sale of the individual life insurance and annuity and retirement benefits businesses. Prior year information has been conformed to the current year presentation. Results of Operations Financial Summary...

  • Page 87
    ...Statements. (In millions) Fixed maturities Equity securities Commercial mortgage loans Policy loans Other long-term investments Short-term investments TOTAL $ $ 2014 18,983 189 2,081 1,438 1,488 163 24,342 $ $ 2013 16,486 141 2,252 1,485 1,370 631 22,365 CIGNA CORPORATION - 2014 Form 10-K 55

  • Page 88
    ...% at December 31, 2014, from 56 CIGNA CORPORATION - 2014 Form 10-K 64% as of December 31, 2013, reflecting a modest increase in values for high quality commercial real estate. The portfolio's average debt service coverage ratio also improved, increasing to 1.66 at December 31, 2014 from 1.62 as of...

  • Page 89
    ... long-term investments of $1.5 billion primarily include investments in security partnership and real estate funds as well as direct investments in real estate joint ventures. The funds typically invest in mezzanine debt or equity of privately held companies (securities partnerships) and equity real...

  • Page 90
    ... prices. Our primary market risk exposures are: • Interest-rate risk on fixed-rate, medium-term instruments. Changes in market interest rates affect the value of instruments that promise a fixed return and our employee pension liabilities. • Foreign currency exchange rate risk of the U.S. dollar...

  • Page 91
    ... 7A. Quantitative and Qualitative Disclosures About Market Risk ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk The information contained under the caption ''Market Risk'' in the MD&A section of this Form 10-K is incorporated by reference. CIGNA CORPORATION - 2014 Form 10-K 59

  • Page 92
    .... We conducted our audits in accordance with the standards 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...

  • Page 93
    ... realized investment gains TOTAL REVENUES Benefits and Expenses Global Health Care medical claims expense Other benefit expenses Mail order pharmacy costs Other operating expenses TOTAL BENEFITS AND EXPENSES Income before Income Taxes Income taxes: Current Deferred TOTAL TAXES Net Income Less: Net...

  • Page 94
    ...to the Consolidated Financial Statements are an integral part of these statements. 2014 $ 2,102 143 11 (144) (426) (416) 1,686 1 (9) (7) 1 $ 1,672 $ $ 2013 1,476 (410) 9 13 539 151 1,627 2 - (19) - 1,610 $ $ 2012 1,623 147 (5) 66 (92) 116 1,739 1 - 2 - 1,742 62 CIGNA CORPORATION - 2014 Form 10-K

  • Page 95
    ... deposit funds Future policy benefits Unpaid claims and claim expenses Global Health Care medical claims payable Unearned premiums Total insurance and contractholder liabilities Accounts payable, accrued expenses and other liabilities Short-term debt Long-term debt Separate account liabilities...

  • Page 96
    ...ITEM 8. Financial Statements and Supplementary Data Cigna Corporation Consolidated Statements of Changes in Total Equity (In millions, except per share amounts) Balance at January 1, 2012 2012 Activity: Effect of issuing stock for employee benefit plans Effects of acquisition of joint venture Other...

  • Page 97
    ... Deferred policy acquisition costs Other assets Insurance liabilities Accounts payable, accrued expenses and other liabilities Current income taxes Cash used to exit the Run-off Reinsurance Business Proceeds from sales of mortgage loans held for sale Other, net NET CASH PROVIDED BY OPERATING...

  • Page 98
    ... selling coverage on the public exchanges. • A three-year (2014-2016) reinsurance program is designed to provide reimbursement to insurers for high cost individual business sold on or off the public exchanges. The reinsurance entity established by the U.S. Department of Health and Human Services...

  • Page 99
    ...financial statements. Fees Paid to the Federal Government by Health Insurers (ASU 2011-06). Effective January 1, 2014, the Company adopted the FASB's accounting guidance for the health insurance industry assessment (the ''tax'') mandated by Health Care Reform. This non-deductible tax is being levied...

  • Page 100
    ...deferred income taxes and amounts required to adjust future policy benefits for the run-off settlement annuity business. D. Cash and Cash Equivalents Cash equivalents consist of short-term investments with maturities of three months or less from the time of purchase. The Company reclassifies cash...

  • Page 101
    ... benefits business in 2012. Each year, deferred policy acquisition costs are tested for recoverability. For 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...

  • Page 102
    ... funds used to fund non-pension retiree insurance programs; 3) retained asset accounts; and 4) annuities or supplementary contracts without significant life contingencies. Interest credited on these funds is accrued ratably over the contract period. The Company's liability for disability claims...

  • Page 103
    ... the commercial minimum medical loss ratio provisions of Health Care Reform. These rebates are settled in the year following the policy year. Premiums received for the Company's Medicare Advantage Plans and Medicare Part D products from customers and the Centers for Medicare and Medicaid Services...

  • Page 104
    ...At the end of the performance period, expense is adjusted to the actual outcome (number of shares awarded times the share price at the grant date). U. Participating Business The Company's participating life insurance policies entitle policyholders to earn dividends that represent a portion of the...

  • Page 105
    ... share in cash and Cigna stock awards, representing a cost of approximately $3.8 billion. At the time of the acquisition, HealthSpring provided Medicare Advantage coverage in 15 states and the District of Columbia, as well as a large, national stand-alone Medicare prescription drug business. Results...

  • Page 106
    ... stock equivalents Total shares EPS The following outstanding employee stock options were not included in the computation of diluted earnings per share because their effect was anti-dilutive. (In millions) 2014 1.0 2013 0.9 2012 2.5 Anti-dilutive options 74 CIGNA CORPORATION - 2014 Form 10-K

  • Page 107
    ... to cover incurred but not reported and pending claims for minimum premium products and certain ASO business where the right of offset does not exist. See Note 7 for additional information on reinsurance. For the year ended December 31, 2014, actual experience differed from the Company's key...

  • Page 108
    ... accumulated premium received exceeds the accumulated medical costs and administrative charges, including profit charges. The determination of liabilities for Global Health Care medical claims payable requires the Company to make critical accounting estimates. See Note 2(N) for further information...

  • Page 109
    ...retained reserve as of December 31, 2014 and December 31, 2013 covers ongoing administrative expenses, as well as the few claims retained by the Company. Prior to 2013, incurred benefits reflected the favorable or unfavorable impact of a rising or falling equity market on the liability, and included...

  • Page 110
    ...been netted against direct benefits and expenses in the Company's Consolidated Statements of Income. (In millions) 2014 2013 2012 Premiums Short-duration contracts: Direct Assumed Ceded Long-duration contracts: Direct Assumed Ceded: Individual life insurance and annuity business sold Other TOTAL...

  • Page 111
    ... Benefits Business (2012 acquisition) Global Health Care, Global Supplemental Benefits, Group Disability and Life Lincoln National Life and Lincoln Life & Annuity of New York Prudential Retirement Insurance and Annuity Great American Life Various 1,092 336 561 Other run-off reinsurance...

  • Page 112
    ... Company estimates annual pre-tax amortization for intangible assets, including internal-use software, over the next five calendar years to be as follows: $425 million in 2015, $348 million in 2016, $237 million in 2017, $154 million in 2018, and $129 million in 2019. 80 CIGNA CORPORATION - 2014...

  • Page 113
    ... in an after-tax increase to shareholders' equity of $37 million. 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...

  • Page 114
    ... Connecticut General Life Insurance Company (''CGLIC'') and Life Insurance Company of North America, that are subsidiaries of the Company, as well as an additional $361 million invested directly in funds offered by the buyer of the retirement benefits business. 82 CIGNA CORPORATION - 2014 Form 10-K

  • Page 115
    ...at fair value: Fixed maturities: Federal government and agency Corporate Mortgage and other asset-backed Fund investments and pooled separate accounts(1) TOTAL FIXED MATURITIES Equity securities: Domestic International, including funds and pooled separate accounts TOTAL EQUITY SECURITIES Real estate...

  • Page 116
    ... date Assets sold during the period TOTAL ACTUAL RETURN ON PLAN ASSETS Purchases, sales, settlements, net Transfers into/out of Level 3 Balance at December 31, 2014 (In millions) Fixed Maturities & Equity Securities $ 44 - 7 7 25 (2) $ 74 Real Estate & Mortgage Loans $ 352 29 - 29 (42) - $ 339...

  • Page 117
    ...historical returns, expected long-term market conditions, plan asset mix and management's investment strategy, that continues a significant allocation to domestic and foreign equity securities as well as real estate, securities partnerships and hedge funds. Expected long-term market conditions take...

  • Page 118
    ... review. The Company also performs sample testing of sales values to confirm the accuracy of prior fair value estimates. Exceptions identified during these processes indicate that adjustments to prices are infrequent and do not significantly impact valuations. 86 CIGNA CORPORATION - 2014 Form...

  • Page 119
    ... (Level 3) December 31, 2014 (In millions) Total Financial assets at fair value: Fixed maturities: Federal government and agency State and local government Foreign government Corporate Mortgage-backed Other asset-backed Total fixed maturities(1) Equity securities Subtotal Short-term investments...

  • Page 120
    ... and equity securities are classified in Level 2 including most public and private corporate debt and equity securities, federal agency and municipal bonds, non-government mortgage-backed securities and preferred stocks. Because many fixed maturities do not trade daily, third-party pricing services...

  • Page 121
    ... fixed maturities Total fixed maturities Equity securities Subtotal Pricing exemption securities(1) Total Level 3 securities (1) The fair values for these securities use single, unadjusted non-binding broker quotes not developed directly by the Company. CIGNA CORPORATION - 2014 Form 10-K 89

  • Page 122
    ... by equity markets and interest rates, but are without significant life insurance risk and are settled in lump sum payments. Under the terms of these written and purchased contracts, the Company periodically receives and pays fees based on either contractholders' account values or deposits increased...

  • Page 123
    ...2014 Gains (losses) included in shareholders' net income: GMIB fair value gain/(loss) Other Total gains (losses) included in shareholders' net income Gains included in other comprehensive income Gains required to adjust future policy benefits for settlement annuities(1) Purchases, sales, settlements...

  • Page 124
    ... in Level 3 include investments primarily in securities partnerships, real estate and hedge funds generally valued based on the separate account's ownership share of the equity of the investee including changes in the fair values of its underlying investments. 92 CIGNA CORPORATION - 2014 Form 10...

  • Page 125
    ... 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's estimated current borrowing rate for debt of similar terms CIGNA CORPORATION - 2014 Form 10...

  • Page 126
    ...Federal government and agency State and local government Foreign government Corporate Mortgage-backed Other asset-backed TOTAL $ 15,273 $ $ $ 16,486 The above table includes investments with a fair value of $3.1 billion supporting liabilities of the Company's run-off settlement annuity business...

  • Page 127
    ...continuing throughout the investment holding period. Mortgage origination professionals employ an internal credit quality rating system designed to evaluate the relative risk of the transaction at origination that is then updated each year as part of the annual CIGNA CORPORATION - 2014 Form 10-K 95

  • Page 128
    ... loan review. The Company evaluates and monitors credit quality on an ongoing basis, classifying each loan as a loan in good standing, potential problem loan or problem loan. Quality ratings are based on our evaluation of a number of key inputs related to the loan, including real estate market...

  • Page 129
    ...the committed amounts in 2015. D. Short-Term Investments and Cash Equivalents Short-term investments and cash equivalents included corporate securities of $509 million, federal government securities of $274 million and money market funds of $33 million as of CIGNA CORPORATION - 2014 Form 10-K 97

  • Page 130
    ... rate risk of its long-term debt. The Company has written and purchased Guaranteed Minimum Income Benefit (GMIB) reinsurance contracts in its run-off reinsurance business that are accounted for as freestanding derivatives. The Company also used derivative financial instruments to manage the equity...

  • Page 131
    ... variable annuity account values compared with a contractually guaranteed amount (''GMIB liabilities''). According to the contractual terms of the written reinsurance contracts, payment by the Company depends on the actual account value in the underlying mutual funds and the level of interest rates...

  • Page 132
    ... the years ended December 31 exclude amounts required to adjust future policy benefits for the run-off settlement annuity business. (In millions) 2014 $ 14 13 (6) 133 154 48 $ 106 $ 2013 113 8 (3) 95 213 72 $ 141 $ $ 2012 48 4 (9) 1 44 13 31 Fixed maturities Equity securities Commercial mortgage...

  • Page 133
    ... are as follows (in millions): $22 in 2015, $22 in 2016, $11 in 2017, $4 in 2018, none in 2019 and the remainder in years after 2019. Interest expense on long-term and short-term debt was $265 million in 2014, $270 million in 2013, and $268 million in 2012. CIGNA CORPORATION - 2014 Form 10-K 101

  • Page 134
    ... without public announcement. We may also repurchase shares at times when we otherwise might be precluded from doing so under insider trading laws or because of self-imposed trading black-out periods by using a Rule 10b5-1 trading plan. In 2014, the Company repurchased 18.5 million shares for...

  • Page 135
    ... excludes amounts required to adjust future policy benefits for the run-off settlement annuity business and a portion of deferred acquisition costs associated with the corporate owned life insurance business. As required by GAAP, the Company parenthetically identifies the income statement line item...

  • Page 136
    ...Equity and Dividend Restrictions State insurance departments and foreign jurisdictions that regulate certain of the Company's subsidiaries prescribe accounting practices (differing in some respects from GAAP) to determine statutory net income and surplus. The Company's life insurance and HMO company...

  • Page 137
    ... 2014, statutory surplus for each of the Company's life insurance and HMO subsidiaries is sufficient to meet the minimum required by regulators. For one of the Company's foreign insurance subsidiaries, the regulatory authority has permitted deferral of certain policy acquisition costs that increased...

  • Page 138
    ... statute of limitations BALANCE AT DECEMBER 31, $ $ $ $ $ $ Unrecognized tax benefits increased $9 million in 2014 of which $6 million impacted shareholders' net income. The prior year decrease was primarily attributable to completion of an IRS examination. The Company classifies net...

  • Page 139
    ...26 Compensation cost Tax benefits The Company had the following number of common stock shares available for award at December 31: 10.3 million in 2014, 13.2 million in 2013 and 8.4 million in 2012. Stock options. The Company awards options to purchase the Company's common stock at the market price...

  • Page 140
    ... rate Expected option life 0.1% 35.0% 1.3% 4.3 years 2013 0.1% 40.0% 0.7% 4.5 years 2012 0.1% 40.0% 0.8% 4.5 years The expected volatility reflects the Company's past daily stock price volatility. The Company does not consider volatility implied in the market prices of traded options to be a good...

  • Page 141
    ... Disability and Life provides group long-term and short-term disability, group life, accident and specialty insurance products and related services. Other Operations consist of: • corporate-owned life insurance (''COLI''); CIGNA CORPORATION - 2014 Form 10-K 109 • run-off reinsurance business...

  • Page 142
    ... information for the years ended December 31, was as follows: (In millions) 2014 2013 2012 Global Health Care Premiums: Guaranteed cost Experience-rated Stop loss International health care Dental Medicare Medicaid Medicare Part D Other Total premiums Fees and other revenues Mail order pharmacy...

  • Page 143
    ...) 2014 $ 24,476 1,767 4,739 2,239 373 $ 33,594 $ $ 2013 22,933 1,616 4,322 1,827 305 31,003 $ $ 2012 20,973 1,413 3,680 1,623 242 27,931 Medical Disability Supplemental Health, Life, and Accident Mail order pharmacy Other TOTAL Foreign and U.S. revenues from external customers for the 3 years...

  • Page 144
    ... changes. If employers do not maintain the required levels of separate account assets, the Company or an affiliate of the buyer of the retirement benefits business (see Note 7 for additional information) has the right to redirect the management of the related assets to provide for benefit payments...

  • Page 145
    ... on the Company's business, results of operations and financial condition. In addition, there is heightened review by federal and state regulators of the health care, disability and life insurance industry business and related reporting practices. Cigna is frequently the subject of regulatory market...

  • Page 146
    ... an agreement with the Departments of Insurance for Maine, Massachusetts, Pennsylvania, Connecticut and California (together, the ''monitoring states'') related to an examination of the Company's long-term disability claims handling practices. The agreement requires, among other things: (1) enhanced...

  • Page 147
    ...exit the Run-off Reinsurance business, and an after-tax charge of $51 million related to the disability claims regulatory matter in the Group Disability and Life segment. (2) The second quarter of 2013 includes an after-tax charge of $24 million for the Pharmacy Benefits Manager (''PBM'') partnering...

  • Page 148
    ... Controls and Procedures procedures are effective to ensure 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. Based on...

  • Page 149
    ...Form 10-K. C. Code of Ethics and Other Corporate Governance Disclosures Cigna's Code of Ethics is the Company's code of business conduct and ethics, and applies to Cigna's directors, officers (including the Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer) and employees...

  • Page 150
    ...the close of business on December 31, 2014 for future issuance under the Cigna Long-Term Incentive Plan. The information under the captions ''Ownership of Cigna Common Stock - Stock held by Directors, Nominees and Executive Officers'' and ''Ownership of Cigna Common Stock - Largest Security Holders...

  • Page 151
    ...2014, 2013 and 2012. Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013 and 2012. Notes to the Consolidated Financial Statements. (2) The financial statement schedules are listed in the Index to Financial Statement Schedules on page FS-1. CIGNA CORPORATION - 2014 Form...

  • Page 152
    ...Executive Vice President and Chief Financial Officer (Principal Financial Officer) Vice President and Chief Accounting Officer (Principal Accounting Officer) Director Director Chairman of the Board Director Director Director Director Director Director Director 120 CIGNA CORPORATION - 2014 Form 10-K

  • Page 153
    ... Public Accounting Firm on Financial Statement Schedules ...FS-2 Schedules I - Summary of Investments - Other Than Investments in Related Parties as of December 31, 2014 ...FS-3 II - Condensed Financial Information of Cigna Corporation (Registrant) ...FS-4 III - Supplementary Insurance Information...

  • Page 154
    ...ITEM 15. Report of Independent Registered Public Accounting Firm on Financial Statement Schedules 5MAY201113444704 Report of Independent Registered Public Accounting Firm on Financial Statement Schedules To the Board of Directors and Shareholders of Cigna Corporation Our audits of the consolidated...

  • Page 155
    ... Schedule I - Summary of Investments - Other Than Investments in Related Parties December 31, 2014 Type of Investment (In millions) Cost Fair Value Amount at which shown in the Consolidated Balance Sheet Fixed maturities: Bonds: United States government and government agencies and authorities...

  • Page 156
    ... interest Other TOTAL OPERATING EXPENSES Loss before income taxes Income tax benefit Loss of parent company Equity in income of subsidiaries SHAREHOLDERS' NET INCOME Shareholders' other comprehensive income (loss): Net unrealized appreciation (depreciation) on securities Net unrealized appreciation...

  • Page 157
    ... Investments in subsidiaries Intercompany Other assets TOTAL ASSETS LIABILITIES: Intercompany Short-term debt Long-term debt Other liabilities TOTAL LIABILITIES SHAREHOLDERS' EQUITY: Common stock (shares issued, 296; authorized, 600) Additional paid-in capital Accumulated other comprehensive loss...

  • Page 158
    ...and Financial Statement Schedules Cigna Corporation and Subsidiaries Schedule II - Condensed Financial Information of Cigna Corporation (Registrant) Statements of Cash Flows (In millions) For the years ended December 31, 2014 2013 $ 2,102 $ 1,476 $ 2012 1,623 Cash Flows from Operating Activities...

  • Page 159
    ... notes thereto contained in this Form 10-K. Note 1 - For purposes of these condensed financial statements, Cigna Corporation's (the ''Company'') wholly-owned and majority-owned subsidiaries are recorded using the equity basis of accounting. Note 2 - Short-term and long-term debt consisted of the...

  • Page 160
    ...of credit required by the insurer 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...

  • Page 161
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  • Page 162
    ...$ Medical claims payable and unpaid claims $ 2,180 339 3,844 222 (5) 6,580 2,050 305 3,739 260 (6) 6,348 1,856 306 3,482 295 (21) 5,918 $ $ (In millions) Segment Year Ended December 31, 2014: Global Health Care Global Supplemental Benefits Group Disability and Life Other Operations Corporate TOTAL...

  • Page 163
    ..., 2014 Global Health Care Global Supplemental Benefits Group Disability and Life Other Operations Corporate TOTAL Year Ended December 31, 2013: Global Health Care Global Supplemental Benefits Group Disability and Life Other Operations Corporate TOTAL Year Ended December 31, 2012: Global Health Care...

  • Page 164
    ...TOTAL Year Ended December 31, 2013: Life insurance in force Premiums: Life insurance and annuities Accident and health insurance TOTAL Year Ended December 31, 2012: Life insurance in force Premiums: Life insurance and annuities Accident and health insurance TOTAL FS-11 CIGNA CORPORATION - 2014 Form...

  • Page 165
    ... 49 4 8 43 49 4 7 51 42 4 (1) Amounts for commercial mortgage loans primarily reflect charge-offs upon sales and repayments, as well as transfers to foreclosed real estate. 2012 amount also includes restructures reclassified to Other Long-term Investments. CIGNA CORPORATION - 2014 Form 10-K FS-12

  • Page 166
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  • Page 167
    ...10.4 Cigna Restricted Share Equivalent Plan for Non-Employee Directors Filed as Exhibit 10.4 to the registrant's Form 10-K for the year as amended and restated effective January 1, 2008 ended December 31, 2012 and incorporated herein by reference. 10.5 Cigna Corporation Director Equity Plan Filed as...

  • Page 168
    ... the Surety Policy and the ALC Model Purchase Option Agreement as exhibits) Computation of Ratios of Earnings to Fixed Charges Subsidiaries of the Registrant Consent of Independent Registered Public Accounting Firm Certification of Chief Executive Officer of Cigna Corporation pursuant to Rule 13a-14...

  • Page 169
    ... Certification 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 The following materials from Cigna Corporation's Annual Report on Form 10-K for the year ended December 31, 2014, formatted in XBRL (Extensible Business Reporting...

  • Page 170
    ... IV ITEM 15. Exhibits and Financial Statement Schedules EXHIBIT 12 Cigna Corporation - Computation of Ratio of Earnings to Fixed Charges (Dollars in millions) Year Ended December 31, Income before income taxes Adjustments: Income from equity investee (Income) loss attributable to noncontrolling...

  • Page 171
    ...significant subsidiary'' of Cigna Corporation, as that term is defined in Rule 1-02(w) of Regulation S-X. Entity Name Allegiance Life & Health Insurance Company, Inc. Allegiance Re, Inc. American Retirement Life Insurance Company Benefits Management Corp. Bravo Health Mid-Atlantic, Inc. Bravo Health...

  • Page 172
    ... Company Limited Cigna Worldwide Insurance Company Cigna Worldwide Life Insurance Company Limited Connecticut General Corporation Connecticut General Life Insurance Company FirstAssist Administration Limited FirstAssist Group Holdings Limited FirstAssist Group Limited FirstAssist Legal Protection...

  • Page 173
    ...of New York, Inc. NewQuest, LLC Provident American Life and Health Insurance Company PT Asuransi Cigna RHP (Thailand) Limited Tel Drug, Inc. Tel Drug of Pennsylvania, LLC Temple Insurance Company Limited United Benefit Life Insurance Company Vanbreda International LLC Vanbreda International SDN. BHD...

  • Page 174
    ...26, 2015 and No. 033-51791) of Cigna Corporation of our reports dated February 26, 2015 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-8 CIGNA CORPORATION - 2014 Form 10-K

  • Page 175
    ...'s 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) b) CIGNA CORPORATION - 2014 Form 10-K E-9

  • Page 176
    ...'s 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) b) E-10 CIGNA CORPORATION - 2014 Form 10-K

  • Page 177
    ... Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Cigna Corporation. /s/ David M. Cordani David M. Cordani Chief Executive Officer February 26, 2015 CIGNA CORPORATION - 2014 Form 10-K E-11

  • Page 178
    ...Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Cigna Corporation. /s/ Thomas A. McCarthy Thomas A. McCarthy Chief Financial Officer February 26, 2015 E-12 CIGNA CORPORATION - 2014 Form 10-K

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  • Page 181
    ... include Cigna Health and Life Insurance Company, Connecticut General Life Insurance Company, Life Insurance Company of North America, Cigna Life Insurance Company of New York, Cigna Behavioral Health, Inc., and HMO or service company subsidiaries of Cigna Health Corporation and Cigna Dental Health...

  • Page 182
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