Cigna 2014 Annual Report Download - page 57

PART I
ITEM 1A. Risk Factors
underwriting criteria, provider contracting, utilization management industry. We believe that the claims paying ability and financial
and product design. strength ratings of our principal insurance subsidiaries are important
factors in marketing our products to certain customers. Our debt
We record medical claims reserves on our balance sheet for estimated ratings impact both the cost and availability of future borrowings, and
future payments. While we continually review estimates of future accordingly, our cost of capital. Each of the rating agencies reviews
payments relating to medical claims costs for services incurred in the ratings periodically and there can be no assurance that current ratings
current and prior periods and make adjustments to our reserves, the will be maintained in the future. A downgrade of these ratings in the
actual health care costs may exceed the reserves we have recorded. future could make it more difficult to either market our products
successfully or raise capital to support business growth within our
Significant stock market or interest rate declines
insurance subsidiaries.
could result in additional unfunded pension
obligations, resulting in the need for additional plan Global market, economic and geopolitical conditions
funding by us and increased pension expenses. may cause fluctuations in equity market prices,
interest rates and credit spreads that could impact
We currently have unfunded obligations in our frozen pension plans.
our ability to raise or deploy capital and affect our
A significant decline in the value of the plans’ equity and fixed income
investments or unfavorable changes in applicable laws or regulations
overall liquidity.
could materially increase our expenses and change the timing and If the equity and credit markets experience extreme volatility and
amount of required plan funding. This could reduce the cash available disruption, there could be downward pressure on stock prices and
to us, including our subsidiaries. We also are exposed to interest rate credit capacity for certain issuers without regard to those issuers’
and equity risk associated with our pension and other post-retirement underlying financial strength. Extreme disruption in the credit
obligations. Sustained declines in interest rates could have an adverse markets could adversely impact our availability and cost of credit in
impact on the funded status of our pension plans and our the future. In addition, unpredictable or unstable market conditions
reinvestment yield on new investments. See Note 9 to our or continued pressure in the global or U.S. economy could result in
Consolidated Financial Statements for more information on our reduced opportunities to find suitable opportunities to raise capital.
obligations under the pension plan.
As of December 31, 2014, our outstanding long-term debt totaled
$5.0 billion. In the event of adverse economic and industry
Significant changes in market interest rates affect the
conditions, we may be required to dedicate a greater percentage of our
value of our financial instruments that promise a
cash flow from operations to the payment of principal and interest on
fixed return or benefit and the value of particular
our debt, thereby reducing the funds we have available for other
assets and liabilities.
purposes, such as investments in ongoing businesses, acquisitions,
As an insurer, we have substantial investment assets that support dividends and stock repurchases. In these circumstances, our ability to
insurance and contractholder deposit liabilities. Generally low levels execute our strategy may be limited, our flexibility in planning for or
of interest rates on investments, such as those experienced in U.S. and reacting to changes in business and market conditions may be
foreign financial markets during recent years, have negatively reduced, or our access to capital markets may be limited such that
impacted our level of investment income earned in recent periods. additional capital may not be available or may be available only on
unfavorable terms.
Substantially all of our investment assets are in fixed interest-yielding
debt securities of varying maturities, fixed redeemable preferred
Unfavorable developments in economic conditions
securities and commercial mortgage loans. The value of these
may adversely affect our business, results of
investment assets can fluctuate significantly with changes in market
operations and financial condition.
conditions. A rise in interest rates would likely reduce the value of our
investment portfolio and increase interest expense if we were to access Global economic conditions continue to be challenging. Many
our available lines of credit. factors, including geopolitical issues, confidence in any economic
recoveries and any future economic downturns, availability and cost of
A downgrade in the financial strength ratings of our
credit and other capital and consumer spending, can negatively
insurance subsidiaries could adversely affect new sales
impact expectations for the U.S. and global economies. Our results of
and retention of current business, and a downgrade
operations could be materially and adversely affected by the impact of
unfavorable economic conditions on our customers (both employers
in our debt ratings would increase the cost of
and individuals), health care providers and third-party vendors. For
borrowed funds and negatively affect our ability to
example:
access capital.
Employers may take action to reduce their operating costs by
Financial strength, claims paying ability and debt ratings by modifying, delaying or canceling plans to purchase our products or
recognized rating organizations are each important factors in making changes in the mix of products purchased that are
establishing the competitive position of insurance and health benefits unfavorable to us.
companies. Ratings information by nationally recognized ratings
agencies is broadly disseminated and generally used throughout the
CIGNA CORPORATION - 2014 Form 10-K 25
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