Cigna 2013 Annual Report Download - page 46

PART I
ITEM 1. Business
subsidiaries, were compliant with applicable RBC and non-U.S.
Regulation of Insurance Companies
surplus rules.
Financial Reporting and Internal Control
In September 2012, the National Association of Insurance
Commissioners adopted the Risk Management and Own Risk and
Regulators closely monitor the financial condition of licensed
Solvency Assessment Model Act. The Act provides requirements and
insurance companies and HMOs. States regulate the form and
principles for maintaining a group solvency assessment and a risk
content of statutory financial statements, the type and concentration
management framework and reflects a broader and more prospective
of permitted investments, and corporate governance over financial
approach to U.S. insurance regulation. The Act, which includes a
reporting. Our insurance and HMO subsidiaries are required to file
requirement to file an annual ORSA Summary Report in the lead
periodic financial reports and schedules with regulators in most of the
state of domicile, now must be adopted into law by each state. Our
jurisdictions in which they do business as well as annual financial
insurance business in the U.S. will be subject to the requirements that
statements audited by independent registered public accountants.
are expected to become effective in 2015. We will be prepared to file
Certain insurance and HMO subsidiaries are required to file an
an ORSA Summary Report with our lead state regulator consistent
annual report of internal control over financial reporting with most
with the requirements.
jurisdictions in which they do business. Insurance and HMO
subsidiaries’ operations and accounts are subject to examination by
such agencies. We expect states to expand the scope of regulations
Holding Company Laws
relating to corporate governance and internal control activities of its
insurance and HMO subsidiaries as a result of the National Our domestic insurance companies and certain of our HMOs are
Association of Insurance Commissioners’ (‘‘NAIC’’) amendment to subject to state laws regulating subsidiaries of insurance holding
the Annual Financial Reporting Model Regulation to adopt elements companies. Under such laws, certain dividends, distributions and
of corporate governance and internal control requirements similar to other transactions between an insurance or HMO subsidiary and its
those under federal securities’ laws. affiliates may require notification to, or approval by, one or more state
insurance commissioners.
Guaranty Associations, Indemnity Funds, Risk Pools In December 2010, the NAIC adopted revisions to the Model
Insurance Holding Company System Regulatory Act and Regulation.
and Administrative Funds
The revisions were designed to allow a better understanding of the
Most states and certain non-U.S. jurisdictions require insurance risks and activities of non-insurance entities within a holding
companies to support guaranty associations or indemnity funds that company system. The main focus of the revisions has been to
are established to pay claims on behalf of insolvent insurance incorporate the concept of ‘‘enterprise risk’’ and to enact provisions
companies. In the United States, these associations levy assessments designed to provide regulators with additional information and
on member insurers licensed in a particular state to pay such claims. authority to manage this new concept. To date, approximately 20
states have taken action to adopt the amended Model Act and
Several states also require HMOs to participate in guaranty funds, Regulation. We continue to follow the states’ activity in this area and
special risk pools and administrative funds. For additional will amend its processes as necessary to comply with revised state laws.
information about guaranty fund and other assessments, see Note 23
to our Consolidated Financial Statements.
Some states also require health insurers and HMOs to participate in
Marketing, Advertising and Products
assigned risk plans, joint underwriting authorities, pools or other In most states, our insurance companies and HMO subsidiaries are
residual market mechanisms to cover risks not acceptable under required to certify compliance with applicable advertising regulations
normal underwriting standards. on an annual basis. Our insurance companies and HMO subsidiaries
are also required in most states to file and secure regulatory approval of
products prior to the marketing, advertising, and sale of such
Solvency and Capital Requirements
products. State and/or federal regulatory scrutiny of life and health
Many states have adopted some form of the NAIC model solvency- insurance company and HMO marketing and advertising practices,
related laws and risk-based capital rules (‘‘RBC rules’’) for life and including the adequacy of disclosure regarding products and their
health insurance companies. The RBC rules recommend a minimum administration, may result in increased regulation.
level of capital depending on the types and quality of investments
held, the types of business written and the types of liabilities incurred.
Licensing Requirements
If the ratio of the insurer’s adjusted surplus to its risk-based capital falls
below statutory required minimums, the insurer could be subject to
Pharmacy Licensure Laws
regulatory actions ranging from increased scrutiny to conservatorship.
Certain of our subsidiaries are pharmacies that dispense prescription
In addition, various non-U.S. jurisdictions prescribe minimum drugs to participants of benefit plans administered or insured by
surplus requirements that are based upon solvency, liquidity and Cigna’s HMO and insurance company subsidiaries. These pharmacy-
reserve coverage measures. During 2013, our HMOs and life and subsidiaries are subject to state licensing requirements and regulation
health insurance subsidiaries, as well as non-U.S. insurance as well as U.S. Drug Enforcement Agency registration requirements.
14 CIGNA CORPORATION - 2013 Form 10-K