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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

ci-20201231_g1.jpg
FORM10-K

(Mark One)

þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year endedDecember 31, 2020
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to

______________

Commission file number001-38769

LOGO

CIGNA CORPORATION

Cigna Corporation
(Exact name of registrant as specified in its charter)

Delaware82-4991898
Delaware82-4991898
(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)
(860) 226-6000
Registrant'sRegistrant’s telephone number, including area code
(860) 226-6741 or 215-761-5511
Registrant's facsimile number, including area code

​ ​​ ​​ ​​ ​​
Securities registered pursuant to Section 12(b) of the Act:
​  SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:​
​ ​​ ​​ ​​ ​​
Title of each classTrading Symbol(s)Name of each exchange on which registered
​​​ ​​ ​​ ​​
Common Stock, Par Value $0.01CINew York Stock Exchange, Inc.

​​​ ​​ ​​ ​​
Securities registered pursuant to Section 12(g) of the Act:









​ ​​ ​​ ​​ ​​
​  SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:​
​ ​​ ​​ ​​ ​​
NONE
​ ​​ ​​ ​​ ​​


​ ​​ ​​​​ ​​ ​​ ​​
​  Indicate by check markYes​Yes​No​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

•

if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

☒þo☐
​ ​​ ​​​​ ​​ ​​ ​​

•

if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act

☐oþ☒
​ ​​ ​​​​ ​​ ​​ ​​

•

whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days

☒þo☐
​ ​​ ​​​​ ​​ ​​ ​​

•

whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files)

☒þo
☐

​ ​​ ​​​​ ​​ ​​ ​​

•

if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K

o
​ ​​ ​​​​ ​​ ​​ ​​

•

whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of "large“large accelerated filer," "accelerated” “accelerated filer, " "smaller” “smaller reporting company"company” and "emerging“emerging growth company"company” in Rule 12b-2 of the Exchange Act.

​ ​​​​ ​​ ​​ ​​ ​​
Large accelerated filerþ☒Accelerated filero☐Non-accelerated filero☐
Smaller reporting companyo☐
​​​ ​​ ​​​​ ​​ ​​​​ ​​
Emerging growth companyo☐
​​​ ​​ ​​​​ ​​ ​​​​ ​​

•

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

☐o
​
•whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report
​☒​ ​​​​ ​​ ​​ ​​

•

whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

☐oþ
​ ​​ ​​​​ ​​ ​​ ​​ ☒

The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 30, 20182020 was approximately $41.2$68.9 billion.
As of January 31, 2019, 380,058,9672021,351,845,606 shares of the registrant'sregistrant’s Common Stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Part III of this Form 10-K incorporates by reference information from the registrant'sregistrant’s definitive proxy statement related to the 20192021 annual meeting of shareholders.

Table of Contents

FREQUENTLY REQUESTED 10-K INFORMATION



TABLE OF CONTENTS

Page

Risk Factors

26

Executive Overview

42
FREQUENTLY REQUESTED 10-K INFORMATION

Health Care Industry Developments

47Page
Risk Factors
34

Executive Overview
53
Industry Developments and Other Matters
58
Liquidity and Capital Resources

4860

Critical Accounting Estimates

5265

Segment Information

126138

Revenues by Product Type

128
142

Page
1
Overview
1
Evernorth
3
U.S. Medical
10
International Markets
15
Group Disability and Other
17
Data, Analytics and Technology
19
Investment Management
20
Human Capital Management
21
Miscellaneous
22
Regulation
22
34
48
48
48
48
49







Page
CAUTIONARY STATEMENT


Business

.Overview1
.Integrated Medical3
.Health Services8
.International Markets13
.Group Disability and Other15
.Investment Management18
.Regulation18
.Miscellaneous25
Item 1A.Risk Factors26
Item 1B.Unresolved Staff Comments37
Item 2.Properties37
Item 3.Legal Proceedings37
EXECUTIVE OFFICERS OF THE REGISTRANT38

PART II


Item 5.


3950
Selected Financial Data41
Item 7.
4252
6476
6577
130143
130143
130143




Page
PART III



131144
A.Directors of the Registrant131
B.Executive Officers of the Registrant131
C.Code of Ethics and Other Corporate Governance Disclosures131
D. Delinquent Section 16(a) Beneficial Ownership Reporting ComplianceReports131
131144
132145
132145
132145

PART IV




133146



138155
139156
FS-FS-11
EXHIBITSExhibitsE-1

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS


CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on Cigna'sCigna’s current expectations and projections about future trends, events and uncertainties. These statements are not historical facts. Forward-looking statements may include, among others, statements concerning future financial or operating performance, including our ability to deliver affordable, personalized and innovative solutions for our customers and clients;clients, including in light of the challenges presented by the COVID-19 pandemic; future growth, business strategy, strategic or operational initiatives; economic, regulatory or competitive environments, particularly with respect to the pace and extent of change in these areas; financing or capital deployment plans and amounts available for future deployment; our prospects for growth in the coming years; the merger ("Merger") with Express Scripts Holding Company;strategic transactions; and other statements regarding Cigna'sCigna’s future beliefs, expectations, plans, intentions, liquidity, cash flows, financial condition or performance. You may identify forward-looking statements by the use of words such as "believe," "expect," "plan," "intend," "anticipate," "estimate," "predict," "potential," "may," "should," "will"“believe,” “expect,” “plan,” “intend,” “anticipate,” “estimate,” “predict,” “potential,” “may,” “should,” “will” or other words or expressions of similar meaning, although not all forward-looking statements contain such terms.

Forward-looking statements are subject to risks and uncertainties, both known and unknown, that could cause actual results to differ materially from those expressed or implied in forward-looking statements. Such risks and uncertainties include, but are not limited to: our ability to achieve our financial, strategic and operational plans or initiatives; our ability to predict and manage medical and pharmacy costs and price effectively; our ability to adapt to changes or trends in an evolving and rapidly changing industry; the scale, scope and duration of the COVID-19 pandemic and its potential impact on our business, operating results, cash flows or financial condition, our ability to compete effectively, differentiate our products and services from those of our competitors and maintain or increase market share; price competition and other pressures that could compress our margins or result in premiums that are insufficient to cover the cost of services delivered to our customers; the potential for actual claims to exceed our estimates related to expected medical claims; our ability to develop and maintain goodsatisfactory relationships with physicians, hospitals, other health careservice providers and with producers and consultants; our ability to maintain relationships with one or more key pharmaceutical manufacturers;manufacturers or if payments made or discounts provided decline; changes in the pharmacy provider marketplace or pharmacy networks; changes in drug pricing;pricing or industry pricing benchmarks; political, legal, operational, regulatory, economic and other risks that could affect our multinational operations; risks related to strategic transactions and realization of the impactexpected benefits of modificationssuch transactions, as well as integration difficulties or underperformance relative to expectations; dependence on success of relationships with third parties; risk of significant disruption within our operations and processes;or among key suppliers or third parties; our ability to identify potential strategic acquisitions or transactionsinvest in and realize the expected benefits (including anticipated synergies) of such transactions in full or within the anticipated time frame, including with respect to the Merger, as well asproperly maintain our information technology and other business systems; our ability to integrate operations, resourcesprevent or contain effects of a potential cyberattack or other privacy or data security incident; potential liability in connection with managing medical practices and systems;operating pharmacies, onsite clinics and other types of medical facilities; the substantial level of government regulation over our business and the potential effects of new laws or regulations or changes in existing laws or regulations; the outcome of litigation, regulatory audits, investigations, actions and/or guaranty fund assessments; uncertainties surrounding participation in government-sponsored programs such as Medicare; the effectivenessoutcome of litigation, regulatory audits, investigations; compliance with applicable privacy, security and securitydata laws, regulations and standards; potential failure of our information technologyprevention, detection and other businesscontrol systems; unfavorable economic and market conditions, stock market or interest rate declines, risks related to a downgrade in financial strength ratings of our insurance subsidiaries; the impact of our debt service obligations onsignificant indebtedness and the availability to fundspotential for other business purposes;further indebtedness in the future; unfavorable industry, economic or political conditions, including foreign currency movements; acts of war, terrorism, natural disasters or pandemics;conditions; credit risk related to our reinsurers; as well as more specific risks and uncertainties discussed in Part I, Item 1A—1A – Risk Factors and Part II, Item 7—Management's7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Form 10-K and as described from time to time in our future reports filed with the Securities and Exchange Commission (the "SEC"“SEC”).

You should not place undue reliance on forward-looking statements, thatwhich speak only as of the date they are made, are not guarantees of future performance or results, and are subject to risks, uncertainties and assumptions that are difficult to predict or quantify. Cigna undertakes no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as may be required by law.


Table of Contents


PART I
ITEM 1. Business


PART I

ITEM 1. Business

Item 1. BUSINESS

OVERVIEW

Overview

Cigna Corporation, together with its subsidiaries (either individually or collectively referred to as "Cigna,"“Cigna,” the "Company," "we," "our"“Company,” “we,” “our” or "us"“us”) is a global health service organization.

GRAPHIC

Our revenues are derived principally from premiums on insured products, fees for products

Our Purpose and Mission
To improve the health, well-being and peace of mind of those we serve
Our Strategy
Champions for affordable, predictable, and simple health care
Making it affordable:We build on our leading, differentiated position to lower the total cost of care.
Making it predictable:We take the surprise out of the system and help people make informed health care choices.
Making it simple:We make it easier for the people we serve to get the care they need.
Cigna is a global health services provided to self-insured plans, pharmacy sales, and investment income. In 2018, our revenues were $48.7 billion and shareholders' net income was $2.6 billion. As described more fully in Note 3 to the Consolidated Financial Statements on page 80 of this Annual Report on Form 10-K ("Form 10-K"), on March 8, 2018, we entered into a merger agreement with Express Scripts Holding Company ("Express Scripts"). The results of Express Scripts have been included in the Company's Consolidated Financial Statements from the date of acquisition. As of December 31, 2018, total assets were $153.2 billion and shareholders' equity was $41.0 billion.

Our combination with Express Scripts creates an enterprisecompany uniquely capable of transformingdriving affordable, predictable, and simple health care. We now have broadercare, with expansive and deeperdeep capabilities along with meaningful synergies, that accelerate our "Go" strategy to achieve our mission of improving the health, well-being and peace of mind of those we serve. Cigna'smind. Cigna’s employees are champions offor the people we serve and over the past decade, our focus has shifted to helping peopleindividuals and families thrive by offering solutions to prevent and better manage health challenges. When sickness or disability do occur, we support our customers' ability to havecustomers by offering broad choices in how theyto help them best access high quality, affordable, whole person care. We see three primary ways to help individuals maintain, improve or recover their physical or mental health: 1) behavioral and lifestyle changes – with more than 1,000 health coaches helping individuals set and meet health goals; 2) affordable, effective medication options – with access to our leading pharmacy services improving health and driving affordability; and 3) targeted medical and surgical interventions – with a clear and proven strategy around partnerships and value-based care quality programs, powered by data and analytics and aligned incentives. We maximize use of evidence-based care,

​​​CIGNA CORPORATION - 2018 Form10-K    1

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PART I
ITEM 1. Business

while delivering best-in-class quality of careservice for our customers with acute and chronic conditions through enhanced real time datareal-time insights across an expanded platform with industry-leading solutions to support care decisions.

Cigna offers

Our portfolio of offerings solves diverse challenges across the health care system. We offer a differentiated set of pharmacy, medical, pharmacy, behavioral, dental disability, life and accident insurance and relatedsupplemental products and services. By combining with Express Scripts, Cigna's expandedservices, primarily through two brands: Cigna and Evernorth. Our capabilities now include: 1) a broaderbroad portfolio of specialtysolutions and services, some of which can be offered on a stand-alone basis; 2) integrated behavioral, medical and pharmacy management services;solutions; 3) leading specialty pharmacy, clinical and care management expertise; and 4) advanced analytics that help us engage more meaningfully with individuals, plan sponsors we serve and our provider partners. These capabilities accelerate Cigna's ability to drive improved cost affordability, quality of care and predictability.

Following entry into the merger agreement and throughout the pendency of the transaction, Cigna and Express Scripts designed integration plans to implement a new management and business reporting structure for the combined company upon closing. On December 20, 2018, Cigna completed the acquisition of Express Scripts. As a result, effective in the fourth quarter of 2018 our segments have changed to the following: 1) Integrated Medical, consisting of both a Commercial operating segment that includes our employer-sponsored medical coverage and a Government operating segment that includes Medicare offerings for seniors and individual insurance offerings to non-seniors both on and off the public health insurance exchanges; 2) Health Services, consisting primarily of Cigna's legacy home delivery pharmacy business and Express Scripts' pharmacy benefit management ("PBM") business beginning December 21, 2018; and 3) International Markets, that offers global supplemental benefits and global medical solutions. The remainder of our business is reported in Group Disability and Other, consisting of our group disability and life business together with our corporate owned life insurance ("COLI") business and run-off operations. See Note 1 to the Consolidated Financial Statements on page 72 of this Form 10-K for additional description of our segments. Among our segments, Cigna has four core growth platforms: Commercial, Government, Health Services and International Markets.

As individuals become increasingly involved in their health care purchasing decisions, Cigna continues to focus on deliveringaffordable andpersonalized products and services to customers through employer-based, government-sponsored, health plan client and individual coverage arrangements. In our Integrated Medical business, we collaborate with health care providers to accelerate the transition from volume-based, fee-for-service reimbursement arrangements to a value-based reimbursement model that delivers higher quality of care, lower costs and better health outcomes.

We have worked toward achieving better health, affordability, localization and an improved patient experience through increased collaborative care and delivery arrangements with health care providers across the care delivery spectrum, including physician groups of all sizes, specialist groups and hospitals. We have also developed innovative tools and flexible provider arrangements that provide a truly personalized customer experience. These arrangements and tools are discussed in more detail in the "Integrated Medical" section of this Form 10-K that begins on page 3.

Our Health Services business putsput medicine within reach for patients, and helpshelp providers improve access to prescription drugs, by making them more affordable.

We improve patient outcomes and better manage the cost of the pharmacy benefit by:

•
Delivering the best care available for those taking prescription medicines;

•
Assessing drugs based on efficacy, value and price to assist clients in selecting the most cost-effective formulary;

•
Offering cost-effective home delivery pharmacy and specialty services that result in cost savings for plan sponsors and better care for customers;

•
Leveraging purchasing volume to deliver discounts to employers and other groups, resulting in leading prescription drug cost trend; and

•
Promoting the use of generic and lower-cost brands.

We also work with key stakeholders across the health care system to improve health outcomes and patient satisfaction, increase efficiency in drug distribution and manage costs of the pharmacy benefit. We believe plan sponsors

In 2020 Cigna launched Evernorth, a new health services platform, and participants can achieverenamed the bestHealth Services segment as Evernorth, accordingly. Evernorth brings together our array of health services capabilities, as well as those from partners across the health care system in pharmacy solutions, benefits management solutions, care solutions and financial outcomes when they use our comprehensive setintelligence solutions. Innovative products include: Healthy Ways to WorkSM, a broad suite of solutions to manage drug spend.

help health plans and employers move forward by addressing unique challenges resulting from the COVID-19 pandemic; FamilyPathSM, a comprehensive fertility solution to reduce avoidable costs, provide holistic care coordination and deliver more flexible options for individuals; and inMyndSM, a solution that helps clients and customers better recognize, treat and support mental health conditions.
1

The ACA and Health Care Reform

The Patient Protection and Affordable Care Act andWe present the Health Care and Education Reconciliation Act (collectively referred to throughoutfinancial results of our businesses in the following segments (see "Executive Overview" section of the MD&A located in Part II, Item 7 of this Form 10-K for a Financial Summary):

Evernorth includes a broad range of coordinated and point solution health services, including pharmacy solutions, benefits management solutions, care solutions and intelligence solutions, which are provided to health plans, employers, government organizations and health care providers.
U.S. Medical includes Cigna’s U.S. Commercial and U.S. Government businesses that provide comprehensive medical and coordinated solutions to clients and customers. U.S. Commercial products and services include medical, pharmacy, behavioral health, dental, vision, health advocacy programs and other products and services for insured and self-insured customers. U.S. Government solutions include Medicare Advantage, Medicare Supplement, and Medicare Part D plans for seniors, Medicaid plans, and individual health insurance plans both on and off the public exchanges.
International Markets includes supplemental health, life and accident insurance products and health care coverage in our international markets as well as health care benefits to globally mobile employees of multinational organizations.
Group Disability and Other contains the "ACA" or "PPACA") continues to have a significant impact onremainder of our business operations. The futureoperations, consisting of the ACA is uncertain duefollowing:
•Group Disability and Life provides group long-term and short-term disability, group life, accident, voluntary and specialty insurance products and related services. The sale of this business to recent court decisions, congressional effortsNew York Life was completed on December 31, 2020. The transaction with New York Life included the sale of our businesses offering group long-term and short-term disability, group life, accident, and specialty insurance products and related services. Our business that offers group voluntary products and services was not sold to repealNew York Life and replace the ACA, various executive actionsresults of the current administration, and repeal of the individual mandate as part of H.R.1, An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018 (referred to throughout this Form 10-K as the "Tax Cuts and Jobs Act" or "U.S. tax reform legislation"). The effects of the ACA, and efforts to repeal and replace it, are discussed throughout this Form 10-K where appropriate, includingbusiness will be reported in the IntegratedU.S. Medical business description, Regulation, Risk Factors, Management's Discussion and Analysissegment beginning in the first quarter of Financial Condition and Results of Operations ("MD&A"), and the Notes2021. See Note 5 to the Consolidated Financial Statements.

Statements and Liquidity section of the MD&A for additional information on the impacts of this sale on our results of operations, liquidity and financial position.

Other Information

•Corporate-Owned Life Insurance (“COLI”) offers permanent insurance contracts sold to corporations to provide coverage on the lives of certain employees for financing employer-paid future benefit obligations.

•Run-off businesses:
•Reinsurance: predominantly comprised of guaranteed minimum death benefit (“GMDB”) and guaranteed minimum income benefit (“GMIB”) business effectively exited through reinsurance with Berkshire Hathaway Life Insurance Company of Nebraska (“Berkshire”) in 2013.
•Settlement Annuity business in run-off.
•Individual Life Insurance and Annuity and Retirement Benefits Businesses: comprised of deferred gains from the sales of these businesses.
In 2020, our business was impacted by the emergence and unprecedented global spread of the novel strain of coronavirus ("COVID-19"). COVID-19 was declared a pandemic by the World Health Organization in March 2020 because the virus had surfaced in nearly all regions around the world. The COVID-19 pandemic has pervasively impacted the economy, financial markets and the global health care delivery systems. Cigna’s COVID-19 response actions focused on customer care, employee care and safety, as well as support for the medical community and execution of business continuity plans over our operations. COVID-19 continues to spread and we are actively managing our response and assessing impacts to our financial position and operating results, as well as adverse developments in our business. While it is difficult to predict the impact of the COVID-19 pandemic on our results beyond 2020, we believe that such results may be impacted by, among other things, higher medical costs to treat those affected by the virus, lower customer volumes due to rising unemployment, lower future risk adjustment revenue due to disrupted care impeding appropriate documentation of customer risk profiles in our Medicare Advantage business, the return of costs for those who had previously deferred care, vaccine costs, continued cost share waivers, the potential for continued deferral of care, or lower investment returns. Additionally, in response to the pandemic, U.S. federal and state governments have enacted new regulatory requirements as discussed in the "Business - Regulation" section of this Form 10-K.
Other Information
The financial information included in this Form 10-K for the fiscal year ended December 31, 20182020 is in conformity with accounting principles generally accepted in the United States of America ("GAAP"(“GAAP”) unless otherwise indicated. In the segment discussions that follow, we use the terms "adjusted revenues"“adjusted revenues” and "pre-tax“pre-tax adjusted income from operations"operations” to describe segment results. See the introduction to the MD&A on page 42Management Discussion and Analysis section of this Form 10-K for definitions of those terms. Industry rankings and percentages set forth herein are for the year ended December 31, 20182020 unless otherwise indicated. In addition, statements set forth in this document concerning our rank or position in an industry or particular line of business have been developed internally based on publicly available information unless otherwise noted.

2

Cigna Holding Company (formerly Cigna Corporation) was incorporated in Delaware in 1981. Halfmoon Parent, Inc. was incorporated in Delaware in March 2018. Halfmoon Parent, Inc. was renamed Cigna Corporation concurrentlyand Cigna Holding Company became its subsidiary concurrent with the consummation of the combination with Express Scripts. OurScripts on December 20, 2018.
You can access our website at http://www.cigna.com to learn more about our company. We make annual, quarterly and current reports and proxy statements and other filings, and any amendments to these filings, are madethose reports available, free of charge onthrough our website (http://www.cigna.com, under the "Investors – “Investors—Quarterly Reports and SEC Filings"Filings” captions) as soon as

​2    CIGNA CORPORATION - 2018 Form10-K​​

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PART I
ITEM 1. Business

reasonably practicable after we electronically file these materials with, or furnish them to, the Securities and Exchange Commission (the "SEC"(“SEC”). We also use our website as a channelmeans of distributiondisclosing material information and for material company information.complying with our disclosure obligations under the SEC’s Regulation FD (Fair Disclosure). Important information, including news releases, analyst presentations and financial information regarding Cigna is routinely posted on and accessible at http://www.cigna.com.www.cigna.com. Accordingly, investors should monitor the Investor Relations portion of our website, in addition to following our press releases, SEC filings and public conference calls and webcasts. The information contained on, or that may be accessed through, our website is neither incorporated by reference into nor a part of this report. See "Codealso “Code of Ethics and Other Corporate Governance Disclosures"Disclosures” in Part III, Item 10 beginning on page 131 of this Form 10-K for additional information availableregarding the availability of our Codes of Ethics on our website.


EVERNORTH

Integrated Medical

Integrated Medical consists

Evernorth brings together coordinated and point solution health services including pharmacy solutions, benefits management solutions, care solutions and intelligence solutions, and specialized expertise – from inside and outside the company – to deliver custom and flexible solutions that meet the needs of a Commercial operating segment that includes our employer-sponsored medical coverageclients and a Government operating segment that includes Medicare offerings for seniors and individual insurance offerings to non-seniors both on and off the public health insurance exchanges.customers. In 2018, Integrated Medical2020, Evernorth reported adjusted revenues of $32.8$116.1 billion and pre-tax adjusted income from operations of $3.5$5.4 billion.


HOW WE WIN
Evernorth accelerates delivery of innovative and flexible solutions to create value and meet the diverse needs of health plans, employers, health care providers and government organizations by:

·Partnering in unconventional ways to solve complex problems across a fragmented health care ecosystem, fueled by connected data and expertise that drives purposeful innovation
·Creating flexible and focused solutions tailored to client needs, using Evernorth's combined strengths and capabilities, as well as strategic partnerships, to deliver: better, more efficient care for patients; better experiences for clients, providers and customers; and enhanced choices for clients and customers through our open architecture model
·Evaluating medicines, digital therapeutics and other health solutions for efficacy, adherence, value and price to assist clients in selecting a cost-effective formulary
·Offering home delivery and specialty customer-centric solutions that meet the needs of our clients and customers in ways that unlock greater value and better health services while providing better and specialized clinical care
·Aggregating purchasing volume to deliver discounts and drive risk-sharing and value-based care across the pharmaceutical supply chain
·Promoting the use of generics and lowest-cost, clinically effective brands of medications
3

The following chart depicts a high-level summary of our principal products and services in this segment with definitions on subsequent pages.
​​ ​​ ​​
Principal Products & Services​  Brands/
Subsidiaries		Key RelationshipsHow We Win
​Primary Competitors
​Pharmacy Solutions​
 Express Scripts Pharmacy, Accredo®, Freedom Fertility Pharmacy®,,Therapeutic Resource Center®
​Clients, Customers, Health Care Providers​ ​​Independent Pharmacy Benefit Managers (“PBMs”), Managed Care PBMs, Retail Pharmacies, Specialty Pharmacies
Benefits Management Solutions
Pharmacy and Medical Benefits Management
eviCore Healthcare®, Express Scripts PBM, myMatrixx®, Care Continuum®, Evernorth Embarc Benefit ProtectionSM, Evernorth FamilyPathSM

•

Clients, Customers, Health Care Providers, Consultants, Health Plans, Commercial and Government Payors

Health Plans, Independent PBMs, Managed Care PBMs, Third-Party Benefit Administrators, Group Purchasing Organizations, Clinical Solutions and Health Care Data Analytics Companies
Supply Chain Administration and Network Management
Value Based Programs (Express Scripts SafeGuardRx®, Patient AssuranceSM), National Preferred Formulary, SaveOnSP, Express Scripts MedRx ManagementSM, Express Scripts Parachute RxSM, Ascent Health Services, Econdisc, Inside Rx®
Clients, Self-paying customers (InsideRx only), Pharmacy ProvidersHealth Plans, Independent PBMs, Managed Care PBMs, Third Party Benefit Administrators, Group Purchasing Organizations
Care Solutions
Evernorth Healthy Ways to WorkSM, inMyndSM, Health Connect 360SM, Evernorth Digital Health FormularySM, Advanced Utilization Management, Enhanced Fraud, Waste & Abuse, Advanced Opioid Management®, ScreenRx®, Behavioral Health
Clients, CustomersIndependent PBMs, Managed Care PBMs, Third-Party Benefit Administrators
Evernorth Intelligence Solutions
Express Scripts Lab, RationalMed®, MediCUBE®, Express Scripts ScriptVisionSM
Health Care Providers, ClientsHealth Care Data Analytics Companies
Provider Services
CuraScript SD®
Health Care Providers, Clinics, HospitalsSpecialty Drug Distributors
Principal Products & Services
•Pharmacy Solutions:The pharmacy operations consist of ten order processing pharmacies, five patient contact centers, 26 specialty branch pharmacies and 11 high-volume automated home delivery and specialty dispensing pharmacies located throughout the United States. Dispensing pharmacies are located in Arizona, Delaware, Florida, Indiana, Massachusetts, Missouri, New Jersey, Pennsylvania and Tennessee.
◦Express Scripts Pharmacy: Express Scripts Pharmacy dispenses approximately 1.5 billion adjusted prescriptions(1)annually to members of pharmacy plans managed by our Express Scripts PBM. The service offers free standard shipping of maintenance medications nationwide, usually in a 90-day supply, directly to the customer's home. The service allows for automatic refills on eligible medications and unrestricted telephone access to specially trained pharmacists who can help answer customer questions. The front-end of our pharmacy is organized in Therapeutic Resource Centers, where specialized pharmacists focus their practice of pharmacy by condition, which offers customers a more personalized experience, while providing enhanced clinical care. Our differentiated practice of pharmacy, coupled with our advanced automated dispensing technology, results in safer and more accurate pharmacy operations when compared to retail pharmacies, convenient access to maintenance medications and better management of our clients' drug costs through operating efficiencies and generic substitutions. Our research shows that Express Scripts Pharmacy achieves a higher level of therapeutic interventions, better adherence and cost savings than is achieved through retail pharmacy networks.
◦Specialty Pharmacy Services: Specialty medications are primarily characterized as high-cost medications for the treatment of complex and rare diseases. These medications broadly include those with frequent dosing adjustments, intensive clinical monitoring, the need for customer training, specialized product administration requirements or medications limited to certain
(1) Non-specialty network scripts filled through 90-day programs and home delivery scripts are multiplied by three. All other network and specialty scripts are counted as one script.
4

specialty pharmacy networks by manufacturers. Through a combination of assets and capabilities, we provide an enhanced level of predictable care and therapy management for customers taking specialty medications, increased visibility and improved outcomes for payors, and custom programs for biopharmaceutical manufacturers. Accredo is focused on dispensing injectable, infused, oral and inhaled drugs that require a higher level of clinical service and support than traditional pharmacies typically offer. Accredo supports successful outcomes for customers and reduces waste for clients through specialty trained clinicians, a nationwide footprint and a network of in-home nursing services, reimbursement and customer assistance programs and biopharmaceutical services. Drug manufacturers occasionally select Accredo for exclusive dispensing of a highly specialized therapy. Freedom Fertility Pharmacy is dedicated exclusively to supporting patients undergoing fertility treatment. Accredo and Freedom Fertility Pharmacy serve customers within a pharmacy benefit plan administered by Express Scripts PBM, as well as customers in a plan administered by other PBMs and health plans.
•Benefits Management Solutions: We drive high-quality, cost-effective care through prescription drug utilization and cost management services. We support our clients' plan design selections to deliver balanced affordability, choice, simplicity and convenience. We focus our solutions to align with our clients' service, care and cost management needs. As a result, we believe we deliver better outcomes, higher customer satisfaction and a more affordable prescription drug benefit. We process drug claims via Express Scripts Pharmacy, Accredo and our retail networks by integrating retail network pharmacy administration, benefit design consultation, drug utilization review, drug formulary management and pharmacy fulfillment services. We administer payments to retail networks and bill benefits costs to our clients through our end-to-end adjudication services.
◦Drug Utilization Review program: When pharmacies submit claims for prescription drugs to us, we review them electronically in real time for health and safety. We then alert the dispensing pharmacy of any detected issues. Clients may also choose to enroll in programs that result in communications about potential therapy concerns being sent to prescribers after the initial claim submission.
◦Benefits Design Consultation: We consult with our clients on how best to structure and leverage the pharmacy benefit to meet plan objectives for affordable access to the prescription medications customers need to stay healthy, and ensure the safe and effective use of those medications.
◦myMatrixx: myMatrixx is a unique PBM with an exclusive focus on workers' compensation. We combine high touch customer service with clinical expertise and state-of-the-art business intelligence systems to deliver simplified solutions and positive outcomes. myMatrixx leverages Express Scripts' robust pharmacy network and provides a smooth and personalized experience for clients and injured workers.
◦eviCore Medical Benefits Management: eviCorehealthcare is a leading provider of integrated health benefit management solutions that focus on driving adherence to evidence-based clinical guidelines, improving the quality of patient outcomes and reducing the cost of care. eviCore provides technology-enabled managed solutions in clinical diagnostic areas such as advanced imaging, cardiology and gastroenterology, as well as in whole person (longitudinal) areas such as musculoskeletal, oncology, fertility and post-acute care. eviCore contracts with health plans and other commercial and government payors to promote the appropriate use of health care services by the customers they serve. In certain instances, this occurs through capitated risk arrangements, when we assume the financial obligation for the cost of health care services provided to eligible customers covered by eviCore health care management programs.
◦Medical Drug Management: We offer a comprehensive range of services and guaranteed savings for managing medically billed specialty drugs. Our solutions apply utilization management, site of care management and claims prepayment review to effectively reduce wasteful spend, while providing services tailored to customers ensuring safety and healthier outcomes. We also offer MedRx(SM), a suite of solutions and consultative services for medical rebates contracting, and medically-billed drug preferencing and value-based contracting.
•Supply Chain Administration and Network Management:
◦Retail Network Pharmacy Administration: We contract with retail pharmacies to provide prescription drugs to customers of the pharmacy benefit plans we manage. We negotiate with pharmacies throughout the United States to discount drug prices provided to customers and manage national and regional networks responsive to client preferences related to cost containment, convenience of access for customers and network performance. We also manage networks of pharmacies customized for or under direct contract with specific clients and have contracted with pharmacy provider networks to comply with the Center for Medicare and Medicaid Services (“CMS”) access requirements for the federal Medicare Part D prescription drug program (“Medicare Part D”). All retail pharmacies in our network communicate with us online and in real-time to process prescription drug claims. When a plan customer presents their identification card at a network pharmacy, the pharmacy sends specific customer, prescriber and prescription information in an industry-standard format through our systems, which process the claim and respond to the pharmacy with relevant information to process the prescription.
◦Drug Formulary Management: Formularies are lists of drugs with designations that may be used to determine drug coverage, customer out-of-pocket costs and communicate plan preferences in competitive drug categories. Our formulary managementservices support clients in establishing formularies that assist customers and physicians in choosing clinically-
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appropriate, cost-effective drugs and prioritize access, safety and affordability. We administer specific formularies on behalf of our clients, including standard formularies developed and offered by Express Scripts and custom formularies in which we play a more limited role. Most of our clients select standard formularies, governed by our National Pharmacy & Therapeutics Committee, which is comprised of a panel of independent physicians and pharmacists in active clinical practice representing a variety of specialties and practice settings, typically with major academic affiliations. In making formulary recommendations, this committee considers only the drug’s safety and efficacy and not the cost of the drug, including any negotiated manufacturer discount or rebate arrangement. This process is designed to ensure the clinical recommendation is not affected by our financial arrangements. We fully comply with this committee’s clinical recommendations regarding drugs that must be included or excluded from the formulary based on their assessment of safety and efficacy.
◦Administration of Group Purchasing Organizations: Express Scripts operates various group purchasing organizations that negotiate pricing for the purchase of pharmaceuticals, fees and formulary rebates with pharmaceutical manufacturers on behalf of their participants. They also provide various administrative services to their participants including management and reporting.
◦Copay Solutions: Our first-to-market innovative copay solutions helps patients afford their medications, protect plan design preferences and achieve lower trend. In partnership with SaveOnSP on the first non-essential health benefits copay assistance solution, we've driven significant savings by targeting high-cost, high-volume drugs. SaveOnSP recommends plan-design and coverage changes for certain drugs, enabling maximum savings and reducing plan and client costs. As manufacturer programs and regulations change, this aggressive solution adapts, delivering lower specialty plan cost and enhanced customer support.
◦Inside Rx: Inside Rx is a prescription medication savings program that offers eligible customers with discounts on many brand and generic medications for self-paying customers. This program is not insurance but offers savings at more than 60,000 participating retail pharmacies (including all major chains) in the United States and Puerto Rico. The program also offers discounts on prescription medications for pets. Inside Rx earns a small fee from our supply chain partners every time a customer fills a prescription via the program. This lets us provide access to our savings card at no cost to the customer.
◦Express Scripts Parachute Rx: Express Scripts Parachute Rx is a prescription discount program administered by Inside Rx to assist Americans who are newly uninsured as a result of the COVID-19 pandemic by providing access to affordable and predictable prices on select generic and brand-name medications. The program is not insurance but offers discounts on certain prescription medications for uninsured customers. Express Scripts created this limited-time program through its close partnerships with manufacturers and retail pharmacies across the country.
◦Value-Based Programs:
▪Express Scripts SafeGuardRx: We offer a solution platform aimed at therapy classes that pose budgetary threats and clinical challenges to customers. Our solutions are designed to keep our clients ahead of the drug cost curve while providing customers the personalized care and access they need. These solutions are offered throughout our pharmacy benefit management services and include, but are not limited to care for: cardiovascular, diabetes, hepatitis, inflammatory conditions, neurological, multiple sclerosis, oncology, pulmonary and rare conditions. Innovative programs, such as SafeGuardRx, combine utilization management, formulary management, specialized care from our Therapeutic Resource Centers and financial savings, to help us to change the market in key categories. These services optimize the safe and appropriate dispensing of therapeutic agents, minimize waste and improve clinical and financial outcomes. Through these services, specialist pharmacists provide the expert, personalized care that customers increasingly demand.
▪Patient Assurance Program: This program addresses the need for greater affordability and access to medications by providing a fixed out-of-pocket cost to customers in non-government funded benefit plans.
•Care Solutions:We offer clinical programs to help our clients drive better whole-person health outcomes at a lower cost by identifying and addressing potentially unsafe or wasteful prescribing, dispensing and use of prescription drugs and communicating with, or supporting communications with, physicians, pharmacies and customers.
◦Through our Healthy Ways to Work initiative, we're helping our partners and their employees navigate COVID-19 with a suite of agile solutions focused on helping people return to a healthy, safe and productive workplace, including digital and onsite support, population health and clinical care and resiliency development to help people cope with change.
◦Our inMynd mental health solution provides access to expert guidance and support for anxiety, depression and insomnia, including access to individualized support and resources, condition-specific care through our Neuroscience Therapeutic Resource Centers and a new digital Cognitive Behavioral Therapy program.
◦Health Connect 360 is a transformational, outcomes based, clinical management model that bridges pharmacy, medical, lab and customer engagement data to develop insights and deliver personalized health care clinical support. Clinical outcomes and quality metrics are tailored to meet client needs.
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◦Through the Evernorth Digital Health Formulary, we evaluate, procure, implement and manage digital health solutions on behalf of clients, alleviating administrative burden and ensuring clinical effectiveness, data security, user-friendly experiences and financial value.
◦Advanced Utilization Management programs are the number-one tool for decreasing client spend on pharmacy. These include prior authorization, drug quantity management and step therapy.
◦Enhanced Fraud, Waste & Abuse helps plan sponsors identify potential problem customers and prescribers with unusual or excessive utilization patterns. The program is designed to help identify outliers and situations of abnormal use or prescribing patterns by analyzing types of prescriptions, refill patterns and pharmacy utilization.
◦Embarc Benefit Protection shields members from the high costs of life-saving gene therapies, so that customers who need treatment can get it, through financial protection for high-cost therapies, access to quality, cost-effective in-network providers and support from a dedicated gene therapy case management team.
◦FamilyPath is raising the bar for fertility health by providing more comprehensive, more flexible coverage and proactive care for growing families, including expanded medical and pharmacy benefit management; access to vetted provider and lab networks; and dedicated Fertility Advisors to proactively support and guide patients.
•Evernorth Intelligence Solutions: By bringing together world-class talent, multi-disciplinary expertise and advanced data and analytics, we unlock actionable insights to help drive greater predictability, affordability and simplicity. We work together with our clients and partners to create dynamic solutions, services and platforms that guide better decisions and improved performance (see "Business - Data, Analytics, and Technology" section of this Form 10-K for further information).
◦Evernorth Labs: We accelerate innovation through increased collaboration with clients, customers and partners to develop solutions for launch in their businesses. With our Labs, which are state-of-the-art research facilities and shared spaces for collaboration, ideation and innovation, we gather with our clients and industry leaders to solve the toughest challenges in the health care system, including: better managing the most complex and expensive disease states, such as oncology; improving care access and delivery, such as worksite, home and virtual care; and planning for emerging trends, such as artificial intelligence, and industry disruptors, such as COVID-19.
◦Data, advanced analytics and platforms: We use advanced predictive modeling to shape solutions that help decrease healthcare fragmentation, drive optimized care coordination, reduce key cost drivers and improve health outcomes. In-depth trend analysis helps us to identify and effectively address challenges like opioid abuse, COVID-19 and other emerging health crises. We use market surveillance and forecasting to pinpoint and proactively address cost drivers. Our platform strategy as a service gives clients the tools to build successful businesses in a flexible, customizable way: Trend Central® provides access to key performance indicators to help plan sponsors reduce costs and work towards healthier outcomes; HealthPredictSM produces high patient-level risk scores, to show the highest value opportunities for proactive intervention; MediCUBE gives our academic detailing pharmacists the analytical power to identify ways to save plans from significant unnecessary spend and improve quality metrics; RationalMed improves patient health and safety by integrating medical, pharmacy and laboratory claims data to initiate changes and correct errors in care, lowering both medical and prescription drug costs; and ScriptVision provides a suite of real-time, data-driven capabilities that empower physicians to make the best prescribing choices, including ePrescribing (including controlled substances), real-time prescription benefit information, electronic prior authorizations, clinical care messages such as drug interactions and high-risk medication alerts and data on and patient adherence rates.
•Provider Services: CuraScript SD is a specialty distributor of pharmaceuticals and medical supplies (including injectable and infusible pharmaceuticals and medications to treat specialty and rare or orphan diseases) directly to health care providers, clinics and hospitals in the United States for office or clinic administration. Through this business, we provide distribution services primarily to office and clinic-based physicians who treat customers with chronic diseases and regularly order costly specialty pharmaceuticals. This business provides competitive pricing on pharmaceuticals and medical supplies, operates three distribution centers and ships most products overnight within the United States; it also provides distribution capabilities to Puerto Rico and Guam. It is a contracted supplier with most major group purchasing organizations and leverages our distribution platform to operate as a third-party logistics provider for several pharmaceutical companies.
Customers
Our customers in the Evernorth segment include clients and patients, as described below, along with a description of our current and former significant clients:
•Clients: We provide services to managed care organizations, health insurers, third-party administrators, employers, union-sponsored benefit plans, workers’ compensation plans, government health programs, providers, clinics, hospitals and others. We provide services to a majority of customers in our U.S. Medical segment.
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•Patients: Prescription drugs are dispensed to patients connected to the service offerings we provide to clients. Prescription drugs are dispensed primarily through networks of retail pharmacies under non-exclusive contracts with us and via home delivery from Express Scripts Pharmacy and specialty drug fulfillment pharmacies.
The Department of Defense TRICARE® Pharmacy Program is the military health care program serving active-duty service customers, National Guard and Reserve customers and retirees, as well as their dependents. Under this contract, we provide online claims adjudication, home delivery services, specialty pharmacy clinical services, claims processing and contact center support and other services critical to managing pharmacy trend. In 2020 and 2019, revenues from this contract were significant to the segment.
In 2019, Express Scripts and Prime Therapeutics LLC (“Prime”) entered into an agreement effective on April 1, 2020 which is delivering improved choice and affordability for Prime’s clients and their patients by enhancing retail pharmacy networks and pharmaceutical manufacturer value. In 2021, the relationship with Prime was expanded to include the option for Prime’s plans to access the Accredo specialty pharmacy and Express Scripts home delivery in-network pharmacies.
On January 30, 2019, Anthem, Inc. (“Anthem”), a former customer, exercised its right to early termination of its pharmacy benefit management services agreement, effective March 1, 2019. As of December 31, 2019, the transition of customers was substantially complete. For further discussion of our Anthem relationship, see the “Executive Summary – Key Transactions and Business Developments” section of our MD&A located in Part II, Item 7 of this Form 10-K.
Competition
The health care industry has undergone periods of substantial consolidation and may continue to consolidate in the future. We believe the primary competitive factors in the industry include the ability to: negotiate with retail pharmacies to ensure our retail pharmacy networks meet the needs of our clients and customers; provide home delivery and specialty pharmacy services; negotiate discounts and rebates on prescription drugs with drug manufacturers; navigate the complexities of government-reimbursed business including Medicare, Medicaid and the public exchanges; manage cost and quality of specialty drugs; use the information we obtain about drug utilization patterns and consumer behavior to reduce costs for our clients and customers and the level of service we provide.
•Managed Care PBMs: CVS Caremark (owned by CVS Health Corporation), Humana, IngenioRx (owned by Anthem), OptumRx (owned by UnitedHealth Group Inc.) and Prime Therapeutics (owned by a collection of Blue Cross / Blue Shield Plans) compete with us on a variety of products and in various regions throughout the United States.
•Independent PBMs: MedImpact, Navitus Health Solutions, Elixir (owned by Rite Aid Corporation) and many other regional PBMs compete with us on a variety of products across the United States.
•Pharmacies: CVS, Walgreens Boots Alliance, Inc., WalMart, Inc., Rite Aid, Kroger and other independent pharmacies compete with us for the delivery of prescription drug needs to our customers. In addition, many PBMs own and operate home delivery and specialty pharmacies including CVS, OptumRx, Walgreens, Humana and Elixir. New entrants continue to emerge including Amazon Pharmacy, Capsule and Hims.
•Third-Party Benefits Administrators: Third parties that specialize in claim adjudication and benefit administration, such as SS&C Health, are direct competitors. With the emergence of alternative benefit models through Private Exchanges, the competitive landscape also includes brokers, health plans and consultants. Some of these competitors may deploy greater financial, marketing and technological resources than we do and new market entrants, including strategic alliances aimed at modifying the current health care delivery models or entering the prescription drug sector from another sector of the health care industry, may increase competition as barriers to entry are relatively low. For example, GoodRx is a new entrant focused on serving the uninsured and underinsured in the cash pay pharmacy administration space.
•Clinical Solutions and Health Care Data Analytics Companies: Optum (owned by UnitedHealth Group Inc.), Anthem, Magellan Health, HealthHelp, Cotiviti and Inovalon are among the companies that compete with us in this market.
Operations
•Sales and Account Management: Our sales and account management teams market and sell pharmacy benefit management solutions and are supported by client service representatives, clinical pharmacy managers and benefit analysis consultants. These teams work with clients to develop innovative strategies that put medicine within reach of customers while helping health benefit providers improve access to and affordability of prescription drugs.
•Supply Chain: Our supply chain contracting and strategy teams negotiate and manage pharmacy retail network contracts, pharmaceutical and wholesaler purchasing contracts and manufacturer rebate contracts. As our clients continue to experience increased cost trends, our supply chain teams develop innovative solutions such as our SafeGuardRx platform and preferred pharmacy networks to combat these cost increases. In addition, our Formulary Consulting team, consisting of pharmacists and
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financial analysts, provides services to our clients to support formulary decisions, benefit design consultation and utilization management programs.
•Clinical Support: Our staff of highly trained health care professionals provides clinical support for our medical, behavioral and pharmacy customers. Our services include:
◦Case management support for our customers through the continuum of health care – from inpatient hospitalization to at home care – as well as health coaching and on-site coaching
◦Condition-specific specialized customer care through our Therapeutic Resource Center facilities staffed with specialist pharmacists, nurses and other clinicians
◦Clinical development and operational support for our pharmacy benefit management services by our clinical solutions staff of pharmacists and physicians who conduct a wide range of activities including: identifying emerging medication-related safetyissuesandalertingphysicians,clientsandcustomers(asappropriate);providingdruginformationservices;managing formulary; and developing utilization management, safety (drug utilization review) and other clinicalinterventions
Suppliers
We maintain an inventory of brand-name and generic pharmaceuticals in our home delivery and specialty pharmacies. Our specialty pharmacies also carry biopharmaceutical products to meet the needs of our customers, including pharmaceuticals for the treatment of rare or chronic diseases; if a drug is not in our inventory, we can generally obtain it from a supplier within a reasonable amount of time.
We purchase pharmaceuticals either directly from manufacturers or through authorized wholesalers. Evernorth uses one wholesaler more than others in the industry, but holds contracts with other wholesalers if needs for an alternate source arise. Generic pharmaceuticals are generally purchased directly from manufacturers.
Industry Developments
See the “Industry Developments” section of the MD&A located in Part II, Item 7 of this Form 10-K for discussion of key industry developments impacting this segment.
Intellectual Property Rights
The trademarks and service marks covering products, services and businesses provided under the Evernorth segment include, but are not limited to, the following: EXPRESS SCRIPTS®, EVERNORTHSM, EVERNORTH HEALTHSM, MEDCO®, ACCREDO®, CURASCRIPTSD®, MYMATRIXX®, EVICORE HEALTHCARE®, FREEDOM FERTILITY PHARMACY®, CARE CONTINUUM®, RATIONALMED®, SCREENRX®, EXPRESSALLIANCE®, EVERNORTH DIGITAL HEALTH FORMULARYSM, THERAPEUTIC RESOURCE CENTER®, ADVANCED OPIOID MANAGEMENT®, SAFEGUARDRX®, HIV CARE VALUESM, RARE CONDITIONS CARE VALUE®, NEUROLOGICAL CARE VALUESM, CARDIOVASCULAR CARE VALUESM, HEPATITIS CURE VALUE®, MARKET EVENTS PROTECTIONSM, ONCOLOGY CARE VALUESM, DIABETES CARE VALUESM, INFLAMMATORY CONDITIONS CARE VALUESM, INFLATION PROTECTIONSM, PULMONARY CARE VALUE®, MULTIPLE SCLEROSIS CARE VALUESM, MIGRAINE CARE VALUESM, CHOLESTEROL CARE VALUESM, HEALTH CONNECT 360SM, EMBARC BENEFIT PROTECTIONSM, INMYNDSM, EXPRESS SCRIPTS PATIENT ASSURANCESM, MEDICUBE®, EXPRESS SCRIPTS PHARMACY®, FAMILYPATHSM, SCRIPTVISIONSM, HEALTHY WAYS TO WORKSM and INSIDE RX®. We, or our affiliated companies, own trademarks and trademark registrations for these and other company marks.
We also hold a portfolio of patents and pending patent applications. We are not substantially dependent on any single patent or group of related patents.
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U.S. MEDICAL
U.S. Medical includes Cigna’s U.S. Commercial and U.S. Government businesses that provide comprehensive medical and coordinated solutions to clients and customers. U.S. Commercial products and services include medical, pharmacy, behavioral health, dental, vision, health advocacy programs and other products and services for insured and self-insured customers. U.S. Government solutions include Medicare Advantage, Medicare Supplement, and Medicare Part D plans for seniors, Medicaid plans, and individual health insurance plans both on and off the public exchanges. In 2020, U.S. Medical reported adjusted revenues of $38.5 billion and pre-tax adjusted income from operations of $3.8 billion.
HOW WE WIN
·Broad and deep portfolio of solutionsacross U.S. Commercial and U.S. Government operating segments


•

·Commitmentto highest qualityhighest-quality health outcomes and customer experiences

•

·Collaborativephysician engagement models emphasizing value over volume of services

•

·Integrated and coordinated benefit solutionsthat deliver value for our customers, clients and partners

•

·Technology and data analyticspowering actionable insights and affordable, personalizedpredictable solutions

•

·Talented and caring peopleembracing change and putting customers at the center of all we do

​​ ​​ ​​

We differentiate ourselves by providing innovative, personalized and affordable health care benefit solutions based on the unique needs of the individuals and clients we serve. We increase value through our integrated approach and use of technology and data analytics to enhance patient engagement and health care outcomes, underscoring our strategic focus on delivering an industry-leading customer experience. We continue to strengthen our partnershipscollaborative relationships with providers as we accelerate our transition to a value-based reimbursement system.

We offer a mix of core health insurance products and services to employers, other groups and individuals along with specialty products and services designed to improve the quality of care, lower cost and help customers achieve better health outcomes. Many of these products are available on a standalone basis, but we believe they are most valuablecreate additional value when integrated with a Cigna-administered health plan. Our products are available through several distribution channels including brokers, direct sales and public and private exchanges. Our three funding solutions (i.e., insured – experience-rated,administrative services only (“ASO”), insured – guaranteed cost (“GC”) and administrative services only ("ASO"insured – experience-rated (“ER”) arrangements) enable us to customize the amount of risk taken by, and lower costs for, our customers and clients.

​​​CIGNA CORPORATION - 2018 Form10-K    3














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Back to Contents

PART I
ITEM 1. Business


The following chart depicts a high levelhigh-level summary of our principal products and services in this segment, as of year-end, with definitions on subsequent pages.

​​​ ​​ ​​ ​​ ​​​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​
​Principal Products & Services
​​Major Brand(s)
Geography		​​Geography
​​Funding Solution(s)
​​Market Segment(s)
​​Primary Distribution Channel(s)
​​Primary Competitors
​
​ ​​​ ​​​ ​​​ ​​​ ​​​ ​​​ ​​​ ​​​ ​​​ ​​​ ​​​ ​​​ ​​​ ​​​ U.S. Commercial Medical
Commercial Medical
​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​​​ ​​ ​​ ​​ ​​
​Managed Care​​Cigna HealthCare​NationwideGC, ER, ASO​U.S. CommercialNationwideBrokers, Private Exchanges, Direct​​Insured​​​​​​National Insurers, Local Healthplans, Third-Party Administrators ("TPAs"(“TPAs”)​
​ ​​ ​​ ​​ ​​ ​​ ​​​​​​​​​​​​​​ ​​ ​​
​Preferred Provider ("PPO"Organization (“PPO”)​CignaNationwide​Cigna​​Nationwide​​(experience-rated
("ER"), guaranteed
cost ("GC")) and		​​Commercial​​Brokers, Private Exchanges, Direct​​National Insurers, TPAs​
​ Consumer-Driven​Cigna​ Nationwide​​ ​​ ​​ ​​ ​​ ​​​​​​​​​​​​ ​​ ​​
​Consumer-Driven​​Cigna​​Nationwide​​ASO​​​​​​National Insurers, Local Health Maintenance Organizations ("HMOs"(“HMOs”)​
​ ​​ ​​ ​​ ​​ ​​ ​​ ​​​​ ​​ ​​ ​​ ​​ ​​ ​​U.S. Government Medical
​Government Medical
​
​ ​​ ​​ ​​ ​​ ​​ ​​ ​​​​ ​​ ​​ ​​ ​​ ​​ ​​
​Individual and Family Plans​Cigna
11 states(1)
​GCCigna ConnectIndividual​Public Exchanges, Brokers, Direct​10 states​​GC​​Individual​​Public and Private Exchanges​​Local Healthplans, Start-ups, National Insurers​
​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​​​ ​​ ​​ ​​ ​​
​Medicare Advantage​Cigna
18 states(2) & District of Columbia
​GCCigna-HealthSpring​​17 states​​GC​​U.S. Government​​Direct, Brokers​​National Insurers, Local Healthplans​
​ Medicare Stand –Alone Prescription Drug Plans​Cigna, Express Scripts​Nationwide​GC, ASO​ U.S. Government​Direct, Brokers​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​​​ ​​ ​​ National Insurers
​Medicare Part D​​Cigna-HealthSpring, Express Scripts​​Nationwide​​GC​​Government​​Direct, Brokers​​National Insurers​
​ ​​ ​​ ​​​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​​​
​Medicaid​​Cigna-HealthSpring​​Texas​​GC​​Government​​Direct, Brokers​​National Insurers​
​​​ ​​ ​​ ​​ ​​​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​
​Medicare Supplement​Cigna​Cigna​​
48 states(3) & District of Columbia
​GC​GC​​U.S. Government​​Brokers, Direct, Private Exchanges​​National Insurers​
​ Medicaid​Cigna​ Texas​GC​ U.S. Government​Direct, Brokers​ ​​ ​​ ​​ ​​​​ ​​ ​​ ​​ ​​ ​​ ​​National Insurers
​Specialty Products and Services
​
​ Stop-Loss​Cigna​ Nationwide​GC​ ​​ ​​​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​
​Stop-Loss​​Cigna​​Nationwide​​GC​​U.S. Commercial​​Brokers, Direct​​National Insurers, Specialty Companies​
​ Cost Containment​Cigna​Nationwide​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​​​ ​​ ​​
​Cost-Containment​​Cigna​​Nationwide​​GC, ER, ASO​​U.S. Commercial​Direct​Direct​​National Insurers, Specialty Companies​
​ ​​ ​​ ​​​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​​​
​Consumer Health Engagement​CignaNationwide​Cigna​​Nationwide​​GC, ER, ASO​​U.S. Commercial, U.S. Government​​Brokers, Direct​​National Insurers, Specialty Companies​
​​​ ​​ ​​ ​​ ​​​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​
​Pharmacy Management​CignaNationwide​Cigna​​Nationwide​​GC, ER, ASO​​U.S. Commercial, U.S. Government​​Brokers, Direct​​National PBMs​
​ ​​ ​​ ​​ ​​ ​​ ​​ ​​​​ ​​ ​​ ​​ ​​ ​​ ​​
​Behavioral Health​​Cigna Behavioral Health​Nationwide​Nationwide​​GC, ER, ASO​​U.S. Commercial​​Brokers, Direct​​National Insurers, Specialty Companies​
​ Dental & Vision​​ ​​ ​​ ​​ ​​ ​​ ​​​​ ​​ ​​ ​​ ​​ ​​ ​​
​Dental​​Cigna Dental HealthCare​Nationwide​Nationwide​​
GC, ER, ASO		​U.S. Commercial, U.S. Government​Commercial, Individual​​Brokers, Direct​​Dental Insurers, National Insurers​
​ ​​ ​​ ​​ ​​ ​​ ​​ ​​​​ ​​ ​​ ​​ ​​ ​​ ​​
​Vision​​Cigna Vision​​Nationwide​​GC, ER, ASO​​Commercial, Individual​​Brokers, Direct​​National Insurers, Specialty Companies​
​ ​​ ​​ ​​ ​​ ​​ ​​ ​​​​ ​​ ​​ ​​ ​​ ​​ ​​
​4    CIGNA CORPORATION - 2018 Form10-K​​

Table of Contents

PART I
ITEM 1. Business

(1)AZ, CO, FL, IL, KS, MO, NC, TN, TX, UT, VA
(2)AL, AZ, AR, CO, DE, FL, GA, IL, KS, MD, MS, MO, NC, NJ, PA, SC, TN, TX
(3)All states except MA and NY
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Principal Products & Services

U.S. Commercial Medical

•
Managed Care Plans  These plans are offered through our insurance companies, HMOs and TPA companies. HMO, Surefit, LocalPlus®, Network Open Access and Open Access Plus plans use meaningful cost-sharing incentives to encourage the use of "in-network"“in-network” versus "out-of-network"“out-of-network” health care providers. The national provider network for Managed Care Plans is somewhat smaller than the national network used with the preferred provider ("PPO")PPO plan product line.

•
PPO Plans feature a network with broader provider access than the Managed Care Plans.

•
Consumer-Driven Products are typically paired with a high-deductible medical plan and offer customers a tax-advantaged way to pay for eligible health care expenses. These products, consisting of health savings accounts, ("HSAs"), health reimbursement accounts ("HRAs") and flexible spending accounts, ("FSAs"), encourage customers to play an active role in managing their health and health care costs. When integrated with a Cigna medical plan, we can deliver a seamless experience for our customers and clients. More than three million customers have one of these integrated product solutions.

U.S. Government Medical

•
Individual and Family Plans  feature are primarily Patient Protection and Affordable Care Act (“ACA”) compliant exclusive provider organization ("EPO") or HMO plans marketed to individuals under age 65 who do not have access to health care coverage through an insurance policy coupled withemployer or government program such as Medicare or Medicaid. Customers receive comprehensive health care benefits and have access to a local network of health care providers in a geographic area who have been selected with cost and quality in mind.

•
Medicare Advantage Plans allow Medicare-eligible beneficiaries to receive health care benefits, including prescription drugs, through a managed care health plan such as our coordinated care plans. Our Medicare Advantage Plans are primarilyinclude HMO and PPO plans marketed to individuals. A significant portion of our Medicare Advantage customers receive medical care from our value-based models that focus on developing highly engaged physician networks, aligning payment incentives to improved health outcomes and using timely and transparent data sharing.

•
Medicare Part D PlansStand-Alone Prescription Drug Products provide a number of prescription drug plan options, as well as service and information support, to Medicare eligible and dually eligible Medicaid eligible customers.customers, either directly to individuals or through a qualified employer group. Our stand-alone plans offer the savingscoverage of Medicare combined with the flexibility to provideselect a product that provides enhanced benefits and a drug list tailored to individuals'formulary that meets an individual’s specific needs. Eligible beneficiaries benefit from broad network access and value-added servicesenhanced service intended to promote adherence, wellness and affordability for our eligible beneficiaries.

•
Medicaid Plans  provide our low-income customers with the benefit of many of the coordinated care aspects of our Medicare Advantage programs. For customers eligible for both Medicare and Medicaid ("dual eligible") we receive revenue from both the state and the Center for Medicare and Medicaid Services ("CMS").

•
Medicare Supplement Plans provide Medicare-eligible beneficiaries with federally standardized Medigap-style plans. Beneficiaries may select among the various plans with specific plan options to meet their unique needs and may visit, without the need for a referral, any health care professionalprovider or facility that accepts Medicare throughout the United States.

•Medicaid Managed Careprovides both acute care and Long-Term Services and Supports ("LTSS") by integrating primary care, behavioral health care, pharmacy services and LTSS for individuals who are age 65 or older or adults who have a disability. LTSS includes services such as attendant care and day activity and health services. Members have access to a service coordinator who is responsible for coordinating acute care and LTSS for members.
Specialty Solutions

Products and Services
•
Stop-Loss  insurance coverage is offeredPharmacy Management services and benefits can be combined with our medical offerings. The comprehensive suite of pharmacy management services available to self-insured clients whose groupand customers, utilizing Evernorth's capabilities, includes benefits management, specialty pharmacy services, clinical solutions, home delivery and certain health plans are administered by Cigna. Stop-loss insurance provides reimbursement for claims in excessmanagement services.
•Behavioral Health services consist of a predetermined amount for individuals,broad national network of behavioral health providers which includes one of the entire group, or both.

largest virtual networks in the United States, behavioral health specialty case and utilization management, a crisis intervention line accessible anytime, employee assistance programs and work/life programs. We focus on integrating our programs and services with medical, pharmacy and disability programs to facilitate customized, holistic care as well as to provide resources that increase resiliency and address non-medical factors that affect overall well-being.
•
Cost-ContainmentCost Containment Programs are designed to contain the cost of covered health care services and supplies. These programs reduce out-of-network utilization and costs, protect memberscustomers from balance billing and educate customers regarding the availability of lower cost in-network services. In addition, under these programs we negotiate discounts with out-of-network providers, review provider bills and recover overpayments. We charge fees for providing or arranging for these services. These programs may be administered by third-party vendors that have contracted with Cigna.

•
Stop-Loss insurance coverage is offered to self-insured clients whose group health plans are administered by Cigna. Stop-loss insurance provides reimbursement for claims in excess of a predetermined amount for individuals, the entire group, or both.
12

•Consumer Health Engagement services are offered to customers covered under plans administered by Cigna or by third-party administrators. These services consist of an array of medicalhealth management, disease management and wellness services. Our Medical Management programs include case, specialty and utilization management and a 24-hour nurse information line.24/7 Health Information line which ensures around the clock access to a medical professional. Our Health Advocacy program services include early intervention in the treatment of chronic conditions and an array of health and wellness coaching. Additionally, weWe administer incentives programs designed to encourage customers to engage in health improvement activities.

•
Pharmacy Management  services and benefits can be combined with our medical offerings. The comprehensive suite of pharmacy management services available to clients and customers includes benefits management, specialty pharmacy services, clinical solutions, home delivery, and certain medical management services. Cigna's home delivery pharmacy operation along with the Express Scripts PBM, are reported in the Health Services segment and described further there.

•
Behavioral Health  services are offered to employers, government entities and other groups sponsoring health benefit plans. These services consist of behavioral health care case management, employee assistance programs ("EAP"), and work/life programs. We focus on integrating our programs and services with medical, pharmacy and disability programs to facilitate customized, holistic care.

•
Dental & Vision solutions include dental health maintenance organizationHMO plans, ("Dental HMO"), dental preferred provider organization ("Dental PPO")PPO plans, exclusive dental provider organization plans, traditional dental indemnity plans and a dental discount program. Employers and other groups can purchase our products on either an insured or self-insured basis as standalone products or in conjunction with medical products. Additionally, individual customers can purchase insured Dentaldental PPO plans as standalone products or in conjunction with individual medical policies.
​​​CIGNA CORPORATION - 2018 Form10-K    5

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•
Vision  offerings include flexible, cost-effective PPO coverage that includes a range of both in
Revenues: Fees and out-of-network benefits for routine vision services offered in conjunction with our medical and dental product offerings. Our national vision care network includes private practice ophthalmologist and optometrist offices, as well as retail eye care centers.

Funding Solutions

Premiums
•
ASO. Plan sponsors (i.e., employers, unions and other groups) self-fund all claims, but may purchase stop-loss insurance to limit exposure. We collect fees from plan sponsors for providing access to our participating provider network and for other services and programs including: claims administration; behavioral health services; disease management; utilization management; cost containment; dental;dental and pharmacy benefit management. Approximately 86%84% of our commercialU.S. Commercial medical customers are in ASO arrangements.

•
Experience-Rated Insurance.Insured. In most states, individual and group insurance premium rates must be approved by the applicable state regulatory agency (typically department of insurance) and state or federal laws may restrict or limit the use of rating methods. Premium rates for groups and individuals are established atsubject to state review to determine whether they are adequate, not excessive and not unfairly discriminatory. In addition, the beginningACA subjects individual and small group policy rate increases above an identified threshold to review by the United States Department of a policy periodHealth and Human Services (“HHS”) and requires payment of premium refunds on individual and group medical insurance products if minimum medical loss ratio (“MLR”) requirements are typically based on prior claim experiencenot met. The MLR represents the percentage of the policyholder. Whenpremiums used to pay claims and expenses are less thanfor activities that improve the premium charged (an "experience surplus" or "margin"),quality of care. In our individual business, premiums may also be adjusted as a result of the policyholder may be creditedgovernment risk adjustment program that accounts for a portionthe relative health status of this experience surplus or margin. If claims and expenses exceed the premium charged (an "experience deficit"), we bear these costs. In certain cases, experience deficits incurred while the policy is in effect are accumulated and may be recovered through future policy year experience surpluses or margins. Approximately 6% of commercial medical customers are in experience-rated arrangements.

•
our customers.
◦Guaranteed Cost Insurance. Premium rates are established at the beginning of a policy period and, depending on group size, may be based in whole or in part on prior experience of the policyholder or on a pool of similar policyholders. We generally cannot subsequently adjust premiums to reflect actual claim experience until the next annual renewal. The policyholder does not participate, or share in, actual claim experience. We keep any experience surplus or margin if costs are less than the premium charged (subject to minimum medical loss ratio rebate requirements discussed below)above) and bear the risk for actual costs in excess of the premium charged. Approximately 8%10% of commercialU.S. Commercial medical customers are in guaranteed cost arrangements.

In most states, individual and group insurance premium rates must be approved by the applicable state regulatory agency (typically department of insurance) and state or federal laws may restrict or limit the use of rating methods.

◦Experience-rated Insurance. Premium rates for groupsare established at the beginning of a policy period and individuals are subject to state review to determine whether they are adequate, not excessive and not unfairly discriminatory. In addition,typically based on prior claim experience of the ACA 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 loss ratio ("MLR") requirements are not met. The MLR represents the percentage of premiums used to pay medicalpolicyholder. When claims and expenses are less than the premium charged (an “experience surplus” or “margin”), the policyholder may be credited for activities that improvea portion of this experience surplus or margin. If claims and expenses exceed the premium charged (an “experience deficit”), we bear these costs. In certain cases, experience deficits incurred while the policy is in effect are accumulated and may be recovered through future policy year experience surpluses or margins. Approximately 5% of U.S. Commercial medical customers are in experience-rated arrangements.
◦Medicare Advantage.Premium rates are established at the beginning of a policy period based upon prior claim experience. We cannot subsequently adjust premiums to reflect actual claim experience until the next policy period. We receive fixed monthly payments from CMS for each plan customer based on customer demographic data and actual customer health risk factors compared to the broader Medicare population. We also may earn additional revenue from CMS related to quality of care. In our individual business, premiums may also be adjustedperformance measures (known as a result of‘‘Star Ratings’’). See the government risk adjustment program that accounts for the relative health status‘‘Executive Overview’’ section of our customers. MD&A of this Form 10-K for additional discussion of our Star Ratings. Premiums may be received from customers when our plan premium exceeds the revenue received from CMS. The ACA requires Medicare Advantage plans to meet a minimum MLR of 85%. If the MLR for a CMS contract is less than 85%, we are required to pay a rebate to CMS and could be required to make additional payments if the MLR continues to be less than 85% for successive years.
See the "Regulation"“Business - Regulation” section of this Form 10-K for additional information about premiums, commercial MLR requirements and risk mitigation programs of the ACA.

13

Market Segments

•
U.S. Commercial comprises employers from the National, Middle Market and Selectfollowing market segments.

    •
    segments:
◦National.   Multi-state Multistate employers with 5,000 or more U.S.-based, full-time employees. We offer primarily ASO funding solutions in this market segment.

•
◦Middle Market. Employers generally with 500 to 4,999 U.S.-based, full-time employees. This segment also includes single-site employers with more than 5,000 employees and Taft-Hartley plans and other groups. We offer ASO, experience-rated and guaranteed cost insured funding solutions in this market segment.

•
◦Select. Employers generally with 51-499 eligible employees. We usually offer ASO with stop lossstop-loss insurance coverage and guaranteed cost insured funding solutions in this market segment.

•
Individual.  Consistent
◦Small Group. Employers generally with the regulations for Individual ACA compliant plans, we2-50 eligible employees. We offer these plans only on a guaranteed cost basisinsured funding solutions in select geographies with a strategic partner, Oscar Health, in this market segment.

•
U.S. Government  includes comprises the following market segments:
◦Individual. Includes individuals under age 65 who do not have access to health care coverage through an employer or government program such as Medicare or Medicaid. We offer guaranteed cost, medical ACA-compliant and dental plans in this segment.
◦Medicare. Includes individuals who are Medicare-eligible beneficiaries, as well as employer group sponsored pre- and post-65 retirees. We also have dual-eligible memberscustomers who receive both Medicare and Medicaid benefits.

We receive revenue from CMS based on customer demographic data and health risk factors. In 2020, revenues from CMS were significant to the segment.

Primary Distribution Channels

•
Brokers. Sales representatives distribute our products and services to a broad group of insurance brokers and consultants across the United States.

•
Direct. Cigna sales representatives distribute our products and services directly to employers, unions and other groups or individuals across the United States. Various products may also be sold directly to insurance companies, HMOs and third-party administrators. This may take the form of in-person contact, telephonictelephone or group selling venues.

Cigna also offers an online direct to consumer enrollment platform for our individual market segment.
•
Private Exchanges. We partner with select companies that have created private exchanges where individuals and organizations can acquire health insurance. We actively evaluate private exchange participation opportunities as they emerge in the market and target our participation to those models that best align with our mission and value proposition.

•
Public Exchanges.  Many states have set up Cigna offers individual ACA-compliant policies through public health insurance exchanges for ACA compliant plans on which Cigna may offer individual policies.
​6    CIGNA CORPORATION - 2018 Form10-K​​

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ITEM 1. Business

in select geographies.

Competition

The primary competitive factors affecting our business are quality and cost-effectivenesscost effectiveness of service and provider networks; effectiveness of medical care management; products that meet the needs of employers and their employees; total cost management; technology; and effectiveness of marketing and sales. Financial strength, as indicated by ratings issued by nationally recognized rating agencies, is also a competitive factor. Our health advocacy capabilities, holistic approach to consumer engagement, breadth of product offerings, clinical care and medicalhealth management capabilities and array of product funding options are competitive advantages. We believe our focus on improving the health, well-being and peace of mind of the customersthose we serve, and how we deliver better affordability, predictability, and simplicity in health care will allow us to further differentiate ourselves from our competitors.

ourselves.
•
National Insurers.  UnitedHealth Group, United HealthGroup Inc., Aetna Inc. (owned by CVS Health)Health Corporation), Anthem, Humana and HumanaBlue Cross Blue Shield plans compete with us in a variety of products and regions throughout the United States.

•
Local Healthplans. Blue Cross Blue Shield plans, local affiliates of major insurance companies and hospitals and regional stand-alone managed care and specialty companies compete with us in the states in which we offer managed care products. Additionally, plan sponsors may contract directly with providers.

•
TPAs. Third-party administrators compete with us for ASO business.

•
Start-ups.  Recent market entrants Oscar, Bright Health Emerging participants including alternative health service models, consortiums and other health plans seekseeking to disrupt, competition primarily in the individual market, in partoften through competitive technology. Alternative health service models, including consortiums, search for a new approach to obtaining health services.

•
Dental Insurers. Various companies offering primarily dental insurance compete with us on these products.

•
Specialty Companies. Specialty insurance or service companies that offer niche products and services compete with us.

Delivering

14

Partnering to Deliver on the Promise of More Affordable, Predictable, Simple Health Care Promise

Cigna's Connected Care

Cigna’s strategy engages customers in their health, collaborates with providers to help them improve their performance and connects customers and providers through aligned health goals, incentives and actionable information to enable better decisions and outcomes. Our delivery strategy is designed to ensure our customers have access to the right care, in the preferred and appropriate setting at the right time. Fueled by advanced insights and predictive analytics, Cigna is committed to developing innovative solutions that span the health care delivery system and can be applied to different types of providers. Currently we have numerous collaborative arrangements with our participating health care providers that reach over 3.62.9 million customers and are actively developing new arrangements to support our Connected Care strategy.

•
Accountable Care Program. We have overapproximately 240 collaborative care arrangements with primary care groups built on the patient-centered medical home and accountable care organization ("ACO"(“ACO”) models. Our arrangements span more than 3234 states and reach over 2.72.9 million customers. We are committedhave made adjustments to increasing the number of groups overprogram to deepen our partnerships in responding to the next several years, with a goal of reaching 280 programs bychallenges and needs arising from the end of 2020.

COVID-19 pandemic.
•
Hospital Quality Program. We have contracts with 175 hospital systems, involving over 500540 hospitals, with reimbursements tied to quality metrics. We expect to grow this number to over 600 hospitals by the end of 2020.

•
Specialist Programs. We have approximately 250over 300 arrangements with specialist groups in value-based reimbursement arrangements. Our goal is to reach approximately 380These arrangements by the end of 2020. Programs include arrangements with several types of specialist groups around the country includingspecialties in orthopedics, obstetrics and gynecology, cardiology, gastroenterology, oncology, nephrology and neurology. Arrangements include incentives for enhanced care coordination and episodes of care reimbursements for meeting cost and quality goals.

We are expanding these programs to include bundled payment arrangements beginning with orthopedics.
•
Independent Practice Associations. We have value-based physician engagement models in our Cigna-HealthSpringMedicare Advantage business that allow physician groups to share financial outcomes with us. The Cigna-HealthSpringThis clinical model also includes outreach to new and at-risk patients to ensure they are accessing their primary care physician.

•
Participating Provider Network. We provide our customers with an extensive network of participating health care professionals,providers, hospitals and other facilities, pharmacies and providers of health care services and supplies. In most instances, we contract with them directly; however, in some instances, we contract with third parties for access to their provider networks and care management services. In addition, we have entered into strategic alliances with several regional managed care organizations (e.g., Tufts Health Plan, HealthPartners, Inc., Health Alliance Plan and MVP Health Plan) to gain access to their provider networks and discounts.

Technology

Cigna Information Technology supports ourGo Deeper, Go Local, Go Beyond strategy by focusing first and foremost on strong foundational technology

•Virtual Care. We encourage access for customers through telehealth services delivery ofas a business aligned technology project portfolio and prioritized strategic innovation that creates solutions that differentiate us inway to support the market.patient/doctor relationship. Our technology innovation continues to focus on three strategic areas: insights and analytics; digital health; and care delivery and management. Our technology strategy ultimately improvestelehealth coverage provides the flexibility for the customer experience, increases engagementto access their own medical and advances population health using data driven insights, utilizing artificial intelligence and machine learning to provide key areas of competitive advantage. Innovation is core to the way we do business and will be a critical factor to our success in the highly dynamic health care industry. Cigna's innovative technology solutions continue to improve affordability and increase personalization: for example the Cigna One Guide® program combines a state-of-the-art digital experience with a human concierge service, and the Cigna SureFit® network allows individual family members to choose their personal care networks consistent with their health needs and provider preferences.

​​​CIGNA CORPORATION - 2018 Form10-K    7

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Our business strategy is based upon providing customers with differentiated, easy-to-use, seamless and secure products and solutions that utilize insights from advanced analytics to meet their expectations. We anticipate needs and meet customers where they are, from predicting and preventing chronic diseases, to mining data to reduce payment and claims fraud, to using the data from wearable devices to optimize population health status. In 2018, Cigna advanced its strategic technology leadership position by expanding our digital portfolio with the integration of the Brighter acquisition. Brighter's digital platform for connecting patients with a dental provider, allowing them to review their experience, gain insights to costs and see a dentist's history demonstrates the leadership in the digital engagement of health care customers. We also began the roadmap of leveraging Express Scripts technology value creators. Each of these companies contributes to our business model and strengthens the Cigna portfolio. Further, Cigna will apply the Express Scripts technology toolkit to advance the 360 degree view of the patient through flexible, open and connected solutions. With the combined strengths and capabilities of Cigna and Express Scripts, we see greater opportunities to create novel, highly-tailored customer insights as we mine data and use sophisticated artificial intelligence and machine learning techniques to build better models that help us find solutions to complex questions and improve health care outcomes. We will continue to develop leading data driven solutions such as applying propriety algorithms and machine learning to predict customers that could overdose on prescription opioids.

Data Analytics

Cigna has transformed substantial investments in analytics talent, data infrastructure and machine learning capabilities over the past several years into a closed-loop, self-learning insights system that guides our decision-making and allows us to execute on our strategy. Our "Insights That Matter" analytics process helps our business leaders identify the questions that matter most to our customers and partners while our data science experts focus on answering those questions with innovative methodologies and transform our insights into targeted business actions. We apply advanced analytics across our business and will continue to invest in expanding and strengthening our capabilities to better anticipate, meet and exceed our customers' and partners' expectations.

Health Services

This segment consists of the Express Scripts PBM business beginning December 21, 2018behavioral providers, as well as Cigna's legacy home delivery operations that offer high quality, efficient, and cost-effective mail order, telephone, and on-line pharmaceutical fulfillment services. In 2018, Health Services reported adjusted revenuesa network of $6.6 billion and pre-tax adjusted income from operationstelehealth providers for urgent care needs.

Industry Developments
See the “Industry Developments” section of $380 million, including 11 days of Express Scripts results.

​ ​​ ​​
​  How We Win
​
​​​ ​​

•

Identifying products and offering solutions that focus on improving patient outcomes and assist in controlling costs

•

Evaluating medicines for efficacy, value and price to assist clients in selecting a cost-effective formulary

•

Offering home delivery and specialty services that save clients money and provide better care

•

Leveraging purchasing volume to deliver discounts

•

Promoting the use of generics and lower cost brands

​​​ ​​
​8    CIGNA CORPORATION - 2018 Form10-K​​

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ITEM 1. Business

The following chart depicts a high level summary of our principal products and servicesthe MD&A in this segment with definitions on subsequent pages.

Form 10-K for discussion of key industry developments impacting this segment.

INTERNATIONAL MARKETS
​​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​
Principal Products &
Services

​Brands/
Subsidiaries

​Key Customer(s)
​Primary Competitors
​
​ ​​ ​​​​ ​​ ​​​​ ​​ ​​
Clinical SolutionsRationalMed, ScreenRx,
ExpressAlliance, Advanced
Opioid Management		Clients, CustomersIndependent PBMs, Managed Care
PBMs
​ ​​ ​​​​ ​​ ​​​​ ​​ ​​
Value ProgramsSafeGuardRxClients, Customers, PharmaciesIndependent PBMs, Managed Care
PBMs
​ ​​​​ ​​ ​​​​ ​​ ​​​​
Specialized Pharmacy CareTherapeutic Resource CenterCustomersIndependent PBMs, Managed Care
PBMs, Retail Pharmacies
​ ​​​​ ​​ ​​​​ ​​ ​​​​
Home Delivery Pharmacy ServicesTel-Drug, Express Scripts,
Therapeutic Resource
Centers		CustomersIndependent PBMs, Managed Care
PBMs, Retail Pharmacies
​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​
Specialty Pharmacy ServicesAccredo, Freedom Fertility,
Tel-Drug		Clients, Customers, PharmaciesIndependent PBMs, Managed Care
PBMs, Retail Pharmacies
​​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​
Retail Network Pharmacy AdministrationExpress ScriptsClients, CustomersIndependent PBMs, Managed Care
PBMs
​ ​​ ​​​​ ​​ ​​​​ ​​ ​​
Benefit Design ConsultationExpress ScriptsClientsIndependent PBMs, Managed Care
PBMs, Third-Party Benefit
Administrators
​ ​​​​ ​​ ​​​​ ​​ ​​​​
Drug Utilization ReviewExpress ScriptsClients, CustomersIndependent PBMs, Managed Care
PBMs, Third-Party Benefit
Administrators
​​​ ​​ ​​​​ ​​ ​​​​ ​​
Drug Formulary ManagementExpress ScriptsClientsIndependent PBMs, Managed Care
PBMs
​​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​
Drug Claim AdjudicationExpress ScriptsClientsIndependent PBMs, Managed Care
PBMs, Third-Party Benefit
Administrators
​ ​​ ​​​​ ​​ ​​​​ ​​ ​​
Administration of Group Purchasing Organizations ("GPO")Econdisc, ValoremRxClients, PharmaciesGroup Purchasing Organizations
​ ​​ ​​​​ ​​ ​​​​ ​​ ​​
Prescription CardInside RxCustomersRetail Pharmacies, Discount Programs
​ ​​​​ ​​ ​​​​ ​​ ​​​​


​​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​
Principal Products &
Services

​Brands/
Subsidiaries

​Key Customer(s)
​Primary Competitors
​
​ ​​ ​​​​ ​​ ​​​​ ​​ ​​
Digital Consumer Health and Drug InformationExpress ScriptsCustomersIndependent PBMs, Managed Care PBMs, Retail Pharmacies
​ ​​​​ ​​ ​​​​ ​​ ​​​​
Provider ServicesCuraScript Specialty DistributionHealthcare Providers, Clinics, HospitalsSpecialty drug distributors
​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​
Medical Benefit Management ServiceseviCore, CareContinuumHealth Plans, Commercial and Government PayorsHealth Plans, Third-Party Benefits
Administrators, Clinical Solutions
and Health Care Data Analytics
Companies
​ ​​ ​​​​ ​​ ​​​​ ​​ ​​

Principal Products & Services

Pharmacy Benefit Management Services. Our PBM services drive high quality, cost-effective pharmaceutical care through prescription drug utilization and cost management. We consult with clients to assist in selecting plan design features that balance their requirements for cost control with customer choice and convenience. We focus our solutions to enable better decisions in four important, interrelated areas: benefit choices, drug choices, pharmacy choices and health choices. As a result, we believe we deliver better outcomes, higher customer satisfaction and a more affordable prescription drug benefit. As of December 31, 2018, we operated four high-volume automated dispensing home delivery pharmacies, five non-dispensing prescription processing centers, five customer contact centers, seven specialty home delivery pharmacies, 20 specialty branch pharmacies and eight specialty nursing offices.

•
Clinical Solutions.  We offer innovative clinical programs to drive better health outcomes at a lower cost by identifying and addressing unsafe, ineffective and wasteful prescribing; dispensing and utilization of prescription drugs; and intervening with, or supporting interventions with, physicians, pharmacies and customers.

    •
    RationalMed® evaluates medical, pharmacy and laboratory data to detect critical customer health and safety risks that are addressed through timely notice to physicians, pharmacies, customers and case managers.

    •
    ScreenRx® uses proprietary predictive models to detect customers at risk for nonadherence and proactively address the problem through customized interventions for each individual customer.
​​​CIGNA CORPORATION - 2018 Form10-K    9

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      •
      ExpressAlliance® offers customer care coordination services that enable customer-authorized health care professionals to share a common view of a customer's health record and coordinate customer outreach and counseling.

      •
      Advanced Opioid ManagementSM works comprehensively with customers, prescribers and pharmacies to minimize early exposure to opioids while helping prevent progression to overuse and abuse.

Other solutions include Total Performance Management, Concurrent Drug Utilization Review, Advanced Utilization Management, Medication Therapy Management, Digital Report Monitoring and Fraud, Waste and Abuse.

•
Express Scripts SafeGuardRx®.  We are the industry leader in offering a suite of solutions aimed at therapy classes that pose significant budgetary threats and clinical challenges to patients. Our solutions are designed to keep our clients ahead of the cost curve while providing customers the personalized care and access they need. These solutions are offered throughout our PBM services and include, but are not limited to: Pulmonary Care Value ProgramSM; Multiple Sclerosis Care Value ProgramSM; Inflammatory Conditions Care Value ProgramSM; Diabetes Care Value ProgramSM; Hepatitis Cure Value Program®; Cholesterol Care Value Program®; Oncology Care Value Program®; Market Events Protection Program®; and Inflation Protection ProgramSM. Innovative programs, such as Express Scripts SafeGuardRx, combine utilization management controls with formulary management, the specialized care model of our Therapeutic Resource Center® program (described below) and comprehensive guarantees, and help us to change the market in key specialty categories. Notably, our programs covering oncology and inflammatory conditions have introduced a value-based contracting approach, with payments now tied to a product's effectiveness.

•
Specialized Pharmacy Care.  At the center of Express Scripts' condition-specific approach to care are Therapeutic Resource Center services, which are pharmacy practices specializing in caring for customers with the most complex and costly chronic conditions including cardiovascular disease, diabetes, cancer, HIV, asthma, depression and other rare and specialty conditions. Our Therapeutic Resource Center services are designed to optimize the safe and appropriate dispensing of therapeutic agents, minimize waste, and improve clinical and financial outcomes. Through our Therapeutic Resource Center services, specialist pharmacists provide the expert, personalized care that customers increasingly demand.

•
Home Delivery Pharmacy Services.  In addition to the order processing that occurs at these home delivery pharmacies, we operate several non-dispensing prescription processing facilities and customer contact centers. Our pharmacies provide greater safety and accuracy than retail pharmacies, convenient access to maintenance medications, and better management of our clients' drug costs through operating efficiencies. We are directly involved with the prescriber and customer through our home delivery pharmacies, and our research shows that we achieve a higher level of generic substitutions, therapeutic interventions and better adherence than is achieved through retail pharmacy networks.

•
Specialty Pharmacy Services.  Specialty medications are used primarily for the treatment of complex diseases. These medications are broadly characterized to include those with frequent dosing adjustments, intensive clinical monitoring, the need for customer training, specialized product administration requirements and/or medications limited to certain specialty pharmacy networks by manufacturers. Through a combination of assets and capabilities, we provide an enhanced level of personalized care and therapy management for customers taking specialty medications, increased visibility and improved outcomes for payors, as well as custom programs for biopharmaceutical manufacturers.

    •
    Accredo Health Group ("Accredo") is focused on dispensing injectable, infused, oral or inhaled drugs that require a higher level of clinical service and support than traditional pharmacies typically offer.

    •
    Accredo achieves better outcomes for customers and reduces waste for clients through specialty trained clinicians, a nationwide footprint, a network of in-home nursing services, reimbursement and customer assistance programs, and biopharmaceutical services.

    •
    Our subsidiary Freedom Fertility is a leading specialty pharmacy focused on the needs of fertility customers and providers. Through Freedom Fertility, we provide insurance assistance, customer education, and support.

    •
    Our subsidiary Care Continuum provides medical benefit drug management services that enable greater oversight of our clients' specialty spend billed through the medical benefit designed to ultimately make specialty drugs more affordable and accessible.

•
Retail Network Pharmacy Administration.  We contract with retail pharmacies to provide prescription drugs to customers of the pharmacy benefit plans we manage. In the United States, Puerto Rico and the Virgin Islands, we negotiate with pharmacies to discount drug prices provided to customers and manage national and regional networks responsive to client preferences related to cost containment, convenience of access for customers and network performance. We also manage networks of pharmacies customized for or under direct contract with specific clients and have contracted with pharmacy provider networks to comply with CMS access requirements for the federal Medicare Part D Prescription Drug Program ("Medicare Part D"). All retail pharmacies in our network communicate with us online and in real-time to process prescription drug claims. When a plan member presents their identification card at a network pharmacy, the network pharmacist sends specific member, prescriber and prescription information in an industry-standard format through our systems, which process the claim and respond to the pharmacy with relevant information to process the prescription.

•
Benefit Design Consultation.  We consult with our clients on how best to structure and leverage the pharmacy benefit to meet plan objectives for affordable access to the prescription medications people need to stay healthy, and ensure the safe and effective use of those medications.

•
Drug Utilization Review.  When prescriptions are presented to our pharmacies or submitted for coverage, we review them electronically and systematically in real-time for safety and effectiveness. We then alert the dispensing pharmacy to detected issues. Issues not adequately addressed at the time of dispensing may also be communicated to the prescriber retrospectively.

•
Drug Formulary Management.  Formularies are lists of drugs with designations that may be used to determine drug coverage, customer out-of-pocket costs, and communicate plan preferences in competitive drug categories. Our formulary management services support clients
​10    CIGNA CORPORATION - 2018 Form10-K​​

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    in establishing formularies that assist customers and physicians in choosing clinically appropriate, cost-effective drugs and prioritize access, safety and affordability. We administer specific formularies on behalf of our clients, including standard formularies developed and offered by Express Scripts and custom formularies in which we play a more limited role. Most of our clients select standard formularies, governed by our National Pharmacy & Therapeutics Committee (the "P&T Committee") that comprises a panel of independent physicians and pharmacists in active clinical practice representing a variety of specialties and practice settings, typically with major academic affiliations. In making formulary recommendations, the P&T Committee considers only the drug's safety and efficacy and not the cost of the drug, including any negotiated manufacturer discount or rebate arrangement. This process is designed to ensure the clinical recommendation is not affected by our financial arrangements. We fully comply with the P&T Committee's clinical recommendations regarding drugs that must be included or excluded from the formulary based on their assessment of safety and efficacy.

•
Drug Claim Adjudication.  We process drug claims for home delivery or retail networks through integration of retail network pharmacy administration, benefit design consultation, drug utilization review, drug formulary management and pharmacy fulfillment services. We administer payments to retail networks and bill benefits costs to our clients through our end-to-end adjudication services.

•
Inside Rx.  The Inside Rx program delivers broad and affordable access to medication for the uninsured and those navigating the changing health care landscape. Inside Rx partners with participating retail pharmacies and major pharmaceutical companies to provide discounts, via a discount card for customers who would otherwise pay full list price for prescription medications. This program works collaboratively across the pharmacy supply chain with a shared focus to ensure customers have affordable access to medication they need. Inside Rx also provides access to pet prescriptions via our home delivery pharmacy services.

•
Administration of a Group Purchasing Organization.  We operate a group purchasing organization ("GPO") that negotiates pricing for the purchase of pharmaceuticals from pharmaceutical manufacturers and suppliers. We also provide various administrative services to GPO participants including negotiation and management of the GPO purchasing contracts. Express Scripts' GPO is a member of the GPO of Walgreens Boots Alliance Development GmbH.

•
Digital Consumer Health and Drug Information.  We empower customer decision-making through online and mobile tools that help customers make informed drug, pharmacy and health choices. Information included on our website and mobile application are not part of this annual report.

•
Provider Services.  CuraScript Specialty Distribution ("CSD") is a specialty distributor of pharmaceuticals and medical supplies (including injectable and infusible pharmaceuticals and medications to treat specialty and rare or orphan diseases) directly to health care providers, clinics and hospitals in the United States for office or clinic administration. Through our CSD business, we provide distribution services primarily to office and clinic-based physicians who treat customers with chronic diseases and regularly order costly specialty pharmaceuticals. CSD provides competitive pricing on pharmaceuticals and medical supplies, operates three distribution centers, and ships most products overnight within the United States; CSD also provides distribution capabilities to Puerto Rico and Guam. CSD is a contracted supplier with most major group purchasing organizations and leverages our distribution platform to operate as a third-party logistics provider for several pharmaceutical companies.

•
Medical Benefit Management Services.  eviCore is a leading provider of integrated medical benefit management solutions that focus on driving adherence to evidence-based guidelines, improving the quality of customer outcomes and reducing the cost of care for our clients. eviCore manages medical benefits in categories including radiology, cardiology, musculoskeletal disorders, sleep disorders, post-acute care, genetic lab, specialty pharmacy and medical oncology. eviCore contracts with health plans and other commercial and governmental payors to promote the appropriate use of health care services and contracts. In certain instances, this occurs through capitated risk arrangements, where we assume the financial obligation for the cost of health care services provided to eligible customers covered by eviCore's health care management programs.

Customers

•
Clients.  We provide services to managed care organizations, health insurers, third-party administrators, employers, union-sponsored benefit plans, workers' compensation plans, government health programs, providers, clinics, hospitals and others.

•
Customers.  Prescription drugs are dispensed to customers of the clients we serve primarily through networks of retail pharmacies under non-exclusive contracts with us and through our home delivery fulfillment pharmacies, specialty drug fulfillment pharmacies and fertility fulfillment pharmacies.

Our key customers include the United States Department of Defense ("DoD") and Anthem. The DoD's TRICARE Pharmacy Program is the military health care program serving active-duty service customers, National Guard and Reserve customers, and retirees, as well as their dependents. Under our DoD contract, we provide online claims adjudication, home delivery services, specialty pharmacy clinical services, claims processing and contact center support and other services critical to managing pharmacy trend.

On January 30, 2019, Anthem exercised its right to early terminate their pharmacy benefit management services agreement with us, effective March 1, 2019. There is a twelve-month transition period ending March 1, 2020. It is expected that the transition of Anthem's customers will occur at various dates, as informed by Anthem's technology platform migration schedule. Over the next twelve months, we will focus on an effective transition of this relationship and related services over Anthem's accelerated timeline. For further discussion of our Anthem relationship, see the "Executive Summary — Key Transactions and Developments" section of our MD&A located in Part II, Item 7 of the Form 10-K.

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Competition

The health care industry has undergone periods of substantial consolidation and may continue to consolidate in the future. We believe the primary competitive factors in the industry include the ability to: negotiate with retail pharmacies to ensure our home delivery pharmacy and retail pharmacy networks meet the needs of our clients and customers; negotiate discounts and rebates on prescription drugs with drug manufacturers; navigate the complexities of government-reimbursed business including Medicare, Medicaid and the Public Exchanges; manage cost and quality of specialty drugs; use the information we obtain about drug utilization patterns and consumer behavior to reduce costs for our clients and customers; and the level of service we provide.

•
Independent PBMs.  MedImpact and Navitus Health Solutions compete with us on a variety of products and in various regions throughout the United States.

•
Managed Care PBMs.  Aetna Inc. (owned by CVS Health Corporation), Humana, OptumRx (owned by UnitedHealth Group) and Prime Therapeutics (owned by a collection of Blue Cross / Blue Shield Plans) compete with us on a variety of products and in various regions throughout the United States.

•
Retail Pharmacies.  CVS Caremark (owned by CVS Health) and Envision Rx (owned by Rite Aid). Wal-Mart Stores, Inc. engages in certain activities competitive with PBMs.

•
Third-Party Benefits Administrators.  Third parties that specialize in claim adjudication and benefit administration, such as Argus, are direct competitors. With the emergence of alternative benefit models through Private Exchanges, the competitive landscape also includes brokers, health plans and consultants. Some of these competitors may have greater financial, marketing and technological resources than we do and new market entrants, including strategic alliances aimed at modifying the current health care delivery models or entering the prescription drug sector from another sector of the health care industry, may increase competitiveness as barriers to entry are relatively low.

•
Clinical Solutions and Health Care Data Analytics Companies.  Optum (owned by UnitedHealth Group), Anthem, Inc., Magellan Health, HealthHelp, Cotiviti, and Inovalon are among the companies that compete with us in this market.

Quality

•
Sales and Account Management.  Our sales and account management teams market and sell PBM solutions and are supported by client service representatives, clinical pharmacy managers and benefit analysis consultants. These teams work with clients to develop innovative strategies that put medicine within reach of customers while helping health benefit providers improve access to and affordability of prescription drugs.

•
Supply Chain.  Our supply chain contracting and strategy teams negotiate and manage pharmacy network contracts, pharmaceutical and wholesaler purchasing contracts, and manufacturer rebate contracts. As our clients continue to experience increased cost trends, our supply chain teams develop innovative solutions such as Express Scripts SafeGuardRx and narrow networks to combat these price increases. In addition, our Formulary Consulting team, consisting of pharmacists and financial analysts, provides services to our clients to support formulary decisions, benefit design consultation and utilization management programs.

•
Clinical Support.  Our staff of highly trained health care professionals provides clinical support for our PBM and medical benefit management services, including more specialized care for customers with select chronic and complex conditions. We operate condition-specific Therapeutic Resource Center facilities staffed with specialist pharmacists, nurses and other clinicians who provide personal and specialized customer care. Our clinical solutions staff of pharmacists and physicians provides clinical development and operational support for our PBM services. These health care professionals conduct a wide range of activities including identifying emerging medication-related safety issues and alerting physicians, clients, and customers (as appropriate); providing drug information services; managing formulary; and developing utilization management, safety (drug utilization review) and other clinical interventions.

•
Research and Analytics.  Our research and analytics team conducts timely, rigorous and objective research that supports evidence-based pharmacy benefit management and evaluates the clinical, economic and individual impact of pharmacy benefits. They also use predictive modeling, machine learning and other analytical tools to develop and improve our products and services. The team also produces the Express Scripts Drug Trend Report, which examines trends in pharmaceutical utilization and cost, the factors triggering those trends and new solutions our clients can implement to control their pharmacy spend while improving the health of their customers.

Technology

Our technology team supports the various management information systems essential to our operations including the pharmacy and medical benefit claims processing systems and specialty pharmacy systems, while seeking opportunities to optimize our technology solutions by consolidating and upgrading our technology platforms.

Uninterrupted point-of-sale electronic retail pharmacy claims processing is a significant operational requirement for our business. Claims in the United States are processed through systems managed and operated domestically by internal resources and an outsourced vendor. We believe we have substantial capacity for growth in our United States claims processing facilities.

We leverage outsourced vendor services to provide certain disaster recovery services for systems located at our data centers. For systems not covered by a third-party vendor arrangement, such as our specialty pharmacy data centers, our corporate disaster recovery organization manages internal recovery services.

Express Scripts is proud of its commitment to innovation in the field of health care. Express Scripts innovations improve patient outcomes while eliminating waste in the health care system. Express Scripts Holding Company and its affiliated companies (individually and/or collectively "Express Scripts") hold more than 170 United States patents. We use these patents to protect our proprietary technological advances.

​12    CIGNA CORPORATION - 2018 Form10-K​​

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Our technology platform allows us to safely, rapidly, and accurately adjudicate 1.4 billion adjusted prescriptions annually. Our technology helps retail pharmacies focus on patient care, and our real-time safety checks help avoid hundreds of thousands of medication errors annually. Technology is the backbone to all of our solutions – from our provider-focused advances that improve e-prescribing and electronic prior authorization – to our patient-friendly app and website interfaces, and our continued investments provide an easier, more efficient experience with all of our partners.

Our formulary strategy and our SafeGuardRx program are also rooted in technology that applies our deep pharmacy expertise and data insights more rapidly and comprehensively to drive better clinical and financial outcomes for clients and patients.

Our Health Services business owns and has registered certain trade and service marks with the United States Patent and Trademark Office, including but not limited to the following marks: EXPRESS SCRIPTS®, MEDCO®, ACCREDO®, CURASCRIPTSD®, EVICORE HEALTHCARE®, FREEDOM FERTILITY PHARMACY®, RATIONALMED®, SCREENRX®, EXPRESSALLIANCE®, THERAPEUTIC RESOURCE CENTER®, ADVANCED OPIOID MANAGEMENTSM, SAFEGUARDRX®, CHOLESTEROL CARE VALUESM, HEPATITIS CURE VALUESM, MARKET EVENTS PROTECTIONSM, ONCOLOGY CARE VALUESSM, DIABETES CARE VALUESM, INFLAMMATORY CONDITIONS CARE VALUESM, INFLATION PROTECTIONSM, PULMONARY CARE VALUESM, MULTIPLE SCLEROSIS CARE VALUESM, and INSIDE RX®.

We also hold a portfolio of patents and pending patent applications. We are not substantially dependent on any single patent or group of related patents.

Suppliers

We maintain an inventory of brand name and generic pharmaceuticals in our home delivery and specialty pharmacies. Our specialty pharmacies also carry biopharmaceutical products to meet the needs of our customers, including pharmaceuticals for the treatment of rare or chronic diseases; if a drug is not in our inventory, we can generally obtain it from a supplier within one business day.

We purchase pharmaceuticals either directly from manufacturers or through authorized wholesalers. Express Scripts uses one wholesaler more than others in the industry, but holds contracts with other wholesalers if needs for an alternate source arise and believes alternative supply is readily available should it be needed. Generic pharmaceuticals are generally purchased directly from manufacturers.

Industry Developments

See the "Industry Developments" section of the MD&A in this Form 10-K beginning on page 47 for discussion of key industry developments impacting this segment.

International Markets

Cigna'sCigna’s International Markets segment has operations in over 30 countries or jurisdictions providing a full range of comprehensive medical and supplemental health, life and accident benefits to individuals and employers. Products and services include comprehensive health coverage, hospitalization, dental, critical illness, personal accident, term life, medical cost containment and variable universal life. In 2018,2020, International Markets reported adjusted revenues of $5.4$5.9 billion and pre-tax adjusted income from operations of $735$900 million.

South Korea represents our single largest geographic market for International Markets. For information on this concentration of risk for the International Markets segment's business in South Korea, see "Other Items Affecting Results of International Markets" in the International Markets section of the MD&A located in Part II, Item 7 of this Form 10-K.
15

HOW WE WIN
​ ​​ ​​
​  How We Win
​
​​​ ​​

•

Broad

·Offering a broad range of health and protection relatedprotection-related solutions to meet the needs of the growing
 middle class and globally mobile

•

·Leveragingdeep consumer insightsto drive product andservice innovation

•

Leading

·Maintaining leading innovative, direct to consumer direct-to-consumer distribution capabilities

•

Access

·Providing access to quality, affordable care through one of thelargest global provider networks

•

Locally licensed

·Implementing locally-licensed andcompliantsolutions managed bystrong, locally developedlocally-developed talent

​​​ ​​

Demand for our products and services is underpinneddriven by the growing global middle class, aging populations, increasing prevalence of chronic conditions and rising global health care costs. Our focus on product and service innovation means we continue to deliver solutions that meet the evolving needs of individual and group customers. Our products, distribution channels and funding sources range by product, customer and geography.

International Markets is well-positionedwell positioned to address the growing demand for access to quality, affordable care and supplemental health and life protection that fill gaps in public and private care. We distinguish ourselves through differentiated direct-to-consumer distribution, customer insights, product innovation, a leading provider network and compliant solutions. We identify and pursue attractive market opportunities to bring health and protection solutions and tailor those solutions to the market and customer needs. Over the past several years, we have

​​​CIGNA CORPORATION - 2018 Form10-K    13

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extended our product offerings and geographic reach. The chart below provides a high-level summary of our Principal Productsprincipal products and Servicesservices in this segment as of year-end, with definitions on subsequent pages.

Principal Products & ServicesMajor Brand(s)GeographyFunding Solution(s)Key RelationshipsPrimary Distribution Channel(s)Primary Competitors
​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​​​
Principal
Products &
Services


​Major Brand(s)
​Geography
​Funding
Solution(s)

​Key
Customer(s)

​Primary
Distribution
Channel(s)


​Primary
Competitors

​
​ ​​ ​​​​ ​​ ​​​​ ​​ ​​​​ ​​ ​​​​ ​​ ​​
Global Health CareCigna Global Health Benefits,

Cigna Global IPMIIndividual Health		Worldwide (except as limited by applicable law)ER, GC, ASOWorldwideExperience-rated, Guaranteed Cost, ASOMultinational Companies, Inter-governmental and Non-governmental Organizations


Globally mobile individuals		Brokers, Agents, Direct-to-ConsumerGlobal insurers
​​​ ​​ ​​​​ ​​ ​​​​ ​​ ​​​​ ​​ ​​​​ ​​
Local Health CareCigna,
ManipalCigna,
 CignaCMB		Cigna CignaTTK CignaCMBUnited Kingdom, Spain, Hong Kong, India, China, Singapore, Middle East, ThailandER, GC, ASOExperience-rated, Guaranteed Cost, ASOEmployer Groups


 
Individuals		Brokers, Agents, Direct-to-ConsumerGlobal insurers and local non-U.S. insurers
​ ​​ ​​​​ ​​ ​​​​ ​​ ​​​​ ​​ ​​​​ ​​ ​​
Supplemental Health, Life, & AccidentCigna
LINA Korea,


CignaCMB, CignaTTK
 ManipalCigna,
 CignaFinans		Asia Pacific, India, TurkeyGCIndividualsGuaranteed CostIndividualsAffinity, Bancassurance, Brokers, Agents, Direct-to-ConsumerGlobal insurers and local foreignnon-U.S. insurers
​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​

Principal Products & Services

Principal Products & Services

Global Health Care products and services include insurance and administrative services for medical, dental, pharmacy, vision and life, accidental death and dismemberment and disability risks. We are leading providers of products and services that meet the needs of multi-nationalmultinational employers, intergovernmental and non-governmentalnongovernmental organizations and globally mobile individuals with a focus on keeping employees healthy and productive. The employer benefits products and services are offered through guaranteed cost, experience-rated and administrative services only funding solutions, while individuals purchase guaranteed cost (insured) coverage. For definitions of funding solutions, see "Funding Solutions"“Revenues: Fees and Premiums” section in the "Integrated Medical" description of business“Business - U.S. Medical” section on page 6 of this Form 10-K.

Local Health Care products and services include medical, dental, pharmacy and vision as well as life coverage. The customers of local health care businesses are employers and individuals located in specific countries where the products and services are purchased. These employer services can similarly be funded through a range of options andoptions; individuals purchase on a guaranteed cost basis.

16

Supplemental Health, Life and Accident Insurance products and services generally provide simple, affordable coverage of risks for the health and financial security of individuals. Supplemental health products provide specifiedstated benefit payments for a variety ofcertain specified health risks and include personal accident, accidental death, critical illness, hospitalization, travel, dental, dementia, cancer and other dread diseasespecified condition coverages. We also offer customers term and variable universal life insurance and certain savings products in select markets.

Competition

We anticipate that the competitive environment will continue to intensify as insurance and financial services providers more aggressively pursue expansion opportunities across geographies, particularly Asia. We believe competitive factors will include speed-to-market, customer insights, branding, product, distribution and service innovation, underwriting and pricing, efficient management of marketing and operating processes, commission levels paid to distribution partners, the quality of compliance functions, claims, network coverage and medical cost management and talent acquisition and retention. Additionally, in most overseas markets, perception of commitment to the market and financial strength will likely be an important competitive factor.

Pricing and Reinsurance

Premium rates and fees for our global and local health care products reflect assumptions about future claims, expenses, customer demographics, investment returns and profit margins. For products using networks of contracted health care professionalsproviders and facilities, premiums reflect assumptions about the impact of these contracts and utilization management on future claims. Most contracts permit rate changes at least annually.

The profitability of health care products is dependent upon the accuracy of projections for health care inflation (unit cost, location of delivery of care, currency of incurral and utilization), customer demographics, the adequacy of fees charged for administration and effective medical cost management.

Premium rates for our supplemental benefits products are based on assumptions about mortality, morbidity, customer acquisition and retention, customer demographics, expenses and capital requirements, as well as interest rates. Variable universal life insurance products fees consist of mortality, administrative, asset management and surrender charges assessed against the contract holder'scontractholder’s fund balance. Mortality charges on variable universal life may be adjusted prospectively to reflect expected mortality experience. Most contracts permit premium rate changes at least annually.

A global approach to underwriting risk management allows each local business to underwrite and accept risk within specified limits. Retentions are centrally managed through cost effectivecost-effective use of external reinsurance to limit our liability on per life, per risk anda per event (catastrophe) bases.

​14    CIGNA CORPORATION - 2018 Form10-K​​

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basis.

Industry Developments and Other Items Affecting International Markets

South Korea represents our single largest geographic market for International Markets. For information on this concentration of risk for the International Markets segment's business in South Korea. see "Other Items Affecting Results of International Markets" in the International Markets section of the MD&A beginning on page 59 of this Form 10-K.

Pressure on social health care systems, a rapidly aging population and increased wealth and education in developing insurance markets are leading to higher demand for health insurance and financial security products. In the supplemental health, life and accident business, direct marketing channels continue to grow and attract new competitors with industry consolidation among financial institutions and other affinity partners.

Data privacy regulation has tightened in all markets in the wake of high-profile data privacy news scandals,incidents, impacting affinity partner and customer attitudes toward direct marketing of insurance and other financial services.

It has also placed an added emphasis on the importance of operational compliance. In addition to data privacy, consumer protection, specifically market conduct and culture, continues to be a focus for regulators in many markets.

Group Disability and Other

As explained further inCapital requirement standards continue to evolve with several markets implementing new capital regimes over the introduction to this Form 10-K, Group Disability and Other consists of our Group Disability and Life operating segment, along with COLI and certain run-off businesses reported together in Other Operations. In 2018, Group Disability and Other reported adjusted revenues of $5.1 billion and pre-tax adjusted income from operations of $529 million.

next few years.

​ ​​ ​​



How We Win


​
​ ​​ ​​

•

Disability absence management model that reduces overall costs to employers

•

Integration of disability productswith medical and specialty offerings, promoting health and wellness and optimizing employee productivity

•

Complementary portfolio of group disability, life and accident offerings

•

Disciplined underwriting, pricing and investment strategies supporting profitable long-term growth






​ ​​ ​​

Group Disability and Life

Our Group Disability and Life operating segment includes our commercial long- and short-term disability products, and our term life and universal life group insurance products. We also offer personal accident insurance and voluntary products and services. These products and services are distributed through brokers and direct sales and are available in fully-insured, experience-rated and ASO arrangements. The following chart depicts a high-level summary of our Principal Products and Services in this segment as of year-end, with definitions on subsequent pages.

GROUP DISABILITY AND OTHER
​ ​​ ​​ ​​ ​​​​ ​​ ​​ ​​ ​​​​ ​​ ​​ ​​ ​​
Principal
Products &
Services


​Payee
​Premium Rates
​Funding Solution(s)
​Market
Segment(s)

​Primary
Distribution
Channel(s)


​Primary
Competitors

​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Group Disability
​ ​​ ​​​​ ​​ ​​​​ ​​ ​​​​ ​​ ​​​​ ​​ ​​
Long-term DisabilityEmployer, EmployeePreset, guaranteedExperience-rated Insured, Guaranteed Cost Insured, ASOCommercialBrokers, DirectNational Insurers, Regional Insurers
​ ​​​​ ​​ ​​​​ ​​ ​​​​ ​​ ​​​​ ​​ ​​​​
Short-term DisabilityEmployer, EmployeePreset, guaranteedExperience-rated Insured, Guaranteed Cost Insured, ASOCommercialBrokers, DirectNational Insurers, Regional Insurers
​​​ ​​ ​​​​ ​​ ​​​​ ​​ ​​​​ ​​ ​​​​ ​​
Group Life
​
​​​ ​​ ​​​​ ​​ ​​​​ ​​ ​​​​ ​​ ​​​​ ​​
Term LifeEmployer, EmployeePreset, guaranteedExperience-rated Insured, Guaranteed Cost InsuredCommercialBrokers, DirectNational Insurers, Regional Insurers
​ ​​ ​​​​ ​​ ​​​​ ​​ ​​​​ ​​ ​​​​ ​​ ​​
Universal LifeEmployeePreset, guaranteedExperience-rated Insured, Guaranteed Cost InsuredCommercialBrokers, DirectNational Insurers, Regional Insurers
​ ​​ ​​​​ ​​ ​​​​ ​​ ​​​​ ​​ ​​​​ ​​ ​​
Group Accident and Voluntary
​
​ ​​ ​​ ​​ ​​ ​​ ​​ ​​​​ ​​ ​​ ​​ ​​ ​​ ​​
Personal Accident InsuranceEmployer, EmployeePreset, guaranteedExperience-rated Insured, Guaranteed Cost InsuredCommercialBrokers, DirectNational Insurers, Regional Insurers
​​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​
Voluntary Products and ServicesEmployeePreset, guaranteedGuaranteed Cost InsuredCommercialBrokers, DirectNational Insurers, Regional Insurers
​ ​​ ​​​​ ​​ ​​​​ ​​ ​​​​ ​​ ​​​​ ​​ ​​

Group Disability and Other includes Cigna’s Group Disability and Life business which offers group long-term and short-term disability, and group life, accident, voluntary and specialty insurance products and services. Additionally, this segment includes COLI and the Company’s run-off operations. In 2020, Group Disability and Other reported adjusted revenues of $5.3 billion and pre-tax adjusted income from operations of $290 million.
17

Principal Products & Services

On December 31, 2020, Cigna completed the sale of the Group Disability

and Life business to New York Life Insurance Company for $6.2 billion. In connection with the sale, the substantial majority of our Group Disability and Life operating segment was sold to New York Life Insurance Company, and our continuing operations in voluntary products and services will be reported in the U.S. Medical segment following the sale.
Group Disability and Life
In 2020, our Group Disability and Life operating segment included our commercial long- and short-term disability products and our term life group insurance products. We also offered personal accident insurance and will continue to offer voluntary products and services.
Principal Products & Services
•
Group Long-term and Short-term Disability insurance products generally provide a fixed level of income to replace a portion of wages lost due to disability. As part of our group disability insurance products, we also assistassisted employees in returning to work and employers with
​​​CIGNA CORPORATION - 2018 Form10-K    15

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    resources to manage the cost of employee disability. We are an industry leader in helping employees return to work quickly, enabling higher productivity and lower cost for employers and a better quality of life for employees. While we offer this coverage in all three funding arrangements, most of our coverages are guaranteed cost.

•
Leave Administration solutions help customers effectively manage workforce absence and provide coverage for paid leave. We integrate the administration of our disability insurance products with other disability benefit programs, behavioral programs, medical programs, social security advocacy and administration of the federal Family and Medical Leave Act ("FMLA"), State Leave laws and other leave-of-absence programs. We believe this integration supports greater efficiency and effectiveness in disability claims management, enhances productivity and reduces overall costs to employers. Integration also provides early insight into employees at risk for future disability claims. Coordinating the administration of these disability programs with programs offered by our medical business provides enhanced opportunities to influence outcomes, reduce the cost of both medical and disability events and improve the return-to-work rate.

Group Life Insurance

•
Group Term Life insurance may be employer-paid basic life insurance, employee-paid supplemental life insurance or a combination thereof.

•
Group Universal Life insurance is a voluntary life insurance product in which the owner may accumulate a cash value. The cash value earns interest at rates declared from time to time, subject to a minimum guaranteed contracted rate, and may be borrowed, withdrawn, or, within certain limits, used to fund future life insurance coverage.

Other Products and Services

•
Personal Accident Insurance coverage consists primarily of accidental death and dismemberment and travel accident insurance to employers.

•
Specialty Insurance Services consist of disability and life, accident and hospital indemnity products to professional or trade associations and financial institutions.

•
Voluntary Products and Services include plans that provide employers with administrative solutions designed to provide a complete and simple way to manage their benefits program. These voluntary offerings include accidental injury insurance, critical illness coverage and hospital care coverage, and provide additional dollar payouts to employees for unexpected accidents, hospitalization or more serious illnesses.

Group voluntary products and services are not included in the sale of the Group Disability and Life business to New York Life and results of these products and services will be reported in the U.S. Medical segment starting with the first quarter of 2021.

Pricing and Reinsurance

Premiums charged for disability and term life insurance products are usually established in advance of the policy period and are generally guaranteed for one to three years, but selectively guaranteed for up to five years. Policies are generally subject to termination by the policyholder or by the insurance company annually. Premium rates reflect assumptions about future claims, expenses, credit risk, investment returns and profit margins. These assumptions may be based in whole or in part on prior experience of the account or on a pool of accounts, depending on the group size and the statistical credibility of the experience that varies by product.

Premiums for group universal life insurance products consist of mortality and administrative charges assessed against the policyholder's fund balance. Interest credited and mortality charges for group universal life may be adjusted prospectively to reflect expected interest and mortality experience. Mortality charges are subject to maximum guaranteed rates and interest credited on cash values is subject to minimum guaranteed rates as stated in the policy.

The premiums for these products are typically collected within the coverage year and then invested in assets that match the duration of the expected benefit payments that occur over many future years (primarily for disability benefits). With significant investments in longer-duration securities, net investment income is a critical element of profitability for this segment.

The effectiveness of return-to-work programs and morbidity levels will impact the profitability of disability insurance products. Our claim experience and industry data indicate a correlation between disability claim incidence levels and economic conditions, with submitted claims rising under adverse economic conditions, although the extent of this impact is unclear. For life insurance products, the degree to which future experience deviates from mortality and expense assumptions also affects profitability.

To reduce our exposure to large individual and catastrophic losses under group life, disability and accidental death policies, as well as our more recent accidental injury and critical illness policies, we purchase reinsurance from a diverse group of unaffiliated reinsurers. Our comprehensive reinsurance program consists of excess of loss treaties and catastrophe coverage designed to mitigate earnings volatility and provide surplus protection.

Market Segments

•
Commercial.  Commercial Market Segments are comprised of National, Middle Market and Select.

    •
    National. Multi-state employers with 5,000 or more U.S.-based, full-time employees.

    •
    Middle Market. Employers generally with 250 to 4,999 U.S.-based, full-time employees.

    •
    Select. Employers generally with up to 249 eligible employees.

Primary Distribution Channels

•
Insurance Broker and Consultants.  Sales representatives distribute ourThese products and services to a broad group of insuranceare distributed through brokers and consultants across the United States.
​16    CIGNA CORPORATION - 2018 Form10-K​​

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•
Direct.  Sales representatives distribute our productsdirect sales and services directly to employers, unionsare available in guaranteed cost, experience-rated and other groups or individuals across the United States. This may take the form of in-person contact, telephonic or group selling venues.

ASO arrangements.

Competition

The principal competitive factors that affect the Group Disability and Life segment are underwriting and pricing, the quality and effectiveness of claims management, relative operating efficiency, investment and risk management, distribution methodologies and producer relations, the breadth and variety of products and services offered, the quality of customer service and, more importantly, the state of the tools and technology available for customers, clients, consultants and producers. For certain products with longer-term liabilities, such as group long-term disability insurance, the financial strength of the insurer, as indicated by ratings issued by nationally recognized rating agencies, is also a competitive factor.

•
National Insurers.  Unum, The Hartford, Prudential, Lincoln and MetLife compete with us on a variety of products and regions throughout the United States.

Other Operations

Industry Developments

Employers have expressed a growing interest in employee wellness, absence management and productivity, and recognize a strong link between employee health productivity and profitability. As this interest grows, we believe our healthy lifestyle and return-to-work programs and integrated family medical leave, disability and health care programs position us to deliver integrated solutions for employers and employees. Our strong disability management portfolio and fully integrated programs also provide tools for employers and employees to improve health status. Our focus on managing employees' total absence enables us to increase the number and effectiveness of interventions and minimize disabling events.

The group insurance market remains highly competitive as the rising cost of medical coverage has forced companies to re-evaluate their overall employee benefit spending, resulting in lower volumes of group disability and life insurance business and more competitive pricing. Demographic shifts have further driven demand for products and services that are sufficiently flexible to meet the evolving needs of employers and employees who want innovative, cost-effective insurance solutions, and employers continue to move towards greater employee participatory coverage and voluntary purchases. As the market becomes more retail-focused, our broad suite of voluntary offerings and continued focus on developing additional voluntary products and service capabilities positions us well to meet the needs of both employers and employees.

Over the past few years, there has been heightened review by state regulators of the claims handling practices within the disability and life insurance industry. This has resulted in an increase in coordinated, multi-state examinations that target specific market practices in addition to regularly recurring examinations of an insurer's overall operations conducted by an individual state's regulators. We have been subject to such an examination over the past several years. See Note 19D. to our Consolidated Financial Statements for additional information.

The lower level of interest rates in the United States over the last several years has constrained earnings growth in this segment due to lower yields on our fixed-income investments and higher benefit expenses resulting from the discounting of future claim payments at lower interest rates.

Other Operations

Other Operations includes the following:

Corporate-ownedCorporate-Owned Life Insurance

The principal products of the COLI business are permanent insurance contracts sold to corporations to provide coverage on the lives of certain employees for the purpose of financing employer-paid future benefit obligations. Permanent 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 administrative charges assessed against the policyholder'spolicyholder’s fund balance. Interest credited and mortality charges for universal life and mortality charges on variable universal life may be adjusted prospectively to reflect expected interest and mortality experience. To reduce our exposure to large individual and catastrophe losses, we purchase reinsurance from unaffiliated reinsurers.

Run-off Settlement Annuity Business

Our settlement annuity business is a closed, run-off block of single premium annuity contracts. These contracts are primarily liability settlements with approximately 20% of the liabilities associated with guaranteed payments not contingent on survivorship. Non-guaranteed payments are contingent on the survival of one or more parties involved in the settlement.

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Run-off Reinsurance

Our reinsurance operations are an inactive business in run-off.

In February 2013, we effectively exited the guaranteed minimum death benefit ("GMDB")GMDB and guaranteed minimum income benefit ("GMIB")GMIB business by reinsuring 100% of our future exposures, net of retrocessional arrangements in place at that time, up to a specified limit. For additional information regarding this reinsurance transaction and the arrangements that secure our reinsurance recoverables, see Note 810 to ourthe Consolidated Financial Statements.

​​​CIGNA CORPORATION - 2018 Form10-K    17

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PART I
ITEM 1. Business

Individual Life Insurance and Annuity and Retirement Benefits Businesses

This business includes deferred gains recognized from the 1998 sale of the individual life insurance and annuity business and the 2004 sale of the retirement benefits business. For more information regarding the arrangements that secure our reinsurance recoverables for the retirement benefits business, see Note 810 to the Consolidated Financial Statements.

DATA, ANALYTICS AND TECHNOLOGY
Cigna’s investments in data, analytics and technology remain outcome-driven with a focus on driving affordability, simplicity, predictability and growth across all of our business platforms. We deliver value for our clients, customers and stakeholders by creating better health outcomes, improving customer experience and lowering total cost of care.
Data and Analytics. We conduct timely, rigorous and objective research and analysis that informs evidence-based medical and pharmacy benefit management and evaluates the clinical, economic and individual impact of enhanced benefit designs and programs. The combination of our predictive analytics, machine and deep learning capabilities create augmented intelligence that inform decision-making of our health care professionals. We anticipate needs and meet customers where they are, from predicting chronic diseases, to using data to reduce payment and claims fraud, optimizing whole person health and optimizing networks to improve provider access and assist members with care navigation.
We are uniquely positioned to create actionable intelligence by leveraging our rich, integrated data sets and providing differentiating outcomes. During 2020, we were able to leverage both internal and external data related to COVID-19 in order to enhance our ability to predict infections and hospitalizations, inform our operational preparedness and optimize care management to improve health outcomes for our customers, across each of our businesses.
Innovation remains at the forefront of our data, analytic and technology solutions. The advancement of our internal capabilities and strategic partnerships continues to produce new and more effective ways to close gaps in care, optimize treatment and improve outcomes. During 2020, significant continued technology integration delivered cost synergies and drove differentiated innovation in areas such as pharmacy supply chain, specialty pharmacy and retail networks. In the future, we expect continued value realization with focus on customer-facing systems and opportunities for enhanced value in specialty, claims and retail. (See Evernorth Intelligence Solutions section of the "Business - Evernorth" discussion of this Form 10-K for additional information on our intelligent solutions and capabilities).
Our data and analytics talent powers these differentiated capabilities through deep expertise in data management, business analytics, intelligence and data science, with ongoing investments in talent development, analytic and big data technologies enabled by Cigna Technology Services (see below), as well as innovative third party partnerships while ensuring controls are designed to protect sensitive client and customer information.
Technology. Cigna Technology Services enables the strategy by focusing on strong foundational technology services, delivery of a business-aligned technology project portfolio and creating technology solutions to differentiate us in the market. Our innovation continues to support three strategic areas: customer benefit administration and health journey; digital health; and care delivery and management. Our technology drives improved customer experience, increases engagement and advances population health through provider collaboration tools and enables delivery of advanced analytics and predictive intelligence to provide key areas of competitive advantage.
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We continue to bring new technology-enabled products and services to the market, including biometric stress prediction and focused insights in spaces such as women’s health and opioid addiction. Our digital health focus has shown value across the enterprise by creating engaging experiences that give customers the right information at the right time. This includes an enhanced MyCigna.com experience with new features, including refill and payment options, without leaving the mobile application. Cybersecurity protections, such as multi-factor authentication, have been launched across Cigna’s digital offerings providing better peace of mind and a stronger sense of security.
Our technology team, powered by approximately 7,000 employees and several thousand external resources working with our partners, supports the various information systems essential to our Consolidated Financial Statements.

operations including the health benefit claims processing systems and specialty and home delivery pharmacy systems. Uninterrupted point-of-sale electronic retail pharmacy claims processing is a significant operational requirement for our business. We believe we have substantial capacity for growth in our United States pharmacy claims processing facilities. Our pharmacy technology platform allows us to safely, rapidly and accurately adjudicate over one billion adjusted prescriptions annually. Our technology helps retail pharmacies focus on patient care and our real-time safety checks help avoid hundreds of thousands of medication errors annually. The Cigna companies hold over 230 United States patents. We use these patents to protect our proprietary technological advances and to differentiate ourselves in the market.

INVESTMENT MANAGEMENT

Certain International Run-off Businesses

Certain European, Middle Eastern and Canadian operations are in run-off and included in Other Operations.

Investment Management

General Accounts

Our investment operations provide investment management and related services for our corporate invested assets andvarious businesses, including the insurance-related invested assets in our General Account ("(“General Account Invested Assets"Assets”). We acquire or originate, directly or through intermediaries, a broad range of investments including private placement and public securities, commercial mortgage loans, real estate, mezzanine, private equity partnerships and short-term investments. Invested assets also include policy loans that are fully collateralized by insurance policy cash values. We also enter into derivative financial instruments, primarily to minimize the risk of changes in foreign currency exchange rates on our investments. Invested assets are managed primarily by our subsidiaries and, to a lesser extent, external managers with whom our subsidiaries contract. Net investment income is included as a component of adjusted income from operations for each of our segments and Corporate. Realized investment gains (losses) are reported by segment but excluded from adjusted income from operations. For additional information about invested assets, see the "Investment Assets"“Investment Assets” section of the MD&A beginning on page 61 and Notes 911 and 10 of our12 to the Consolidated Financial Statements.

We manage our investment portfolios to reflect the underlying characteristics of related insurance and contractholder liabilities and capital requirements, as well as regulatory and tax considerations pertaining to those liabilities and state investment laws. Insurance and contractholder liabilities range from short duration health care products to longer termlonger-term obligations associated with disability and life insurance products and the run-off settlement annuity business. Assets supporting these liabilities are managed in segregated investment portfolios to facilitate matching of asset durations and cash flows to those of corresponding liabilities. Investment strategy and results are affected by the amount and timing of cash available for investment, competition for investments, economic and market conditions interest rates and asset allocation decisions. We routinely monitor and evaluate the status of our investments, obtaining and analyzing relevant investment-specific information and assessing current economic conditions, trends in capital markets and other factors such as industry sector, geographic and property-specific information.

Separate Accounts

Our subsidiaries or external advisors manage invested assets of Separate Accounts on behalf of contractholders, including the Cigna Pension Plan, variable universal life products sold through our corporate-owned life insurance business and other disability and life insurance products. These assets are legally segregated from our other businesses and are not included in General Account Invested Assets. Income, gains and losses generally accrue directly to the contractholders.

Investing in Innovation

In addition to the portfolio investments in our general and separate accounts discussed above that support our insurance operations, in 2018, we begando targeted investing within the health care industry specifically. Our recently-formedIn 2018, Cigna committed $250 million to Cigna Ventures, unit has been allotted $250 millionour strategic corporate venture fund to invest in promising startups and growth-stage companies that createwho, like us, are unlocking new growth possibilities in health care. These targeted investments bring improved care quality, affordability, choice and greater simplicity to customers, patients and clients by harnessing transformative ideas in: 1)Specifically, we invest in companies making groundbreaking progress in three strategic areas: insights and analytics; 2)/ analytics, digital health and retail; and 3)/ experience, care delivery / enablement. To date, Cigna Ventures has six venture capital partners and management.

14 direct investments. Through these deep partnerships we collaborate, innovate and develop new solutions that address critical market challenges of affordability, predictability and simplicity impacting the people we serve.
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HUMAN CAPITAL MANAGEMENT

Regulation

Cigna’s mission is to improve the health, well-being and peace of mind of those we serve by enabling affordable, predictable and simple health care. A global healthy and diverse workforce is essential to achieving our mission and our business growth strategies. We are continually investing in our global workforce to support our employees’ health and well-being, further drive diversity and inclusion, provide fair and market-competitive pay and foster their growth and development. As of the end of the 2020 fiscal year, we had approximately 73,700 employees, with 89% of our employees based in the United States. Almost all of our employees are full-time, with less than 2% of employees regularly working fewer than 30 hours per week.
Health, Well-Being and Other Benefits
Tending to our employees’ health, well-being and peace of mind is more than just our mission – it is a critical business imperative for our company. At Cigna, we believe that the provision of health and well-being benefits for our employees is our responsibility as an employer, and should not be outsourced to the government or other third parties. Ensuring that our employees have comprehensive health and well-being benefits is not only the right thing to do from a societal perspective – it is also one of the most important investments in our enterprise that we make each year. That is because we strongly believe that a healthy workforce is more productive, has fewer absences and is a critical enabler for us to drive our business and our strategy forward, thereby creating significant shareholder value. In 2020, Cigna invested approximately 17% of total payroll in health, well-being and other benefits, including life and disability programs, 401(k) contributions and retirement-related benefits for its employees in the United States.
In addition to traditional medical and pharmacy benefits, we provide mental health support to employees, including: employee assistance program (EAP) benefits that are free to all employees and to any member of their household, digital tools that provide access to education and therapy to help individuals build greater resilience and cope with stress, anxiety and depression.
Diversity, Equity & Inclusion
At Cigna, we take an expansive view of diversity including race, ethnicity, nationality, gender, veteran status, ability, sexual orientation and gender identity. As of the end of the 2020 fiscal year, 70% of our employees were women, and 37% of our employees in the United States were from underrepresented groups (which includes Black/African American, Hispanic or Latinx, Asian, Pacific Islander, American Indian/Alaskan and employees who identified as two races or more).
We are committed to fairness in pay and opportunity for all of our employees. Our compensation practices, which include benchmarking compensation by role, eliminating inquiries regarding applicants’ compensation history from the hiring process and monitoring for potential disparities, promote equity in pay. Our most recent pay equity analysis, conducted in 2020, showed that in the United States female employees at Cigna earn 99.9 cents for every dollar earned by similarly-situated male employees, and employees from underrepresented groups earn 99.7 cents for every dollar earned by similarly-situated white employees.
We are committed to attracting and recruiting key diverse talent across various leadership development programs and other entry level positions with the business. This success is rooted in strategic relationships with diverse student groups at our partner colleges and universities as well as our commitment to multiple national, regional and local organizations, which provide us focused recruiting opportunities with women, the LGBTQA+ community, military veterans and underrepresented minority groups.
Talent Acquisition, Development and Retention
Our talent acquisition and rewards strategies are designed to ensure we attract and retain skilled employees who are engaged in our mission. Our compensation program is rooted in market competitive base salaries and incentives that reward contributions that advance the Company’s strategy and mission. Our online learning platform and career development tools and events offer a broad range of training, education and development resources to all employees. In 2020, U.S. employees on average engaged in 53 hours of learning through these resources. Enterprise leadership development programs include New Leader Experience, Leading with Excellence, Transformative Leadership, Inclusive Leadership and Leaders in Transition. Cigna also offers an education reimbursement program for both full and part-time employees who meet the continuing education criteria. We believe these strategies and programs contribute to employee engagement and retention. In 2020, the voluntary turnover rate was 3.9% for exempt employees in the United States.
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MISCELLANEOUS
•Revenues from U.S. Federal Government agencies, under a number of contracts, represent 15% of our consolidated revenues in 2020.
•The Company is not dependent on business from one or a few brokers or agents. In addition, our insurance businesses are generally not committed to accept a fixed portion of the business submitted by independent brokers and agents and generally all such business is subject to approval and acceptance.

REGULATION
The laws and regulations governing our business continue to increase each year and are subject to frequent change. We are regulated by federal, state and international regulatorylegislative bodies and agencies, thatwhich generally have discretion to issue regulations and interpret and enforce laws and rules. These regulations can vary significantly from jurisdiction to jurisdiction, and the interpretation of existing laws and rules also may change periodically. Domestic and international governments continue to enact and consider various legislative and regulatory proposals, thatwhich could materially impact the health care system.

We expect continued legislative and regulatory debate of issues related to our businesses. As has become increasingly common with public policy reforms in the health services industry, executive, judicial or legislative intervention could alter, slow or eliminate the impact of any proposal following the related regulation’s promulgation, including, for example, the executive order issued in January 2021 regarding a regulatory freeze pending review which may delay or ultimately result in revision or repeal of various regulatory actions taken in 2020.

Many aspects of our business are directly regulated by federal and state laws and administrative agencies, such as HHS, CMS,the Department of Health and Human Services (“HHS”), Centers for Medicare and Medicaid Services (“CMS”), the Internal Revenue Service ("IRS"(“IRS”), the U.S. Departments of Labor ("DOL"(“DOL”), Treasury and Justice ("DOJ"(“DOJ”), the Office of Personnel Management (“OPM”), the Federal Trade Commission (“FTC”), the U.S. Securities and Exchange Commission ("SEC"(“SEC”), the Office of the National Coordinator for Health Information Technology (“ONC”), state departments of insurance and state boards of pharmacy. Our business practices may also be shaped by judicial decisions.

In addition, aspects of our business are subject to indirect regulation. The self-funded benefit plans sponsored by our U.S. employer clients are regulated under federal law. These self-funded clients expect us to assureensure that our administration of their plans complies with the regulatory requirements applicable to them.

​18    CIGNA CORPORATION - 2018 Form10-K​​

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PART I
ITEM 1. Business

Our business operations and the books and records of our regulated businesses are routinely subject to examination and audit at regular intervals by state insurance and HMO regulatory agencies, state boards of pharmacy, CMS, DOL, IRS, OPM and comparable international regulators to assess compliance with applicable laws and regulations. Our operations are also subject to non-routinenonroutine examinations, audits and investigations by various state and federal regulatory agencies, generally as the result of a complaint. In addition, we may be implicated in investigations of our clients whose group benefit plans we administer on their behalf. As a result, we routinely receive subpoenas and other demands or requests for information from various state insurance and HMO regulatory agencies, state attorneys general, the HHS Office of Inspector General ("OIG"(“HHS-OIG”), the DOJ, the DOL and other state, federal and international authorities. We may also be called upon to provide information by members of the U.S. Congress to provide information, including testifying before congressionalCongressional committees and subcommittees, regarding certain of our business practices. If Cigna is determined to have failed to comply with applicable laws or regulations, these examinations, audits, investigations, reviews, subpoenas and demands may:

•
result in fines, penalties, injunctions, consent orders or loss of licensure;

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suspend or exclude from participation in government programs or limit our ability to sell or market our products;
•require changes in business practices;

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damage relationships with the agencies that regulate us and affect our ability to secure regulatory approvals necessary for the operation of our business; or

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damage our brand and reputation.

Our international subsidiaries are subject to regulations in international jurisdictions, including in certain cases many regulations similar to the federal and state regulations described below, which are complex and where foreign insurers may face more rigorous regulations than their domestic competitors.

competitors and may also be affected by geopolitical developments or tensions.

The laws and regulations governing our business, as well as the related interpretations, are subject to frequent change and can be inconsistent or in conflict with each other. Changes in our business environment are likely to continue as elected and appointed officials at the national and state levels continue to propose and enact significant modifications to existing laws and regulations. Even
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where we believe that we are in compliance with the various laws and regulations, any enforcement actions by federal, state or international government officials alleging non-compliance with these rules and regulations could subject us to penalties or restructuring or reorganization of our business. For a discussion of the risks related to our compliance with these laws and regulations see the Risk Factors section located in Part 1,I, Item 1A of thethis Form 10-K. Management continues to be actively engaged with regulators and policymakers with respect to legislation and rule-making. Seerulemaking.
COVID-19-related Regulatory Actions
In response to COVID-19 which was declared a pandemic by the "Executive Overview –World Health Care Industry DevelopmentsOrganization in early 2020, U.S. federal and Other Matters Affecting our Integrated Medicalstate governments have increasingly enacted new legislative and regulatory requirements, as well as provided flexibility to industry participants within existing legal requirements. These regulatory actions primarily provide for:
•client and customer premium relief to avoid the cancellation or non-renewal of policies;
•mandating or requesting waiver of customer cost-sharing and other related costs such as COVID-19 testing or treatment, as well as establishing provider reimbursement and vaccine immunizations coverage requirements;
•extending claims filing deadlines for providers, customers and facilities;
•mandating or encouraging waiver of customer cost-share related to telemedicine services, as well as requiring certain reimbursement levels for telemedicine providers to encourage its utilization;
•increasing the Medicare fee-for-service reimbursement for certain items and services;
•enacting coverage and reimbursement requirements at in-network levels for certain services received from out-of-network providers;
•clarification regarding permissible sharing of information and coordination among health care providers;
•revising or suspending the use of certain medical management procedures; and
•mandating prescription drug benefit administration requirements primarily related to formulary exceptions and restrictions, and prior authorization and prescription drug refill limits.
These actions are in effect for various durations, but generally track the different states of emergency that have been declared at the state and federal level. Of particular significance is the Public Health Services Segments" sectionEmergency declared by the Secretary of our MD&A located in Part II, Item 7HHS on January 31, 2020, which sets the effective period for certain of the Form 10-K for a discussion of the anticipated impact of certain recent industry developments.

requirements established through federal COVID-19 legislation, such as covering testing without cost sharing.

Patient Protection and the Affordable Care Act (ACA)

The Patient Protection and Affordable Care Act (ACA)(“ACA”) mandated broad changes affecting many aspects ofto the U.S. health care system. The ACA affects many aspects of health care,system, including insured and self-insured health benefit plans and pharmacy benefit managers. Our business model is impacted by the ACA, including our relationships with current and future producers and health care providers, products, service providers and technologies. KeyThe provisions of the ACA include the imposition of a non-tax deductible health insurance industry fee andimposed, among other things, certain assessments on health insurers, the creation ofcreated health insurance exchanges for individuals and small group employers to purchase insurance coverage and implemented minimum medical loss ratios (“MLRs”) for our Medicare and commercial and Medicare Part D business.businesses. Certain states have adopted MLR requirements applicable to our commercial businesses that are more stringent than those established by the ACA. Other provisions of the ACA in effect include reduced Medicare Advantage premiumpayment 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, extending coverage of dependents up to age 26, restrictions on differential pricing, enforcement mechanisms and rules related to healthcarehealth care fraud and abuse enforcement activities and certain pharmacy benefit transparency requirements. The employer mandate requires employers with 50 or more full-time employees to offer affordable health insurance that provides minimum value (each as defined under the ACA) to full-time employees and their dependents, including children up to age 26, or be subject to penalties based on employer size. The ACA also changed certain tax laws to effectively limit tax deductions for certain employee compensation paid by health insurers.

Since its adoption, there have been several attempts to repeal or limit In December 2019, the utility offederal government repealed the ACA. The current administration has issued several executive orders and approved legislative changes that affect the ACA, the impacts of which are not yet fully known. Among other things, these actions restricted agencies from taking certain actions that would impose a fiscal burden on any state, individual, provider, insurer, recipient of health care services, purchaser ofnon-deductible health insurance or maker ofindustry fee effective for 2021, as well as repealing the enacted but never implemented 40% excise tax on certain employer-sponsored coverage (known as the “Cadillac Tax”) and the medical devices, products or medications; and stopped payment of cost-sharing reduction subsidies to insurers. device tax.

In December 2017, U.S. tax reform legislation was signed into law that, among other things, reduced the "individual mandate" penalty for individuals without health insurance to zero dollars, effective January 1, 2019. As a result of this change, a federal district court has ruled that the "individual mandate" is unconstitutional thereby leaving in doubt whether the entire ACA is unconstitutional until there is a final judicial determination on appeal.

Additionally, in 2017, the current administration issued an executive order asking the DOL to revise the Employee Retirement Income Security Act of 1974, as amended ("ERISA") regulations to make it easier for employers, particularly small employers, to associate for the purpose of sponsoring large group health plans and thereby avoid the ACA's small group market reform (e.g., community-rating and mandated coverage of essential health benefits) that impaired the affordability of providing health coverage to their employees. In the spring of 2018, the DOL issued final rules that revised the definition of "employer" in“employer” under the ERISA rulesEmployee Retirement Income Security Act of 1974, as amended (“ERISA”) to make it easier for employers, including self-employed individuals, to form bona fide employer groups, all of whose employees would be counted in determining whether they were small or large groups for purposes of the ACA. While the regulation of these groupings by state insurance departments is not affected by the DOL'sDOL’s final association health plan rules, the final rules have resulted in an increase in interest among employers, associations, producers and benefit consultants in forming new groupings for purposes of offering insured or self-funded group health plans.

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Since its adoption, there have been several attempts to repeal or limit the utility of the ACA. Certain insurers, including Cigna, have sued the federal government for failure to pay cost-sharing subsidies (“CSR”) under the ACA. In the first set of consolidated appeals, the Court of Appeals for the Federal Circuit issued a decision on August 14, 2020, finding that (i) the CSR reimbursement provision of the ACA imposes an obligation on the government to pay, but (ii) the insurers’ damages must be reduced by the amount of additional premium tax credit payments that each insurer received as a result of the government’s termination of CSR payments. Our premium rates for the 2018, 2019 and 2020 plan years reflected a lack of government funding for cost-sharing reduction subsidies. The insurers filed petitions for rehearing en banc in the Federal Circuit and the court denied those petitions. On February 19, 2021, two insurers filed a petition seeking U.S. Supreme Court review. The matter remains unresolved and our case is stayed pending final resolution of the consolidated appeals, including the petition for writ of certiorari in the U. S. Supreme Court. In December 2017, U.S. tax reform legislation was signed into law that, among other things, reduced the “individual mandate” penalty for individuals without health insurance to zero dollars, effective January 1, 2019. As a result of this change, a federal district court has ruled that the “individual mandate” is unconstitutional and that the entire law must be struck down. On appeal, the Court of Appeals for the Fifth Circuit agreed that the “individual mandate” is unconstitutional but ordered the district court to reexamine whether the other provisions of the ACA can remain in effect. The California-led states and the U.S. House of Representatives filed petitions seeking to appeal the Fifth Circuit's ruling to the U.S. Supreme Court. The U.S. Supreme Court heard oral arguments on the appeals on November 10, 2020 and a decision is expected by the end of June 2021.
See Note 3 to the Consolidated Financial Statements for more information regarding accounting policies around the risk mitigation programs under the ACA.
Medicare and Medicaid Regulations

Through our subsidiaries, we offer individual and group Medicare Advantage, Medicare Pharmacy (Part D)Prescription Drug (“Part D”) and Medicare Supplement products. We also provide Medicare Part D-related products and services to other Medicare Part D sponsors, Medicare Advantage Prescription Drug Plans and other employers and clients offering Medicare Part D benefits to Medicare Part D eligible beneficiaries. As part of our Medicare Advantage and Medicare Part D business, we contract with CMS to provide services to Medicare beneficiaries. As a result, our ability to obtain payment (and the determination of the amount of such payments), market to, enroll and retain memberscustomers and expand into new service areas is subject to compliance with CMS'CMS’ numerous and complex regulations and requirements that are frequently modified and subject to

​​​CIGNA CORPORATION - 2018 Form10-K    19

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PART I
ITEM 1. Business

administrative discretion.discretion, review and enforcement. We offer Medicaid and dual-eligible products and participate in state Medicaid programs directly or indirectly through our clients who are Medicaid managed care contractors. We also perform certain Medicaid subrogation services and certain delegated services, including utilization management, for clients, which are regulated by federal and state laws. Our Medicaid and dual-eligible products are regulated by CMS. StateCMS and state Medicaid agencies audit our performance to determine compliance with contracts and regulations.

CMS evaluates Medicare Advantage plans and Part D plans under its "Star Rating"“Star Rating” system. The Star Rating system considers various measures adopted by CMS, including, for example, quality of care, preventativepreventive services, chronic illness management, coverage determinations and appeals and customer satisfaction. A plan'splan’s Star Rating affects its image in the market and plans that perform very well are able to offer enhanced benefits and market more effectively and for longer periods of time than other plans. Medicare Advantage plans'plans’ quality-bonus payments are determined by the Star Rating, with plans receiving a rating of four or more stars eligible for such payments. The Star Rating system is subject to change annually by CMS, which may make it more difficult to achieve and maintain four stars or greater.

For example, beginning with Star Ratings for payment year 2024, CMS will place more emphasis on patient experience survey-based measures which could reduce Star Ratings predictability year over year. Additionally, as a result of the COVID-19 pandemic’s impact on 2020 care patterns and utilization, CMS finalized rules applying relief to Medicare Advantage and Part D Plan Star Ratings for payment year 2023 by utilizing the higher of the payment year 2023 or 2022 measure level Star Ratings.

CMS uses a risk-adjustment model which adjusts premiums paid to Medicare Advantage plans according to customers'customers’ health status. The risk-adjustment model generally pays more where a plan's membership has higheris expected costs.to have increased costs because of the health status of its members. Under this model, rates paid to Medicare Advantage plans are based on actuarially determined bids, which include a process whereby our prospective payments are based on our estimated cost of providing standard Medicare-covered benefits to an enrollee with a "national“national average risk profile."” That baseline payment amount is adjusted to reflect the health status of our enrolled membership. Under the risk-adjustment methodology, Medicare Advantage plans must collect and submit the necessary diagnosis code information from hospital inpatient, hospital outpatient and physician providers to CMS within prescribed deadlines. We generally rely on providers, including certain providers who are employees, to appropriately document their claims and other submissions with appropriate diagnoses from which we extract hierarchical condition codes to submit to CMS as the basis for our payments received under the actuarial risk-adjustment model. The CMS risk-adjustment model uses the diagnosis data to calculate the risk-adjusted premium payment to the plans, which CMS adjusts for coding pattern differences between the health plans and the government fee-for-service program.

In 2012, CMS released a payment methodology that provided for sample audit error rates to be

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extrapolated to the entire Medicare Advantage contract after comparing audit results with a similar audit of Medicare Fee for Service (the “FFS Adjuster”) and applying an FFS Adjuster to establish actuarial equivalency in payment rates as required by the Medicare statute. However, a methodology to calculate the FFS Adjuster was not finalized and CMS has, to date, not completed any Risk Adjustment Data Validation (“RADV”) audits using extrapolation.
On November 1, 2018, CMS released a proposed rule titled "Proposed“Proposed Rule on Changes to MA and Part D Programs for CY 2020 and 2021" (the "MAPD Proposed Rule")2021” that would revise its Risk Adjustment Data Validation ("RADV")RADV methodology for RADV audits of contract year 2011 and all subsequent years by, among other things, excluding an adjustmentextrapolating the error rate related to RADV audit findings without applying the FFS Adjuster. If the proposed rule is adopted in its current form, it could result in some combination of degraded plan benefits, higher monthly premiums and reduced choice for underlying fee-for-service data errors (FFS Adjuster)the population served by all MA insurers. The Company, along with other Medicare Advantage organizations and extrapolatingadditional interested parties, submitted comments to CMS on the proposed rule as part of the notice-and-comment rulemaking process. The comment period concluded on August 28, 2019 and CMS is expected to act by November 2021. RADV results ataudits for our contract years 2011 through 2015 are currently in process. It is uncertain whether CMS will finalize the contract level. On November 30, 2018, CMS released proposed rules titled "Modernizingrule as proposed. See below under “Federal and State Oversight of Government-Sponsored Health Care Programs” for a discussion of RADV audits.
Coverage of prescription drugs under Medicare Part D is also regulated by CMS and Medicare Advantage to Lower Drug Pricesour contracts with CMS contain provisions for risk sharing and Reduce Out-of-Pocket Expenses" (the "Proposed Part D Rule") that focused oncertain payments for prescription drug pricing, including a proposal to amend the definition of "negotiated price" in Part D to require Part D plans to apply pharmacy price concessionscosts for which we are not at the point of sale when calculating a Part D beneficiary's copayment. The Proposed MAPD Rule and the Proposed Part D Rulerisk. These provisions affect our ultimate payments from CMS. For example, premiums from CMS are subject to revision throughrisk corridor payments which compare costs targeted in our annual bids with actual prescription costs, limited to actual costs that would have been incurred under the comment process.

In February 2019,standard coverage as defined by CMS. Variances exceeding certain thresholds may result in CMS proposed rulesmaking additional payments to supportus or require us to refund to CMS a portion of the seamlesspayments we received (known as a risk corridor).

We expect CMS, HHS-OIG, DOJ and secure access, exchange and useother federal agencies to continue to closely scrutinize each component of electronic health information. In the proposed rules, CMS proposes requirements that Medicaid, the Children's Health Insurance Program, Medicare Advantage plansprogram and qualified health plans inmodify the federally-facilitated exchanges provide enrollees with immediate electronic access to medical claimsterms and other health information electronically by 2020. This proposed rule is subject to revision through a comment process.

Non-compliancerequirements of the program. Noncompliance with these laws and regulations may result in significant consequences, including fines and penalties, enrollment sanctions, exclusion from the Medicare and Medicaid programs, limitations on expansion and criminal penalties.

False Claims Act and Anti-Kickback Laws

Our products and services are also subject to numerous laws and regulations, including the federal False Claims Act (the "False“False Claims Act"Act”) and federal and state anti-kickback laws. Additionally, the federal government has made investigating and prosecuting health care fraud, waste and abuse a priority. Fraud, waste and abuse prohibitions encompass a wide range of activities, including kickbacks in return for customer referrals, billing for unnecessary medical services, upcoding and improper marketing. The regulations and contractual requirements in this area are complex, are frequently modified and are subject to administrative discretion and judicial interpretation.


False Claims Act and Related Criminal Provisions. The False Claims Act imposes civil penalties for knowingly makingon any person who makes or causingcauses to be made false claims or false records or statements that he or she knows or should know are false with respect to governmental programs, such as Medicare and Medicaid, to obtain reimbursement or for failure to return overpayments. Private individuals may bring qui tam or "whistleblower"“whistleblower” suits against providers under the False Claims Act, which authorizes the payment of a portion of any recovery to the individual bringing suit. The ACA amended the federal anti-kickback laws to state any claim submitted to a federal or state healthcarehealth care program whichthat violates the anti-kickback laws is also a false claim under the False Claims Act. The False Claims Act generally provides for the imposition of civil penalties and for treble damages, resulting increating the possibility of substantial financial liabilities. Criminal statutes similar to the False Claims Act provide that if a corporation is convicted of presenting a claim or making a statement it knows to be false, fictitious or fraudulent to any federal agency, the corporation may be fined. Conviction under these statutes may also result in exclusion from participation in federal and state healthcarehealth care programs. Many states have also enacted laws similar to the False Claims Act, some of which may include criminal penalties, substantial fines and treble damages.


Anti-Kickback and Referral Laws. Subject to certain exceptions and "safe“safe harbors,"” the federal anti-kickback statute generally prohibits, among other things, knowingly and willfully paying, receiving or offering any payment or other remuneration to induce a person to purchase, lease, order or arrange for items (including prescription drugs) or services reimbursable in whole or in part under Medicare, Medicaid or another federal healthcarehealth care program. Many states have similar laws, some of which apply similar anti-kickback prohibitionsare not limited to items or services reimbursable by non-governmental payors.paid for with government funds. Sanctions for violating these federal and state anti-kickback laws may include criminal and civil fines and exclusion from participation in the federal and state healthcarehealth care programs.

Anti-kickback laws have been cited as a partial basis, along with state consumer protection laws described below, for investigations and multi-statemultistate settlements relating to financial incentives provided by drug manufacturers to pharmacies and/or payors in connection with "product conversion"“product conversion” or promotion programs. Other anti-kickback and referral laws may also be applicable to arrangementsincluding criminal and
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civil laws restricting illegal kickbacks and conflicts of interest in connection with pharmaceutical manufacturers, such as the Public Contracts Anti-Kickback Act, thean ERISA Health Plan Anti-Kickback Statute,plan, the federal "Stark Law"“Stark Law,” and various state anti-kickback restrictions.

In February 2019,November 2020, HHS proposed changes to the federaland HHS-OIG released a final rule which eliminates an anti-kickback regulatory safe harbor to exclude regulatory protection for price concessions, including rebates, between drugthat are offered by pharmaceutical manufacturers andto plan sponsors or pharmacy benefit managers under the Medicare Part D plans, Medicaid managed care organizations and pharmacy benefit managers in the context of these government programs.program. The proposed regulations in their current form apply solely to Medicare Part D and Medicaid programs, which include our Government business in the Integrated Medical segment. The proposed regulations also seek to createfinal rule creates two new safe harbor protectionsharbors: (i) for fixed fee services arrangements between drugprice reductions by manufacturers and pharmacy benefit managers, as well as protections for discounts offered at

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the point of sale. HHS has stated that it does not intend for the proposal to have an effect on existing protections for value-based arrangements between manufacturers and plan sponsors under Medicare Part D and Medicaid MCOs. While legislativemanaged care organizations that are reflected at the time of dispense and (ii) for fixed-fee service arrangements between manufacturers and pharmacy benefit managers.HHS-OIG has temporarily postponed the effective date of the new safe harbors to March 22, 2021. Additionally, HHS recently agreed to postpone the elimination of the aforementioned regulatory discussions on the other issues raised in the blueprint continuesafe harbor to be the subject of legislative and regulatory activity, they have yet to be implemented in any form.


January 1, 2023.

Federal Civil Monetary Penalties Law. The federal civil monetary penalty statute provides for civil monetary penalties against any person who gives something of value to a Medicare or Medicaid program beneficiary whichthat the person knows or should know is likely to influence the beneficiary'sbeneficiary’s selection of a particular provider for Medicare or Medicaid items or services. Under this law, our wholly-owned home delivery pharmacies, specialty pharmacies and home health providers are restricted from offering certain items of value to influence a Medicare or Medicaid patient'spatient’s use of services. The ACA also includes several civil monetary provisions, such as penalties for the failure to report and return a known overpayment and failure to grant timely access to the OIGHHS-OIG under certain circumstances.

Federal and State Oversight of Government-Sponsored Health Care Programs

Participation in government-sponsored health care programs subjects us to a variety of federal and state laws and regulations and risks associated with audits conducted under these programs. These audits may occur years after the provision of services. Risks include potential fines and penalties, restrictions on our ability to participate or expand our presence in certain programs and restrictions on marketing our plans. For example, with respect to our Medicare Advantage business, CMS and the OIGHHS-OIG perform audits to determine a health plan'splan’s compliance with federal regulations and contractual obligations, including program audits and Risk Adjustment Data Validation Audits, which focus on compliance with proper coding practices (sometimes referredpractices. Certain of our contracts are currently subject to as "Risk Adjustment Data Validation Audits"RADV audits by CMS and the HHS-OIG. CMS has announced that its goal is to subject all Medicare Advantage contracts to either a comprehensive or "RADV audits").

Separately, thea targeted RADV audit for each contract year. The DOJ is also currently conducting an industry reviewindustry-wide investigation of the risk adjustment data submission practices and business processes, including review of medical charts,chart reviews and health exams, of Cigna and a number of other Medicare Advantage organizations under Medicare Parts C and D.

See Note 21 to the Consolidated Financial Statements for more information.

For our Medicare Part D business, compliance with fraudcertain contractual provisions and abuse enforcement practicesregulatory requirements is monitored throughsubject to review by Recovery Audit Contractor audits in which third-party contractors conduct post-payment reviews on a contingency fee basis to detect and correct improper payments.

Government Procurement Regulations

We have a contract with the DoD,U.S. Department of Defense (“DoD”), which subjects us to all of the applicable Federal Acquisition Regulations ("FAR"(“FAR”) and the DoD FAR Supplement, which govern federal government contracts. Further, there are other federal and state laws applicable to our DoD arrangement and our arrangements with other clients that may be subject to government procurement regulations. In addition, certain of our clients participate as contracting carriers in the Federal Employees Health Benefits Program administered by the Office of Personnel Management,OPM, which includes various pharmacy benefit management standards.

Employee Retirement Income Security Act

Our domestic subsidiaries sell most of their products and services to sponsors of employee benefit plans that are governed by ERISA. ERISA is a complex set of federal laws and regulations enforced by the IRS and the DOL, as well as the courts. ERISA regulates certain aspects of the relationship between us, the employers that maintain employee welfare benefit plans subject to ERISA and participants in such plans. Certain of our domestic subsidiaries are also 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 plans we administer. Certain of our domestic subsidiaries also may contractually agree to comply with these requirements on behalf of the self-insured dental, disability, life and accident plans they administer. We believe the conduct of our pharmacy benefit management business is not generally subject to the fiduciary obligations of ERISA. However, there can be no assurances that the DOL may not assert that pharmacy benefit managers are fiduciaries. From time to time, states have considered legislation to declare a pharmacy benefit manager or medicalhealth benefit manager a fiduciary with respect to its clients.

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Plans subject to ERISA can also be subject to state laws and the legal question of whether and to what extent ERISA preempts a state law will continue to be subject to court interpretation.

interpretation, including by the U.S. Supreme Court.

Privacy, Security and Data Standards Regulations

Many of our activities involve the receipt or use of confidential health and other personal information. In addition, we use aggregated and de-identified data for our own research and analysis purposes and, in some cases, provide access to such de-identified data, or analytics created from such data, to pharmaceutical manufacturers and third-party data aggregators.

We may also use such information to create analytic models designed to predict, and potentially improve, outcomes and patient care. There are also industry standards for handling credit card data known as the Payment Card Industry Data Security Standard, which are a set of requirements designed to help ensure that entities that process, store or transmit credit card information maintain a secure environment. Certain states have incorporated these requirements into state laws or enacted other requirements for using and disclosing personal information.

The federal Health Insurance Portability and Accountability Act of 1996 and its implementing regulations ("HIPAA"(“HIPAA”) impose minimum standards on health insurers, pharmacy benefit managers, HMOs, health plans, health care providers and clearinghouses for the privacy and security of protected health information. HIPAA regulations may also hold us liable for violations by our business associates (e.g., entities that provide services to health plans and providers). HIPAA also established rules that standardize the format and content of certain electronic transactions, including, but not limited to, eligibility and claims.

To the extent insurers offer plans through a public exchange, participants and their downstream entities such as pharmacy benefit managers must adhere to privacy and security standards for personally identifiable information and to impose standards that are at least as protective as those the exchange has implemented for itself. These standards may differ from, and be more stringent than, HIPAA.

The Health Information Technology for Economic and Clinical Health Act ("HITECH"(“HITECH”) imposes additional contracting requirements for covered entities, the extension of privacy and security provisions to business associates, the requirement to provide notification to various parties in the event of a data breach of protected health information and enhanced financial penalties for HIPAA violations, including potential criminal penalties for individuals. In the conduct of our business, depending on the circumstances, we may act as either a covered entity or a business associate.

The federal Gramm-Leach-Bliley Act and its implementing regulations generally placesplace restrictions on the disclosure of non-publicnonpublic information to non-affiliatednonaffiliated third parties, and requires financial institutions, including insurers, to provide customers with notice regarding how their non-publicnonpublic personal information is used, including an opportunity to "opt out"“opt out” of certain disclosures. State departments of insurance and certain federal agencies adopted implementing regulations as required by federal law.

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A

State and local authorities are increasingly focused on protecting individuals from identity theft and a number of states have adopted comprehensive data security laws and regulations regulatingrequiring, among other things, certain minimum data security standards and requiring security breach notificationnotifications that may apply to us in certain circumstances, as well as certain limitations on access to and are increasingly focused on protecting individuals from identity theft.use of personal information. Neither HIPAA nor the Gramm-Leach-Bliley privacy regulations preempt more stringent state laws and regulations.regulations which may differ in approach and enforcement. The California Consumer Privacy Act, which went into effect in January 2020, provides additional privacy rights for California residents although it generally does not apply to certain regulated data such as information covered by HIPAA. In addition, international laws, rules and regulations governingNovember 2020, California further expanded privacy rights for California residents by enacting the use and disclosure ofCalifornia Privacy Rights Act which includes additional protections on sensitive personal information, are generally more stringent thancreates new individual rights for residents and imposes additional requirements for those entities collecting personal information of California residents and their service providers beginning in the United States,2023.We anticipate federal and they vary from jurisdictionstate regulators to jurisdiction.

continue to enact legislation related to privacy and cybersecurity.

The Cybersecurity Information Sharing Act of 2015 ("CISA"(“CISA”) encourages organizations to share cyber threat indicators with the federal government and, among other things, directs HHS to develop a set of voluntary cybersecurity best practices for organizations in the health care industry. States have also begun to issue regulations specifically related to cybersecurity.cybersecurity, which may differ or conflict from state to state. In October 2017, the National Association of Insurance Commissioners ("NAIC"(“NAIC”), an organization of state insurance regulators, adopted the Insurance Data Security Model Law that creates rules for insurers and other covered entities addressing data security, investigation and notification of breaches. This includes maintaining an information security program based on ongoing risk assessment, overseeing third-party service providers, investigating data breaches and notifying regulators of a cybersecurity event. As the model law is intended to serve as model legislation only, states will need to enact legislation for the model law to become mandatory and enforceable. We will continue to monitor states'states’ activity regarding cybersecurity regulation.

HHS, including the ONC, the Office for Civil Rights and CMS, has enacted regulations, and proposed additional regulations, to support the seamless and secure access, exchange and use of electronic health information by or between patients, enrollees and entities such as payers and health care providers. These regulations include, among others, proposed changes to HIPAA designed to
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promote greater patient access and control over health information maintained by health plans and health care providers and improve information sharing for case management and care coordination. Other interoperability regulations prohibit information blocking by certain entities and require certain regulated plans to make specified patient, clinical and plan-related data available to enrollees via interoperable technology and applications. These regulations apply to a variety of entities, including health plans like Medicare plans and qualified health plans, as well as health care providers, certified health information technology developers and health information networks and exchanges and generally require significant enhancements to information technology and data governance practices. The regulations and proposals demonstrate an increased interest in information sharing and will impact how industry participants, including us, comply with disclosure requirements and share information with individuals and other healthcare organizations. We continue to monitor developments and to submit comments on proposed regulations where appropriate.
In addition, international laws, rules and regulations governing the use and disclosure of personal information can be more stringent than in the United States, and they vary from jurisdiction to jurisdiction. The European Union'sUnion’s General Data Protection Regulation ("GDPR"(“GDPR”), which became enforceable ineffective May 2018, introduced a number of newenhanced or created obligations regarding the handling of personal data ofrelating to European customers. GDPR provides certainresidents, such as regarding notices, data protection impact assessments and individual privacy rights, to certain persons whose data we may store and provides for greater penalties for non-compliancenoncompliance than the previous European data protectionDirective or laws. In addition, many countries outside of Europe where we conduct business are consideringhave implemented or may implement data protection laws and regulations, thatsome of which include requirements modeled after those in the GDPR.

Some non-U.S. jurisdictions are also instituting data residency regulations requiring that data be maintained within the respective jurisdiction or otherwise restricting transfer of personal data across borders unless specified regulatory requirements are met.

See Part I. Item 1A, “Risk Factors” for a discussion of the risks related to compliance with privacy and security regulations.
Consumer Protection Laws

We engage in direct-to-consumer activities and are increasingly offering mobile and web-based solutions to our customers. We are therefore subject to federal and state regulations applicable to electronic communications and other consumer protection laws and regulations, such as the Telephone Consumer Protection Act and the CAN-SPAM Act. In particular, the Federal Trade CommissionThe FTC is also increasingly exercising its enforcement authority in the areas of consumer privacy and data security, with a focus on web-based, mobile data and "big“big data."” Federal consumer protection laws may also apply in some instances to privacy and security practices related to personally identifiable information.

Most

State and federal policymakers have taken actions intended to increase transparency and predictability of health care costs for consumers. For example, in October 2020, the HHS, the DOL and the Department of the Treasury issued a final rule that requires most group health plans and health insurance issuers in the individual and group markets to disclose price and cost-sharing information for all items and services to participants and enrollees. The cost-sharing information requirements under the rule take effect in a phased approach beginning January 1, 2023. In addition to providing personalized cost-sharing information, beginning January 1, 2022, health plans and health insurers must also publicly disclose (i) in-network provider negotiated rates, (ii) historical out-of-network allowed amounts and billed charges and (iii) in-network negotiated rates and historical net prices for all covered prescription drugs. Beginning in 2021, insurers will be able to receive credit in their MLR calculations for certain savings they share with enrollees. Separately, in December 2020, Congress passed the No Surprises Act which prohibits health care providers, in certain situations, from balance billing the patient and requires that they work directly with insurers to agree on out-of-network reimbursement, including utilizing an independent dispute resolution process outlined in the Act. The Act is effective January 1, 2022 and we expect regulations implementing the Act to be issued starting in 2021. Many states already have addressed balance billing, or surprise medical bills. These laws and regulations vary in their approach, resulting in different impacts on the health care system as a whole.
Additionally, most states have consumer protection laws that have been the basis for investigations and multi-statemultistate settlements relating to financial incentives provided by drug manufacturers to retail pharmacies in connection with product conversion programs. Such statutes have also been cited as the basis for claims or investigations by state attorneys general relative to privacy and data security.

Office of Foreign Assets Control Sanctions and Anti-Money Laundering

We are also subject to regulation by the Office of Foreign Assets Control of the U.S. Department of the Treasury that administers and enforces economic and trade sanctions against targeted foreign countries and regimes based on U.S. foreign policy and national security goals.

Certain of our products are subject to the Department of the Treasury anti-money laundering regulations under the Bank Secrecy Act.

In addition, we may beare subject to similar regulations in non-U.S. jurisdictions in which we operate.

Corporate Practice of Medicine and Other Laws

Many states in which our subsidiaries operate limit the practice of medicine to licensed individuals or professional organizations comprised of licensed individuals, and business corporations generally may not exercise control over the medical decisions of
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physicians. Statutes and regulations relating to the practice of medicine, fee-splitting between physicians and referral sources and similar issues vary widely from state to state. Under management agreements between certain of our subsidiaries and affiliated physician-owned professional groups, these groups retain sole responsibility for all medical decisions, as well as for hiring and managing physicians and other licensed health care providers, developing operating policies and procedures, implementing professional standards and controls and maintaining malpractice insurance. We believe that our health services operations comply with applicable state statutes regarding corporate practice of medicine, fee-splitting and similar issues. However, any enforcement actions by governmental officials alleging non-compliancenoncompliance with these statutes could subject us to penalties or restructuring or reorganization of our business.

Network Access Legislation

A majority of states now have some form of legislation affecting our ability, or our clients' ability, to limit access to a pharmacy provider network or remove a provider from a network. Such legislation may require us or our clients to admit any retail pharmacy or provider willing to meet the plan's terms

Laws and conditions for network participation ("any willing provider" legislation) or may direct that a provider may not be removed from a network except in compliance with certain procedures ("due process" legislation).

Certain states have enacted legislation prohibiting certain pharmacy benefit management clients from imposing additional co-payments, deductibles, limitations on benefits, or other conditions ("Conditions") on covered individuals utilizing a retail pharmacy when the same Conditions are not otherwise imposed on covered individuals utilizing home delivery pharmacies. However, the legislation requires the retail pharmacy to agree to the same reimbursement amounts and terms and conditions as are imposed on the home delivery pharmacies. An increase in the number of prescriptions filled at retail pharmacies may have a negative impact on the number of prescriptions filled through home delivery. We anticipate additional states will consider similar legislation.

Legislation Affecting Plan Design

and Pharmacy Network Access

Some states have enacted legislationlaws that prohibitsprohibit managed care plan sponsors from implementing certain restrictive benefit plan design features, and many states have laws or have introduced legislation to regulate various aspects of managed care plans, including provisions relating to the

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pharmacy benefit. For example, some states, under so-called "freedom“freedom of choice"choice” legislation, provide memberscustomers of the plan may not be required to use network providers, but must instead be provided with benefits even if they choose to use non-network providers. Some states have also enacted legislation which, as described above,that can negatively impact the use of cost-saving network configurations for plan sponsors. Other states have enacted legislation purporting to prohibit health plans from offering memberscustomers financial incentives for use of home delivery pharmacies. Medicare and some states have issued guidance and regulations whichthat limit our ability to fill or refill prescriptions electronically submitted by a physician to our home delivery pharmacy without first obtaining consent from the patient. Such restrictions generate additional costs and limit our ability to maximize efficiencies, which could otherwise be gained through the electronic prescription and automatic refill processes. Legislation has been introduced in some states to prohibit or restrict therapeutic intervention, or to require coverage of all Food and Drug Administration approved drugs. Other states mandate coverage of certain benefits or conditions, and require health plan coverage of specific drugs if deemed medically necessary by the prescribing physician. States are also standardizing the process for, and restricting the use of, utilization management rules and shortening the time frames within which prescription drug prior authorization determinations must be made. Even where states do not regulate pharmacy benefit or utilization management companies directly, these laws will apply to many of our clients, including managed care organizations and health insurers.

Additionally, Medicare Part D and a majority of states now have laws, regulations or some form of legislation affecting our ability, or our clients’ ability, to limit access to a pharmacy provider network or remove a provider from a network. Such laws, regulations or legislation may require us or our clients to admit any retail pharmacy or provider willing to meet the plan’s terms and conditions for network participation (“any willing provider”) or may direct that a provider may not be removed from a network except in compliance with certain procedures (“due process”).
Certain states have laws prohibiting certain pharmacy benefit management clients from imposing additional co-payments, deductibles, limitations on benefits, or other conditions on covered individuals utilizing a retail pharmacy when the same conditions are not otherwise imposed on covered individuals utilizing home delivery pharmacies. However, the laws require the retail pharmacy to agree to the same reimbursement amounts and terms and conditions as are imposed on the home delivery pharmacies. An increase in the number of prescriptions filled at retail pharmacies may have a negative impact on the number of prescriptions filled through home delivery.
Pharmacy Benefit Management and Drug Pricing Regulation

Our pharmacy benefit management services are subject to numerous laws and regulations. These laws and regulations govern, and proposed legislation and regulations may govern, critical practices, including disclosure, receipt and retention of rebates and other payments received from pharmaceutical manufacturers; certain pharmacy contracting practices including disclosure of cost information to customers; the receipt and retention of transmission fees from contracted pharmacies; use of, administration of, and/or changes to drug formularies, the use and disclosure of maximum allowable cost list("MAC") pricing, and/or clinical programs; “most favored nation” pricing, which provides that a pharmacy participating in a specific government program must give the program the best price the pharmacy makes available to any third-party plan; disclosure of data to third parties; drug utilization management practices; the level of duty a pharmacy benefit manager owes its clients or customers; configuration of pharmacy networks; the operations of our subsidiary pharmacies; disclosure of negotiated provider reimbursement rates; disclosure of negotiated drug rebates, calculation of certain customer cost sharecost-share for prescription drug claims; pricing that includes differential or spread (i.e., a difference between the drug price charged to the plan sponsor by a pharmacy benefit manager and the price paid by the manager to the dispensing provider); disclosure of fees associated with administrative service agreements and patient care programs that are attributable to customers'customers’ drug utilization; and registration or licensing of pharmacy benefit managers. Some states have adopted so-called "most
We expect federal and state governments to continue to prioritize means of addressing out-of-pocket costs for consumers, particularly related to prescription drug costs. Policy proposals, issued via regulation or legislation, vary broadly in their approaches to achieve that
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goal.At the federal level, several executive orders were issued in 2020. Although the orders did not contain any policy changes that take effect immediately, they directed agencies to pursue regulations intended to expand access to affordable prescription drug medication through various methods. Resulting regulations from HHS and its agencies: outlined paths for certain prescription drugs to be imported from Canada under the Federal Food, Drug and Cosmetic Act, effective November 30, 2020; amended the anti-kickback safe harbors to eliminate the regulatory safe harbor protection for price concessions, including rebates, that are offered by pharmaceutical manufacturers to plan sponsors or pharmacy benefit managers under the Medicare Part D program effective January 2023 and created new safe harbors related to point-of-sale price reductions and fixed-fee service arrangements, as described above under the heading “Anti-Kickback and Referral Laws;” issued rules intended to implement a program to make insulin and epinephrine available at participating federally qualified health centers at pricing under the Public Health Service Act Section 340B program effective March 22, 2021; and established a demonstration of the most favored nation" legislationnation international pricing model, an approach to international reference pricing, for Medicare Part B drugs which provides thatwas subsequently halted by court intervention.As noted earlier, the executive order issued in January 2021 regarding a pharmacy participatingregulatory freeze pending review may delay or ultimately result in revision or repeal of various actions taken in response to the 2020 executive orders.
Additionally, proposals at the federal and state Medicaid program must give the state the best price the pharmacy makes available to any third-party plan.

Prescription drug pricing and the rolelevels consider increased regulation of pharmacy benefit managers have beenand health plans as a focusmeans to limit consumer out of pocket costs, including proposing to limit the current administration. In May 2018, the current administration announced a blueprint, titled "American Patients First," which considers a seriesuse of drug pricing proposals including, among other things, removal of the anti-kickback safe harbor protection for rebates between drug manufacturers and insurers andvarious pharmacy benefit managers and improvements to pricing transparency. In October 2018, Congress enacted lawsmanagement tools; mandating the treatment of fees, discounts or financing mechanisms that prohibited pharmacyotherwise are set in private contractual terms; increasing supply chain transparency; expanding regulatory requirements or definitions of fiduciaries; or mandating plan benefit managers and insurers from restricting pharmacies from providing drug pricing information to a plan enrollee when there is a difference between the cost of the drug under insurance and the cost of the drug when purchased without insurance. See also, "False Claims Act and Anti-Kickback Laws" for a discussion of HHS' proposed rule changes to the federal anti-kickback safe harbor to exclude regulatory protection for rebates between drug manufacturers and Medicare Part D plans, Medicaid managed care organizations and pharmacy benefit managers in the context of these government programs.

designs that cap consumer out-of-pocket expense.

Some states have enacted statutes regulating the use of maximum allowable cost ("MAC")MAC pricing. These statutes, referred to as "MAC“MAC Transparency Laws,"” generally require pharmacy benefit managers to disclose specific information related to MAC pricing to pharmacies and provide certain appeal rights for pharmacies. MAC Transparency Laws also restrict the application of MAC and may require operational changes to maintain compliance with the law. Some states have also enacted laws regulating pharmacy pricing and protecting the profitability of pharmacies for dispensing certain MAC-priced drugs. Some states have enacted laws requiring that the customer cost sharecost-share for a prescription drug claim not exceed certain price points, such as the pharmacy'spharmacy’s usual and customary charge or its contracted reimbursement for the drug.

In a recent Supreme Court decision, the Court found that certain MAC Transparency Laws may be applied by states to ERISA plans in addition to health plans regulated by the applicable state.We continue to assess the impact of the decision on other state laws seeking to regulate pharmacy benefit management services.

In March 2018, the NAIC adopted changes to the Health Carrier Prescription Drug Benefit Management Model Act. The changes address issues relating to (i) transparency, accuracy and disclosure regarding prescription drug formularies and formulary changes during a policy year; (ii) accessibility of prescription drug benefits using a variety of pharmacy options; and (iii) tiered prescription drug formularies and discriminatory benefit design. While the actions of the NAIC do not have the force of law, they mayare used as a template to influence states to adopt laws based on the model legislation.

An enhanced NAIC model act on pharmacy benefit manager licensure and regulation was adopted by a subgroup of the NAIC subject to a thirty day comment period with further consideration expected to occur in 2021.

The federal Medicaid rebate programDrug Rebate Program requires participating drug manufacturers to provide rebates on all drugs reimbursed through state Medicaid programs, including through Medicaid managed care organizations. Manufacturers of brand namebrand-name products must provide a rebate equivalent to the greater of (a) 23.1% of the average manufacturer price ("AMP"(“AMP”) paid by retail community pharmacies or by wholesalers for certain drugs distributed to retail community pharmacies, or (b) the difference between AMP and the "best price"“best price” available to essentially any customer other than the Medicaid program and certain other government programs, with certain exceptions. We negotiate rebates with drug manufacturers and, in certain circumstances, sell services to drug manufacturers. Investigations are being and have been conducted by certain governmentalgovernment entities which call into question whether a drug's "best price"drug’s “best price” was properly calculated and reported with respect to rebates paid by the manufacturers to the Medicaid programs. We are not responsible for such calculations, reports or payments.

Pharmacy Regulation

Our home delivery and specialty pharmacies also subject us to extensive federal, state and local regulation. The practice of pharmacy is generally regulated at the state level by state boards of pharmacy. We are licensed to do business as a pharmacy in the states in which theyour pharmacies are located. Most of the states into which we deliver pharmaceuticals have laws that require out-of-state home delivery pharmacies to register with, or be licensed by, the board of pharmacy or a similar regulatory body in the state. These states generally permit the pharmacy to follow the laws of the state in whichwhere the home delivery servicepharmacy is located, although some states require compliance with certain laws in that state as it impacts or relates to drugs distributed or dispensed into those states.

that state.

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Our various pharmacy facilities also maintainprovide services under certain Medicare and state Medicaid provider numbers as pharmacies providing services under these programs. Participation in these programs requires our pharmacies to comply with the applicable Medicare and Medicaid provider rules and regulations, and exposes the pharmacies to various changes the federal and state governments may impose regarding reimbursement methodologies and amounts to be paid to participating providers under these programs. In addition, several of our pharmacy facilities are

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participating providers under Medicare Part D and as a condition to becoming a participating provider under Medicare Part D, the pharmacies are required to adhere to certain requirements applicable to Medicare Part D.

Additionally, we are subject to CMS rules regarding the administration of our Medicare plans and pricing between our plans and related parties, including our pharmacy business.

Other statutes and regulations affect our home delivery and specialty pharmacy operations, including the federal and state anti-kickback laws and the federal civil monetary penalty law described above. Federal and state statutes and regulations govern the labeling, packaging, advertising, adulteration and security of prescription drugs and the dispensing of controlled substances.substances and certain of our pharmacies must register with the U.S. Drug Enforcement Administration and individual state controlled substance authorities. The Federal Trade CommissionFTC requires mail order sellers of goods generally to engage in truthful advertising, to stock a reasonable supply of the product to be sold, to fill mail orders within thirty days and to provide clients with refunds when appropriate. The United States Postal Service also has significant statutory authority to restrict the delivery of drugs and medicines through the mail.

Financial Reporting, Internal Control and Corporate Governance

Regulators closely monitor the financial condition of licensed insurance companies and HMOs. States regulate the form and content of statutory financial statements, the type and concentration of permitted investments and corporate governance over financial reporting. Our insurance and HMO subsidiaries are required to file periodic financial reports and schedules with regulators in most of the jurisdictions in which they do business as well as annual financial statements audited by independent registered public accounting firms. Certain insurance and HMO subsidiaries are required to file an annual report of internal control over financial reporting with most jurisdictions in which they do business. Insurance and HMO subsidiaries'subsidiaries’ operations and accountsfinancial statements are subject to examination by such agencies. Many states have expanded regulations relating to corporate governance and internal control activities of insurance and HMO subsidiaries as a result of model regulations adopted by the NAIC with elements similar to corporate governance and risk oversight disclosure requirements under federal securities laws.

Guaranty Associations, Indemnity Funds, Risk Pools and Administrative Funds

Most states and certain non-U.S. jurisdictions require insurance companies to support guaranty associations or indemnity funds that are established to pay claims on behalf of insolvent insurance companies. Some states have similar laws relating to HMOs and other payors, such as consumer operated and oriented plans (co-ops) established under the ACA. In the United States, these associations levy assessments on member insurers licensed in a particular state to pay such claims. Certain states require HMOs to participate in guaranty funds, special risk pools and administrative funds. For additional information about guaranty funds and other assessments, see Note 1921 to ourthe Consolidated Financial Statements.

Certain states continue to require health insurers and HMOs to participate in assigned risk plans, joint underwriting authorities, pools or other residual market mechanisms to cover risks not acceptable under normal underwriting standards, although some states have eliminated these requirements as a result of the ACA.

Solvency and Capital Requirements

Many states have adopted some form of the NAIC model solvency-related laws and risk-based capital (“RBC”) rules ("RBC rules") for life and health insurance companies.companies and HMOs. The RBC rules recommend a minimum level of capital depending on the types and quality of investments held, the types of business written and the types of liabilities incurred. If the ratio of the insurer'sinsurer’s adjusted surplus to its risk-based capitalRBC falls below statutorily required minimums, the insurer could be subject to regulatory actions ranging from increased scrutiny to conservatorship.

In addition, various non-U.S. jurisdictions prescribe minimum surplus requirements that are based upon solvency, liquidity and reserve coverage measures. Our HMOs and life and health insurance subsidiaries, as well as non-U.S. insurance subsidiaries, are compliant with applicable RBC and non-U.S. surplus rules.

The Risk Management and Own Risk and Solvency Assessment Model Act ("ORSA"(“ORSA”), adopted by the NAIC, provides requirements and principles for maintaining a group solvency assessment and a risk management framework and reflects a broader approach to U.S. insurance regulation. ORSA includes a requirement to file an annual ORSA Summary Report in the lead state of domicile. To date, an overwhelming majority of the states have adopted the same or similar versions of ORSA. We file our ORSA report annually as required.

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Holding Company Laws

Our domestic insurance companies and certain of our HMOs are subject to state laws regulating subsidiaries of insurance holding companies. Under such laws, certain dividends, distributions and other transactions between an insurance company or an HMO subsidiary and its affiliates may require notification to, or approval by, one or more state insurance commissioners. In addition, the holding company acts of states in which our subsidiaries are domiciled restrict the ability of any person to obtain control of an insurance company or HMO subsidiary without prior regulatory approval.

State holding company laws and regulations also subject our insurance companies and certain HMO subsidiaries to additional regulatory scrutiny related to their oversight of affiliates performing regulated services on behalf of the insurance company or HMO and require the Company to file an annual Enterprise Risk Report, which summarizes material risks that could pose enterprise risk to the insurance company subsidiaries.

Marketing, Advertising and Products

In most states, our insurance companies and HMO subsidiaries are required to certify compliance with applicable advertising regulations on an annual basis. Our insurance companies and HMO subsidiaries are also required by most states to file and secure regulatory approval of products prior to the marketing, advertising and sale of such products.

Licensing and Registration Requirements

Certain

Our insurance companies and HMO subsidiaries must be licensed by the jurisdictions in which they conduct business. Additionally, certain subsidiaries contract to provide claim administration, utilization management and other related services for the administration of self-insured benefit plans. These subsidiaries may be subject to state third-party administration and other licensing requirements and regulation, as well as third-party accreditation requirements.

We have received full accreditation for Utilization Review Accreditation Commission Pharmacy Benefit Management version 2.2 Standards, which includes quality standards for drug utilization management, and select subsidiaries have received full accreditation for Utilization

​24    CIGNA CORPORATION - 2018 Form10-K​​

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PART I
ITEM 1. Business

Review Accreditation Commission for Health Utilization Management version 7.2, which includes quality standards for medical utilization management.

Certain states have adopted pharmacy benefit management registration, and/licensure or disclosure laws. In addition to registration laws, some states have adopted legislation mandating disclosure of various aspects of our financial practices, including those concerning pharmaceutical company revenue, as well as prescribing processes for prescription switching programs and client and provider audit terms.

Our international subsidiaries are often required to be licensed when entering new markets or starting new operations in certain jurisdictions. The licensure requirements for these subsidiaries vary by country and are subject to change.

International Regulations

Our operations outside the United States expose us to laws of multiple jurisdictions and the rules and regulations of various governing bodies and regulators, including those related to the provision of insurance, financial and other disclosures, the provision of health care-related services, corporate governance, privacy, data protection, data mining, data transfer, intellectual property, labor and employment, consumer protection, direct-to-consumer communications activities, tax, anti-corruption and anti-money laundering. Foreign laws and rules may include requirements that are different from, or more stringent than, similar requirements in the United States.

Our operations in countries outside the United States:

•
are subject to local regulations of the jurisdictions where we operate;

•
in some cases, are subject to regulations in the jurisdictions where customers reside; and

•
in all cases, are subject to the Foreign Corrupt Practices Act ("FCPA"(“FCPA”).

In particular, in South Korea, where we are selling insurance products directly to individual customers, regulators are focused on protecting the rights of individual customers by enforcing "Treating“Treating Customers Fairly"Fairly” concepts. This regulatory focus resultshas resulted in rigorous data localization requirements, network separation obligations and system monitoring restrictions, as well as obligations to closely monitor marketing communications and sales scripts. Anti-money laundering requirements in South Korea and other Asian countries where we do business also may impose obligations to collect certain information about each customer at time of sale andor to risk rank each customer to determine possible future money laundering risk.

The FCPA prohibits offering, promising, providing or authorizing others to give anything of value to a foreign government official or employee to obtain or retain business or otherwise secure a business advantage. Outside of the United States, we may interact with
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government officials in several different capacities: as regulators of our insurance business; as clients or partners who are state-owned or partially state-owned; as health care professionalsproviders who are employed by the government; as hospitals that are state-owned; and as officials issuing permits in connection with real estate transactions. Violations of the FCPA and other anti-corruption laws may result in severe criminal and civil sanctions as well as other penalties, and the SEC and DOJ have increased their enforcement activities with respect to FCPA. The UK Bribery Act of 2010 applies to all companies with a nexus to the United Kingdom. Under this act, any voluntary disclosures of FCPA violations may be shared with United Kingdom authorities, thus potentially exposing companies to liability and potential penalties in multiple jurisdictions.

Other countries in which we do business also have anti-corruption laws to which we are subject.
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Miscellaneous

Premiums and fees from CMS represented 16% of our total consolidated revenues for the year ended December 31, 2018 under a number of contracts. We are not dependent on business from one or a few customers. Other than CMS, no one customer accounted for 10% or more of our consolidated revenues in 2018. We are not dependent on business from one or a few brokers or agents. In addition, our insurance businesses are generally not committed to accept a fixed portion of the business submitted by independent brokers and agents, and generally all such business is subject to approval and acceptance.

We had approximately 73,800 employees as of December 31, 2018.

​​​CIGNA CORPORATION - 2018 Form10-K    25

Table of Contents

PART I
ITEM 1A. Risk Factors


ITEM 1A. Risk Factors

Item 1A. RISK FACTORS

As a large global health service company operating in a complex industry, we encounter a variety of risks and uncertainties, thatwhich could have a material adverse effect on our business, liquidity, results of operations, financial condition or the trading price of our securities. You should carefully consider each of the risks and uncertainties discussed below, together with other information contained in this Annual Report on Form 10-K, including Management'sManagement’s Discussion and Analysis of Results of Operations and Financial Condition. These risks and uncertainties are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect us. The following risk factors have been organized by category for ease of use; however many of the risks may have impacts in more than one category. These categories, therefore, should be viewed as a starting point for understanding the significant risks facing us and not as a limitation on the potential impact of the matters discussed. Risk factors are not necessarily listed in order of importance.

Strategic and Operational Risks

Future performance of our business will depend on our ability to execute our strategic and operational initiatives effectively.

The future performance of our business will depend in large part on our ability to effectively implement and execute our strategic and operational initiatives. Successfully executing on these initiatives depends on a number of factors, including our ability to:

•
differentiate our products, services and servicessolutions from those of our competitors;

•
develop, introduce and introducepartner to bring forward new and innovative products, solutions or programs particularlythat focus on improving patient outcomes and assist in controlling costs or are in response to government regulation and the increased focus on consumer-directed products;

•
develop and create data and analytic solutions to support and improve outcomes for our products, services and solutions, including creating and developing solutions and services through partnerships with other industry participants;
•grow our commercial product portfolio;

•
portfolio, expand our addressable markets and identify and introduce the proper mix, coordination or integration of products that will be accepted by the marketplace;

•
identify products and solutions that focus on improving patient outcomes and assist in controlling costs;

•
evaluate drugs for efficacy, value and price to assist clients in selecting a cost-effective formulary;

•
offer cost-effective home delivery pharmacy and specialty services;

•
access or continue accessing key drugs and successfully penetrate key treatment categories in our specialty pharmacy business;
•leverage purchase volume to deliver discounts to health benefit providers;

•
attract and retain sufficient numbers of qualified employees;

•
attract, develop and maintain collaborative relationships with a sufficient number of qualified partners;

•
attract new and maintain existing customer and client relationships;

•
transition health care providers from volume-based fee-for-service arrangements to a value-based system;

•
improve medical cost competitiveness in our targeted markets;

•
manage our medical, pharmacy, administrative and other operating costs effectively; and

•
contract with health care providers, pharmacy providers and pharmaceutical manufacturers and pharmacy providers on favorable terms.

For our strategic initiatives to succeed, we must effectively integratecollaborate across our operations, including with Express Scripts and otherintegrate our acquired businesses, actively work to ensure consistency throughout the organization and promote a global mind-set along with a focus on individual customers and clients. If we fail to do so, our business may be unable to grow as planned, or the result of expansion may be unsatisfactory. We will be unable to rapidly respond to competitive, economic and regulatory changes if we do not make important strategic and operational decisions quickly, define our appetite for risk, specifically, implement new governance, managerial and organizational processes smoothly and communicate roles and responsibilities clearly. If these initiatives fail or are not executed on effectively, our consolidated financial position and results of operations could be negatively affected.

We operate in a highly competitive, evolving and rapidly changing industry and our failure to adapt could negatively impact our business.

The health service industry continues to be dynamic and rapidly evolving. Any significant shifts in the structure of the industry could alter industry dynamics and adversely affect our ability to attract or retain clients.clients and customers. Industry shifts could result (and have resulted) from, among other things:

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a large intra- or inter-industry merger or industry consolidation;

•
strategic alliances;

•
new or alternative business models;

models or new government options or offerings;
•
continuing consolidation among physicians, hospitals and other health care providers, as well as changes in the organizational structures chosen by physicians, hospitals and health care providers;

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•
new market entrants, including those not traditionally in the health service industry;

•
the ability of larger employers and clients to contract directly with providers;
​26    CIGNA CORPORATION - 2018 Form10-K​​

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ITEM 1A. Risk Factors

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technological changes and rapid shifts in the use of technology, such as telemedicine;

telehealth;
•
the impact or consequences of legislation or regulatory changes;

•
changes in the United States Postal Service or the consolidation of shipping carriers;

•
increased drug acquisition cost or unexpected changes to drug pricing trend;

•
changechanges in the generic drug market or the failure of new generic drugs to come to market;

or
•
a general decreasechanges in drug utilization;utilization of health care, prescription drugs or

•
a general increase in utilization other covered services and items, including under risk-based contracts in the medicalhealth benefit management market.

market and for those businesses that utilize risk adjustment methodology.

Our failure to anticipate or appropriately adapt to changes in the industry could negatively impact our competitive position and adversely affect our business and results of operations.

The scale, scope and duration of the COVID-19 pandemic continues to be unknown and the overall impact on our business, operating results, cash flows or financial condition has been and may continue to be material.
The COVID-19 pandemic has adversely affected global economies, financial markets and the overall environment for our business, and the extent to which it may impact our future results of operations and overall financial performance remains uncertain.
The COVID-19 pandemic has in some instances, and may continue to, heighten the potential adverse effects on our business, operating results, cash flows or financial condition as described below or in other risk factors within this section of the Form 10-K including, but not limited to, the likelihood of and impact from:
•unfavorable economic conditions on our clients and customers (both employers and individuals), health care providers, pharmaceutical manufacturers, pharmacy providers and third-party vendors, as well as federal and state entities and programs;
•changes in medical claims submission and processing patterns or procedures; changes in customer base and product mix; changes in utilization of prescription drugs, medical or other covered items or services, including increased behavioral health services utilization; changes in medical cost trends; changes in our health management practices; and the introduction of new benefits and products causing actual claims to exceed our estimates;
•changes in health care utilization patterns, provider billing practices and other external events that we cannot forecast or project and over which we have little or no control impacting our ability to accurately predict, price for and manage health care costs and ultimately our profitability, including impacts from care deferral on, among other things, risk adjustment revenue and acuity of future care;
•increased costs or reductions in revenue, including costs for COVID-19-related care, testing and treatment and related cost-share waivers for our customers; vaccine and other coverage mandates; and support for employees, clients, customers and providers;
•significant disruptions in service within our operations or among our key suppliers or other third parties, including decreased worker productivity and operational and sales disruptions, including as a result of remote working arrangements, increased medical, emergency or other leave, quarantines, government actions or restrictions;
•compliance with substantial government regulation, including privacy and security requirements associated with providing telehealth and remote care options for individuals and new laws or regulations or changes in existing laws or regulations, such as vaccine and coverage mandates and premium deferrals, which laws or regulations may vary significantly by jurisdiction;
•prioritization of matters relating to COVID-19 resulting in delays in responsiveness by regulatory agencies and other third parties in matters arising in the ordinary course of business;
•cyberattacks or other privacy or data security incidents, including as a result of the transition to a remote work environment by substantially all of our workforce and the workforces of third parties with whom we contract;
•significant shifts in the structure of the industry which could alter dynamics and, if we fail to adapt, negatively impact our business;
•risks inherent in foreign operations, including political, legal, operational, regulatory, economic and other risks;
•economic and market conditions affecting the value of our financial instruments and the value of particular assets and liabilities; and
•fluctuations in equity market prices, interest rates and credit spreads limiting our ability to raise or deploy capital and affecting our overall liquidity.
Additionally, if we do not respond appropriately to the pandemic, or if our clients or customers do not perceive our response to be adequate, we could suffer damage to our reputation, which could adversely affect our business.
We believe COVID-19’s adverse impact on our business, operating results, cash flows or financial condition will be driven primarily by the severity and duration of the pandemic, including the impact of the breadth and timing of implementation and the efficacy and costs of vaccination programs, the pandemic’s impact on our employees, clients, customers, suppliers and partners, as well as the U.S.
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and global economies and the continued actions taken by governmental authorities and other third parties in response to the pandemic. Those primary drivers are largely beyond our knowledge and control, and may be more adverse than our current expectations. Given these uncertainties, we cannot estimate the full impact COVID-19 will have on our business, operating results, cash flows or financial condition, but the adverse impact could be material.
Our failure to compete effectively, to differentiate our products and services from those of our competitors and maintain or increase market share could materially adversely affect our results of operations, financial position and cash flows.

We operate in a highly competitive environment and an industry subject to significant market pressures brought about by customer and client needs, legislative and regulatory developments and other market factors. In particular markets, our competitors may have greater, better or more established capabilities, resources, market share, reputation or business relationships, or lower profit margin or financial return expectations. Our clients are well informed and organized and can easily move between our competitors and us. Our Express Scripts client contracts generally have three-year terms.terms and may be subject to periodic renegotiation of pricing terms based on market factors. As described in greater detail in the description of our business in Item 1 above (see page 11 of this Form 10-K),10-K, one of our key clients in the Health ServicesEvernorth segment is the United States Department of Defense. If one or more of our large clients either terminates or does not renew a contract for any reason, including as a result of being acquired, or if the provisions of a contract with a large client are modified, renewed or otherwise changed with terms less favorable to us, our results of operations could be adversely affected and we could experience a negative reaction in the investment community resulting in decreases in the trading price of our securities or other adverse effects.

Our success depends, in part, on our ability to compete effectively in our markets, set prices appropriately in highly competitive markets to keep or increase our market share, increase customers as planned, differentiate our business offerings by innovating and delivering products and services that provide enhanced value to our customers, provide quality and satisfactory levels of service and retain accounts with favorable medical cost experience or more profitable products versus retaining or increasing our customer base in accounts with unfavorable medical cost experience or less profitable products.

We must remain competitive to attract new customers, retain existing customers and further integrate additional product and service offerings. To succeed in this highly competitive marketplace, it is imperative that we maintain a strong reputation. The negative reputational impact of a significant event, including a failure to execute on customer or client contracts or strategic or operational initiatives, failure to comply with applicable laws or regulations, or failure to innovate and deliver products and services that demonstrate greater value to our customers, could affect our ability to grow and retain profitable arrangements, which could have a material adverse effect on our business, and results of operations.

operations, financial position and cash flows.

We face price competition and other pressures that could compress our margins or result in premiums that are insufficient to cover the cost of services delivered to our customers.

While we compete on the basis of many service and quality-related factors, we expect that price will continue to be a significant basis of competition. Our client contracts are subject to negotiation as clients seek to contain their costs, including by reducing benefits offered. Increasingly, our clients seek to negotiate performance guarantees that require us to pay penalties if the guaranteed performance standard is not met. Clients can easily move between our competitors and us. Our clients are well-informedwell informed and typically have knowledgeable consultants that seek competing bids from our competitors before contract renewal. In addition, as brokers and benefit consultants seek to enhance their revenue streams, they look to take on services that we typically provide. Each of these events could negatively impact our financial results.

Further, federal

Federal and state regulatory agencies may restrict or prevent entirely our ability to implement changes in premium rates. Fiscal or other concerns related to the government-sponsored programs in which we participate, such as Medicare Advantage plans and Medicare Part D plans, may cause decreasing reimbursement rates, delays in premium payments, restrictions on implementing changes in premium rates or insufficient increases in reimbursement rates. Any limitation on our ability to maintain or increase our premium or reimbursement levels, or a significant loss of customers or clients resulting from our need to increase or maintain premium or reimbursement levels, could adversely affect our business, cash flows, financial condition and results of operations.

Premiums in the IntegratedU.S. Medical segment are generally set for one-year periods and are priced well in advance of the date on which the contract commences or renews. Our revenue on Medicare policiesAdvantage plans, Individual and Family Plans (“IFP”) and Medicare Part D plans is based on rates and bids submitted mid-yearmidyear in the year before the contract year. Although we base the premiums we charge and our Medicare Advantage, IFP and Medicare Part D rates and bids on our estimate of future health care costs over the contract period, actual costs may exceed what we estimate in setting premiums. Our health care costs also are affected by external events that we cannot forecast or project and over which we have little or no control, including changes in regulations, as well as provider billing practices and changes in customers'customers’ health care utilization patterns, which may, among other things, impact our ability to appropriately document their health conditions. Our participation in health insurance exchanges through our IFP offerings involves
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uncertainties associated with mix and provider billing practices.volume of business and could adversely affect our results of operations, financial position and cash flows. Our profitability depends, in part, on our ability to accurately predict, price for and effectively manage future health care costs. Relatively small differences between predicted and actual medical costs or utilization rates as a percentage of revenue can result in significant changes in our financial results.

Strong competition within the pharmacy benefit business has also generated greater demand for lower product and service pricing, increased revenue sharing and enhanced product and service offerings. These competitive factors have historically applied pressure on our operating margins and caused many companies, including us, to reduce the prices charged for products and services while sharing with clients a greater portion of the formulary fees and related rebates received from pharmaceutical manufacturers. Our inability to maintain positive trends, or

​​​CIGNA CORPORATION - 2018 Form10-K    27

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PART I
ITEM 1A. Risk Factors

failure to identify and implement new ways to mitigate pricing pressures, could negatively impact our ability to attract or retain clients or sell additional services, which could negatively impact our margins and have a material adverse effect on our business and results of operations.

The reserves we hold for expected medical claims are based on estimates that involve an extensive degree of judgment and are inherently variable. If actual claims exceed our estimates, our operating results could be materially adversely affected, and our ability to take timely corrective actions to contain future costs may be limited.

We maintain and record medical claims reserves on our balance sheet for estimated future payments. Our estimates of health care costs payable are based on a number of factors, including historical claim experience, but this estimation process requires extensive judgment. Considerable variability is inherent in such estimates, and the accuracy of the estimates is highly sensitive to changes in medical claims submission and processing patterns and/or procedures, changes in customer base and product mix, changes in the utilization of prescription drugs, medical and/or other covered items or services, changes in medical cost trends, changes in our medicalhealth management practices, changes in regulations and the introduction of new benefits and products. If we are not able to accurately and promptly anticipate and detect medical cost trends, our ability to take timely corrective actions to limit future costs and reflect our current benefit cost experience in our pricing process may be limited. Additionally, we must estimate the amount of rebates payable by us under the ACA’s and CMS’ minimum loss ratio rules and the amounts payable by us to, and receivable by us from, the United States federal government under the ACA’s remaining premium stabilization program. Because establishing these reserves is an inherently uncertain process involving estimates of future losses, there can be no certainty that ultimate losses will not exceed existing medical claims reserves.

reserves which may adversely affect our results of operations, financial position and cash flows.

If we fail to develop and maintain satisfactory relationships with physicians, hospitals and other health service providers and with producers and consultants, our business and results of operations may be adversely affected.

We contract with or employ physicians, hospitals and other health service providers and facilities to provide health services to our customers. Our results of operations are substantially dependent on our ability to contract for these services at competitive prices. In any particular market, physicians, hospitals and health service providers may enter into exclusive arrangements with competitors or simply refuse to contract with us, demand higher payments or take other actions that could result in higher medical costs or less desirable products or services for our customers. In some markets, certain providers, particularly hospitals, physician/hospital organizations and multi-specialtymultispecialty physician groups, may have significant or controlling market positions that could result in a diminished bargaining position for us. If providers refuse to contract with us, use their market position to negotiate more favorable contracts or place us at a competitive disadvantage, our ability to market products or to be profitable in those areas could be materially and adversely affected. Additionally, certain regulations may impact our ability to obtain competitive prices. Establishing collaborative arrangements with physician groups, specialist groups, independent practice associations, hospitals and health care delivery systems is key to our strategic focus to transition from volume-based fee-for-service arrangements to a value-based health care system. If such collaborative arrangements do not result in the lower medical costs that we project or if we fail to attract health care providers to such arrangements, or are less successful at implementing such arrangements than our competitors, our attractiveness to customers may be reduced and our ability to profitably grow our business may be adversely affected.

Our ability to develop and maintain satisfactory relationships with providers may also be negatively impacted by other factors not associated with us, such as changes in Medicare and/or Medicaid reimbursement levels, increasing pressure on revenue and other pressures on health care providers and increasing consolidation activity among hospitals, physician groups and providers. Continuing consolidation among physicians, hospitals and other providers, the emergence of accountable care organizations, vertical integration of providers and other entities, changes in the organizational structures chosen by physicians, hospitals and providers and new market entrants, including those not traditionally in the health care industry, may affect the way providers interact with us and may change the competitive landscape in which we operate. In some instances, these organizations may compete directly with us, potentially affecting the way we price our products and services or causecausing us to incur increased costs if we change our operations to be more competitive.

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Out-of-network providers are not limited by any agreement with us in the amounts they bill. While benefit plans place limits on the amount of charges that will be considered for reimbursement and regulations seek to prescribe payment levels, establish methodologies and dispute resolution processes, out-of-network providers have becomeare increasingly sophisticated and aggressive and such limitations can be difficult to enforce.aggressive. As a result, the outcome of disputes where we do not have a provider contract may cause us to pay higher medical or other benefit costs than we projected.

Additionally, certain of our products and services are sold in part through nonexclusive producers and consultants for whose services and allegiance we compete. Our sales could be materially adversely affected if we are unable to attract, retain and support such independent producers and consultants or if our sales strategy is not appropriately aligned across distribution channels.
If we lose our relationship with one or more key pharmaceutical manufacturers, or if the payments made or discounts provided by pharmaceutical manufacturers decline, our business and results of operations could be adversely affected.

We maintain contractual relationships with numerous pharmaceutical manufacturers, which provide us with, among other things:

•
discounts for drugs we purchase to be dispensed from our home delivery and specialty pharmacies;

•
discounts, in the form of rebates, for drug utilization;

•
fees for administering rebate programs, including invoicing, allocating and collecting rebates;

•
fees for services provided to pharmaceutical manufacturers by our specialty pharmacies; and

•
access to limited distribution specialty pharmaceuticals by our specialty pharmacies.

Our contracts with pharmaceutical manufacturers are typically non-exclusivenonexclusive and terminable on relatively short notice by either party. The consolidation of pharmaceutical manufacturers, the termination or material alteration of our contractual relationships, or our failure to renew such contracts on favorable terms could have a material adverse effect on our business and results of operations. In addition, arrangements between payors and pharmaceutical manufacturers have been the subject of debate in federal and state legislatures and various other public and governmental forums. Adoption of new laws, rules or regulations or changes in, or new interpretations of, existing laws, rules or regulations, relating to any of these programs could materially adversely affect our business and results of operations.

​28    CIGNA CORPORATION - 2018 Form10-K​​

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PART I
ITEM 1A. Risk Factors

If significant changes occur within the pharmacy provider marketplace, or if other issues arise with respect to our pharmacy networks, including the loss of or adverse change in our relationship with one or more key pharmacy providers, our business and financial results could be impaired.

adversely affected.

More than 68,000 retail pharmacies, which represent over 99% of all United States retail67,700 pharmacies participated in one or more of our networks as of December 31, 2018.2020. The ten largest retail pharmacy chains represent approximately 61%64% of the total number of stores in our largest network. In certain geographic areas of the United States, our networks may be comprised of higher concentrations of one or more large pharmacy chains. Contracts with retail pharmacies are generally non-exclusivenonexclusive and are terminable on relatively short notice by either party. If one or more of the larger pharmacy chains terminates its relationship with us, or is able to renegotiate terms substantially less favorable to us, our customers'customers’ access to retail pharmacies and/or our business could be materially adversely affected. The entry of one or more additional large pharmacy chains into the pharmacy benefit management business, the consolidation of existing pharmacy chains or increased leverage or market share by the largest pharmacy providers could increase the likelihood of negative changes in our relationship with such pharmacies. Changes in the overall composition of our pharmacy networks, or reduced pharmacy access under our networks, could have a negative impact on our claims volume and/or our competitiveness in the marketplace, which could cause us to fall short of certain guarantees in our contracts with clients or otherwise impair our business or results of operations.

Changes in drug pricing or industry pricing benchmarks could materially impact our financial performance.

Contracts in the prescription drug industry, including our contracts with retail pharmacy networks and our pharmacy and specialty pharmacy clients, generally use "average wholesale price" or "AWP," which ispricing metrics published by a third party,parties as a benchmarkbenchmarks to establish pricing for prescription drugs. If AWP isthese benchmarks are no longer published by third parties, we, or our contractual partners, adopt other pricing benchmarks for establishing prices within the industry, legislation or regulation requires the use of other pricing benchmarks, or future changes in drug prices substantially deviate from our expectations, the short- or long-term impacts may have a material adverse effect on our business and results of operations.

As a global company, we face political, legal, operational, regulatory, economic and other risks that present challenges and could negatively affect our multinational operations and/or our long-term growth.

As a global company, our business is increasingly exposed to risks inherent in foreign operations. These risks can vary substantially by market, and include political, legal, operational, regulatory, economic and other risks, including government intervention that we
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do not face in our U.S. operations. The global nature of our business and operations may present challenges including, but not limited to, those arising from:

•
geopolitical business conditions and demands, including the June 2016 referendum in the United Kingdom to leaveKingdom’s withdrawal from the European Union;

•
regulation that may discriminate against U.S. companies, favor nationalization or expropriate assets;

•
price controls or other pricing issues and exchange controls; restrictions that prevent us from transferring funds out of the countries in which we operate; foreign currency exchange rates and fluctuations and restrictions on converting currencies from foreign operations into other currencies; uncertainty with respect to the interpretation of tax positions;

•
reliance on local employees and interpretations of labor laws in foreign jurisdictions;

•
managing our partner relationships in countries outside of the United States;

•
providing data protection on a global basis and sufficient levels of technical support in different locations;

•
the global trend for companies to enact local data residency requirements;

•
acts of civil unrest, war and terrorism, as well as other political and economic conflicts such as through imposition of economic or political sanctions;
•man-made disasters, natural disasters orand pandemics, such as the COVID-19 pandemic, in locations where we operate; and

•
general economic and political conditions.

These factors may increase in significance as we continue to expand globally and operating in new foreign markets may require considerable management time before operations generate any significant revenues and earnings. Any one of these challenges could negatively affect our operations or long-termlong term growth. For example, due to the concentration of our international business in South Korea, the International Markets segment is exposed to potential losses resulting from economic and regulatory changes in that country and the geopolitical climate in the Korean Peninsula, as well as foreign currency movements affecting the South Korean currency, that could have a significant impact on the segment'ssegment’s results and our consolidated financial results.

International operations also require us to devote significant resources to implement controls and systems in new markets to comply with, and to ensure that our vendors and partners comply with, U.S. and foreign laws prohibiting bribery, corruption and money laundering, in addition to other regulations regarding, among other things, our products, direct-to-consumer communications, customer privacy, data protection and data residency. Violations of these laws and regulations could result in fines, criminal sanctions against us, our officers or employees, restrictions or outright prohibitions on the conduct of our business and significant reputational harm. Our success depends, in part, on our ability to anticipate these risks and manage these challenges. Our failure to comply with laws and regulations governing our conduct outside the United States or to establish constructive relations with non-U.S. regulators could have a material adverse effect on our business, results of operations, financial condition, liquidity and long-term growth.

Strategic transactions involve risks and we may not realize the expected benefits because of integration difficulties, underperformance relative to our expectations and other challenges.
As part of our strategy, we regularly consider and enter into strategic transactions, including mergers, acquisitions, joint ventures, licensing arrangements, divestitures and other relationships (collectively referred to as “strategic transactions”). There is significant competition for attractive targets and opportunities and we may be unable to identify and successfully complete strategic transactions in the future. In addition, from time to time, we evaluate alternatives for our businesses that do not meet our strategic, growth or profitability objectives, and we may divest or wind down such businesses. We may be unable to complete any such divestiture on terms favorable to us, within the expected timeframes, or at all. We may have continued financial exposure to divested businesses following the completion of any such transaction, including increased costs due to potential litigation, contingent liabilities and indemnification of the buyer related to, among other things, lawsuits, regulatory matters or tax liabilities.
Our ability to achieve the anticipated benefits of strategic transactions, including synergies, cost savings, innovation and operational efficiencies, is subject to numerous uncertainties and risks, including our ability to successfully combine or separate business operations, resources and systems, including data security systems and internal financial control standards, in an efficient and effective manner. Integration and separation activities may result in additional and unforeseen expenses, and the anticipated benefits may not be fully realized or may take longer to realize than expected. These activities are complex, costly and time-consuming and may divert management’s attention from ongoing business concerns. Delays or issues encountered in these activities could have a material adverse effect on the revenues, expenses, operating results and financial condition of the company.
Strategic transactions could result in increased costs, including facilities and systems consolidation or separation costs and costs to retain key employees, decreases in expected revenues, earnings or cash flows and goodwill or other intangible asset impairment charges. As of December 31, 2020, our goodwill and other intangible assets had a carrying value of approximately $80 billion, representing 51% of our total consolidated assets. The value of our goodwill may be materially and adversely impacted if the businesses we acquire do not perform in a manner consistent with our assumptions. Future evaluations requiring an impairment to
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goodwill and other intangible assets could materially affect our results of operations and shareholders’ equity in the period in which the impairment occurs. A material decrease in shareholders’ equity could negatively impact our debt ratings or potentially impact our compliance with existing debt covenants. In addition, the trading price of our securities may decline if, among other things, we are unable to achieve our estimates of earnings growth and operational cost savings, or the transaction costs related to acquisitions, integrations or divestitures are greater than expected. The trading price also may decline if we do not achieve the perceived benefits of a transaction as rapidly or to the extent anticipated by financial or industry analysts.
Additionally, joint ventures and equity investments present risks that are different from acquisitions, including risks related to: specific operations and finances of the businesses we invest in, selection of appropriate parties, differing objectives of the various parties, competition between and among parties, compliance activities (including compliance with applicable CMS requirements), growing the business in a manner acceptable to all the parties, maintaining positive relationships among the parties, clients and customers, initial and ongoing governance of joint ventures and customer and business disruption that may occur upon a joint venture termination.
Further, we may finance strategic transactions by issuing common stock for some or all of the purchase price that could dilute the ownership interests of our shareholders, or by incurring additional debt that could increase costs and impact our ability to access capital in the future.
In addition, effective internal controls are necessary to provide reliable and accurate financial reports and to mitigate the risk of fraud. The integration of businesses is likely to cause increasing complexity in our systems and internal controls and make them more difficult to manage. Any difficulties in assimilating businesses into our control system could cause us to fail to meet our financial reporting obligations. We also rely on the internal controls and financial reporting controls of joint venture entities and other entities in which we invest and their failure to maintain effectiveness or comply with applicable standards may materially and adversely affect us. Ineffective internal controls could also cause investors to lose confidence in our reported financial information that could negatively impact the trading price of our securities and our access to capital.
We are dependent on the success of our relationships with third parties for various services and functions.

To improve operating costs, productivity and efficiencies, we contract with third parties for the provision of specific services. Our operations may be adversely affected if a third party fails to satisfy its obligations to us, if the arrangement is terminated in whole or in part or if there is a

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ITEM 1A. Risk Factors

contractual dispute between us and the third party. Even though contracts are intended to provide certain protections, we have limited control over the actions of third parties. For example, noncompliance with any privacy or security laws and regulations, any security breach involving one of our third-party vendors or a dispute between us and a third-party vendor related to our arrangement could have a material adverse effect on our business, results of operations, financial condition, liquidity and reputation.

Outsourcing also may require us to change our existing operations, adopt new processes for managing these service providers and/or redistribute responsibilities to realize the potential productivity and operational efficiencies. If there are delays or difficulties in changing business processes or our third-party vendors do not perform as expected, we may not realize, or not realize on a timely basis, the anticipated economic and other benefits of these relationships. This could result in substantialadditional costs or regulatory compliance issues divert management's attention from other strategic activities, negatively affect employee morale or create other operational or financial problems for us. Terminating or transitioning, in whole or in part, arrangements with key vendors could result in additional costs or penalties, risks of operational delays or potential errors and control issues during the termination or transition phase. We may not be able to find an alternative vendor in a timely manner or on acceptable terms. If there is an interruption in business or loss of access to data resulting from a security breach, termination or transition in services, we may not be able to meet the demands of our customers and, in turn, our business and results of operations could be adversely impacted.

A significant disruption in service within our operations or among our key suppliers or other third parties could materially adversely affect our business and results of operations.

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, data centers and corporate facilities, processing new and renewal business, maintaining appropriate shipment and storage conditions for prescriptions (such as temperature and protection from contamination) and mail orderhome delivery processing. In some instances, our ability to provide services or products (including processing and dispensing prescriptions) depends on the availability of services and products provided by suppliers, providers, pharmaceutical manufacturers, vendors or shipping carriers. AnyA disruption, or threat of disruption, in our supply chain, including as a result of the COVID-19 pandemic, or inability to access or deliver products that meet requisite quality safety standards in a timely and efficient manner could adversely impact our business. Additionally, any failure or disruption of our performance of, or our ability to perform, key business functions, including through unavailability or cyber-attackcyberattack of our information technology systems or those of third parties, could cause slower response times, decreased levels of service satisfaction and harm to our reputation. In addition, because ourOur information
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technology and other systems interface with and depend on third-party systems and we could experience service denials if demand for such service exceeds capacity or a third-party system fails or experiences an interruption. Our failure to implement adequate business continuity and disaster recovery strategies could significantly reduce our ability to provide products and services to our customers and clients, which could have material adverse effects on our business and results of operations.

Acquisitions, including our acquisition of Express Scripts, joint ventures and other transactions involve risks and we may not realize the expected benefits because of integration difficulties, underperformance relative to our expectations and other challenges.

As part of our growth strategy, we regularly consider and enter into strategic transactions, including mergers, acquisitions, joint ventures, licensing arrangements and other relationships (collectively referred to as "strategic transactions"). Our ability to achieve the anticipated benefits of these strategic transactions is subject to numerous uncertainties and risks, including our ability to integrate operations, resources and systems, including data security systems, in an efficient and effective manner.

The success of the Express Scripts acquisition will depend, in part, on our ability to successfully combine the businesses of Cigna and Express Scripts and realize the anticipated benefits, including synergies, cost savings, innovation and operational efficiencies, from the combination. This integration is a complex, costly and time-consuming process, which may divert management's attention from ongoing business concerns.

Key risks of the Express Scripts integration include, but are not limited to, retaining existing clients and attracting new clients on profitable terms; maintaining employee morale and retaining key management and other employees; integrating two unique corporate cultures; consolidating corporate and administrative infrastructures and realizing operational synergies; integrating information technology, communications programs, financial procedures and operations, and other systems, procedures and policies; coordinating geographically separate organizations; managing tax costs or inefficiencies associated with integrating the operations of the combined company; and necessary modifications to internal financial control standards.

Integration activities may result in additional and unforeseen expenses, and the anticipated benefits of integration, including with respect to Express Scripts, may not be fully realized or may take longer to realize than expected. Delays or issues encountered in the integration process could have a material adverse effect on the revenues, expenses, operating results and financial condition of the combined company.

Strategic transactions could result in increased costs, including facilities and systems consolidation costs and costs to retain key employees, decreases in expected revenues, earnings or cash flows, and goodwill or other intangible asset impairment charges. Additional unanticipated costs may be incurred in the integration of Express Scripts' businesses. Although we expect that the elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of those businesses, should allow us to more than offset incremental transaction and merger-related costs over time, this net benefit may not be achieved in the near term, or at all. In addition, the trading price of our securities may decline if, among other things, we are unable to achieve the expected growth in earnings, if our operational cost savings estimates are not realized, or the transaction costs related to the acquisition and integration are greater than expected. The trading price also may decline if we do not achieve the perceived benefits of the acquisition as rapidly or to the extent anticipated by financial or industry analysts.

Further, we may finance strategic transactions by issuing common stock for some or all of the purchase price that could dilute the ownership interests of our shareholders, or by incurring additional debt that could impact our ability to access capital in the future.

In addition, effective internal controls are necessary to provide reliable and accurate financial reports and to mitigate the risk of fraud. The integration of businesses, including Express Scripts, is likely to cause increasing complexity in our systems and internal controls and make them more difficult to manage. Any difficulties in assimilating businesses into our control system could cause us to fail to meet our financial reporting

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ITEM 1A. Risk Factors

obligations. Ineffective internal controls could also cause investors to lose confidence in our reported financial information that could negatively impact the trading price of our securities and our access to capital.

Our business depends on our ability to effectively invest in, implement improvements to and properly maintain the uninterrupted operation and data integrity of our information technology and other business systems.

Our business is highly dependent on maintaining effective information systems as well as the integrity and timeliness of the data we use to serve our customers and health care professionalsproviders and to operate our business. If our data were found to be inaccurate or unreliable due to fraud or other error, or if we, or any of the third-party service providers we engage, were to fail to maintain information systems and data integrity effectively, we could experience operational disruptions that may impact our clients, customers and health care professionalsproviders and hinder our ability to provide services and products, establish appropriate pricing for products and services, retain and attract clients and customers, establish reserves and report financial results timely and accurately and maintain regulatory compliance, among other things.

Our information technology strategy and execution are critical to our continued success. We must continue to invest in long-term solutions that will enable us to anticipate customer needs and expectations, enhance the customer experience, act as a differentiator in the market and protect against cybersecurity risks and threats. Our success is dependent, in large part, on maintaining the effectiveness of existing technology systems and continuing to deliver and enhance technology systems that support our business processes in a cost-efficient and resource-efficient manner. Increasing regulatory and legislative changes will place additional demands on our information technology infrastructure that could have a direct impact on resources available for other projects tied to our strategic initiatives. In addition, recent trends toward greater consumer engagement in health care require new and enhanced technologies, including more sophisticated applications for mobile devices. Connectivity among technologies is becoming increasingly important. We must also develop new systems to meet current market standards and keep pace with continuing changes in information processing technology, evolving industry and regulatory standards and customer needs. Failure to do so may present compliance challenges and impede our ability to deliver services in a competitive manner. Further, because system development projects are long-term in nature, they may be more costly than expected to complete and may not deliver the expected benefits upon completion. Our failure to effectively invest in, implement improvements to and properly maintain the uninterrupted operation and data integrity of our information technology and other business systems could adversely affect our results of operations, financial position and cash flow.

As a large health service company, we are subject to cyber-attackscyberattacks or other privacy or data security incidents. If we are unable to prevent or contain the effects of any such attacks, we may suffer exposure to substantial liability, reputational harm, loss of revenue or other damages.

Our business depends on our clients'clients’ and customers'customers’ willingness to entrust us with their health-related and other sensitive personal information. Computer systems may be vulnerable to physical break-ins, computer viruses or malware, programming errors, attacks by third parties or similar disruptive problems. We have been, and will likely continue to be, the target of computer viruses or other malicious codes, unauthorized access, cyber-attackscyberattacks or other computer-related penetrations. There have been, and will likely continue to be, large scale cyber-attackscyberattacks within the health service industry. Additionally, hardware, software or applications we develop or procure from third parties may contain defects in design, manufacturer defects or other problems that could unexpectedly compromise information technology. Human or technological error has and could in the future result in, for example, unauthorized access to, disclosure, modification, misuse, loss, or destruction of company, customer, or other third-party data or systems; theft of sensitive, regulated, or confidential data including personal information and intellectual property; the loss of access to critical data or systems through ransomware, destructive attacks or other means; and business delays, service or system disruptions or denials of service.
As we increase the amount of personal information that we store and share digitally, our exposure to unintended disclosures, data security and related cybersecurity risks increases, including the risk of undetected attacks, damage, loss or unauthorized access or misappropriation of proprietary or personal information, and the cost of attempting to protect against these risks also increases. If disruptions, disclosures or breaches are not detected quickly, their effect could be compounded. We have implemented security technologies, processes and procedures to protect consumer identity and provide employee awareness training around phishing, malware and other cyber risks; however, there are no assurances that such measures will be effective against all types of breaches.

Cyber-security

Cybersecurity threats are rapidly evolving and those threats and the means for obtaining access to our proprietary systems are becoming increasingly sophisticated. Cyber-attacksCyberattacks can originate from a wide variety of sources including third parties, such as external service providers, and the techniques used change frequently or are often not recognized until after they have been launched. Those parties may also attempt to fraudulently induce employees, customers or other users of our systems to disclose sensitive information in order to gain access to our data or that of our customers. In addition, while we have certain standards for all vendors
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that provide us services, our vendors, and in turn, their own service providers, may become subject to the same types of security breaches. Finally, our offices may be vulnerable to security incidents or security attacks, acts of vandalism or theft, misplaced or lost data, human error or similar events that could negatively affect our systems and our customers'customers’ and clients'clients’ data.

The costs to eliminate or address security threats and vulnerabilities before or after a cyber-incident could be significant. Our remediation efforts may not be successful and could result in interruptions, delays, or cessation of service and loss of existing or potential customers.

In addition, breaches of our security measures and the unauthorized dissemination of sensitive personal information, or proprietary information or confidential information about us, our customers or other third-partiesthird parties could expose our customers' private information and our customers to the risk of financial or medical identity theft. Unauthorized dissemination of confidential and proprietary information about our business and strategy could also could negatively affect the achievement of our strategic initiatives. Such events could cause us to breach our contractual confidentiality obligations and violate applicable laws. These events would negatively affect our ability to compete, others'others’ trust in us, our reputation, customer base and revenues and expose us to mandatory disclosure (including to the media),requirements, litigation and other enforcement proceedings, material fines, penalties and/or remediation costs and compensatory, special, punitive and statutory damages, consent orders and other adverse actions, any of which could adversely affect our business, results of operations, financial condition or liquidity.

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In managing medical practices and operating pharmacies, onsite clinics and other types of medical facilities, we may be subject to additional liability that could result in significant time and expense.

In addition to contracting with physicians and other health care providers for services, we employ physicians, pharmacists, nurses and other health care professionalsproviders at our home delivery and specialty pharmacies, onsite low acuity and primary care practices and infusion clinics that we manage and operate for our customers, as well as certain clinics for our employees. We also provide in-home care through health care professionalsproviders that we employ, as well as, through third-party contractors. As such, we aremay be subject to liability for negligentcertain acts, omissions, or injuries caused by our employees or agents, or occurring at one of these clinicspractices, pharmacies or caused by one of our employees.clinics. The defense of any actions may result inrequire the diversion of personnel and other resources and the incurrence of significant expensescosts that could have a material adverse effect on our business, results of operations, financial condition, liquidity and reputation.

Legal and Compliance Risks

Our business is subject to substantial government regulation, as well as new laws or regulations or changes in existing laws or regulations that could have a material adverse effect on our business, results of operations, financial condition and liquidity.

Our business is regulated at the federal, state, local and international levels. The laws and rules governing our business and related interpretations are increasing in number and complexity, are subject to frequent change and can be inconsistent or in conflict with each other.

Noncompliance with applicable regulations by us or our third-party vendors could have material adverse effects on our business, results of operations, financial condition, liquidity and reputation.

We must identify, assess and respond to new trends in the legislative and regulatory environment, as well as comply with the various existing regulations applicable to our business. From time to time, certainThere are currently pending, and in the future there will likely be, legislative and/or regulatory proposals are made which seek to manage the health careservices industry, including managing prescription drug cost,costs and health records, as well as regulating drug distributiondistribution. We expect federal and managingstate governments to continue to enact and seriously consider many broad-based legislative and regulatory proposals that will or could materially impact various aspects of the health records.care and related benefits system. In addition, changes to government policies not specifically targeted to the health services industry, such as a change in tax laws and the corporate tax rate or government spending cuts, could have significant impacts on our business, results of operations, financial condition and liquidity. The trading price of our securities may react to the announcement of such proposals. We are unable to predict whether any such policies or proposals will be enacted, or the specific terms thereof. Certainthereof, including their effect on our operations; however, certain of these policies or proposals could, if enacted, adversely impact our business and results of operations.

Existing or future laws, rules, regulatory interpretations or judgments could force us to change how we conduct our business, affect the products and services we offer and where we offer them, restrict revenue and enrollment growth, increase our costs, including medical, operating, health care technology and administrative costs, and require enhancements to our compliance infrastructure and internal controls environment. For example, a decision invalidating the ACA or portions thereof could result in material changes to the way we conduct our business, as well as the loss of subsidies related to our IFP offerings. We are required to obtain and maintain insurance and other regulatory approvals to, among other things, market many of our products, expand into additional geographic or product markets, increase prices for certain regulated products and consummate some of our acquisitions and dispositions. Delays in obtaining or failure to obtain or maintain these approvals could reduce our revenue or increase our costs. Existing or future laws and rules could also require or lead us to take other actions such as changing our business practices, and could increase our liability.

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Further, failure to effectively implement or adjust our strategic and operational initiatives, such as by reducing operating costs, adjusting premium pricing or benefit design or transforming our business model in response to regulatory changes may have a material adverse effect on our results of operations, financial condition and cash flows, including, but not limited to, our ability to maintain the value of our goodwill and other intangible assets.

flows.

For more information on regulations to which we are subject,affecting our business, see "Business“Business – Regulation"Regulation” in Part I, Item 1 of this Form 10-K.

There are various risks associated with participating in government-sponsored programs, such as Medicare, including dependence upon government funding, compliance with government contracts and increased regulatory oversight.

oversight and enforcement.

Through our U.S. Government business, we contract with CMS and various state governmental agencies to provide managed health care services including Medicare Advantage plans and Medicare-approved prescription drugMedicare Part D plans. If we failAdditionally, our Evernorth business provides services to comply with CMS's contractual requirements,government entities and payers participating in government health care programs.
Our revenues from government funded programs, including data submission, enrollmentour Medicare programs and marketing, provider network adequacy, provider directory accuracy, quality measures, claims payment, continuity of care and call center performance, we may be subject to administrative actions, fines or other penalties that could impact our profitability.

Revenues from Medicare programsgovernment clients, are dependent, in whole or in part, upon annual funding from the federal government through CMS and/or applicable state or local governments. Funding for these programs is dependent on many factors outside our control, including general economic conditions, continuing government efforts to contain health care costs and budgetary constraints at the federal or applicable state or local level and general political issues and priorities. These entities generally have the right to not renew or cancel their contracts with us on short notice without cause or if funds are not available. Unanticipated changes in funding, such as the application of sequestration by the federal or state governments or the failure to provide for continued appropriations or regular ongoing scheduled payments to us, could substantially reduce our revenues and profitability.

The Medicare program has been the subject of regulatory reform initiatives. The premium rates paid to Medicare Advantage plans and Medicare Part D plans are established by contract, although the rates differ depending on a combination of factors, manysome of which are outside our control. For example, the base premium rate paid differs depending upon a combination of various factors such as defined upper payment limits, a member's health status, age, gender, county or region, benefit mix, member eligibility category and risk scores. Additionally, a portion of each Medicare Advantage plan’s reimbursement is tied to the plan’s Star Rating, with those plans receiving a rating of four or more stars eligible for quality-based bonus payments. A plan’s Star Rating affects its image in the market and plans that perform well are able to offer enhanced benefits, market more effectively and for longer periods of time than other plans. The Star Rating system is subject to change annually by CMS, which may make it more difficult to achieve four stars or greater. A plan's Star Rating affects its image in the market and plans that perform well are able to market more effectively and for longer periods of time than other plans. Our Medicare Advantage plans'plans’ and Medicare Part D plans'plans’ operating results, premium revenue and benefit offerings are likely to continue to be significantly determined by their Star Ratings. A portion of each Medicare Advantage plan's reimbursement is tied to the plan's Star Rating, with those plans receiving a rating of four or more stars eligible for quality-based bonus payments. There can be no assurances that we will be successful in maintaining or improving our Star Ratings in future years. In addition, audits of our performance for past or future periods may result in downgrades to our Star Ratings. Accordingly, our plans may not be eligible for full level quality bonuses,

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ITEM 1A. Risk Factors

which could adversely affect the benefits such plans can offer, reduce membership and/or impact our financial performance. See Part II, Item 7 – Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Information – Health Care Industry Developments and Other Matters Affecting our Global Health Care SegmentEvernorth and U.S. Medical Segments for additional information on our Star Ratings.

On

Additionally, if we fail to comply with CMS’ contractual requirements, including data submission, enrollment and marketing, provider network adequacy, provider directory accuracy, quality measures, claims payment, continuity of care, timely and accurate processing of appeals and grievances, oversight of first tier downstream and related entities and call center performance, we may be subject to administrative actions, including enrollment sanctions or contract termination, fines or other penalties that could impact our profitability. As described under “Business – Regulation” in Part I, Item 1 of this Form 10-K, on November 1, 2018, CMS released a proposed rule that would revise its Risk Adjustment Data ValidationRADV methodology by, among other things, excluding an adjustment for underlying fee-for-service data errors and, extrapolating RADV results at the contract level. Ifif adopted in its current form, could result in some combination of degraded plan benefits, higher monthly premiums or reduced choice for the rule could have a detrimental impact topopulation served by all Medicare Advantage insurers and affect the ability of plans to deliver high quality health care for the population served.insurers. While it is uncertain thatwhether CMS will issuefinalize the rule as proposed, if adopted, it could have a material impact on the Company'sCompany’s future results of operations.

Our participation in health insurance exchanges for individuals and small employers involves uncertainties associated with mix and volume of business and could adversely affect our results of operations, financial position and cash flows. The executive order signed in October 2017 that halted payment of the cost sharing reduction subsidies has created additional uncertainty regarding the future of public health insurance exchanges. Risk adjustment balances are subject to audit and adjustment by CMS.

Any failure to comply with various state and federal health care laws and regulations, including those directed at preventing fraud and abuse in government funded programs, could result in investigations or litigation, such as actions under the federal False Claims Act and similar whistleblower statutes under state laws. This could subject us to damage awards, including treble damages, fines, penalties or other enforcement actions, restrictions on our ability to market or enroll new customers, limits on expansion, restrictions or exclusions from programs or other agreements with federal or state governmental agencies, which could adversely impact our business, cash flows, financial condition, results of operations and reputation.

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We face risks related to litigation, regulatory audits and investigations.

We are routinely involved in numerous claims, lawsuits, regulatory audits, investigations and other legal matters arising, for the most part, in the ordinary course of business, including that of administering and insuring employee benefit programs.business. These legal matters could include benefit claims, breach of contract actions, tort claims, claims arising from consumer protection laws, false claims act laws, claims disputes under federal or state laws and disputes regarding reinsurance arrangements, employment and employment discrimination-related suits, antitrust claims, employee benefit claims, wage and hour claims, tax, privacy, intellectual property and whistleblower claims, shareholder suits and other securities law claims, and real estate disputes.disputes, claims related to disclosure of certain business practices and claims arising from customer audits and contract performance, including government contracts. In addition, we have incurred and likely will continue to incur liability for practices and claims related to our health care business, such as marketing misconduct, failure to timely or appropriately pay for or provide health care, provider network structure, poor outcomes for care delivered or arranged, provider disputes including disputes over compensation or contractual provisions, ERISA claims, allegations related to calculations of cost sharing and claims related to our administration of self-funded business. We are also routinely involved in legal matters arising from our health services business, including without limitation claims related to the dispensing of pharmaceutical products by our home delivery and specialty pharmacies, pharmacy benefit management services, such as formulary management services, health benefit management services and provider services. There are currently, and may be in the future, attempts to bring class action lawsuits against the companyCompany and other companies in our industry; individual plaintiffs also may bring multiple claims regarding the same subject matter against us and other companies in our industry.

Court decisions and legislative activity may increase our exposure for any of these types of claims. In some cases, substantial non-economicnoneconomic or punitive damages may be sought. We seek to procure insurance coverage to cover some of these potential liabilities. However,liabilities, however we also self-insure a significant portion of our litigation risks. While we maintain some third-party insurance coverage, including excess liability insurance with third-party insurance carriers, certain potential liabilities or types of damages, such as punitive damages, may not be covered by insurance, insurers may dispute coverage or the amount of insurance may be insufficient to cover the entire damages awarded. In addition, certain typesResolving disputes is often expensive and disruptive, regardless of damages, such as punitive damages, may not be covered by insurance, and insurance coverage for all or certain forms of liability may become unavailable or prohibitively expensive in the future. Itoutcome. Additionally, it is possible that the resolution of current or future legal matters and claims could result in changes to our industry and business practices, losses material to our results of operations, financial condition and liquidity or damage to our reputation.

We are frequently the subject of regulatory market conduct and other reviews, audits and investigations by state insurance and health and welfare and pharmacy departments, attorneys general, DOJ, CMS, DOL and the OIG and comparable authorities in foreign jurisdictions. Additionally, we are, and may in the future be, subject to qui tam actions in which the government may or may not intervene. With respect to our Medicare Advantage and Medicare Part D businesses, CMS and OIG perform audits to determine a health plan's compliance with federal regulations and contractual obligations, including compliance with proper coding practices and fraud and abuse enforcement practices through audits designed to detect and correct improper payments. Certain of our contracts are currently subject to RADV audits by CMS and the OIG. The Department of JusticeDOJ is conducting an industry reviewindustry-wide investigation of the risk adjustment data submission practices and business processes, including review of medical charts and health exams, of Cigna and a number of other Medicare Advantage organizations under Medicare Parts C and D. There also continues to be heightened review by federal and state regulators of business and reporting practices within the health service, disability and life insurance industries,services industry, including with respect to claims payment and related escheat practices, and increased scrutiny by other statefederal and federalstate governmental agencies (such as state attorneys general) empowered to bring criminal actions in circumstances that could have previously given rise only to civil or administrative proceedings.

In addition, various governmentalgovernment agencies have conducted investigations and audits into certain pharmacy benefit management practices. Many of these investigations and audits have resulted in other companies agreeingbeing subject to civil penalties, including the payment of money and entry into corporate integrity agreements. We cannot predict what effect, if any, such governmentalgovernment investigations and audits may ultimately have on us or on the industry in general. However, we maywill likely continue to experience government scrutiny and audit activity, which has and may in the future result in the payment or offset of prior reimbursements from the government.

civil penalties.

Regulatory audits, investigations or reviews or actions by other governmentalgovernment agencies could result in changes to our business practices, retroactive adjustments to certain premiums, significant fines, penalties, civil liabilities, criminal liabilities or other sanctions, including corporate integrity agreements, restrictions on our ability to participate in government programs, market certain products or engage in business-related activities, that could have a material adverse effect on our business, results of operation, financial condition and liquidity. In addition, disclosure of an adverse investigation or audit or the imposition of fines or other sanctions could negatively affect our reputation in certain markets and make it more difficult for us to sell our products and services.

A description of material pending legal actions and other legal and regulatory matters is included in Note 1921 to ourthe Consolidated Financial Statements included in this Form 10-K. The outcome of litigation and other legal or regulatory matters is always uncertain.

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ITEM 1A. Risk Factors


If we fail to comply with applicable privacy, security and data laws, regulations and standards, our business and reputation could be materially and adversely affected.

Most of our activities involve the receipt, use, storage or transmission of a substantial amount of individuals'individuals’ protected health information and personally identifiable information. We also use aggregated and anonymized data for research and analysis purposes, and in some cases, provide access to such de-identified data, or analytics created from such data, to pharmaceutical manufacturers and third-party data aggregators and analysts. We may also use such information to create analytic models designed to predict, and potentially improve, outcomes and patient care. The collection, maintenance, protection, use, transmission, disclosure and disposal of sensitive personal information are regulated at the federal, state, international and industry levels and requirements are imposed on us by contracts with clients. In some cases, such laws, rules, regulations and contractual requirements also apply to our vendors and require us to obtain written assurances of their compliance with such requirements or may hold us liable for any violations by our vendors.requirements. We are also subject to various other consumer protection laws that regulate our communications with customers. Certain of our businesses are also subject to the Payment Card Industry Data Security Standard, which is designed to protect credit card account data as mandated by payment card industry entities. International laws, rules and regulations governing the use and disclosure of such information, such as the GDPR, are generallycan be more stringent than in the United States, and they vary across jurisdictions.

In addition, more jurisdictions are regulating the transfer of data across borders and domestic privacy and data protection laws are generally becoming more onerous.

These laws, rules and contractual requirements are subject to change.change and the regulatory environment surrounding data security and privacy is increasingly demanding. Compliance with existing or new privacy, security and data laws, regulations and requirements may result in increased operating costs, and may constrain or require us to alter our business model or operations. For example, the HITECH amendmentsmore information on privacy regulations to HIPAA may further restrict our ability to collect, disclose and use sensitive personal information and may impose additional compliance requirements on our business.

which we are subject, see “Business – Regulation” in Part I, Item 1 of this Form 10-K.

HIPAA requires covered entities to comply with the HIPAA privacy, security and breach rules. In addition, business associates must comply with the HIPAA security and breach requirements. While we endeavor to provide for appropriate protections through our contracts with our third-party service providers and in certain cases assess their security controls, we have limited oversight or control over their actions and practices. Several of our businesses act as business associates to their covered entity customers and, as a result, collect, use, disclose and maintain sensitive personal information in order to provide services to these customers. HHS has continued itsadministers an audit program to assess HIPAA compliance efforts by covered entities and has expanded it to include business associates. In addition, HHS has increasedcontinues to exercise its enforcement efforts. These efforts can result inauthority, such as enforcement actions that are the result ofresulting from investigations brought on by the notification to HHS of a breach. An audit resulting in findings or allegations of noncompliance or the implementation of an enforcement action could have an adverse effect on our results of operations, financial position, cash flows and reputation.

Noncompliance or findings of noncompliance with applicable laws, regulations or requirements, or the occurrence of any privacy or security breach involving the misappropriation, loss or other unauthorized disclosure of protected personal information, whether by us or by one of our third-party service providers, could materially adversely affect our business and reputation, including our results of operations, financial position and cash flows.
Effective prevention, detection and control systems are critical to maintain regulatory compliance and prevent fraud and failure of these systems could adversely affect us.

Federal and state governments have made investigating and prosecuting health care and other insurance fraud and abuse a priority. Fraud and abuse prohibitions encompass a wide range of activities including kickbacks for referral of customers, billing for unnecessary medical services, improper marketing and violations of patient privacy rights. The regulations and contractual requirements applicable to us are complex and subject to change. In addition, ongoing vigorous law enforcement, a highly technical regulatory scheme and the Dodd-Frank Act legislation and related regulations enhance regulators'regulators’ enforcement powers and whistleblower incentives and protections. Our compliance efforts in this area will continue to require significant resources. Failure of our prevention, detection or control systems related to regulatory compliance or the failure of employees to comply with our internal policies including data systems security or unethical conduct by managers and employees, could adversely affect our reputation and also expose us to litigation and other proceedings, fines and penalties.

In addition, provider or customer fraud that is not prevented or detected could impact our medical costs or those of our self-insured clients. Further, during an economic downturn, we may experience increased fraudulent claims volume that may lead to additional costs due to an increase in disputed claims and litigation.

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Economic Risks

Economic and market conditions affect the value of our financial instruments and the value of particular assets and liabilities, investment income and interest expense.
As an insurer, we have substantial investment assets that support insurance and contractholder deposit liabilities and surplus requirements in our regulated companies. The market values of our investments vary depending on economic and market conditions with no offsetting change in the value of a majority of our liabilities. A substantial portion of our investment assets are in fixed interest-yielding debt securities of varying maturities and commercial mortgage loans. The value of these investment assets can fluctuate significantly with changes in market conditions. A rise in interest rates would likely reduce the value of our investment portfolio, increase interest expense on our indebtedness and increase investment income as investment assets mature and are replaced. In addition, an economic contraction could result in delay in payment of principal or interest by issuers, or defaults by issuers, reducing our investment income and requiring us to write down the value of our investments.
Significant stock market or interest rate declines could result in additional unfunded pension obligations resulting in the need for additional plan funding by us and increased pension expenses.

We currently have unfunded obligations in our frozen pension plans. A significant decline in the value of the plans'plans’ equity and fixed income investments or unfavorable changes in applicable laws or regulations could materially increase our expenses and change the timing and amount of required plan funding. This could reduce the cash available to us, including our subsidiaries. We are also exposed to interest rate and equity risk associated with our pension and other post-retirement obligations. Sustained declines in interest rates could have an adverse impact on the funded status of our pension plans and our reinvestment yield on new investments. See Note 1315 to ourthe Consolidated Financial Statements for more information on our obligations under the pension plans.

Significant changes in market interest rates affect the value of our financial instruments that promise a fixed return or benefit and the value of particular assets and liabilities.

As an insurer, we have substantial investment assets that support insurance and contractholder deposit liabilities. Generally low levels of interest rates on investments, such as those experienced in U.S. and foreign financial markets during recent years, have negatively impacted our level of investment income earned in recent periods.

A substantial portion of our investment assets are in fixed interest-yielding debt securities of varying maturities, fixed redeemable preferred securities and commercial mortgage loans. The value of these investment assets can fluctuate significantly with changes in market conditions. A rise in interest rates would likely reduce the value of our investment portfolio and increase interest expense if we were to access our available lines of credit.

​34    CIGNA CORPORATION - 2018 Form10-K​​

Back to Contents

PART I
ITEM 1A. Risk Factors

A downgrade in the financial strength ratings of our insurance subsidiaries could adversely affect new sales and retention of current business, and a downgrade in our debt ratings would increase the cost of borrowed funds and could negatively affect our ability to access capital.

Financial strength, claims paying ability and debt ratings by recognized rating organizations are each important factors in establishing the competitive position of insurance and health benefits companies. Ratings information by nationally recognized ratings agencies is broadly disseminated and generally used throughout the industry. We believe that the claims paying ability and financial strength ratings of our principal insurance subsidiaries are important factors in marketing our products to certain customers. Our debt ratings impact both the cost and availability of future borrowings and, accordingly, our cost of capital. Each of the rating agencies reviews ratings periodically and there can be no assurance that current ratings will be maintained in the future. A downgrade of any of these ratings in the future could make it more difficult to either market our products successfully or raise capital to support business growth withingrowth.
We maintain significant indebtedness in the ordinary course of business and may incur further indebtedness in the future. Our indebtedness could adversely affect our insurance subsidiaries.

Global market, economic and geopolitical conditions may cause fluctuations in equity market prices, interest rates and credit spreads that could impactfinancial condition, our ability to raise or deploy capital and affect our overall liquidity.

If the equity and credit markets experience extreme volatility and disruption, there could be downward pressure on stock prices and restricted accessreact to capital for certain issuers without regard to those issuers' underlying financial strength. Extreme disruptionchanges in the credit marketseconomy or our industry and could adversely impactdivert our accesscash flow from operations for debt service costs, leaving us with less cash flow from operations available to fund growth, stock repurchases, dividends and costother corporate purposes.

The total indebtedness of Cigna was approximately $32.9 billion as of December 31, 2020. Carrying indebtedness:
•requires us to dedicate a portion of our cash flow from operations to debt payments, thereby reducing the availability of cash flow to fund our operations and growth strategy, including investments, acquisitions and capital in the future.

In the event ofexpenditures, make stock repurchases, pay dividends and for general corporate purposes;

•increases our vulnerability to general adverse economic and industry conditions, wewhich may be requiredrequire us to dedicate aan even greater percentage of our cash flow from operations to the payment of principal and interest on our debt thereby reducing the funds we have available for other purposes, such as investments and other expenditures in ongoing businesses, acquisitions, dividends and stock repurchases. In these circumstances, our ability to execute our strategy may be limited, our flexibility in planning for or reacting to changes in business and market conditions may be reduced, orlimit our access to capital markets may be limited such that additional capital may not be available or may be available only on unfavorable terms.

In connection with the combination with Express Scripts, we have considerably higher levels of indebtedness than Cigna and Express Scripts previously carried, which will result in higher relative debt service costs and less cash flow from operations available to fund growth, stock repurchases and other corporate purposes during our deleveraging process.

The long-term indebtedness of Cigna was approximately $39.5 billion as of December 31, 2018. This level of indebtedness:

terms;
•
requiresexposes us to dedicate a greater percentage of our cash flow from operations to debt payments, thereby reducing the availability of cash flow to fund capital expenditures, pursue other acquisitions or investments in new technologies, make stock repurchases, pay dividends and for general corporate purposes;

•
increases our vulnerability to general adverse economic conditions, including increases in interest rates forto the extent increased interest expense is not offset by increased income from our borrowings that bear interest at variable ratesinvestment assets; and are in a greater amount than floating rate assets held, or if such indebtedness is refinanced at a time when interest rates are higher; and

•
limits our flexibility in planning for, or reacting to, changes in or challenges relating to our business and industry.

The covenants to which we have agreed in connection with the financing, and our indebtedness and higher debt-to-equity ratio in comparison to that of Cigna or Express Scripts on a recent historical basis,debt instruments may have the effect, among other things, of restricting our financial and operating flexibility to respond to changingsignificant changes in business and economic conditions, creating competitive disadvantages comparedconditions. We may incur or assume significantly more debt in the future which may subject us to other competitors with loweradditional restrictive covenants and increase the risks described above. If our cash flow and capital resources are insufficient to service our debt levels during the deleveraging process.

obligations, we may be forced to seek additional dividends from our subsidiaries, sell assets, seek additional equity or debt capital or restructure our debt.

46

Unfavorable developments in economic conditions may adversely affect our business, results of operations and financial condition.

Many factors, including geopolitical issues, future economic downturns, natural disasters and pandemics, availability and cost of credit and other capital and consumer spending can negatively impact the U.S. and global economies. Our results of operations could be materially and adversely affected by the impact of unfavorable economic conditions on our clients and customers (both employers and individuals), health care providers, pharmacy manufacturers, pharmacy providers and third-party vendors. For example:

•
Employers may take action to reduce their operating costs by modifying, delaying or canceling plans to purchase our products or making changes in the mix of products purchased that are unfavorable to us.

•
Higher unemployment rates and workforce reductions could result in lower enrollment in our employer-based plans (including an increase in the number of employees who opt out of employer-based plans) or our individual plans.

•
Because of unfavorable economic conditions or the ACA, employers may stop offering health care coverage to employees or elect to offer this coverage on a voluntary, employee-funded basis as a means to reduce their operating costs.

•
Our historical disability claim experience and industry data indicate that submitted disability claims rise under adverse economic conditions.

•
If clients are not successful in generating sufficient funds or are precluded from securing financing, they may not be able to pay, or may delay payment of, accounts receivable that are owed to us.

•
Our clients or potential clients may force us to compete more vigorously on factors such as price and service to retain or obtain their business.
​​​CIGNA CORPORATION - 2018 Form10-K    35

Back to Contents

PART I
ITEM 1A. Risk Factors

•
Our clients may be acquired, consolidated, or otherwise fail to successfully maintain or grow their business or workforce, which could reduce the number of customers we serve or otherwise result in lower than anticipated utilization of our services.

•
A prolonged unfavorable economic environment could adversely impact the financial position of hospitals and other health care providers, potentially increasing our medical costs as these providers attempt to maintain revenue levels in their efforts to adjust to their own economic challenges.

costs.
•
Our third-party vendors could significantly and quickly increase their prices or reduce their output to reduce their operating costs. Our business depends on our ability to perform necessary business functions in an efficient and uninterrupted fashion.

•Other insurers' financial condition may be weakened, increasing the risk that we will receive significant assessments for obligations of insolvent insurers pursuant to guaranty associations, indemnity funds or other similar laws and regulations.
These factors could lead to a decrease in our customer base, revenues or margins and/or an increase in our operating costs.

In addition, during and following a prolonged unfavorable economic environment, statefederal and federalstate budgets could be materially and adversely affected, resulting in reduced or delayed reimbursements or payments in statefederal and federalstate government programs such as Medicare and Social Security or under contracts with government entities. These statefederal and federalstate 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 claims. Although we could attempt to mitigate or cover our exposure from such increased costs through, among other things, increases in premiums, there can be no assurance that we will be able to mitigate or cover all of such costs, which may have a material adverse effect on our business, results of operations, financial condition and liquidity.

We are subject to the credit risk of our reinsurers.

We enter into reinsurance arrangements with other insurance companies, primarily to limit losses from large exposures or to permit recovery of a portion of direct losses. We also may enter into reinsurance arrangements in connection with acquisition or divestiture transactions when the underwriting company is not being acquired or sold.

Under all reinsurance arrangements, reinsurers assume insured losses, subject to certain limitations or exceptions that may include a loss limit. These arrangements also subject us to various obligations, representations and warranties with the reinsurers. Reinsurance does not relieve us of liability as the originating insurer. We remain liable to the underlying policyholders if a reinsurer defaults on obligations under the reinsurance arrangement. Although we regularly evaluate the financial condition of reinsurers to minimize exposure to significant losses from reinsurer insolvencies, reinsurers may become financially unsound. If a reinsurer fails to meet its obligations under the reinsurance contract or if the liabilities exceed any applicable loss limit, we will be forced to cover the claims on the reinsured policies.

The collectability of amounts due from reinsurers is subject to uncertainty arising from a number of factors, including whether the insured losses meet the qualifying conditions of the reinsurance contract, whether reinsurers or their affiliates have the financial capacity and willingness to make payments under the terms of the reinsurance contract and the magnitude and type of collateral supporting our reinsurance recoverable, such as holding sufficient qualifying assets in trusts or letters of credit issued. Although a portion of our reinsurance exposures are secured, the inability to collect a material recovery from a reinsurer could have a material adverse effect on our results of operations, financial condition and liquidity.

​36    CIGNA CORPORATION - 2018 Form10-K​​

Table of Contents

PART I
ITEM 1B. Unresolved Staff Comments

47

ITEM 1B.Unresolved Staff Comments

Item 1B.UNRESOLVED STAFF COMMENTS

None.

ITEM 2.Properties

Item 2.PROPERTIES

Our

As of the end of fiscal year 2020, our global real estate portfolio consistsconsisted of approximately 13.312.4 million square feet of owned and leased properties. Our domestic portfolio hashad approximately 11.310.5 million square feet in 4342 states, the District of Columbia, Puerto Rico and the U.S. Virgin Islands. Our international properties contain approximately 2.02.1 million square feet located throughout the following countries: Australia, Bahrain, Belgium, Canada, China, France, Germany, Hong Kong, India, Indonesia, Kenya, Kuwait, Lebanon, Malaysia, Netherlands, New Zealand, Oman, Singapore, South Korea, Spain, Switzerland, Taiwan, Thailand, Turkey, United Arab Emirates and the United Kingdom.

Our principal domestic office locations include the Wilde Building located at 900 Cottage Grove Road in Bloomfield, Connecticut (our corporate headquarters), Two Liberty Place located at 1601 Chestnut Street in Philadelphia, Pennsylvania, and Express Scripts'Evernorth's corporate offices located at and around One Express Way in St. Louis, Missouri. The Wilde Building measures approximately 893,000 square feet and is owned. Express Scripts'Scripts’ campus measures approximately 1.2 million square feet of leased space and Two Liberty Place measures approximately 322,000 square feet and is leased space.

The home delivery pharmacy operations of Express Scripts consist of five non-dispensingten order processing pharmacies, five patient contact centers, 26 specialty branch pharmacies and four11 high-volume automated mail orderhome delivery and specialty dispensing pharmacies located throughout the United States. Express Scripts' mail order dispensingDispensing pharmacies are located in Arizona, Delaware, Florida, Indiana, Massachusetts, Missouri, New Jersey, Pennsylvania and New Jersey. Express Scripts also has seven specialty home delivery pharmacies and 20 specialty branch pharmacies.

Tennessee.

We believe our properties are adequate and suitable for our business as presently conducted. The foregoing does not include information on investment properties.

ITEM 3.Legal Proceedings

Item 3. LEGAL PROCEEDINGS

The information contained under "Litigation Matters"Litigation Matters and "Regulatory Matters"Regulatory Matters in Note 1921 to ourthe Consolidated Financial Statements beginning on page 115 of this Form 10-K is incorporated herein by reference.

​​​CIGNA CORPORATION - 2018 Form10-K    37

PART I
EXECUTIVE OFFICERS OF THE REGISTRANT

Item 4.MINE SAFETY DISCLOSURES
Not Applicable.
48

EXECUTIVE OFFICERS OF THE REGISTRANT

All officers are elected to serve for a one-year term or until their successors are elected. Principal


Information about our Executive Officers
The principal occupations and employment during the past five yearshistories of our executive officers are listed below.

LISA R. BACUS, 54, Executive Vice President and Chief Marketing Officer of Cigna beginning May 2013 and Chief Customer Officer beginning February 2017; Executive Vice President and Chief Marketer at American Family Insurance from February 2008 until May 2013.

MARK L. BOXER, 59, Executive Vice President and Chief Information Officer of Cigna beginning April 2011; Deputy Chief Information Officer, Xerox Corporation; and Group President, Government Health Care, for Xerox Corporation/Affiliated Computer Services from March 2009 until April 2011.

DAVID M. CORDANI, 53,55, Chief Executive Officer of Cigna beginning December 2009; Director since October 2009; President beginning June 2008; and Chief Operating Officer from June 2008 until December 2009.

NOELLE K. EDER, 51, Executive Vice President, Chief Information Officer beginning September 2020; Executive Vice President, Chief Information and Digital Officer at Hilton Worldwide Holdings from March 2018 until August 2020; Executive Vice President, Chief Card Customer Experience Officer at Capital One Financial Corporation from November 2016 until 2018; and Executive Vice President, Customer Experience and Operations at Capital One Financial Corporation from September 2014 until November 2016.
BRIAN C. EVANKO, 42,44, Executive Vice President and Chief Financial Officer beginning January 2021; President, Government Business beginningfrom November 2017;2017 to January 2021; President, U.S. Individual Business from August 2013 to November 2017; Business Financial Officer, Cigna Global Individual, Health, Life and Accident from September 2012August 2011 to August 2013; Chief Actuary, Cigna Global Individual, Health, Life and Accident from December 2008 to September 2012.

2013.

NICOLE S. JONES, 48,50, Executive Vice President and General Counsel of Cigna beginning June 2011; Senior Vice President and General Counsel of Lincoln Financial Group from May 2010 until June 2011; Vice President and Deputy General Counsel of Cigna from April 2008 until May 2010; and Corporate Secretary of Cigna from September 2006 until April 2010.

KRISTEN LAURIA, 52, Executive Vice President, Chief Marketing Officer beginning March 2020; General Manager, Watson Media and Weather at IBM from February 2017 until March 2020; Vice President, Strategy and Business Development, IBM Analytics Group at IBM from April 2016 until February 2017; and Chief Marketing Officer, IBM Global Business Services at IBM from August 2014 to August 2016.
MATTHEW G. MANDERS, 57,59, President, Government and Solutions beginning January 2021; President, Strategy and Solutions beginningfrom November 2018;2018 until January 2021; President, Government & Individual Programs and Group Insurance from February 2017 through November 2017; President, U.S. Markets from June 2014 until February 2017; President, Regional and Operations from November 2011 until June 2014; President, U.S. Service, Clinical and Specialty from January 2010 until November 2011; and President, Cigna HealthCare, Total Health, Productivity, Network & Middle Market from June 2009 until January 2010.

STEVEN B. MILLER, 61,MD, 63, Executive Vice President and Chief Clinical Officer beginning December 2018; Senior Vice President and Chief Medical Officer, of Express Scripts from October 2007 through December 2018.

JOHN M. MURABITO, 60,62, Executive Vice President, Human Resources and Services of Cigna beginning August 2003.

EVERETT NEVILLE, 56, Executive Vice President, Strategy and Business Development beginning January 2021; Senior Vice President, Value Creation and Solutions from January 2020 until January 2021; Chief Value Officer from December 2018 until January 2020; Executive Vice President, Strategy, Supply Chain & Specialty, Express Scripts from January 2018 until December 2018; Senior Vice President, Strategy, Supply Chain & Specialty from November 2016 until January 2018; Senior Vice President, Supply Chain from March 2015 until November 2016; Vice President, Pharma Strategy and Contracting from March 2009 until March 2015.
ERIC P. PALMER, 42,44, President and Chief Operating Officer, Evernorth beginning January 2021; Executive Vice President and Chief Financial Officer beginningfrom June 2017;2017 to January 2021; Deputy Chief Financial Officer from February 2017 until June 2017; Senior Vice President, Chief Business Financial Officer from November 2015 to February 2017; Vice President, Business Financial Officer, Health Care from April 2012 to November 2015; and Vice President, Business Financial Officer, U.S. Commercial Markets from June 2010 to April 2012.

JASON D. SADLER, 50,52, President, International Markets beginning June 2014; President, Global Individual Health, Life and Accident from July 2010 until June 2014; and Managing Director Insurance Business Hong Kong, HSBC Insurance Asia Limited from January 2007 until July 2010.

MICHAEL W. TRIPLETT, 57,59, President, U.S. MarketsCommercial beginning February 2017; Regional Segment Lead from June 2009 to February 2017.

TIMOTHY C. WENTWORTH, 58,60, Chief Executive Officer, Evernorth beginning September 2020; President, Health Services beginningfrom February 2020 until September 2020; President, Express Scripts and Cigna Services from December 2018;2018 until February 2020; Chief Executive Officer of Express Scripts from May 2016 until December 2018; President from February 2014 through December 2018; and Senior Vice President and President, Sales and Account Management from April 2012 until February 2014.

​38    CIGNA CORPORATION - 2018 Form10-K​​
49

Table of Contents


PART II
ITEM 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities


PART II

ITEM 5.       Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The information under the caption "Quarterly Financial Data – Stock and Dividend Data" appears on page 129 of this Form 10-K.

As of December 31, 2018,2020, the number of shareholders of record was 38,262. Cigna's33,418. Cigna’s common stock is listed with, and trades on, the New York Stock Exchange under the symbol "CI"“CI”.

On January 6, 2021 Cigna initiated a quarterly cash dividend and declared the first quarterly cash dividend of $1.00 per share of Cigna common stock to be paid on March 25, 2021 to shareholders of record as of March 10, 2021. Cigna currently intends to pay regular quarterly dividends, with future declarations subject to approval by its Board of Directors and the Board's determination that the declaration of dividends remains in the best interests of Cigna and its shareholders. The decision of whether to pay future dividends and the amount of any such dividends will be based on the Company's financial position, results of operations, cash flows, capital requirements, the requirements of applicable law and any other factors the Board of Directors may deem relevant.
For the years ended December 31, 2020 and 2019 Cigna paid a yearly cash dividend of $0.04 per share of Cigna common stock.
Issuer Purchases of Equity Securities

Issuer Purchases of Equity Securities

The following table provides information about Cigna'sCigna’s share repurchase activity for the quarter ended December 31, 2018:

2020:

Period
Total # of shares purchased (1)
Average price paid per share
Total # of shares purchased as part of
publicly announced program (2)
Approximate dollar value of shares
that may yet be purchased as part
of publicly announced program (3)
October 1-31, 20202,513,269 $174.20 2,511,898 $3,154,849,988 
November 1-30, 20202,264,316 $208.21 2,263,127 $2,683,607,700 
December 1-31, 20203,933,971 $206.97 3,915,223 $3,873,160,092 
Total8,711,556 $197.84 8,690,248 N/A
Period
 Total # of
shares
purchased (1)
 Average
price paid
per share
 Total # of shares
purchased as
part of publicly
announced
program (2)
 Approximate dollar value
of shares that may yet
be purchased as part of
publicly announced
program (3)
​ ​​ ​​​​ ​​

October 1-31, 2018

 408 $213.81 — $2,723,207,261

November 1-30, 2018

 2,399 $217.59 — $2,723,207,261

December 1-31, 2018

 568,958 $183.94 288,644 $946,464,758
​ ​​ ​​​​ ​​

Total

 571,765 $183.04 288,644 N/A
​ ​​ ​​​​ ​​
(1)
RepresentsIncludes shares tendered by employees under the Company'sCompany’s equity compensation plans as follows: 1) payment of taxes on vesting of restricted stock (grants and units) and strategic performance shares and 2) payment of the exercise price and taxes for certain stock options exercised. Employees tendered 4081,371 shares in October, 2,3991,189 shares in November and 280,31418,748 shares in December 2018.

2020.
(2)
Additionally, the Company maintains a share repurchase program authorized by the Board of Directors. Under this program, the Company may repurchase shares from time to time, depending on market conditions and alternate uses of capital. The timing and actual number of shares repurchased will depend on a variety of factors, including price, general business and market conditions and alternate uses of capital. The share repurchase program may be effected through Rule 10b5-1 plans, open market purchases, or privately negotiated transactions, each in compliance with Rule 10b-18 under the Securities Exchange Act, of 1934, as amended.or privately negotiated transactions. The program may be suspended or discontinued at any time.time and does not have an expiration date. In 2018,December 2020, the Board increased repurchase authority by an additional $2 billion. From January 1, 2021 through February 24, 2021, the Company repurchased approximately 1.6 million shares for $330 million. On December 20, 2018, in connection with the merger with Express Scripts, the remaining authority of approximately $2.7 billion expired. The Board re-authorized $1 billion of share repurchase at that time. Remaining authorization under the program was approximately $950 million as of December 31, 2018. From January 1, 2019 through February 27, 2019, the Company repurchased 1.98.1 million shares for approximately $356 million,$1.7 billion, leaving the remaining repurchase authority at $590 million$2.1 billion as of February 27, 2019.

24, 2021.
(3)
Approximate dollar value of shares is as of the last date of the applicable month.
​​​CIGNA CORPORATION - 2018 Form10-K    39
50

Back to Contents

PART II
ITEM 5. Market


Stock Price Performance Graph
The graph below compares the cumulative total shareholder return on our common stock for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Five Year Cumulative Total Shareholder Return*
the five years ended December 31, 2013 – December 31, 2018

GRAPHIC

 
 12/31/2013
 12/31/2014
 12/31/2015
 12/31/2016
 12/31/2017
 12/31/2018
​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​

Cigna

 $100 $118 $167 $153 $232 $217
​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​

S&P 500

 $100 $114 $115 $129 $157 $150
​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​

S&P Managed Health Care, Life & Health Ins. Indexes**

 $100 $126 $146 $176 $245 $260
​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​
*
Assumes that2020 with the valuecumulative total return of the investment in Cigna common stockStandard & Poor’s 500 Index, the Standard & Poor’s 500 Health Care Providers & Services Index and each index was $100 on December 31, 2013 and that all dividends were reinvested.

**
Weighted average of S&Pthe Standard & Poor’s Managed Health Care, (75%)Life & Health Insurance Indexes. The stock performance shown in the graph is not intended to forecast or be indicative of future performance.

With consideration to Cigna's evolved strategy and recent divestiture of the Group Disability and Life andbusiness, for future filings we will select to present the S&P 500 Health Insurance (25%) Indexes.
​40    CIGNA CORPORATION - 2018 Form10-K​​

Table of Contents

PART II
ITEM 6. Selected Financial Data

Care Index as our peer group for this disclosure. Peer indices disclosed in previous filings are included herein for comparison.
ci-20201231_g2.jpg

ITEM 6.     Selected Financial Data

Item 6. SELECTED FINANCIAL DATA

The selected financial data should be readpreviously required by Item 301 of Regulation S-K has been omitted in conjunction with Management'sreliance on SEC Release No. 33-10890, Management’s Discussion and Analysis, ofSelected Financial ConditionData and Results of Operations and the ConsolidatedSupplementary Financial Statements and accompanying notes included elsewhere herein.

Information.
51

Highlights


(Dollars in millions, except per share amounts)
 2018
 2017
 2016
 2015
 2014
​ ​​​ ​​ ​ ​​​ ​​ ​ ​​​
Total revenues (1)(2) $48,650 $41,806 $39,838 $38,098 $35,096
Shareholders' net income $2,637 $2,237 $1,867 $2,094 $2,102
Net income $2,646 $2,232 $1,843 $2,077 $2,094
​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​
Shareholders' net income per share               

Basic

 $10.69 $8.92 $7.31 $8.17 $7.97

Diluted

 $10.54 $8.77 $7.19 $8.04 $7.83
Common dividends declared per share $0.04 $0.04 $0.04 $0.04 $0.04
Cash and investments $32,829 $31,591 $30,000 $26,681 $25,762
Total assets $153,226 $61,759 $59,366 $57,094 $55,876
Long-term debt $39,523 $5,199 $4,756 $5,020 $4,979
Total liabilities $112,154 $47,999 $45,605 $45,005 $45,021
Shareholders' equity $41,028 $13,711 $13,699 $12,011 $10,750
​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​
(1)
Effective January 1, 2018, the Company adopted Accounting Standards Update 2014-09 and related amendments that provided updated guidance on revenue recognition. This new guidance was adopted retrospectively and, accordingly, prior year amounts have been adjusted. See Note 2 to the Consolidated Financial Statements for additional information.

(2)
Effective December 31, 2018, as a result of the acquisition of Express Scripts (see Note 3 to the Consolidated Financial Statements), the Company adopted Article 5 of Regulation S-X issued by the Securities and Exchange Commission. As a result, realized investment results are no longer included in revenues. Prior year revenues have been adjusted to conform to the new presentation.
​​​CIGNA CORPORATION - 2018 Form10-K    41

Table of Contents

PART II
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

ITEM 7.          Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


Page

Executive Overview

42
PAGE
53
4860

Critical Accounting Estimates

5265

Segment Reporting

5668
Evernorth

Integrated Medical

5668
U.S. Medical

Health Services

5870

International Markets

5971

Group Disability and Other

6072
Corporate

Corporate

6173

Investment Assets

73
61

Management's

Management’s Discussion and Analysis of Financial Condition and Results of Operations ("(“MD&A"&A”) is intended to provide information to assist you in better understanding and evaluating our financial condition as of December 31, 2020 compared with December 31, 2019 and our results of operations.operations for 2020 compared with 2019 and 2018 and is intended to help you understand the ongoing trends in our business. We encourage you to read this MD&A in conjunction with our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K ("Form 10-K") and the "Risk Factors"“Risk Factors” contained in Part I, Item 1A of this Form 10-K.

For comparisons of our results of operations for 2019 compared with 2018, please refer to the previously filed MD&A included in Part II, Item 7 of our Form 10-K for the year ended December 31, 2019.

Unless otherwise indicated, financial information in thethis MD&A is presented in accordance with accounting principles generally accepted in the United States of America ("GAAP"(“GAAP”). See Note 23 to ourthe Consolidated Financial Statements in this Form 10-K for additional information regarding the Company'sCompany’s significant accounting policies. In some of our financial tables in this MD&A, we present either percentage changes or "N/M"“N/M” when those changes are so large as to become not meaningful. Changes in percentages are expressed in basis points ("bps"(“bps”).

In this MD&A, our consolidated measures "adjusted“adjusted income from operations,"” earnings per share on that same basis and "adjusted revenues"“adjusted revenues” are not determined in accordance with GAAP and should not be viewed as substitutes for the most directly comparable GAAP measures "shareholders'of “shareholders’ net income," "earnings” “earnings per share"share” and "total“total revenues." As discussed in Note 21, we” We also use pre-tax adjusted income from operations and adjusted revenues to measure the results of our segments.

We use adjusted income from operations as our principal financial measure of operating performance because management believes it best reflects the underlying results of our business operations and permits analysis of trends in underlying revenue, expenses and profitability. We define adjusted income from operations as shareholders'shareholders’ net income (or income before taxes for the segment metric) excluding realized investment gains and losses, amortization of acquired intangible assets, special items and prior to 2020, results of Anthem, Inc. and Coventry Health Care Inc. ("Coventry"(“Coventry”) (collectively, the "transitioning clients"“transitioning clients”) (see the "Key“Key Transactions and Developments"Business Developments” section of thethis MD&A for further discussion of transitioning clients) and special items. Beginning in 2018, Cigna's. Cigna’s share of certain realized investment results of its joint ventures reported in the International Markets segment using the equity method of accounting are also excluded. Income or expense amounts excluded from adjusted income from operations because they are not indicative of underlying performance or the responsibility of operating segment management include:

•
Realized investment gains (losses), including changes in market values of certain financial instruments between balance sheet dates, as well as gains and losses associated with invested asset sales.

•
Amortization of acquired intangible assets because these relate to costs incurred for acquisitions.

•
Resultsof transitioning clients prior to 2020,because those results are not indicative of ongoing results.

•
Special items, if any, that management believes are not representative of the underlying results of operations due to the nature or size of these matters. See Note 21 to the Consolidated Financial Statements for descriptions of special items.

Adjusted

The term adjusted revenues is defined as total revenues excluding the following adjustments: revenue contributionscontribution from transitioning clients prior to 2020, special items and beginning in 2018, Cigna'sCigna’s share of certain realized investment results of its joint ventures reported in the International Markets segment using the equity method of accounting.

We exclude these items from this measure because management believes they are not indicative of past or future underlying performance of the business.
52

Executive Overview


EXECUTIVE OVERVIEW
Cigna Corporation, together with its subsidiaries (either individually or collectively referred to as "Cigna,"“Cigna,” the "Company," "we," "our"“Company,” “we,” “our” or "us"“us”) is a global health serviceservices organization dedicated towith a mission of helping those we serve improve their health, well-being and peace of mind. Our evolved strategy in support of our mission isGo Deeper, Go Local, Go Beyond usingWe offer a differentiated set of pharmacy, medical, pharmacy, dental disability, life and accident insurance and related products and services offered by our subsidiaries. For further information on our business and strategy, see Item 1, "Business" in this Form 10-K.

As described more fully

COVID-19 Update
The novel strain of coronavirus (“COVID-19”) was declared a pandemic by the World Health Organization in March 2020. From the onset of the COVID-19 pandemic we have taken actions to drive affordability, reduce uncertainty and make health care easier. For customers, these actions include COVID-19 related cost share waivers, expanded access to virtual care, support for access to medication and advocating for whole person health through various behavioral health initiatives. We have supported the medical community by simplifying processes and donating medications for a COVID-19 clinical trial. Cigna and the Cigna Foundation have assisted our communities through several initiatives including the launch of the Brave of Heart Fund that provides financial assistance to survivors of front-line U.S. health care workers who gave their lives in the fight against COVID-19. Cigna also provides emotional support services to their families. The Evernorth team launched ParachuteRx, a drug cost assistance program to certain customers without health coverage due to furlough or job loss. Cigna Medical Group was among the first in the United States to administer antibody therapies to high-risk COVID-19 patients in a non-hospital setting. Cigna also partnered with other organizations on digital access to vaccination records for those who have received the COVID-19 vaccine to facilitate return to work and daily activities.
We have continued to support our workforce by enabling remote work where appropriate, and implemented enhanced safety protocols and programs that support the health and mental well-being of our employees. We have continued to execute our business continuity plans over our operations such as leveraging purchasing volume across the pharmaceutical supply chain in order to mitigate risk associated with prescription drug supply. We did not incur significant disruptions to our operations during 2020 from COVID-19.
We will continue to work with our clients, customers, providers and employees to provide support during the pandemic.
The COVID-19 pandemic has pervasively impacted the economy, financial markets and the global health care delivery systems. The effects of the COVID-19 pandemic on the Company began to emerge in the United States at the end of the first quarter and were not material to the Company's results of operations or financial condition for that period.
Beginning in April, we experienced a significant deferral of care by our customers. The deferral of care moderated over the course of the second quarter with utilization levels eventually returning to nearly normal levels by the end of June. In the third quarter, we experienced increased medical utilization as we observed a reduction to the level of deferred care and our customers sought care for COVID-19 testing and treatment.
In the fourth quarter, as COVID-19 cases increased, the costs for testing and treatment exceeded the savings related to the deferral of care. These impacts were most prevalent in the U.S. Medical segment where fourth quarter earnings were adversely impacted by increased costs of COVID-19 care and decreased contributions from our specialty products. Full year U.S. Medical results reflect COVID-19 impacts of deferral of care by our customers partially offset by the cost of COVID-19 care, the cost of COVID-19 related actions including premium relief programs for employer clients, cost share waivers for customers, customer disenrollment and actions to support providers and employees.
Our Group Disability and Other results reflect significantly elevated life insurance claims related to the COVID-19 pandemic and its effects in the third and fourth quarters. Quarterly and year-to-date earnings in our Evernorth segment also reflected effects of the pandemic, specifically, a favorable mix of claims as a result of both the type of drugs dispensed as well as the distribution method used for dispensing and fulfilling, partially offset by lower 30-day retail script volume. Segment results are discussed further in the "Segment Reporting" section of this MD&A and discussion of the impact of COVID-19 on our investment portfolio and related considerations regarding our investment outlook can be found in Note 311 to ourthe Consolidated Financial Statements on March 8, 2018, we entered into a merger agreement with Express Scripts Holding Company ("Express Scripts"). Following entry intoand in the merger agreement and throughout"Investment Assets" discussion of this MD&A.
While it is difficult to predict the pendencyimpact of the transaction, COVID-19 pandemic on our results beyond 2020, we believe that such results may be impacted by, among other things, higher medical costs to treat those affected by the virus, lower customer volumes due to rising unemployment, lower future risk adjustment revenue due to disrupted care impeding appropriate documentation of customer risk profiles in our Medicare Advantage business, the return of costs for those who had previously deferred care, vaccine costs, continued cost share waivers, the potential for continued deferral of care, or lower investment returns.
53

Cigna has taken actions to enhance our liquidity that, combined with our other sources of liquidity described in the "Liquidity and Express Scripts designed integration plans to implement a new management and business reporting structure for the combined company upon closing. On December 20, 2018, we completed the acquisition of Express ScriptsCapital Resources Outlook" section below, and our segments have changed effectivecurrent projections for operating cash flows, we believe are sufficient to support our operations and meet our obligations.
The situation surrounding COVID-19 remains fluid, and we are actively managing our response and assessing impacts to our financial position and operating results, as well as adverse developments in our business.
For further information regarding the fourth quarterpotential impact of 2018. COVID-19 on the Company, see “Risk Factors” contained in Part I, Item 1A of this Form 10-K.
Financial Highlights
See Note 1 to ourthe Consolidated Financial Statements for a description of our segments. PriorUnless otherwise specified, the commentary provided below describes our results for the year financial information has been restated to reflect this new segment presentation. Additionally, as described further in Note 2 to the

​42    CIGNA CORPORATION - 2018 Form10-K​​

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PART II
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Consolidated Financial Statements, we adopted Article 5 of Regulation S-X issued by the Securities and Exchange Commission effectiveended December 31, 2018.2020 compared with the year ended December 31, 2019. Results offor 2018 only include 11 days of Express Scripts activity beginningfor the period following the acquisition on December 21.

20, 2018.

Financial Summary

Summarized below are certain key measures of our performance by segment for the years ended December 31:

Financial highlights by segment
For the Years Ended December 31,Increase (Decrease)Increase (Decrease)
(Dollars in millions, except per share amounts)2020201920182020 vs. 20192019 vs. 2018
Revenues
Adjusted revenues by segment
Evernorth$116,130 $96,447 $6,606 20 %N/M
U.S. Medical38,451 36,519 32,791 5 11 %
International Markets5,877 5,615 5,366 5 5 
Group Disability and Other5,264 5,182 5,061 2 2 
Corporate, net of eliminations(5,655)(3,588)(1,713)(58)(109)
Adjusted revenues160,067 140,175 48,111 14 191 
Revenue contribution from transitioning clients— 13,347 459 N/MN/M
Net realized investment results from certain equity method investments130 44 (43)195 N/M
Special items204 — 123 N/MN/M
Total revenues$160,401 $153,566 $48,650 4 %216 %
Shareholders’ net income$8,458 $5,104 $2,637 66 %94 %
Adjusted income from operations$6,795 $6,476 $3,557 5 %82 %
Earnings per share (diluted)
Shareholders’ net income$22.96 $13.44 $10.54 71 %28 %
Adjusted income from operations$18.45 $17.05 $14.22 8 %20 %
Pre-tax adjusted income from operations by segment
Evernorth$5,363 $5,092 $380 5 %N/M
U.S. Medical3,807 3,831 3,502 (1)9 %
International Markets900 762 735 18 4 
Group Disability and Other290 501 529 (42)(5)
Corporate, net of eliminations(1,552)(1,824)(403)15 N/M
Consolidated pre-tax adjusted income from operations8,808 8,362 4,743 5 76 
Adjustment for transitioning clients— 1,726 62 N/MN/M
Income attributable to noncontrolling interests37 20 14 85 43 
Net realized investment gains (losses)279 221 (124)26 N/M
Amortization of acquired intangible assets(1,982)(2,949)(235)33 N/M
Special items3,726 (810)(879)N/M8 
Income before income taxes$10,868 $6,570 $3,581 65 %83 %
For further analysis and explanation of each segment’s results, see the “Segment Reporting” section of this MD&A.
54

 
 For the Years Ended December 31,
 Increase
(Decrease)
 Increase
(Decrease)
​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​

(Dollars in millions, except per share amounts)

  2018  2017  2016  2018 vs. 2017  2017 vs. 2016
​ ​​​ ​​ ​ ​​​ ​​ ​ ​​​

Revenues

 ​  ​  ​  ​  ​ 

Adjusted revenues by segment

               

Integrated Medical

 $32,791 $29,035 $27,395 ​13% ​6%

Health Services

  6,606  4,241  4,066  56  4

International Markets

 ​5,366 ​4,901 ​4,537 ​9 ​8

Group Disability and Other

  5,061  5,075  5,108  –  (1)

Corporate, including eliminations

 ​(1,713) ​(1,446) ​(1,268) ​(18) ​(14)
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Adjusted revenues

  48,111  41,806  39,838  15  5

Revenue contributions from transitioning clients

 ​459 ​– ​– ​N/M ​N/M

Net realized investment (losses) from equity method subsidiaries

  (43)  –  –  N/M  N/M

Special items reported in transaction-related costs (1)

 ​123 ​– ​– ​N/M ​N/M
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total revenues

 $48,650 $41,806 $39,838  16%  5%
​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​

Shareholders' net income

 $2,637 $2,237 $1,867 ​18% ​20%
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Adjusted income from operations

 $3,557 $2,668 $2,104  33%  27%
​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​

Earnings per share (diluted)

 ​  ​  ​  ​  ​ 

Shareholders' net income

 $10.54 $8.77 $7.19  20%  22%

Adjusted income from operations

 $14.22 $10.46 $8.10 ​36% ​29%
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Pre-tax adjusted income from operations by segment

               

Integrated Medical

 $3,502 $2,922 $2,592 ​20% ​13%

Health Services

  380  288  268  32  7

International Markets

 ​735 ​654 ​538 ​12 ​22

Group Disability and Other

  529  517  275  2  88

Corporate

 ​(403) ​(375) ​(362) ​(7) ​(4)
​ ​ ​​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Consolidated pre-tax adjusted income from operations

  4,743  4,006  3,311  18  21

Adjustment for transitioning clients

 ​62 ​– ​– ​N/M ​N/M

Income (loss) attributable to noncontrolling interests

  14  (2)  (20)  800  90

Realized investment (losses) gains

 ​(124) ​237 ​169 ​(152) ​40

Amortization of acquired intangible assets

  (235)  (115)  (151)  (104)  24

Special items

 ​(879) ​(520) ​(330) ​(69) ​(58)
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Income before income taxes

 $3,581 $3,606 $2,979  (1)%  21%
​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​
Consolidated Results of Operations (GAAP basis)
For the Years Ended December 31,Increase (Decrease)Increase (Decrease)
(Dollars in millions)2020201920182020 vs. 20192019 vs. 2018
Pharmacy revenues$107,769 $103,099 $5,479 $4,670 5 %$97,620 N/M
Premiums42,627 39,714 36,113 2,913 7 3,601 10 %
Fees and other revenues8,761 9,363 5,578 (602)(6)3,785 68 
Net investment income1,244 1,390 1,480 (146)(11)(90)(6)
Total revenues160,401 153,566 48,650 6,835 4 104,916 216 
Pharmacy and other service costs103,484 97,668 4,793 5,816 6 92,875 N/M
Medical costs and other benefit expenses32,710 30,819 27,528 1,891 6 3,291 12 
Selling, general and administrative expenses14,072 14,053 11,934 19 — 2,119 18 
Amortization of acquired intangible assets1,982 2,949 235 (967)(33)2,714 N/M
Total benefits and expenses152,248 145,489 44,490 6,759 5 100,999 227 
Income from operations8,153 8,077 4,160 76 1 3,917 94 
Interest expense and other(1,438)(1,682)(498)244 15 (1,184)(238)
Debt extinguishment costs(199)(2)— (197)N/M(2)N/M
Gain (loss) on sale of business4,203 — — 4,203 N/M— N/M
Net realized investment gains (losses)149 177 (81)(28)(16)258 N/M
Income before income taxes10,868 6,570 3,581 4,298 65 2,989 83 
Total income taxes2,379 1,450 935 929 64 515 55 
Net income8,489 5,120 2,646 3,369 66 2,474 93 
Less: Net income attributable to noncontrolling interests31 16 9 15 94 7 78 
Shareholders' net income$8,458 $5,104 $2,637 $3,354 66 %$2,467 94 %
Consolidated effective tax rate21.9 %22.1 %26.1 %(20)bps(400) bps
Medical customers (in thousands)
U.S. Medical15,013 15,548 15,389 (535)(3)%159 1 %
International Markets1,660 1,597 1,572 63 4 25 2 
Total16,673 17,145 16,961 (472)(3)%184 1 %
(1)
For additional information related to net investment income included in transaction-related costs, please refer to Note 3 to the Consolidated Financial Statements in this Form 10-K.

​​​CIGNA CORPORATION - 2018 Form10-K    43

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PART II
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Reconciliation of Shareholders’ Net Income (GAAP) to Adjusted Income from Operations
Dollars in MillionsDiluted Earnings Per Share
For the Years Ended December 31,For the Years Ended December 31,
202020192018202020192018
Shareholders’ net income$8,458 $5,104 $2,637 $22.96 $13.44 $10.54 
After-tax adjustments required to reconcile to adjusted income from operations
Net realized investment (gains) losses(244)(190)104 (0.66)(0.50)0.42 
Amortization of acquired intangible assets1,431 2,248 177 3.88 5.92 0.71 
Adjustment for transitioning clients— (1,316)(47)— (3.46)(0.19)
Special items
Integration and transaction-related costs404 427 669 1.10 1.11 2.67 
Debt extinguishment costs151 — — 0.41 — — 
Charge for organizational efficiency plan24 162 — 0.07 0.43 — 
Charges associated with litigation matters19 41 19 0.05 0.11 0.08 
Risk corridors recovery(76)— — (0.21)— — 
Contractual adjustment for a former client(155)— — (0.42)— — 
(Gain) on sale of business(3,217)— — (8.73)— — 
Charges (benefits) associated with tax reform— — (2)— — (0.01)
Total special items(2,850)630 686 (7.73)1.65 2.74 
Adjusted income from operations$6,795 $6,476 $3,557 $18.45 $17.05 $14.22 
55

Consolidated Results of Operations (GAAP Basis)

Commentary: 2020 versus 2019

Financial Summary

Unless indicated otherwise, the commentary presented below, and in the segment discussions that follow, compare results for the year ended December 31, 2020 with results for the year ended December 31, 2019.
   For the Years Ended
December 31,		  Increase
(Decrease)		  Increase
(Decrease)		  
​​​ ​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​​​
(in millions)  2018  2017  2016  2018 vs. 2017  2017 vs. 2016  
​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​​​ ​ ​​
Premiums $36,113 $32,491 $30,824 $3,622 ​11%$1,667 ​5% 
Fees and other revenues  5,578  5,110  4,901  468  9  209  4  
Pharmacy revenues ​5,479 ​2,979 ​2,966 ​2,500 ​84 ​13 ​–  
Net investment income  1,480  1,226  1,147  254  21  79  7  
​ ​​ ​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​​​
Total revenues ​48,650 ​41,806 ​39,838 ​6,844 ​16 ​1,968 ​5  
​ ​ ​ ​ ​ ​ ​​ ​ ​ ​ ​​ ​ ​ ​ ​ ​ ​ ​ ​ ​​ ​
Medical costs and other benefit expenses  27,528  25,263  24,341  2,265  9  922  4  
Pharmacy and other service costs ​4,793 ​2,456 ​2,468 ​2,337 ​95 ​(12)​–  
Selling, general and administrative expenses  11,934  10,030  9,790  1,904  19  240  2  
Amortization of acquired intangible assets ​235 ​115 ​151 ​120 ​104 ​(36)​(24) 
​​ ​ ​ ​ ​ ​ ​ ​ ​​ ​ ​ ​ ​​ ​ ​ ​ ​ ​ ​ ​ ​
Total benefits and expenses  44,490  37,864  36,750  6,626  17  1,114  3  
​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​​​ ​ ​​
Income from operations ​4,160 ​3,942 ​3,088 ​218 ​6 ​854 ​28  

Interest expense and other

  (498)  (252)  (278)  (246)  (98) 26  9  

Debt extinguishment costs

 ​– ​(321) ​– ​321 ​100 ​(321)​N/M  

Net realized investment gains (losses)

  (81)  237  169  (318)  (134) 68  40  
​​​ ​ ​​ ​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​ ​​
Income before income taxes ​3,581 ​3,606 ​2,979 ​(25) ​(1)​627 ​21  
Income taxes  935  1,374  1,136  (439)  (32) 238  21  
​​​ ​ ​​ ​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​ ​​
Net income ​2,646 ​2,232 ​1,843 ​414 ​19 ​389 ​21  

Less: net income (loss) attributable to noncontrolling

                       

interests

  9  (5)  (24)  14  280  19  79  
​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​​​ ​ ​​
Shareholders' net income $2,637 $2,237 $1,867 $400 ​18%$370 ​20% 
​ ​ ​ ​​ ​ ​ ​ ​​ ​ ​ ​ ​ ​ ​ ​ ​ ​​ ​ ​ ​ ​
Consolidated effective tax rate  26.1%  38.1%  38.1%  1,200bps     –bps     
​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​​​ ​ ​​​ ​​
Medical customers (in thousands) ​  ​  ​  ​  ​  ​  ​   

Integrated Medical

  15,389  14,828  13,970  561  4% 858  6% 

International Markets

 ​1,572 ​1,549 ​1,488 ​23 ​1 ​61 ​4  
​ ​ ​ ​​ ​ ​ ​ ​​ ​ ​ ​ ​ ​ ​ ​ ​ ​​ ​ ​ ​ ​

Total

  16,961  16,377  15,458  584  4% 919  6% 
​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​​​ ​ ​​​ ​​

Reconciliation of Shareholders' Net Income (GAAP) to Adjusted Income from Operations (non-GAAP):

            Diluted Earnings Per Share
​​​​​​​​​​​​ ​​​ ​ ​​​
   For the Years Ended December 31,  For the Years Ended December 31,
​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​​​ ​
(Dollars in millions, except per share amounts)  2018  2017  2016  2018  2017  2016
​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​
Shareholders' net income $2,637 $2,237 $1,867 $10.54 $8.77 $7.19

– Adjustment for transitioning clients

  (47)  –  –  (0.19)  –  –

– Net realized investment losses (gains)

 ​104 ​(156) ​(109) ​0.42 ​(0.61) ​(0.42)

– Amortization of acquired intangible assets

  177  66  94  0.71  0.26  0.36
Special items ​  ​  ​  ​  ​  ​ 

– Transaction-related costs (see Note 3 to our Consolidated Financial Statements)

  669  33  147  2.67  0.13  0.56

– Charges associated with litigation matters discussed in Note 19D. to our Consolidated Financial Statements

 ​19 ​– ​25 ​0.08 ​– ​0.10

– U.S. tax reform (see Note 18 to our Consolidated Financial Statements)

  (2)  196  –  (0.01)  0.77  –

– Debt extinguishment costs (see Note 5 to our Consolidated Financial Statements)

 ​– ​209 ​– ​– ​0.82 ​–

– Long-term care guaranty fund assessment (see Note 19C. to our Consolidated Financial Statements)

  –  83  –  –  0.32  –

– Risk corridor allowance (see Note 21 to our Consolidated Financial Statements)

 ​– ​– ​80 ​– ​– ​0.31
​ ​ ​ ​​ ​ ​ ​ ​​ ​ ​ ​​ ​ ​ ​ ​​
Adjusted income from operations $3,557 $2,668 $2,104 $14.22 $10.46 $8.10
​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​
​44    CIGNA CORPORATION - 2018 Form10-K​​

Back to Contents

PART II
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Earnings and Revenue Commentary

Shareholders'Shareholders’ net income increased in 2018 compared with 2017, primarilyincrease was driven by athe gain on sale of the Group Disability and Life business, lower effective tax rate. Income before income taxes was essentially flat, reflectingamortization charges and higher adjusted income from operations, largelypartially offset by reduced realized investment results and higher special item charges due to transaction costs associated with the Express Scripts acquisition. In 2017, the increase in shareholders' net income as compared to 2016 was due to higher adjustedabsence of earnings from transitioning clients.

Adjusted income from operations increased, driven in part by higher earnings in the Evernorth segment reflecting customer growth and increased script volumes, an increase in the International Markets segment results and lower interest costs in Corporate due to a lower level of outstanding debt. These favorable effects were partially offset by lower earnings in the Group Disability and Other segment reflecting significantly elevated life claims related to the effects of COVID-19.
Medical customers decreased due to declines in the Middle Market and National Accounts market segments and increased disenrollment driven by the impacts of COVID-19. Those decreases were partially offset by growth in the Select, International and Medicare Advantage segments.
Pharmacy revenues increased, reflecting the transition of U.S. Medical's customers to Evernorth, higher claims volumes, driven by the Evernorth collaboration with special item charges for debt extinguishment costsPrime Therapeutics and charges resulting from U.S. Tax reform partially offsetting the increase.

Adjusted income from operations increasedan increase in 2018 compared with 2017,pricing, primarily due to earnings growth across allinflation on branded drugs. These factors were substantially offset by the absence of our segments, including contributions from the acquired Express Scripts business and the lower effective tax rate in 2018. In 2017, the increase in adjusted income from operations compared with 2016 was due to earnings growth across all of our segments.

Medical customers increased in both 2018 and 2017, compared with each prior year primarily resulting from growth in the Commercial and Government segments. See the Integrated Medical segment section for additional discussion.

Revenues increased in both 2018 and 2017, primarily due to business growth in the Integrated Medical and International Markets segments. In 2018, revenues from the acquired Express Scripts business of $2.6 billion also contributedtransitioning clients and, to the increase. Detailed revenue items are discussed further below.

      •
      Premiums increased in 2018 compared with 2017, primarily reflecting customer growth in Integrated Medical including contributions from specialty products as well as growth in International Markets. Also contributing to the increase were higher premium rates in our Integrated Medical segment driven by: 1) underlying medical trend; 2) suspension of the government's cost share reduction subsidies; and 3) resumption of the health insurance industry tax. Thea lesser extent, an increase in 2017 compared with 2016 primarily resulted from customer growth in the Commercial segment and in International Markets, partially offset by decreases in Government segment premiums due to Medicare disenrollment.

      •
      Pharmacy revenues increased in 2018 compared with 2017 primarily resulting from contributions from the acquired Express Scripts business.generic fill rate. See the Health Services"Evernorth segment" section of this MD&A for further discussion of pharmacy revenuesrevenues.
Premiums increased, reflecting customer growth in insured products and costs.

•
rate increases reflecting expected medical cost inflation and the return of the health insurance industry tax. These factors were partially offset by the impact of premium relief programs implemented in response to significantly lower than historical utilization as customers deferred care in 2020 due to the COVID-19 pandemic.
Fees and other revenues. The increasesdecreased, primarily reflecting the transition of U.S. Medical's commercial customers to Evernorth's retail pharmacy network beginning in both 2018 and 2017 compared with each prior year were primarily attributable to growth in our specialty businesses and an increased customer base for our administrative services only ("ASO") business. In 2018, contributions from the acquired Express Scripts business also contributedthird quarter of 2019 (see Note 3(K) to the increase.

•
Consolidated Financial Statements for further information).
Net investment income decrease was higher in 2018 compared with 2017, reflecting growth in average assets and higher yields, largely driven by increasedlower yields, including lower income from partnership income. Net investment income in 2018 also included $123 million earned from proceeds on the debt issued in September 2018 that is reported as a special item. Those debt proceedsinvestments due to current economic conditions. These effects were used to finance the Express Scripts acquisition on December 20, 2018. In 2017, net investment income increased compared with 2016, driven by growth in average invested assets, partially offset by lower yields.

higher average assets. See the "Investment Assets" section of this MD&A for further discussion.

Commentary on Other Components of Consolidated Results of Operations

Pharmacy and other service costs increased, reflecting the transition of U.S. Medical's customers to Evernorth, higher claims volumes, driven by the Evernorth collaboration with Prime Therapeutics and an increase in pricing, primarily due to inflation on branded drugs. These factors were substantially offset by the impact of the absence of the transitioning clients and, to a lesser extent, effective management of supply chain and the favorable impact of the mix of claims.
•
Medical costs and other benefit expensesincreased, inreflecting both 2018 and 2017, compared with the prior year, reflecting customer growth and direct costs associated with COVID-19, partially offset by care deferrals in Integratedinsured products in U.S. Medical and International Markets, as well as medical cost inflationhigher life claims in Integrated Medical.

•
Group Disability and Other due to the effects of the COVID-19 pandemic.
Selling, general and administrative expenses increasedwere essentially flat, primarily reflecting lower charges in 2018 compared with 2017, driven2020 for the organizational efficiency plan and the risk corridors claim recovery recognized in the third quarter of 2020 (see the "Risk Mitigation Programs - Individual ACA Business" section of this MD&A and Note 21 to the Consolidated Financial Statements for further discussion), offset by higher transaction-related costs associated with the acquisition of Express Scripts, resumptionreturn of the health insurance industry tax.
Amortization of acquired intangible assets decreased, primarily reflecting lower amortization of customer-related intangibles associated with the transitioning clients.
Income tax expense increased for 2020, largely attributable to the sale of Cigna's Group Disability and volume-based expenses reflectingLife business.The consolidated effective tax rate decreased slightly, driven by recognition of certain incremental federal and state tax benefits, largely offset by the return of the nondeductible health insurance industry tax.
56

Key Transactions and Business Developments
Sale of Group Disability and Life Business
As discussed in Note 5 to the Consolidated Financial Statements, Cigna sold the U.S. Group Disability and Life business growth. In 2017,to New York Life Insurance Company for $6.2 billion on December 31, 2020. The “Liquidity and Capital Resources” section of this MD&A provides discussion of the use of proceeds from this divestiture.
Organizational Efficiency Plan
Consistent with our commitment to affordability for our customers and clients, during the fourth quarter of 2019 the Company committed to a plan to increase our organizational alignment and operational efficiency and reduce costs. As a result, we recognized a charge in selling,Selling, general and administrative expenses compared with 2016 reflected a long-term care guaranty fund assessmentof $207 million, pre-tax ($162 million, after-tax) in the fourth quarter of 2019 and higher volume-based expenses reflecting business growth. These increases were offset by suspensionan additional charge of $31 million pre-tax ($24 million, after-tax) in the first quarter of 2020. We expect to realize annualized after-tax savings of approximately $200 million. A substantial portion of the health insurance industry taxsavings was realized in 2017 and a reduction in costs related to our Center for Medicare and Medicaid Services ("CMS") audit response.

•
Amortization of acquired intangible assets increased in 2018 compared2020.
Merger with 2017, primarily reflecting the impact of the acquired Express Scripts business. The decrease in 2017 compared with 2016 was driven by the expected continuing decline in amortization from our 2012 acquisition of HealthSpring, Inc.

•
Interest expense and other increased significantly in 2018 compared with 2017, primarily due to $227 million of interest incurred on debt issued in the third quarter of 2018 prior to the acquisition of Express Scripts. This amount is included in the overall special item for transaction-related costs, net of $123 million of investment income earned on the debt proceeds through the closing date of the transaction.

•
Realized investment results  declined significantly in 2018 compared with 2017, resulting from lower gains on sales of alternative, partnership and fixed maturity investments as well as mark-to-market losses on equity securities reported in net income as required by Accounting Standards Update 2016-01, Recognition and Measurement of Financial Assets and Liabilities, beginning in 2018 (see Note 2 to our Consolidated Financial Statements). In 2017, realized investment results increased compared with 2016, primarily due to higher gains on sales of alternative and real estate investments, as well as lower impairment losses.

•
The consolidated effective tax rate  decreased in 2018 compared with 2017, primarily due to a lower U.S. tax rate in 2018, partially offset by resumption of the non-deductible health insurance industry tax and the absence of the incremental tax benefit recognized in the second quarter of 2017 for certain transaction costs associated with the terminated merger with Anthem. In 2017, the effective tax rate was flat compared with 2016. The unfavorable impact of additional tax expense associated with the U.S. tax reform legislation enacted in 2017 was offset by favorable effects of a suspension of the health insurance industry tax in 2017 and an incremental tax benefit from previously non-deductible transaction-related costs. See Note 18 to our Consolidated Financial Statements for additional information.
​​​CIGNA CORPORATION - 2018 Form10-K    45

Table of Contents

PART II
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Key Transactions and Developments

Acquisition of Express Scripts

As discussed in more detail in Note 3 to the Consolidated Financial Statements,our 2019 Form 10-K, Cigna acquired Express Scripts on December 20, 2018 in a cash and stock transaction valued at $52.8 billion. See the "Liquidity" section of this MD&A for further discussion of the financing of this transaction.

We incurred a significant amount of costsCosts related to this acquisition, both before and after closing. These coststransaction are being reported in "transaction-related costs"“integration and transaction-related costs” as a special item and excluded from adjusted income from operations. The resultsoperations because they are not indicative of Express Scripts are included in Cigna's consolidated financial information from the datefuture underlying performance of the acquisition.

business. The integration of this acquisition has been completed.

On January 30, 2019, Anthem, a former client, exercised its early termination right and terminated theits pharmacy benefit management services agreement with us, effective March 1, 2019. There iswas a twelve-month transition period endingthat ended March 1, 2020. It is expected that the transition of Anthem's customers will occur at various dates, as informed by Anthem's technology platform migration schedule. Over the next twelve months, we will focus on an effective transition of this relationship and related services over Anthem's accelerated timeline. We excludeexcluded the results of Express Scripts'Scripts’ contract with Anthem (and also Coventry) from our non-GAAP reporting metric "adjustedmetrics adjusted revenues and adjusted income from operations." Weoperations for 2019 and refer to this adjustmentthese clients as "transitioningtransitioning clients."

U.S. Tax Reform Legislation

Major U.S. tax reform legislation As of December 31, 2019, the transition was signed into law on December 22, 2017. The legislation reduced the corporate income tax rate from 35% to 21% effective January 1, 2018, among other things. See Note 18 to our Consolidated Financial Statements for further discussion of the impacts of this legislation on oursubstantially complete; therefore, beginning in 2020, we no longer exclude results of operations.

​46    CIGNA CORPORATION - 2018 Form10-K​​

Back to Contents

PART II
ITEM 7. Management's Discussiontransitioning clients from our reported adjusted revenues and Analysis of Financial Conditionadjusted income from operations.

57

Industry Developments and Results of Operations

Other Matters

Health Care Industry Developments and Other Matters Affecting Our Integrated Medical and Health Services Segments

The "Regulation""Business - Regulation" section of this Form 10-K provides a detailed description of The Patient Protection and Affordable Care Act (“ACA”) provisions and other legislative initiatives that impact our health care business,businesses, including regulations issued by CMSthe Centers for Medicare & Medicaid Services (“CMS”) and the Departments of the Treasury and Health and Human Services ("HHS").Services. Our businesses continue to operate in a dynamic environment, and the laws and regulations applicable to us, including the ACA, continue to be subject to legislative, regulatory and judicial challenges. The following table presented below provides an update ofinformation on the expected impact of these items and other matters affecting our Integrated Medical and Health Services segments as of December 31, 2018.

matters:

Item

Description
​​​ ​​ ​​ ​​

Item


​Description

​
​​​ ​​ ​​​​

Medicare Advantage

("MA")
Medicare Star Quality Ratings ("Star Ratings"): Medicare Advantage ("MA") plans must have CMS uses a Star Rating system to measure how well MA plans perform and scores performance in several categories, including quality of care and customer service. Star Ratings range from one to five stars. CMS recognizes plans with Star Ratings of four Starsstars or greater with quality bonus payments and the ability to qualify for bonus payments.offer enhanced benefits. Approximately 60%77% of our Medicare AdvantageMA customers were in a four Starstar or greater planplans for bonus payments received in 2018. We expect this percentage to increase to 72%2020 and 87% for bonus payments to be received in 2019 and2021. In October 2020, CMS announced the Star Ratings for bonus payments to 76%be received in 2020.
2022. We expect the percentage of our MA customers in four star or greater plans will increase to 88% for bonus payments to be received in 2022.

MA Rates:Rates: Final MA reimbursement rates for 20192021 were published by CMS in April 2018. Preliminary MA reimbursement2020, and final rates for 20202022 were published by CMS in February 2019.January 2021. We do not expect the new rates to have a material impact on our consolidated results of operations in 2019 and 2020.

2021 or 2022.

Risk Adjustment Validation ("RADV") Audits:: As discussed in the "Regulation"“Regulation” and "Risk Factors"“Risk Factors” sections of this Form 10-K, our MA business is subject to reviews, including RADV audits. In 2012,risk adjustment data validation (“RADV”) audits by CMS released a payment methodologyand the Office of the Inspector General (“OIG”). We expect that provided for sample audit error ratesCMS, OIG and other federal agencies will continue to be extrapolated to the entire MA contract after comparing audit results to a similar auditclosely scrutinize components of Medicare Fee for Service (the "FFS Adjuster"), including any errors in the Medicare FFS data. This comparison is necessary to determine the true economic impact of the audit, if any, because the government uses the Medicare FFS data to determine adjustments to MA payment rates for various health conditions to establish actuarial equivalency in payment rates as required by the Medicare statute.

program.

In the fourth quarterThe “Regulation” section of 2018, CMS issuedthis Form 10-K also discusses a proposed rule issued by CMS in 2018 for RADV audits of contract year 2011 and all subsequent years that included, among other things, extrapolation of the error rate related to RADV audit findings without applying the FFS Adjuster. Thisadjustment for underlying fee-for-service data errors as currently contemplated by CMS’ RADV audit methodology. RADV audits for our contract years 2011 through 2015 are currently in process. CMS has announced its intent to use third-party auditors to audit all Medicare Advantage contracts by either a comprehensive or a targeted RADV review for each contract year. If the proposed rule is discussed further in the Regulation section of this Form 10-K on page 20. If adopted in its current form, the ruleit could have a detrimental impact to all Medicare Advantage insurersresult in some combination of degraded plan benefits, higher monthly premiums and affect the ability of plans to deliver high quality health carereduced choice for the population served. While itserved by all MA insurers. The Company, along with other MA organizations and additional interested parties, submitted comments to CMS on the proposed rule as part of the notice-and-comment rulemaking process. The comment period concluded on August 28, 2019 and CMS is uncertain thatexpected to act by November 2021. If CMS will issueadopts the rule as proposed, if they did, itthere could havebe a material impact on the Company'sCompany’s future results of operations.

operations, though we expect the rule would be subject to legal challenges. In addition, the Company is subject to OIG RADV audits that are in process.
​ ​​​​ ​​ ​​
Also, as described in Note 21 to the Consolidated Financial Statements, the U.S. Department of Justice is currently conducting an industry-wide investigation of risk adjustment data submission practices and business processes, which in the case of certain other MA organizations has resulted in litigation.



58

Health Care Reform Act Tax

Health Insurance Industry Tax: Federal legislation imposed a moratorium on the health insurance industry tax for 2017 and 2019. The industry tax was assessed in 2018 and, under current law, will be imposed in 2020. The industry tax for Cigna in 2018 was $370 million ($205 million for Commercial and $165 million for Government). For our Commercial business, the tax was reflected in our 2018 premium rates and did not have a material effect on shareholders' net income in 2018. For our Medicare business, the earnings impact in 2018 resulting from this renewed tax was somewhat offset with benefit and pricing changes. Because this tax is not deductible for federal income tax purposes, it negatively impacted our effective tax rate in 2018.
​

Item
​​​​ ​​ ​​

Description

Public Health Exchanges

Market Participation: For 2018, we offered individual coverage on six public health insurance exchanges in the following states: Colorado, Illinois, Missouri, North Carolina, Tennessee and Virginia. For 2019, we expanded our individual coverage to Arizona while continuing to offer coverage on all of the other six exchanges as in 2018.

Cost Sharing Reduction Subsidies: The Patient Protection and the

Affordable Care Act ("ACA")

Cost-Sharing Reduction Subsidies: The ACA provides for cost sharingcost-sharing reductions that offset the amount that qualifying customers pay for deductibles, copaymentscopays and coinsurance. The federal government providedstopped funding insurers for the cost sharingcost-sharing reduction ("CSR”) subsidies to the qualifying customer's insurer until October 2017 when these payments were stopped. The attorneys general of 18 states and the District of Columbia sued the current administration, seeking to require the administration to continue paying these subsidies. In October 2017, the court denied the attorney generals' request for an injunction, allowing the government to stop paying the cost sharing reduction subsidies to insurers during the pendency of the matter. In July 2018, the court granted a motion by the states to dismiss the lawsuit without prejudice, meaning the states may refile a lawsuit at a later time.in 2017. Certain insurers have sued the federal government for failure to pay cost sharingcost-sharing reduction subsidies as well, and the matter remains unresolved. In the first set of consolidated appeals, the Court of Appeals for the Federal Circuit issued a judge in two of those actions has ruled in favordecision on August 14, 2020, finding that (i) the CSR reimbursement provision of the insurers. We will continueACA imposes an obligation on the government to monitor developments.pay, but (ii) the insurers' damages must be reduced by the amount of additional premium tax credit payments that each insurer received as a result of the government’s termination of CSR payments. On September 28 and October 2, 2020, the insurers filed petitions for rehearing en banc in the Federal Circuit. The court denied those petitions on November 10 and December 16, 2020, respectively. On February 19, 2021 two insurers filed a petition seeking Supreme Court review. As described in Note 21 to the Consolidated Financial Statements, we filed a lawsuit in May 2020 against the federal government seeking payment of these subsidies. Our case is stayed until either the Federal Circuit’s judgments in the CSR appeals become final and non-appealable or the Supreme Court resolves any petition for writ of certiorari. Our premium rates for the 2018, 2019 and 20192020 plan years reflect the government's decision to cease paying thesereflected a lack of government funding for cost-sharing reduction subsidies.

​ ​​​​ ​​ ​​

Prescription Drug Pricing

ACA Litigation: As discusseddescribed in the Regulation“Business - Regulation” section on page 20 of this Form 10-K, prescription drug pricinga federal district court ruled that the “individual mandate” in the ACA is unconstitutional and that the entire law must be struck down. On appeal, the Court of Appeals for the Fifth Circuit agreed that the “individual mandate” is unconstitutional but ordered the district court to reexamine whether the other provisions of the ACA can remain in effect, thereby leaving in doubt whether the entire ACA is unconstitutional until there is a final judicial determination on appeal. The California-led states and the roleU.S. House of pharmacy benefit managers have been a focus ofRepresentatives filed petitions seeking to appeal the current administration. In February 2019, the HHS proposed changesFifth Circuit's ruling to the federal anti-kickback safe harborU.S. Supreme Court. On March 2, 2020, the Supreme Court agreed to exclude regulatory protection for rebates between drug manufacturershear the appeals. The case was argued before the Supreme Court on November 10, 2020, and Medicare Part D plans, Medicaid managed care organizations and pharmacy benefit managers ina decision is expected by the contextend of these government programs. The proposed regulations in their current form apply solely to Medicare Part D and Medicaid programs that include our Government business in the Integrated Medical segment. The proposed regulations also seek to create new safe harbor protections for fixed fee services arrangements between drug manufacturers and pharmacy benefit managers, as well as protections for discounts offered at the point of sale. These proposed regulations, if adopted as written, could affect current industry practices. We do not expect them to have a material effect on our business or results of operations. This area continues to be the subject of legislative and regulatory activity.
​ ​​​​ ​​ ​​June 2021.
​​​CIGNA CORPORATION - 2018 Form10-K    47

Table of Contents

PART II
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations













59

Risk Mitigation Programs

Risk Mitigation Programs – Individual ACA Business

Risk Corridors. In 2016, we recorded an allowance for the balance of our ACA risk corridorcorridors receivable based on court decisions and the large program deficit. During 2018,On April 27, 2020, the U.S. Federal Circuit courtSupreme Court ruled that health insurers are not entitled to receive amountsthe full amount due under the risk corridor program that have been withheld by Congress.corridors program. The plaintiffs have petitioned the U.S. Supreme Court remanded the cases before it to review this unfavorable decision. Asthe lower courts for further proceedings consistent with its opinion. We filed a lawsuit in May 2020 seeking payment of December 31, 2018, we continue to carry this allowancethese funds. We received $120 million in payments in September 2020, which resolved our risk corridors claim.
Risk Adjustment. At the end of $109 million based oneach program year the current status of court decisions.

Riskrisk adjustment balances are subject to audit and adjustment by CMS following each program year. In February 2018, a federal judge issued a decision invalidatingthrough the use of statewide average premium for risk adjustment purposes. In response, in July 2018, CMS issued a final rule clarifying the 2017 program methodology and addressing issues raised in the ruling by the federal judge. This rule clears the way for CMS to resume risk adjustment collections and paymentsRADV program. RADV audits for the 2017 program year. Despite this final rule, resolution ofand 2018 benefit years have been completed, subject to the legal matter remains uncertain. As of December 31,error rates appeal period. Final settlement for the 2017 and 2018 benefit years is expected in 2021 and 2022, respectively. Based on the information currently available, we have adjusted our financial statements reflect the risk adjustment balances for the 2018 and 2017 plan years under the rules currently in effect for the program.

The following table presentsto reflect our balances associated with the risk adjustment programestimate of expected outcome as of December 31, 20182020 and 2017.

December 31, 2019.

 Net Receivable (Payable) Balance
As of December 31,
​​ ​ ​​ ​
(In millions) 2018 2017
(In millions)December 31,
2020		December 31,
2019
​​ ​ ​​ ​
Risk Adjustment ​  ​ Risk Adjustment

Receivables (1)

 $32 $69
Receivables (1)
$80 $47 

Payables (2)

 ​(187) ​(250)
Payables (2)
(153)(213)
​ ​ ​​ ​ ​ ​
Total risk adjustment balance $(155) $(181)Total risk adjustment balance$(73)$(166)
​​ ​ ​​
(1)
Receivables, net of allowances, are reported in accountsAccounts receivable, net in the Consolidated Balance Sheets.

(2)
Payables are reported in accruedAccrued expenses and other liabilities (current) in the Consolidated Balance Sheets.

After-tax charges for the risk

Risk adjustment program charges of $(26) million pre-tax were $116fully offset by RADV adjustment favorability of $26 million in 2018 and $105 million in 2017,pre-tax for 2020, compared with after-tax benefitsnet charges of $25$162 million pre-tax ($126 million after-tax) in 2016.

2019 and $147 million pre-tax ($116 million after-tax) in 2018.

Liquidity And Capital Resources


LIQUIDITY AND CAPITAL RESOURCES

Financial Summary
(In millions)
 2018
 2017
 2016
​ ​​ ​ ​​ ​​​ ​
(In millions)(In millions)   
Financial SummaryFinancial Summary202020192018

Short-term investments

 $316 $199 $691Short-term investments$359 $423 $316 

Cash and cash equivalents

 $3,855 $2,972 $3,185Cash and cash equivalents$10,182 $4,619 $3,855 

Short-term debt

 $2,955 $240 $276Short-term debt$3,374 $5,514 $2,955 

Long-term debt

 $39,523 $5,199 $4,756Long-term debt$29,545 $31,893 $39,523 

Shareholders' equity

 $41,028 $13,711 $13,699
​ ​​ ​​​ ​ ​​
Shareholders’ equityShareholders’ equity$50,321 $45,338 $41,028 


Liquidity

Liquidity

We maintain liquidity at two levels: the subsidiary level and the parent company level.

Liquidity requirements at the subsidiary level generally consist of:

•
pharmacy, medical costs pharmacy and other benefit payments;
•
expense requirements, primarily for employee compensation and benefits, information technology and facilities costs;
•income taxes; and
•
income taxes.

debt service.

Our subsidiaries normally meet their operatingliquidity requirements by:

•
maintaining appropriate levels of cash, cash equivalents and short-term investments;
•
using cash flows from operating activities;
•
matching investment durations to those estimated for the related insurance and contractholder liabilities;
•
selling investments; and
•
borrowing from affiliates, subject to applicable regulatory limits.

60

Liquidity requirements at the parent company level generally consist of:

•
debt service and dividend paymentsservice;
•payment of declared dividends to shareholders;
•
lending to subsidiaries as needed; and
•
pension plan funding.

The parent company normally meets its liquidity requirements by:

•
maintaining appropriate levels of cash and various types of marketable investments;
•
collecting dividends from its subsidiaries;
•
using proceeds from issuance ofissuing debt and common stock; and
•
borrowing from its subsidiaries, subject to applicable regulatory limits.

Dividends from our insurance, Health Maintenance Organization ("HMO"(“HMO”) and foreign subsidiaries are subject to regulatory restrictions. See Note 1719 to the Consolidated Financial Statements for additional discussion ofinformation regarding these restrictions. Because mostMost of Express Scripts'Evernorth's subsidiaries are not subject to regulatory restrictions on payingregarding dividends acquiring Express Scripts provides significantly increasedand therefore provide significant financial flexibility to Cigna.

​48    CIGNA CORPORATION - 2018 Form10-K​​

Back to Contents

PART II
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Cash flows for the years ended December 31 were as follows:

(In millions)202020192018
Net cash provided by operating activities$10,350 $9,485 $3,770 
Net cash provided by (used in) investing activities:
Cash proceeds from sale of U.S. Group Disability and Life business, net of cash sold5,592 — — 
Cash used to acquire Express Scripts, net of cash acquired— — (24,062)
Other acquisitions(139)(153)(393)
Net investment sales (purchases)(1,406)480 (1,383)
Purchases of property and equipment and other(1,071)(1,061)(540)
Net investing activities2,976 (734)(26,378)
Net cash (used in) provided by financing activities:
Debt (repayments) issuances(4,736)(5,175)24,212 
Stock repurchase(4,042)(1,987)(342)
Other, net245 (25)(355)
Net financing activities(8,533)(7,187)23,515 
Foreign currency effect on cash41 (8)(24)
Change in cash, cash equivalents and restricted cash$4,834 $1,556 $883 
(In millions)
 2018
 2017
 2016
​ ​​ ​ ​​ ​ ​​ ​

Net cash provided by operating activities

 $3,770 $4,086 $4,026
​​​ ​ ​​ ​​​ ​

Net cash (used in) investing activities:

         

Cash used to acquire Express Scripts, net of cash acquired

 ​(24,062) ​– ​–

Other acquisitions

  (393)  (209)  (4)

Net investment (purchases)

 ​(1,383) ​(1,023) ​(2,008)

Purchases of property and equipment and other

  (540)  (471)  (562)
​ ​​ ​ ​​ ​ ​​ ​

Net investing activities

 ​(26,378) ​(1,703) ​(2,574)
​ ​ ​​ ​ ​ ​ ​ ​ ​

Net cash provided by (used in) financing activities

         

Debt proceeds used to finance Express Scripts acquisition

 ​22,856 ​– ​–

Other debt transactions, net

  1,356  98  (148)

Stock repurchase

 ​(342) ​(2,725) ​(139)

Other, net

  (355)  (24)  62
​ ​​ ​ ​​ ​ ​​ ​

Net financing activities

 ​23,515 ​(2,651) ​(225)
​ ​ ​ ​ ​ ​ ​ ​ ​​

Foreign currency effect on cash

  (24)  55  (10)
​​​ ​ ​​ ​​​ ​

Change in cash and cash equivalents

 $883 $(213) $1,217
​​​ ​ ​​ ​​​ ​
The following discussion explains variances in the various categories of cash flows for the year ended December 31, 2020 compared with the same period in 2019.

Operating activities

Cash flows from operating activities consist principally of cash receipts and disbursements for premiums, fees, pharmacy revenues and costs, premiums, fees, investment income, taxes, benefit costs and other expenses.

Cash flows from operating activities decreased in 2018 compared with 2017 primarily driven by the timing of settlement of pharmacy payables, partially offset by higher net income.

Cash flows from operating activities increased, slightly in 2017 compared with 2016 primarily driven by higher pharmacy and services costs payables due to business growth, offset by increases in accounts receivable due to business growth, higher inventory purchases and the resumption of the health insurance industry tax.
Investing and Financing activities
Cash flows from investing activities increased, primarily due to the net income,proceeds from the sale of the Group Disability and Life business, partially offset by lower receipts from Medicare Part D and Medicare Advantage programs and a voluntary pension contribution of $150 millionhigher net investment purchases.
Cash used in 2017.

Investing and Financingfinance activities

Our most significant investing and financing activities of 2018 related to acquiring Express Scripts. See Note 3 to the Consolidated Financial Statements for additional information on the acquisition. Cigna financed a portion of the acquisition in cash, increased, primarily with debt financing as shown above and described more fully in Note 5 to the Consolidated Financial Statements, with the remaining required cash coming from cash on hand. In 2018, Cigna also acquired OnePath Life for approximately $480 million, largely with cash held in our foreign operations.

Net investment purchases increased in 2018 compared with 2017, largely due to reinvesting our cash flows into fixed income investments. The decrease in net investment purchases in 2017 compared with 2016 primarily reflectsstock repurchases and debt repayments, partially offset by higher cash used for share repurchases in 2017.

Stock repurchases declined in 2018 compared with 2017 as Cigna suspended stock repurchase activity to provide liquidity for the Express Scripts acquisition. Stock repurchase activity was significantly higher in 2017 than 2016, as stock repurchase activity was suspended for much of 2016 during the pendency of the Anthem transaction.

debt issuance.

61

We maintain a share repurchase program authorized by our Board of Directors. Under this program, we may repurchase shares from time to time, depending on market conditions and alternate uses of capital. The timing and actual number of shares repurchased will depend on a variety of factors including price, general business and market conditions and alternate uses of capital. The share repurchase program may be effected through open market purchases or privately negotiated transactions in compliance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended, including through Rule 10b5-1 trading plans.plans or privately negotiated transactions. The program may be suspended or discontinued at any time.

In 2018,

For the year ended December 31, 2020, we repurchased 1.621.9 million shares for approximately $330 million.$4.1 billion. From January 1, 20192021 through February 27, 201924, 2021, we repurchased 1.98.1 million shares for approximately $356 million. The remaining share$1.7 billion. Share repurchase authority was $2.1 billion as of February 27, 2019 was $590 million. We repurchased 15.7 million shares for $2.8 billion in 2017 and 0.8 million shares for $110 million in 2016.

24, 2021.

Capital Resources

Our capital resources (primarilyconsist primarily of cash, cash equivalents and investments maintained at regulated subsidiaries required to underwrite insurance risks, cash flows from operating activities, our commercial paper program, credit agreements and proceeds from the issuance of long-term debt and equity securities) provide protection for policyholders, furnish the financial strengthsecurities. Our businesses generate significant cash flow from operations, some of which is subject to underwrite insurance risks and facilitate continued business growth.

Our acquisition of Express Scripts increased our debt and shareholders' equity in 2018 as follows:

•
Stock.  Express Scripts shareholders received 0.2434 of a share of common stock of Cigna for every one share of Express Scripts. Cigna issued 137.6 million additional shares to Express Scripts shareholders.

•
Debt.  See Note 5regulatory restrictions relative to the Consolidated Financial Statements for further descriptionamount and timing of the debt issueddividend payments to finance the acquisition.

•
Assumption of Express Scripts Senior Notes.  See Note 5 to the Consolidated Financial Statements for further description of the notes assumedparent. Dividends from U.S. regulated subsidiaries were $2.3 billion in the acquisition of Express Scripts.

At December 31, 2018, our debt-to-capitalization ratio was 50.9%. We expect to deleverage to the upper 30s within 18 to 24 months by using2020 and 2019. Nonregulated subsidiaries also generate significant cash flowsflow from operating activities.

​​​CIGNA CORPORATION - 2018 Form10-K    49

Backactivities, which is typically available immediately to Contents

PART II
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Cigna entered into a new Revolving Credit Agreement and Term Loan Credit Agreement in financing the Express Scripts acquisition. A select number of subsidiaries guarantee Cigna obligations under the Revolving Credit Agreement and the Term Loan Credit Agreement. See Note 5 to the Consolidated Financial Statementsparent for further information on these guarantees, as well as information on our Revolving Credit Agreement and the Term Loan Credit Agreement. Cigna had $22 million of letters of credit outstanding as of December 31, 2018.

Management, guided by regulatory requirements and rating agency capital guidelines, determines the amount of capital resources that we maintain. Management allocates resources to new long-term business commitments when returns, considering the risks, look promising and when the resources available to support existing business are adequate.

general corporate purposes.

We prioritize our use of capital resources to:

•
Invest in capital expenditures, primarily related to technology to support innovative solutions for our customers, provide the capital necessary to support growth and maintain or improve the financial strength ratings of subsidiaries and to repay debt and fund pension obligations;

obligations if necessary;
•
pay dividends to shareholders;
•consider acquisitions that are strategically and economically advantageous; and

•
return capital to investors primarilyshareholders through share repurchases.

We continue


At December 31, 2020, our debt-to-capitalization ratio was 39.5%, a decline from 45.2% at December 31, 2019.
In connection with the sale of the Group Disability and Life business that closed on December 31, 2020, we deployed approximately $3.0 billion to maintaindebt repayment by: (i) repaying in full our $1.4 billion 364-Day Term Loan Credit Agreement entered into on April 1, 2020, on December 31, 2020; (ii) redeeming in full the $1.0 billion aggregate principal amount of Cigna’s Senior Floating Rate Notes due 2021 on January 15, 2021 at a redemption price calculated in accordance with the terms and conditions of the indenture governing the Notes; and (iii) repaying certain of our outstanding commercial paper balances in January 2021.
In 2018, Cigna entered into a $3.25 billion five-year revolving credit agreement and a $3.0 billion term loan credit agreement in financing the Express Scripts acquisition. The term loan credit agreement was repaid in full and terminated in the fourth quarter of 2019.
In 2019, Cigna entered into an additional $1.0 billion 364-day revolving credit agreement that expired in October 2020, at which point we replaced the revolving credit agreement with a new $1.0 billion 364-day revolving credit agreement which will expire in October 2021.
Our revolving credit agreements provide us the ability to borrow amounts for general corporate purposes, including for purpose of providing liquidity support if necessary under our commercial paper program discussed below. As of December 31, 2020, there were no outstanding balances under either of the revolving credit agreements.
Cigna also maintains a commercial paper program and may issue short-term, unsecured commercial paper notes privately placed on a discount basis through certain broker dealers at any time not to exceed $4.25 billion. The net proceeds of issuances have been and are expected to be used for general corporate purposes. The commercial paper program had approximately $1.0 billion outstanding at December 31, 2020 at an average interest rate of 0.2%.
See Note 7 to the Consolidated Financial Statements for further information on our credit agreements and commercial paper program.
62

Our capital management strategy to retain overseas a significant portion of the earnings from our foreign operations. These undistributed earnings are deployed outside of the United States predominantly in support of the liquidity and regulatory capital requirements of our foreign operations as well as to supportand certain international growth initiatives overseas.is to retain overseas a significant portion of the earnings generated by our foreign operations. This strategy does not materially limit our ability to meet our liquidity and capital needs in the United States.

Liquidity and Capital Resources Outlook

At

We maintain sufficient liquidity to meet our cash needs through our cash and cash equivalents balances, cash flows from operations, commercial paper program, credit agreements and the issuance of long-term debt and equity securities. As of December 31, 2018, there was approximately $4.22020, we had $4.25 billion of undrawn committed capacity under our revolving credit agreements (which amounts are available for general corporate purposes, including providing liquidity support for our commercial paper program), $3.2 billion of remaining capacity under our commercial paper program and $10.5 billion in cash and short-term investments, $1.2approximately $5.2 billion of which was held by the parent company or subsidiaries with no regulatory or other restrictions on transferring cash to the parent via dividend or loan. In 2019, we expect to generate an additional $6.2 billion of capital available for deployment, including $2.1 billion of dividends that our regulated insurance companies may pay without prior regulatory approval. The parent company's cash obligations in 2019 are expected to approximate $3.2 billion primarily for repayment of debt, interest and anticipated dividends.certain nonregulated subsidiaries. We expect to re-issue the $1.5 billion commercial paper borrowing upon its maturity.

We expect to have sufficient liquidity to meet the obligations discussed above, based on the cash currently available to the parent and current projections for subsidiary dividends and cash flows from the newly acquired Express Scripts operations. In addition, we actively monitor our debt obligations and engage in issuance or redemption activities as needed in accordance with our capital management strategy.

Our A description of our outstanding debt can be found in Note 7 to the Consolidated Financial Statements.

On January 6, 2021, Cigna initiated a quarterly cash dividend and declared the first quarterly cash dividend of $1.00 per share of Cigna common stock to be paid on March 25, 2021 to shareholders of record as of March 10, 2021. Cigna currently intends to pay regular quarterly dividends, with future declarations subject to approval by its Board of Directors and the Board's determination that the declaration of dividends remains in the best interests of Cigna and its shareholders. The decision of whether to pay future dividends and the amount of any such dividends will be based on the Company's financial position, results of operations, cash flows, capital requirements, the requirements of applicable law and any other factors the Board of Directors may deem relevant.
As of December 31, 2020, our unfunded pension liability was $977 million, an increase of $104 million from December 31, 2019, primarily attributable to a decrease in discount rates of approximately 80 basis points, partially offset by investment asset returns. In 2020, we made an immaterial pension contribution as required under the Pension Protection Act of 2006. We expect the required contributions for 2021 to be immaterial. See Note 15 to the Consolidated Financial Statements for additional information.
Risks to our liquidity and capital resources outlook include cash projections that may not be realized and the demand for funds could exceed available cash if our ongoing businesses experience unexpected shortfalls in earnings or we experience material adverse effects from one or more risks or uncertainties described more fully in the Risk Factors"Risk Factors" section of this Form 10-K. In those cases, we expect to have the flexibility to satisfy liquidity needs through a variety of measures, including intercompany borrowings. The parent company can borrow an additional $650 million from its insurance subsidiaries without additional state approval. We have additional liquidity available through short-term commercial paper borrowing capacity and the $3.25 billion revolving credit agreement discussed in Note 5 to the Consolidated Financial Statements.

As of December 31, 2018, our unfunded pension liability was $590 million, reflecting a decrease of $98 million from December 31, 2017, primarily attributable to an increase in discount rates of approximately 75 basis points. Contributions required in 2019 under the Pension Protection Act of 2006 are immaterial. See Note 13 to our Consolidated Financial Statements for additional information regarding our pension plans.

Though we believe we have adequate sources of liquidity, significant disruption or volatility in the capital and credit markets could affect our ability to access those markets for additional borrowings or increase costs associated with borrowing funds.

costs. In addition to the sources of liquidity discussed above, the parent company can borrow an additional $1.7 billion from its subsidiaries without further approvals as of December 31, 2020.

Guarantees and Contractual Obligations

We are contingently liable for various contractual obligations entered into in the ordinary course of business. See thethe: "Liquidity and Capital Resources" section of this MD&A beginning on page 48 for additional backgroundinformation on how we manage our liquidity requirements related to these obligations. TheSee Note 21 to the Consolidated Financial Statements for discussion of various guarantees.
(In millions, on an undiscounted basis)Total20212022 to 20232024 to 2025Thereafter
On-Balance Sheet
Insurance liabilities
Contractholder deposit funds$5,430 $282 $502 $462 $4,184 
Future policy benefits12,339 338 776 900 10,325 
Health Care Medical claims payable3,041 3,041 
Unpaid claims and claim expenses1,195 1,141 11 9 34 
Long-term debt (1)
48,029 3,595 8,048 6,062 30,324 
Other noncurrent liabilities623 156 104 99 264 
Operating leases705 150 288 146 121 
Off-Balance Sheet
Purchase Obligations3,197 1,399 1,283 493 22 
Total$74,559 $10,102 $11,012 $8,171 $45,274 
(1)Amounts include scheduled interest payments and current maturities of long-term debt. Finance leases are included in long-term debt and primarily represent obligations for information technology network storage, servers and equipment. See Note 18 to the Consolidated Financial Statements for information regarding finance leases. See Note 7 to the Consolidated Financial Statements for information regarding our primary contractual cash obligations as of December 31, 2018 are estimated to be as follows:

long-term debt.


63

(In millions, on an undiscounted basis)
 Total
 Less than
1 year
 1-3 years
 4-5 years
 After
5 years
​​​ ​ ​​ ​ ​​ ​​​ ​ ​​​

On-Balance Sheet

 ​  ​  ​  ​  ​ 

Insurance liabilities

               

Contractholder deposit funds

 $7,133 $619 $741 $641 $5,132

Future policy benefits

  11,517  709  1,224  1,153  8,431

Unpaid claims and claim expenses

 ​8,851 ​4,967 ​1,119 ​719 ​2,046

Long-term debt

  53,968  1,543  11,905  9,396  31,124

Other long-term liabilities

 ​636 ​137 ​95 ​81 ​323

Off-Balance Sheet

               

Purchase obligations

 ​2,295 ​858 ​1,012 ​338 ​87

Operating leases

  861  199  330  200  132
​ ​​ ​ ​​ ​​​ ​ ​​​ ​​ ​

Total

 $85,261 $9,032 $16,426 $12,528 $47,275
​​ ​ ​ ​ ​​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​50    CIGNA CORPORATION - 2018 Form10-K​​

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PART II
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

On balance sheet:

On balance sheet:

•
Insurance liabilities. Excluded from the table above are $4 billion of insurance liabilities ($3 billion in contractholder deposit funds; $1 billion in future policy benefits) associated with the sold retirement benefits, and individual life insurance and annuity businesses, reinsured workers’ compensation, as well as the reinsured workers' compensation,group life and personal accident and supplemental benefits businesses as their related net cash flows are not expected to impact our cash flows. Excluding these amounts, the sum of the obligations presented above exceeds the corresponding insurance and contractholder liabilities of $22$17 billion recorded on the balance sheetsheet. This is because some of the recorded insurance liabilities reflect discounting for interest and the recorded contractholder liabilities exclude future interest crediting, charges and fees. The timing and amount of actual future cash flows may differ from those presented above.

    •
◦Contractholder deposit funds: see Note 79 to ourthe Consolidated Financial Statements for our accounting policy for this liability. Expected future cash flows presented above also include estimated future interest crediting on current fund balances based on current investment yields less the estimated cost of insurance charges and mortality and administrative fees for universal life policies.

•
◦Future policy benefits and unpaid claims and claim expenses: see Note 79 to ourthe Consolidated Financial Statements for our accounting policies for these liabilities. Expected future cash flows for these liabilities presented in the table above are undiscounted. The expected future cash flows for guaranteed minimum death benefit ("GMDB,"(“GMDB”) reported in future policy benefits)benefits do not consider any of the related reinsurance arrangements.

•
Long-term debt includes scheduled interest payments. Capitalpayments and current maturities of long-term debt. See Note 7 to the Consolidated Financial Statements for information regarding long-term debt. Finance leases are included in long-term debt and primarily represent obligations for information technology network storage, servers and equipment.

See Note 18 to the Consolidated Financial Statements for information regarding finance leases.
•
Other non-currentnoncurrent liabilities include estimated payments for guaranteed minimum income benefit ("GMIB"(“GMIB”) contracts (without considering any related reinsurance arrangements), pension, and other postretirement and postemployment benefit obligations, supplemental and deferred compensation plans, interest rate and foreign currency swap contracts and reinsurance liabilities. Estimated payments of $78$61 million for deferred compensation, non-qualified and international pension plans and other postretirement and postemployment benefit plans are expected to be paid in less than one year and are included in the table above. We expect to make immaterial contributions to the qualified domestic pension plans during 20192021 and they are reflected in the above table. We expect to make payments subsequent to 20192021 for these obligations; however, subsequent payments have been excluded from the table as their timing is based on plan assumptions that may materially differ from actual activities. See Note 1315 to ourthe Consolidated Financial Statements for further information on pension and other postretirement benefit obligations.

•Operating leases see Note 18 to the Consolidated Financial Statements for additional information.
The liabilitytable above excludes the liabilities for uncertain tax positions that could result in future payments was $928 million as of December 31, 2018. This amount has been excluded from the table above because we are not able to provide acannot reasonably reliable estimate of the timing of such future payments. In the event we are unable to sustain all of our $1.2 billion of uncertain tax payments.positions it could result in future tax payments of approximately $900 million. See Note 1820 to the Consolidated Financial Statements for additional information on uncertain tax positions.

Off-Balance Sheet:

•
Purchase obligations. As of December 31, 2018,2020, purchase obligations consisted of estimated payments required under contractual arrangements for future services and investment commitments as follows:
and they are included in the table below.
(In millions)
Debt securities$149
Commercial mortgage loans10
Limited liability entities (other long-term investments) (1)
2,325
Total investment commitments2,484
Future service commitments713
Total purchase obligations$3,197
(In millions)
  
​ ​​ ​
Fixed maturities $106
Commercial mortgage loans  54
Limited liability entities (other long-term investments) ​1,472
​​​ ​

Total investment commitments

  1,632
Future service commitments ​663
​ ​ ​​
Total purchase obligations $2,295
​ ​​ ​

(1)See Note 911 to ourthe Consolidated Financial Statements for additional information.

Our estimated future service commitments primarily represent contracts for certain outsourced business processes and information technology maintenance and support. We generally have the ability to terminate these agreements, but do not anticipate doing so at this time. Purchase obligations exclude contracts that are cancelablecancellable without penalty and those that do not contractually require minimum levels of goods or services to be purchased.

•
Operating leases.   For additional information, see Note 16 to our Consolidated Financial Statements.


64

Guarantees

We are contingently liable for various financial and other guarantees provided in the ordinary course of business. See Note 1921 to ourthe Consolidated Financial Statements for additional information on guarantees.

​​​CIGNA CORPORATION - 2018 Form10-K    51

Table of Contents

PART II
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations


CRITICAL ACCOUNTING ESTIMATES

Critical Accounting Estimates

The preparation of Consolidated Financial Statements in accordance with GAAP requires management to make estimates and assumptions that affect reported amounts and related disclosures in the Consolidated Financial Statements. Management considers an accounting estimate to be critical if:

•
it requires assumptions to be made that were uncertain at the time the estimate was made; and

•
changes in the estimate or different estimates that could have been selected could have a material effect on our consolidated results of operations or financial condition.

Management has discussed how critical accounting estimates are developed and selected with the Audit Committee of our Board of Directors and the Audit Committee has reviewed the disclosures presented below.

We regularly evaluate items that may impact critical accounting estimates.

As discussed in the executive overview of this MD&A, the COVID-19 pandemic has pervasively impacted the economy, financial markets and the global health care delivery systems. If the impact of the COVID-19 pandemic beyond 2020 is worse than management's current projections, these adverse effects to our business could impact the estimated fair value of our reporting units.
In addition to the estimates presented in the following table,tables, there are other accounting estimates used in preparing our Consolidated Financial Statements, including estimates of liabilities for future policy benefits, as well as estimates with respect to postemploymentpension and postretirement benefits other than pensions and certain compensation accruals, and income taxes.

accruals.

Management believes the current assumptions used to estimate amounts reflected in our Consolidated Financial Statements are appropriate. However, if actual experience significantly differs from the assumptions used in estimating amounts reflected in our Consolidated Financial Statements, the resulting changes could have a material adverse effect on our consolidated results of operations and in certain situations, could have a material adverse effect on our liquidity and our financial condition. The tabletables below presentspresent the adverse impacts of certain possible changes in assumptions. The effect of assumption changes in the opposite direction would be a positive impact to our consolidated results of operations, liquidity or financial condition, except for assessing impairment of goodwill and fixed maturities carried at a fair value below cost. The tax rate used to calculate the after-tax impact of assumption changes is based on the new corporate income tax rate discussed in the "Key Developments" section of this MD&A.

​52    CIGNA CORPORATION - 2018 Form10-K​​

Back to Contents

PART II
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

See Note 2 to our Consolidated Financial Statements for further information on significant accounting policies.

goodwill.
65

Balance Sheet Caption /
Nature of Critical Accounting Estimate
Effect if Different Assumptions Used
​ ​​
Goodwill and other intangible assets

Goodwill represents the excess of the cost of businesses acquired over the fair value of their net assets at the acquisition date. Intangible assets primarily reflect the value of customer relationships and other intangibles acquired in business combinations.

Fair values of reporting units are estimated using models and assumptions that we believe a hypothetical market participant would use to determine a current transaction price. The significant assumptions and estimates used in determining fair value include the discount rate and future cash flows. A discount rate is used, correspondingselected to correspond with each reporting unit'sunit’s weighted average cost of capital, consistent with that used for investment decisions considering the specific and detailed operating plans and strategies within each reporting unit. Projections of future cash flows for each reporting unit are consistent with our annual planning process for revenues, claims,pharmacy costs, benefits expenses, operating expenses, taxes, capital levels and long-term growth rates. In addition to these assumptions, we consider market data to evaluate the fair value of each reporting unit. The fair value of intangibles and the amortization method were determined using an income approach that relies on projected future cash flows including key assumptions for the customer attrition and discount rates. Management revises amortization periods if it believes there has been a change in the length of time that an intangible asset will continue to have value.


The Company conducts its quantitative evaluation for goodwill impairment at least annually during the third quarter at the reporting unit level and performs qualitative impairment assessments on a quarterly basis to determine if events or changes in circumstances indicate that it is more likely than not that the carrying value of a reporting unit exceeds its estimated fair value.

Goodwill and other intangibles as of December 31 were as follows (in millions):
·2020 – Goodwill $44,648; Other intangible assets $35,179
·2019 –Goodwill $44,602; Other intangible assets $36,562
See Note 17 to the Consolidated Financial Statements for additional discussion of our goodwill and other intangible assets.
We completed our normal annual evaluations for impairment of goodwill and intangible assets during the third quarter of 2018.2020. The evaluations indicated that the fair value estimates of our reporting units exceed their carrying values by adequate margins and no impairment was required. As a result of thesignificant margins. Changes in assumptions concerning future financial results or other underlying assumptions, including macroeconomic factors, government legislation, changes in the competitive landscape or other market conditions could impact our reportable segments, we reallocated existing goodwillability to reporting units based on their relative fair values and updated our evaluations for impairment of goodwill. These evaluations indicated that the fair value estimates of our reporting units continue to exceed their carrying values by adequate margins and no impairments were required. During the fourth quarter of 2018, goodwill and intangible assets increased by $38.4 billion as a result of the acquiring Express Scripts and OnePath Life.



achieve profitability projections. If we consistently do not achieve our earnings objectivesand cash flow projections or our cost of capital rises significantly, the assumptions and estimates underlying thesethe goodwill and intangible asset impairment evaluations could be adversely affected and result in future impairment charges that would negatively impact our operating results.

Except for the recent acquisitions of Express Scriptsresults and OnePath Life, where fair value equals carrying value, based on our most recent evaluations, the fair value estimates of our reporting units exceed their carrying values by adequate margins.

Future changes in the funding for our Medicare programs by the federal government could materially reduce revenues and profitability in our Government reporting unit and have a significant impact on its fair value.


Our Government operating segment contracts with CMS and various state governmental agencies to provide managed health care services, including Medicare Advantage plans and Medicare-approved prescription drug plans. Estimated future cash flows for this reporting unit's business incorporate the potential effects of Medicare Advantage reimbursement rates for 2019 and beyond as discussed in the "Executive Overview" section of this MD&A. Revenues from the Medicare programs are dependent, in whole or in part, upon annual funding from the federal government through CMS. Funding for these programs is dependent on many factors including general economic conditions, continuing government efforts to contain health care costs and budgetary constraints at the federal level and general political issues and priorities.


Goodwill and other intangibles as of December 31 were as follows (in millions):

•

2018 – Goodwill $44,505; Other intangible assets $39,003

•

2017 – Goodwill $6,164; Other intangible assets $345


See Note 15 to our Consolidated Financial Statements for additional discussion of our goodwill and other intangible assets.

financial position.



Balance Sheet Caption /
Nature of Critical Accounting Estimate
Effect if Different Assumptions Used
​ ​​
Income taxes – uncertain tax positions

We evaluate tax positions to determine whether theirthe benefits are more likely than not to be sustained on audit based on their technical merits. If not, we establishThe Company establishes a liability for unrecognized tax benefits.if the probability that the position will be sustained is 50% or less. For uncertain positions that management believes are more likely than not to be sustained, the Company recognizes a liability based upon management's estimate of the most likely settlement outcome with the taxing authority. These amounts have increased significantly in 2018 as a result of acquiring Express Scripts. The acquired amounts primarily relate to federal and state uncertain positions of the value and timing of deductions and uncertain positions of attributing taxable income to states. states

Balances that are included in other non-current liabilities on the Consolidated Balance Sheets are as follows:follows (in millions):
·2020 – $1,210
·2019 – $1,018
See Note 20 to the Consolidated Financial Statements for additional discussion around uncertain tax positions and the Liquidity and Capital Resource section of this MD&A for a discussion of their potential impact on liquidity.


 
The factors that could impact our estimates of uncertain tax positions include the likelihood of being sustained upon audit based on the technical merits of the tax position and related assumed interest and penalties. If our positions are upheld upon audit, our net income would increase.

•

2018 – $928 million

•

2017 – $35 million


See Note 18 to our Consolidated Financial Statements for additional discussion around uncertain tax positions.

​ ​​
​​​CIGNA CORPORATION - 2018 Form10-K    53

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PART II
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations



66

Balance Sheet Caption /
Nature of Critical Accounting Estimate
Effect if Different Assumptions Used
​ ​​
Pharmaceutical Manufacturer Receivables

We bill pharmaceutical manufacturers based on management's interpretation of the contractual terms and estimate contractual allowances at the time a claim is processed for uncertainty in the amount we are entitled to collect. We determine these contractual allowances by reviewing each manufacturer's payment experience and specific known items that potentially could be adjusted under contract terms.

We may also record allowances for doubtful accounts based on a variety of factors including the length of time the receivables are past due, the financial health of the manufacturer and our past experience.



Actual contractual allowances could differ from our estimates due to disputes regarding contractual terms, changes in the business environment as well as factors and risks associated with specific customers.

Our estimates of the allowance for doubtful accounts could be impacted by changes in economic and market conditions as well as changes to our customers' financial condition.


In determining the fair value of Express Scripts' accounts receivable at the acquisition date, the historical allowances were eliminated. Prospectively, we expect these allowances to become significant to the consolidated financial statements.


See Note 2 to our Consolidated Financial Statements for assumptions and methods used to estimate receivables and the related allowances.


Balance Sheet Caption / Nature of Critical Accounting Estimate
Effect if Different Assumptions Used
​ ​​
Unpaid claims and claim expenses – IntegratedU.S. Medical

Unpaid claims and claim expenses include both reported claims and estimates for losses incurred but not yet reported.

Unpaid claims and claim expenses in IntegratedU.S. Medical are primarily impacted by assumptions related to completion factors and medical cost trend. Changes inVariation of actual results from either assumption from actual results could impact the unpaid claims balance as noted below. A large number of factors may cause the medical cost trend to vary from the Company'sCompany’s estimates, including: changes in medicalhealth management practices, changes in the level and mix of benefits offered and services utilized, and changes in medical practices. Completion factors may be affected if actual claims submission rates from providers differ from estimates (that can be influenced by a number of factors, including provider mix and electronic versus manual submissions), or if changes to the Company'sCompany’s internal claims processing patterns occur.

Unpaid claims and claim expenses for the U.S. Medical segment as of December 31 were as follows (in millions):
·2020 – gross $3,184; net $2,960
·2019 – gross $2,892; net $2,589
These liabilities are presented above both gross and net of reinsurance and other recoverables.
See Note 9 to the Consolidated Financial Statements for additional information regarding assumptions and methods used to estimate this liability.


Based on studies of our claim experience, it is reasonably possible that a 100 basis point change in the medical cost trend and a 50 basis point change in completion factors could occur in the near term.

A 100 basis point increase in the medical cost trend rate would increase this liability by approximately $35$45 million, resulting in a decrease in net income of approximately $30$35 million after-tax, and a 50 basis point decrease in completion factors would increase this liability by approximately $80$90 million, resulting in a decrease in net income of approximately $65$70 million after-tax.


Unpaid claims and claim expenses for the Integrated Medical segment as of December 31 were as follows (in millions):

•

2018 – gross $2,697; net $2,433

•

2017 – gross $2,420; net $2,158


These liabilities are presented above both gross and net of reinsurance and other recoverables.


See Note 7 to our Consolidated Financial Statements for additional information regarding assumptions and methods used to estimate this liability.

​ ​​
​54    CIGNA CORPORATION - 2018 Form10-K​​

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PART II
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations


Balance Sheet Caption /
Nature of Critical Accounting Estimate
Effect if Different Assumptions Used
​ ​​
Unpaid claims and claim expenses – long-term disability reserves

The liability for long-term disability reserves is the present value of estimated future benefits payments over the expected disability period and includes estimates for both reported claims and for claims incurred but not yet reported.

Key assumptions in the calculation of long-term disability reserves include the discount rate and claim resolution rates, both of which are reviewed annually and updated when experience or future expectations would indicate a necessary change. The discount rate is the interest rate used to discount the projected future benefit payments to their present value. The discount rate assumption is based on the projected investment yield of the assets supporting the reserves. Claim resolution rate assumptions involve many factors including claimant demographics, the type of contractual benefit provided and the time since initially becoming disabled. The Company uses its own historical experience to develop its claim resolution rates.



Based on recent and historical resolution rate patterns and changes in investment portfolio yields, it is reasonably possible that a five percent change in claim resolution rates and a 25 basis point change in the discount rate could occur.

A five percent decrease in the claim resolution rate would increase long-term disability reserves by approximately $90 million and decrease net income by approximately $70 million after-tax.

A 25 basis point decrease in the discount rate would increase long-term disability reserves by approximately $45 million and decrease net income by approximately $35 million after-tax.


Long-term disability reserves as of December 31 were as follows (in millions):

•

2018 – gross $4,069; net $3,975

•

2017 – gross $3,884; net $3,790


These liabilities are presented above both gross and net of reinsurance recoverables.


See Note 7C. to our Consolidated Financial Statements for additional information regarding assumptions and methods used to estimate this liability.


Balance Sheet Caption / Nature of Critical Accounting Estimate
Effect if Different Assumptions Used
​ ​​
Valuation of fixed maturitydebt security investments

Most fixed maturitiesdebt securities are classified as available for sale and are carried at fair value with changes in fair value recorded in accumulated other comprehensive income (loss) within shareholders'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.



If the interest rates used to calculate fair value increased by 100 basis points, the fair value of the total fixed maturity portfolio of $23 billion would decrease by approximately $1.5 billion, resulting in an after-tax decrease to shareholders' equity of approximately $0.9 billion.

Determining fair value for a financial instrument requires management judgment. The degree of judgment involved generally correlates to the level of pricing readily observable in the markets. Financial instruments with quoted prices in active markets or with market observable inputs to determine fair value, such as public securities, generally require less judgment. Conversely, private placements including more complex securities that are traded infrequently are typically measured using pricing models that require more judgment as to the inputs and assumptions used to estimate fair value. There may be a number of alternative inputs to select based on an understanding of the issuer, the structure of the security and overall market conditions. In addition, these factors are inherently variable in nature as they change frequently in response to market conditions. Approximately two-thirds of our fixed maturitiesdebt securities are public securities, and one-third are private placement securities.



Typically, the most significant input in the measurement of fair value is the market interest rate used to discount the estimated future cash flows of the instrument. Such market rates are derived by calculating the appropriate spreads over comparable U.S. Treasury securities, based on the credit quality, industry and structure of the asset.



See Notes 9A.11A. and 1012 to ourthe Consolidated Financial Statements for a discussion of our fair value measurements, the procedures performed by management to determine that the amounts represent appropriate estimates and our accounting policy regarding unrealized appreciation on fixed maturities.debt securities.


​​​
​​​CIGNA CORPORATION - 2018 Form10-K    55

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PART II
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations


Balance Sheet Caption / Nature of Critical Accounting Estimate
Effect if Different Assumptions Used
​ ​​
Assessment of "other-than-temporary" impairments on fixed maturities

Certain fixed maturities with aIf the derived interest rates used to calculate fair value below amortized cost are carried atincreased by 100 basis points, the fair value with changes in fair value recorded in accumulated other comprehensive income. For these investments, we have determined that the decline in fair value below its amortized cost is temporary. To make this determination, we evaluated the expected recovery in value and our intent to sell or the likelihood of a required sale of the fixed maturity priortotal debt security portfolio of $18 billion would decrease by approximately $1.3 billion, resulting in an after-tax decrease to an expected recovery. In making this evaluation, we considered a numbershareholders’ equity of general and specific factors including the regulatory, economic and market environments, length of time and severity of the decline, and the financial health and specific near term prospects of the issuer.

If we subsequently determine that the excess of amortized cost over fair value is other-than-temporary for any or all of these fixed maturities, the amount recorded in accumulated other comprehensive income would be reclassified to shareholders' net income as an impairment loss.

The after-tax amountsapproximately $0.8 billion as of December 31, in accumulated other comprehensive income for fixed maturities in an unrealized loss position were as follows (in millions):

2020.

•

2018 – ($370)

•

2017 – ($80)


See Note 9 to our Consolidated Financial Statements for additional discussion of our review of declines in fair value, including information regarding our accounting policies for fixed maturities.


67

Segment Reporting


SEGMENT REPORTING
The following section of this MD&A discusses the results of each of our segments. As a result of the Express Scripts acquisition, during the fourth quarter of 2018, we changed our segment reporting to reflect the new management and business reporting structure of the combined company. Prior year financial information has been restated to conform to the new segment presentation. See Note 1 to ourthe Consolidated Financial Statements for a description of our segments.

In segment discussions, we present adjusted revenues and "pre-tax“pre-tax adjusted income from operations,"” defined as income before taxes excluding realized investment gains (losses), amortization of acquired intangible assets, special items and, for periods prior to 2020, results of transitioning clients and special items.clients. Ratios presented in this segment discussion exclude the same items as pre-tax adjusted income from operations. See Note 2122 to ourthe Consolidated Financial Statements for additional discussion of these metrics and a reconciliation of income before income taxes to pre-tax adjusted income from operations.

operations, as well as a reconciliation of total revenues to adjusted revenues. Note 22 to the Consolidated Financial Statements also explains that segment revenues include both external revenues and sales between segments that are eliminated in Corporate.

In these segment discussions, we also present "pre-tax“pre-tax adjusted margin,"” defined as pre-tax adjusted income from operations before taxes divided by adjusted revenues.

As of the third quarter 2020, the segment previously reported as Health Services is reported as Evernorth, and the segment previously reported as Integrated Medical is reported as U.S. Medical. There are no changes to the underlying business reported in either segment.
See the "Executive Overview" section of this MD&A Executive Overview beginning on page 42 for summarized financial results of each of our reporting segments.

Evernorth Segment

Integrated Medical Segment

The Integrated Medical segmentEvernorth includes the businesses previously reported in "Global Health Care" except as follows: 1) internationala broad range of coordinated and point solution health services, including pharmacy solutions, benefits management solutions, care products are now reported in the International Markets segment; 2) mail order pharmacy business is now reported in the Health Services segment;solutions and 3) Medicare supplement business previously reported in "Global Supplemental Benefits" is now reported in Integrated Medical.

The business section of this Form 10-K (see the "Integrated Medical" section beginning on page 3) describes the various products and funding solutions offered by this segment, including the various revenue sources.intelligence solutions. As described in the introduction to Segment Reporting, above,Evernorth performance of the Integrated Medical segment is measured using the below metrics:

•Adjusted gross profit and pre-tax adjusted income from operations. Key factors affecting profitability for this segment include:

•
customer growth;

•
revenues from integrated specialty products, including pharmacy services, sold to clients and customers across all funding solutions;

•
percentage of Medicare Advantage customers in plans eligible for quality bonus payments;

•
benefit expenses as a percentage of premiums (medical care ratio or "MCR") for our insured commercial and government businesses; and

•
selling, general and administrative expense as a percentage of adjusted revenues (expense ratio).

We adopted new accounting guidance for revenue recognition effective January 1, 2018. Prior year revenues along with adjusted margin and bothoperations, which exclude the medical care and expense ratios for the Integrated Medical segment have been retrospectively adjusted to conform to this new basis of accounting. See Note 2 to the Consolidated Financial Statements for additional information.

​56    CIGNA CORPORATION - 2018 Form10-K​​

Back to Contents

PART II
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

Financial Summary

 
 For the Years
Ended December 31,
 Change
Favorable
(Unfavorable)
 Change
Favorable
(Unfavorable)
 
​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​
(In millions)  2018  2017  2016  2018 vs. 2017  2017 vs. 2016 
​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​
Adjusted revenues $32,791 $29,035 $27,395 $3,756 ​13%$1,640 ​6%
​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​
Pre-tax adjusted income from operations $3,502 $2,922 $2,592 $580  20%$330  13%
​ ​​​ ​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​
Adjusted pre-tax margin ​10.7%​10.1%​9.5%​60bps​​ ​60bps​​ 
Medical care ratio  78.9% 81.0% 80.9% 210bps    (10)bps   
Expense ratio ​24.7%​24.1%​24.8%​(60)bps​​ ​70bps​​ 
​ ​​​ ​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​


   As of December 31,  Increase
(Decrease)		  Increase
(Decrease)
​​​ ​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​​​ ​
(Dollars in millions, customers in thousands)  2018  2017  2016  2018 vs. 2017  2017 vs. 2016
​​​ ​ ​​ ​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​
Unpaid claims and claim expenses – Integrated Medical $2,697 $2,420 $2,261 $277 ​11%$159 ​7%
Integrated Medical Customers                     
Commercial risk ​1,911 ​1,792 ​1,561 ​119 ​7%​231 ​15%
Government  1,407  1,235  1,015  172  14% 220  22%
​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​​​ ​
Total risk ​3,318 ​3,027 ​2,576 ​291 ​10%​451 ​18%
Service  12,071  11,801  11,394  270  2% 407  4%
​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​​​ ​
Total ​15,389 ​14,828 ​13,970 ​561 ​4%​858 ​6%
​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​​​ ​

2018 versus 2017

Adjusted revenues increased, primarily due to customer growth in our Commercial and Government segments including contributions from specialty products. Also contributing to the increase were higher premium rates across our businesses reflecting: 1) underlying medical cost trend; 2) the government's suspension of cost share reduction subsidies; and 3) resumption of the health insurance industry tax.

Pre-tax adjusted income from operations increased, reflecting improved margins in our Individual business and strong ongoing performance in our Commercial business, including increased contributions from specialty products.

Medical care ratio.   The medical care ratio decreased, reflecting the pricing impact of resumption ofspecial items.

•Adjusted pharmacy script volume is calculated by multiplying the health insurance industry taxtotal non-specialty network scripts filled through 90-day programs and improvement from our Individual business.

Expense ratio.   The expense ratio increased, reflecting resumption of the health insurance industry taxhome delivery scripts by three and ongoing investments in growthcounting all other network and innovation, partially offset by higher revenues.

specialty scripts as one script.

2017 versus 2016

Adjusted revenues increased, primarily due to customer growth in our Commercial risk and Individual businesses, partially offset by lower customer enrollment in our Medicare Advantage business.

Pre-tax adjusted income from operations increased, reflecting higher earnings in both our Commercial and Government operating segments. The increase in the Commercial segment reflects customer growth including increased contributions from our specialty products. The Government segment's earnings growth reflects lower operating expenses related to the moratorium of the health insurance industry tax in 2017 and our 2016 CMS audit response as well as favorable claims experience in our Individual business, partially offset by lower customer enrollment in our Medicare Advantage business. Pre-tax adjusted income from operations included favorable prior year reserve development of $148 million for 2017; prior year reserve development in 2016 was not material.

Medical care ratio.   The medical care ratio remained fairly consistent, reflecting the 2017 moratorium on the health insurance industry tax offset by improved performance in our Government segment businesses and favorable prior year reserve development.

Expense ratio.   The expense ratio decreased, reflecting suspension of the health insurance industry tax in 2017 and lower costs related to our 2016 CMS audit response.

Other Items Affecting Integrated Medical Results

Unpaid Claims and Claim Expenses

Unpaid claims and claim expenses were higher as of December 31, 2018 compared with 2017 and were higher as of December 31, 2017 compared with 2016, primarily due to customer growth and medical cost trend. See Note 7 to our Consolidated Financial Statements for additional information.

​​​CIGNA CORPORATION - 2018 Form10-K    57

Table of Contents

PART II
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Medical Customers

A medical customer•Generic fill rate is defined as a person meeting any onethe total number of generic scripts divided by the following criteria:

•
is covered under a medical insurance policy, managed care arrangement or service agreement issued by us;

•
has access to our provider network for covered services under their medical plan; or

•
has medical claims that are administered by us.

Medical customers now include the Medicare Supplement business. For the Integrated Medical segment, medical customers excludes international health care customers.

Our medical customer base was higher at December 31, 2018 compared to December 31, 2017, primarily reflecting growth across our targeted Commercial markets as well as our Government segment businesses. Our medical customer base increased as of December 31, 2017 compared with 2016, reflecting growth across our Commercial and Government segments. The Government segment growth was primarily driven by our Medicare Supplement and Individual businesses, partially offset by declines in our Medicare Advantage business.

Health Services Segment

We established the Health Services segment to include the pharmacy benefit management ("PBM") and health services operations of Express Scripts effective with the acquisition, as well as Cigna's legacy mail order pharmacy business. As described in the introduction to Segment Reporting on page 56, performance of the Health Services Segment is measured using pre-tax adjusted income from operations.

The key factors that impact Health Services revenues and costs of revenues are volume, mix and price. These key factors are discussed further below. See Note 2 for additional information on revenue and cost recognition policies for this segment.

•
As our clients' claim volumes increase or decrease, our resulting revenues and cost of revenues correspondingly increase or decrease. Our gross profit could also increase or decrease as a result of changes in purchasing discounts.

•
The mix of claims generally considers the type of drug and distribution method used for dispensing and fulfilling. As our mix of drugs changes, our resulting pharmacy revenues and cost of revenues correspondingly may increase or decrease. The primary driver of fluctuations within our mix of claims is the generic fill rate.total overall scripts filled. Generally, higher generic fill rates reduce revenues, as generic drugs are typically priced lower than the branded drugs they replace. However, as ingredient cost paid to pharmacies on generic drugs is incrementally lower than the price charged to our clients, higher generic fill rates generally have a favorable impact on our gross profit. The home delivery generic fill rate is currently lower than the network generic fill rate as fewer generic substitutions are available among maintenance medications (such as therapies for chronic conditions) commonly dispensed from home delivery pharmacies as compared to acute medications that are primarily dispensed by pharmacies in our retail networks.

The key factors that impact Evernorth revenues and costs of revenues are volume, mix of claims and price. These key factors are discussed further below. See Note 3 to the Consolidated Financial Statements included in this Form 10-K for additional information on revenue and cost recognition policies for this segment.
•
As our clients’ claim volumes increase or decrease, our resulting revenues and cost of revenues correspondingly increase or decrease. Our gross profit could also increase or decrease as a result of changes in purchasing discounts.
•The mix of claims generally considers the type of drug and distribution method used for dispensing and fulfilling. Types of drugs can have an impact on our pharmacy revenues, pharmacy and other service costs and gross profit, including amounts payable under certain financial and performance guarantees with our clients. In addition to the types of drugs, the mix of generic claims (i.e., generic fill rate) also impacts our gross profit. Furthermore, our gross profit differs among network, home delivery and specialty distribution methods and can impact our profitability.
•Our client contract pricing is impacted by our ongoing ability to negotiate supply chain contracts for pharmacy network, pharmaceutical and wholesaler purchasing and manufacturer rebates. We are ableAs we seek to reduceimprove the rateeffectiveness of drug price increases and, in some cases, lower our clients' prescription drug spend through our integrated setsolutions for the benefit of solutions, including sharing of significant amounts of pharmaceutical manufacturer rebates with our clients. We refer to this as "management ofclients, we are continuously innovating and optimizing the supply chain." Our gross profit could also increase or decrease as a result of supply chain initiatives implemented. Inflation also impacts our pricing because most of our contracts provide that we bill clients and pay pharmacies based on a generally recognized price index for pharmaceuticals. Therefore, the rate of inflation for prescription drugs and our efforts to manage this inflation for our clients can affect our revenues and cost of revenues.

68

In this MD&A, we present revenues and gross profit, as well as adjusted revenues and pre-tax adjusted incomegross profit, consistent with our segment reporting metrics, which exclude special items and, for periods prior to 2020, contributions from operations "excluding transitioning clients" in addition to those metrics including transitioning clients. As of December 31, 2019, the transition of these clients was substantially complete; therefore, beginning in 2020, we no longer exclude results of transitioning clients from our adjusted metrics. See the "Key“Key Transactions and Developments"Business Developments” section on page 46 of this Form 10-K MD&A for further discussion of transitioning clients and why we present this information.

Results of Operations

Financial Summary

Financial SummaryFor the Years Ended December 31,Change Favorable
(Unfavorable)		Change Favorable
(Unfavorable)
(In millions)2020201920182020 vs. 20192019 vs. 2018
Total revenues$116,334 $109,794 $7,065 $6,540 6 %$102,729 N/M
Less: Transitioning clients— (13,347)(459)13,347 N/M(12,888)N/M
Less: Contractual adjustment for a former client(204)— — (204)N/M— N/M
Adjusted revenues(1)
$116,130 $96,447 $6,606 $19,683 20 $89,841 N/M
Gross profit$7,797 $8,908 $604 $(1,111)(12)$8,304 N/M
Adjusted gross profit(1)
$7,593 $6,984 $531 $609 9 $6,453 N/M
Pre-tax adjusted income from operations$5,363 $5,092 $380 $271 5 %$4,712 N/M
Pre-tax adjusted margin4.6 %5.3 %5.8 %(70)bps(50) bps

For the Years Ended December 31,Change Favorable
(Unfavorable)
(Dollars and adjusted scripts in millions)20202019
Selected Financial Information(1)
Pharmacy revenue by distribution channel
Adjusted network revenues$56,181 $41,483 35 %
Adjusted home delivery and specialty revenues49,886 45,836 9 %
Other revenues5,403 4,900 10 %
Total adjusted pharmacy revenues$111,470 $92,219 21 %
Pharmacy script volume
Adjusted network scripts(2)
1,206 941 28 %
Adjusted home delivery and specialty scripts(2)
287 283 1 %
Total adjusted scripts(2)
1,493 1,224 22 %
Generic fill rate
Network87.4 %87.1 %30 bps
Home delivery85.2 %84.3 %90 bps
Overall generic fill rate87.2 %86.8 %40 bps
   For the Years
Ended December 31,		  Change
Favorable
(Unfavorable)		  Change
Favorable
(Unfavorable)
 
​​​ ​ ​​ ​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​​
(In millions)  2018  2017  2016  2018 vs. 2017  2017 vs. 2016 
​​​ ​ ​​ ​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​ ​
Total revenues $7,065 $4,241 $4,066 $2,824 ​67%$175 ​4%
​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​​​ ​ ​​​ ​
Less: revenue contributions from transitioning clients  (459) -  -  (459) N/M  -  N/M 
​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​​​ ​ ​
Adjusted revenues $6,606 $4,241 $4,066 $2,365 ​56 $175 ​4 
​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​​​ ​ ​​​ ​
Gross profit $604 $371 $344 $233  63 $27  8 
​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​​​ ​ ​​​ ​
Gross profit excluding transitioning clients $531 $371 $344 $160 ​43 $27 ​8 
​​​ ​ ​​ ​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​ ​
Pre-tax adjusted income from operations $380 $288 $268 $92  32%$20  7%
​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​​​ ​ ​​​ ​
Pre-tax adjusted margin ​5.8%​6.8%​6.6%​(100)bps​​ ​20bps​​ 
​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​​​ ​ ​
​58    CIGNA CORPORATION - 2018 Form10-K​​

Back(1)Amounts exclude special items and, for periods prior to Contents

PART II
ITEM 7. Management's Discussion2020, contributions from transitioning clients.

(2)Non-specialty network scripts filled through 90-day programs and Analysishome delivery scripts are multiplied by three. All other network and specialty scripts are counted as one script.
2020 versus 2019
In the first quarter of Financial Condition and2020, U.S. Government operating segment customers transitioned to Express Scripts’ retail pharmacy network. In the third quarter of 2019, U.S. Commercial operating segment customers transitioned to Express Scripts’ retail pharmacy network. Results of Operations

2018 versus 2017

Adjusted revenues increased, primarily due tooperations for 2018 reflected the results for the period following the acquisition of Express Scripts. ExcludingScripts on December 20, 2018 along with the acquired business, revenueslegacy Cigna home delivery business.

Adjusted network revenues. The increase reflected the transition of U.S. Medical’s customers, higher claims volume, due to our collaboration with Prime Therapeutics, and increased slightly, reflecting increased utilization ofprices due to inflation on branded drugs. These favorable effects were partially offset by claims mix due to the increase in the generic fill rate.
Adjusted home delivery and specialty medicationsrevenues.The increase reflected higher prices, due to inflation on branded drugs and higher prices.

home delivery and specialty claims volume. These increases were partially offset by claims mix due to an increase in the generic fill rate.

Adjusted gross profit. The increase reflected customer growth, higher adjusted pharmacy script volumes, benefits from the effective management of supply chain and the favorable impact of claims mix as a result of the types of drugs dispensed, the distribution method used for dispensing and fulfilling and an increase in the generic fill rate.
69

Pre-tax adjusted income from operations before taxes increased, due tooperations. The increase reflected customer growth, higher adjusted pharmacy scripts volumes, benefits from the acquisition of Express Scripts. Excluding the acquired business, adjusted income from operations increased, reflecting volume growth due to increased specialty utilization and net savings related toeffective management of supply chain.

2017 versus 2016

Adjusted revenues increased, reflecting increased Commercial customers, specialty medication priceschain, and utilization (e.g., certain injectables),the favorable impact of claims mix as a result of the types of drugs dispensed, the distribution method used for dispensing and fulfilling and an increase in the generic fill rate, partially offset by lower oral medication volumesan increase in operating expenses due to client transitions.

U.S. Medical Segment
U.S. Medical includes Cigna’s U.S. Commercial and U.S. Government businesses that provide comprehensive medical and coordinated solutions to clients and customers. U.S. Commercial products and services include medical, pharmacy, behavioral health, dental, vision, health advocacy programs and other products and services for insured and self-insured customers. U.S. Government solutions include Medicare Advantage, Medicare Supplement, and Medicare customers.

Pre-tax adjusted income from operations before taxes increased, due to Commercial customer growth including increased margin contributions from specialty medications.

International Markets Segment

As described inPart D plans for seniors, Medicaid plans, and individual health insurance plans both on and off the business section of this Form 10-K, the International Markets segment includes supplemental health, life and accident business previously reported in the "Global Supplemental Benefits" segment, except for Medicare Supplement business that is now reported in the Integrated Medical segment and certain international businesses in run-off that are now reported in Group Disability and Other. International health care products previously reported in the "Global Health Care" segment are now reported in International Markets.

public exchanges. As described in the introduction to Segment Reporting, on page 56,performance of the U.S. Medical segment is measured using pre-tax adjusted income from operations. Key factors affecting profitability for this segment include:

•customer growth;
•revenues from integrated specialty products, including pharmacy services sold to clients and customers across all funding solutions;
•percentage of Medicare Advantage customers in plans eligible for quality bonus payments;
•benefit expenses as a percentage of premiums (medical care ratio or “MCR”) for our insured commercial and government businesses; and
•selling, general and administrative expense as a percentage of adjusted revenues (expense ratio).
Results of Operations
Financial SummaryFor the Years Ended December 31,Change Favorable
(Unfavorable)		Change Favorable
(Unfavorable)
(In millions)2020201920182020 vs. 20192019 vs. 2018
Adjusted revenues$38,451 $36,519 $32,791 $1,932 5 %$3,728 11 %
Pre-tax adjusted income from operations$3,807 $3,831 $3,502 $(24)(1)%$329 9 %
Pre-tax adjusted margin9.9 %10.5 %10.7 %(60)bps(20)bps
Medical care ratio79.4 %80.8 %78.9 %140 bps(190)bps
Expense ratio22.8 %22.9 %24.7 %10 bps180 bps

For the Years Ended December 31,Change Favorable
(Unfavorable)		Change Favorable
(Unfavorable)
(In thousands)2020201920182020 vs. 20192019 vs. 2018
U.S. Medical Customers
U.S. Commercial2,141 2,114 1,911 27 1 %203 11 %
U.S. Government1,387 1,361 1,407 26 2 %(46)(3)%
Insured3,528 3,475 3,318 53 2 %157 5 %
Service11,485 12,073 12,071 (588)(5)%2 — %
Total15,013 15,548 15,389 (535)(3)%159 1 %

As of December 31,Change Favorable
(Unfavorable)		Change Favorable
(Unfavorable)
(In millions)2020201920182020 vs. 20192019 vs. 2018
Unpaid claims and claim expenses – U.S. Medical$3,184 $2,892 $2,697 $292 10 %$195 7 %
70

2020 versus 2019
Adjusted revenues. The increase for the year ended December 31, 2020 compared with 2019 reflects customer growth in our Medicare Advantage and U.S. Commercial insured businesses, as well as higher premium rates due to anticipated underlying medical cost trend and the resumption of the health insurance industry tax. These favorable effects were partially offset by the impact of premium relief programs for clients beginning in the second quarter of 2020 in response to significantly lower than historical utilization as individuals deferred care due to the COVID-19 pandemic.
Pre-tax adjusted income from operations was essentially flat reflecting customer growth in our U.S. Commercial insured and Medicare Advantage businesses and net favorable COVID-19 related impacts; offset by the return of the health insurance industry tax and less favorable prior period development. COVID-19 related impacts include deferral of care by our customers; partially offset by direct COVID-19 costs, costs of actions we have taken to support customers, providers and employees, and increased disenrollment resulting from the economic impacts of the pandemic.
Medical care ratio. The decrease reflects COVID-19 related impacts and the pricing effect of the health insurance industry tax. COVID-19 related impacts include deferral of care by our customers; partially offset by direct COVID-19 costs and premium relief programs extended to employer clients.
Expense ratio. The expense ratio was flat reflecting higher insured revenues as well as efficiencies from continued disciplined expense management and the resumption of the health insurance industry tax.
Other Items Affecting U.S. Medical Results
Unpaid Claims and Claim Expenses
Our unpaid claims and claim expenses liability was higher as of December 31, 2020 compared with December 31, 2019, primarily due to customer growth in our Medicare Advantage and U.S. Commercial insured businesses.
Medical Customers
Our medical customer base decreased at December 31, 2020 compared with December 31, 2019, reflecting a lower customer base in our Middle Markets and National Accounts segments and increased disenrollment resulting from the economic impacts of the COVID-19 pandemic; partially offset by growth in our Select segment and our Medicare Advantage business.
A medical customer is defined as a person meeting any one of the following criteria:
•is covered under a medical insurance policy, managed care arrangement or service agreement issued by us;
•has access to our provider network for covered services under their medical plan; or
•has medical claims that are administered by us.
International Markets Segment
As described in the introduction to Segment Reporting, performance of the International Markets segment is measured using pre-tax adjusted income from operations. Key factors affecting pre-tax adjusted income from operations for this segment are:

•
premium growth, including new business and customer retention;

•
benefit expenses as a percentage of premiums (loss ratio);

•
selling, general and administrative expense and acquisition expense as a percentage of revenues (expense ratio and acquisition cost ratio); and

•
the impact of foreign currency movements.

71

Results of Operations

Financial Summary

Financial SummaryFor the Years Ended December 31,Change Favorable
(Unfavorable)		Change Favorable
(Unfavorable)
(In millions)2020201920182020 vs. 20192019 vs. 2018
Adjusted revenues$5,877 $5,615 $5,366 $262 5 %$249 5 %
Pre-tax adjusted income from operations$900 $762 $735 $138 18 %$27 4 %
Pre-tax adjusted margin15.3 %13.6 %13.7 %170  bps(10)bps
Loss ratio56.5 %57.3 %57.4 %80  bps10 bps
Acquisition cost ratio11.3 %12.9 %13.1 %160  bps20 bps
Expense ratio (excluding acquisition costs)20.2 %19.5 %18.9 %(70) bps(60)bps
2020 versus 2019
   For the Years
Ended December 31,		  Change
Favorable
(Unfavorable)		  Change
Favorable
(Unfavorable)
 
​​​ ​ ​​ ​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​​
(In millions)  2018  2017  2016  2018 vs. 2017  2017 vs. 2016 
​​​ ​ ​​ ​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​ ​
Adjusted revenues $5,366 $4,901 $4,537 $465 ​9%$364 ​8%
​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​​​ ​ ​​​ ​
Pre-tax adjusted income from operations $735 $654 $538 $81  12%$116  22%
​ ​​ ​ ​​ ​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​​
Pre-tax adjusted margin ​13.7%​13.3%​11.9%​40bps​​ ​140bps​​ 
​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​​​ ​ ​
Loss ratio  57.4% 57.5% 60.0% (10)bps    250bps   
Acquisition cost ratio ​13.1%​12.8%​12.9%​30bps​​ ​10bps​​ 
​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​​​ ​ ​​​ ​
Expense ratio (excluding acquisition costs)  18.9% 19.7% 19.1% (80)bps    (60)bps   
​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​​​ ​ ​

2018 versus 2017

Adjusted revenues increased primarilymainly due to business growth mainly in South Korea, Middle East, Hong KongAsia and Europe.

Europe, partially offset by premium relief programs, primarily in Europe and unfavorable foreign currency movements.

Pre-tax adjusted income from operations increased primarily due toreflecting lower acquisition and loss ratios and business growth, largely in South Korea, and a lower expense ratio, partially offset by a less favorable acquisition cost ratio.

The segment'sloss ratio decreased slightly, reflecting favorable claims experience in South Korea and Europe, largely offset by unfavorable claims experience in North America and other Asian markets.

Theacquisition cost ratio increased due to higher amortization primarily in Korea and Taiwan.

The decrease in theexpense ratio (excluding acquisition costs) was primarily driven by lower value added tax and disciplined expense management.

​​​CIGNA CORPORATION - 2018 Form10-K    59

Back to Contents

PART II
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

2017 versus 2016

Adjusted revenues were higher primarily due to business growth mainly in South Korea and the Middle East.

Pre-tax adjusted income from operations increased primarily due to business growth, largely in South Korea, and lower loss ratios,Asia, partially offset by higher expense ratios.

The segment'sratios in 2020 reflect the costs of actions to support clients; additionally, the expense ratio reflects actions to support employees and investments in the business for future growth.

The segment’s loss ratio decreased reflecting favorable claims in South Korea and Europe.

Theacquisition cost ratio decreased slightlylower medical utilization due to the COVID-19 pandemic, partially offset by premium relief programs.

The acquisition costratio decreased reflecting an update to our commission deferral process and lower spendingacquisition expenses in certain markets.

Asia, partially offset by premium relief programs.

The increase in theexpense ratio (excluding acquisition costs) was primarily driven byincreased, reflecting strategic investment ininvestments and the Middle East and higher value added tax, partially offset by strong expense management.

unfavorable impact of premium relief programs.

Other Items AffectingRelated to International Markets Results

South Korea is the single largest geographic market for our International Markets segment. For the year ended December 31, 2020, South Korea generated 40%38% of the segment'ssegment’s adjusted revenues and 68%60% of the segment'ssegment’s pre-tax adjusted income from operations in 2018. In 2018, our International Markets segment operations in South Korea represented 5% of our consolidated revenuesoperations.
Group Disability and 11% of consolidated pre-tax adjusted income from operations.

Other

Group Disability and Other

Group Disability and Other includesincluded for the results of the business previously reported in the "Group Disability and Life" segment and "Other Operations" comprising the corporate-owned life insurance ("COLI") business along with run-off of the following businesses: 1) reinsurance; 2) settlement annuity; and 3) the sold individual life insurance and annuity and retirement benefits businesses. In addition, certain international run-off business previously reported in the "Global Supplemental Benefits" segment is now reported inperiod presented, Cigna’s Group Disability and Other.

Life business which offered group long-term and short-term disability, and group life, accident, voluntary and specialty insurance products and services. Additionally, this segment includes Corporate Owned Life Insurance (“COLI”) and the Company’s run-off operations. As described in the introduction of Segment Reporting, on page 56, performance of Group Disability and Other is measured using pre-tax adjusted income from operations. Key factors affecting pre-tax adjusted income from operations are:

•
premium growth, including new business and customer retention;

•
net investment income;

•
benefit expenses as a percentage of premiums (loss ratio); and

•
selling, general and administrative expense as a percentage of revenues excluding net investment income (expense ratio).

Results of Operations

Financial SummaryFor the Years Ended December 31,Change Favorable
(Unfavorable)		Change Favorable
(Unfavorable)
(In millions)2020201920182020 vs. 20192019 vs. 2018
Adjusted revenues$5,264 $5,182 $5,061 $82 2 %$121 2 %
Pre-tax adjusted income from operations$290 $501 $529 $(211)(42)%$(28)(5)%
Pre-tax adjusted margin5.5 %9.7 %10.5 %(420)bps(80)bps
72

Financial Summary

2020 versus 2019
   For the Years
Ended December 31,		  Change
Favorable
(Unfavorable)		  Change
Favorable
(Unfavorable)
 
​​​ ​ ​​ ​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​​
(In millions)  2018  2017  2016  2018 vs. 2017  2017 vs. 2016 
​​​ ​ ​​ ​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​ ​
Adjusted revenues $5,061 $5,075 $5,108 $(14)​-%$(33)​(1)%
​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​​​ ​ ​​​ ​
Pre-tax adjusted income from operations $529 $517 $275 $12  2%$242  88%
​ ​​ ​ ​​ ​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​​
Pre-tax adjusted margin ​10.5%​10.2%​5.4%​30bps​​ ​480bps​​ 
​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​​​ ​ ​

2018 versus 2017

Adjusted revenues decreased slightly, increased due to the continued run-off of international businessgrowth in disability, life and lower life premiums, mostlyvoluntary products, partially offset by moderate growth in the group disability business and higherlower investment income.

Pre-tax adjusted income from operations increased, reflecting improved results inand margin decreased due to unfavorable life claims experience related to the life businessCOVID-19 pandemic, unfavorable disability claims experience and run-off operations,lower investment income, partially offset by unfavorable disability claims experience.

favorable results in our voluntary products.

2017 versus 2016

AdjustedSale of U.S. Group Disability and Life Business. As discussed further in the Executive Overview section of this MD&A, we sold our U.S. Group Disability and Life business on December 31, 2020. Because this business constituted the vast majority of the segment, going forward, we would expect a substantial decline in adjusted revenues were relatively flat, with higher investment income driven by higher asset levels offset by cancelations in non-core specialty and association products.

Pre-tax adjusted income from operations increased, reflecting significantly improved claim experience in the group disability and lifethis segment.

​60    CIGNA CORPORATION - 2018 Form10-K​​

Table of Contents

PART II
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Corporate

Corporate

Corporate reflects amounts not allocated to operating segments, including net interest expense (defined as interest on corporate debt less net investment income on investments not supporting segment and other operations), certain litigation matters, compensation cost for stock options, expense associated with our frozen pension plans, charitable contributions, severance, certain overhead and project costs and intersegment eliminations for products and services sold between segments.

Financial Summary

Financial SummaryFor the Years Ended December 31,Change Favorable (Unfavorable)Change Favorable (Unfavorable)
(In millions)2020201920182020 vs. 20192019 vs. 2018
Pre-tax adjusted loss from operations$(1,552)$(1,824)$(403)$272 15 %$(1,421)N/M%
2020 versus 2019
   For the Years
Ended December 31,		  Change
Favorable
(Unfavorable)		  Change
Favorable
(Unfavorable)
 
​​​ ​ ​​ ​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​​
(In millions)  2018  2017  2016  2018 vs. 2017  2017 vs. 2016
 
​​​ ​ ​​ ​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​ ​
Pre-tax adjusted loss from operations $(403)$(375)$(362)$(28)​(7)%$(13)​(4)%
​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​​​ ​ ​​​ ​

2018 versus 2017

Pre-tax adjusted loss from operations was higher, primarilylower, reflecting lower interest expense due to higher interest expense.

lower levels of debt.
INVESTMENT ASSETS

2017 versus 2016

Pre-tax adjusted loss from operations was higher, primarily due to higher charitable contributions and operating expenses, partially offset by higher net investment income.

Investment Assets

The following table presents our investedinvestment asset portfolio excluding separate account assets as of December 31, 20182020 and 2017.December 31, 2019. Additional information regarding our investment assets and related accounting policies is included in Notes 2, 9, 10, 11, 12, 13 and 1214 to ourthe Consolidated Financial Statements.

(In millions)December 31,
2020		December 31, 2019
Debt securities$18,131 $23,755 
Equity securities501 303 
Commercial mortgage loans1,419 1,947 
Policy loans1,351 1,357 
Other long-term investments2,832 2,403 
Short-term investments359 423 
Total30,188 
Investments classified as assets of business held for sale (1)
(7,709)
Investments per Consolidated Balance Sheets$24,593 $22,479 
(In millions)
 2018
 2017
​​​ ​ ​​ ​
Fixed maturities $22,928 $23,138
Equity securities  548  588
Commercial mortgage loans ​1,858 ​1,761
Policy loans  1,423  1,415
Other long-term investments ​1,901 ​1,518
Short-term investments  316  199
​ ​​ ​ ​​ ​
Total $28,974 $28,619
​​​ ​ ​​ ​

(1)On December 31, 2020, Cigna completed the sale of its U.S. Group Disability and Life business and transferred a total of $8.4 billion of investments to New York Life Insurance Company as part of this divestiture. The investment assets transferred to New York Life were primarily debt securities and, to a lesser extent, commercial mortgage loans. The table above includes $7.7 billion as of December 31, 2019 of investments associated with this business that was previously held for sale.

Fixed Maturities

Debt Securities

Investments in fixed maturitiesdebt securities include publicly tradedpublicly-traded and privately placed debt securities,privately-placed bonds, mortgage and other asset-backed securities and preferred stocks redeemable by the investor. These investments are classified as available for sale and are carried at fair value on our balance sheet. Additional information regarding valuation methodologies, key inputs and controls is included in Note 1012 to ourthe Consolidated Financial Statements. More detailed information about fixed maturitiesdebt securities by type of issuer and maturity dates is included in Note 911 to ourthe Consolidated Financial Statements.

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The following table reflects our fixed maturity portfolio of debt securities by type of issuer as of December 31, 20182020 and 2017.

December 31, 2019.
(In millions)December 31,
2020		December 31,
2019
Federal government and agency$456 $733 
State and local government167 810 
Foreign government2,511 2,256 
Corporate14,562 19,420 
Mortgage and other asset-backed435 536 
Total$18,131 $23,755 
(In millions)
 2018
 2017
​​​ ​ ​​ ​
Federal government and agency $710 $779
State and local government  985  1,287
Foreign government ​2,362 ​2,487
Corporate  18,361  18,088
Mortgage and other asset-backed ​510 ​497
​ ​​ ​​​ ​
Total $22,928 $23,138
​ ​​ ​​​ ​

As a result of the U.S. Group Disability and Life business divestiture, $7.8 billion of debt securities were transferred to New York Life on December 31, 2020, see Note 5 to the Consolidated Financial Statements for further information. The fixed maturitydebt securities transferred to New York Life were primarily Corporate and State and local government sectors. This decrease in our debt securities portfolio decreased during 2018, reflecting decreasedwas partially offset by an increase in valuations due to increases in marketdecreasing yields and weakening foreign currencies, partially offset by increased investment in fixed maturities. net purchase activity during the year.

As of December 31, 2018, $20.62020, $15.6 billion, or 90%86% of the fixed maturitiesdebt securities in our investment portfolio were investment grade (Baa and above, or equivalent), and the remaining $2.3$2.5 billion were below investment grade. The majority of the bonds that are below investment grade are rated at the higher end of the non-investment grade spectrum. TheseAlthough our allocation to below investment grade bonds has increased since the prior year, these quality characteristics have not otherwise changed materially changed from the prior year and areremain consistent with our investment strategy. Fixed maturity investments
Investments in debt securities are diversified by issuer, geography and industry as appropriate.

On an aggregate basis, the debt securities portfolio continues to perform according to original investment expectations. However, due to the economic impacts of the COVID-19 pandemic, there are certain issuers, particularly within the aviation, energy and hospitality sectors, that are showing signs of distress, primarily in the form of requests for temporary covenant relief. There were no material unrealized losses in any of these sectors as of the reporting date. We continue to monitor the economic environment and its effect on our portfolio, and consider the impact of various factors in determining the allowance for credit losses on debt securities, which is discussed in Note 11 to the Consolidated Financial Statements.

Foreign government obligations are concentrated in Asia, primarily South Korea, consistent with our risk management practice and local regulatory requirements of our international business operations. Corporate fixed maturitiesdebt securities include private placement assets of $6$6.0 billion.

​​​CIGNA CORPORATION - 2018 Form10-K    61

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PART II
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

These investments are generally less marketable than publicly-traded bonds; however, yields on these investments tend to be higher than yields on publicly-traded bonds with comparable credit risk. We perform a credit analysis of each issuer and require financial and other covenants that allow us to monitor issuers for deteriorating financial strength and pursue remedial actions, if warranted.

In addition to amounts classified in fixed maturities on our Consolidated Balance Sheets, we participate in an insurance joint venture in China in which we have a 50% ownership interest. We account for this joint venture on the equity basis of accounting and report it in other assets. This entity had an investment portfolio of approximately $6.3 billion supporting this business that is primarily invested in Chinese corporate and government fixed maturities. There were no investments with a material unrealized loss as

Commercial Mortgage Loans
As of December 31, 2018.

Commercial Mortgage Loans

2020, the $1.4 billion commercial mortgage loan portfolio consisted of approximately 45 loans that are in good standing. Our commercial mortgage loans are fixed rate loans, diversified by property type, location and borrower. Given the quality and diversity of the underlying real estate, positive debt service coverage and significant borrower cash invested generally ranging between 30 and 40%, we remain confident that the vast majority of borrowers will continue to perform as expected under their contract terms. For further discussion of the results and changes in key loan metrics, see Note 11 to the Consolidated Financial Statements.

As a result of the U.S. Group Disability and Life business divestiture, $0.6 billion of commercial mortgage loans were transferred to New York Life on December 31, 2020, see Note 5 to the Consolidated Financial Statements for further information. Loans are secured by high quality commercial properties, located in strong institutional markets, and are generally made at less than 70%65% of the property'sproperty’s value at origination of the loan. Property value, debt service coverage, quality, building tenancy and stability of cash flows are all important financial underwriting considerations. We hold no direct residential mortgage loans and do not originate or service securitized mortgage loans.

Commercial real estate capital markets remain very active for well-leased, quality

COVID-19 has negatively impacted commercial real estate locatedfundamentals and capital market activity with concentrated weakness in strong institutional investment markets. The vast majority of properties securing the mortgages in ourhotels and regional malls. Our mortgage loan portfolio possess these characteristics.

As of December 31, 2018,is well diversified by property type and geography with no material exposure to hotels and no exposure to regional shopping malls. We continue to monitor the $1.9 billion commerciallong-term impacts on the office sector due to growing headwinds: expanded remote working flexibility, shorter term leases and corporate migration to lower cost states. Our mortgage loan portfolio consisted of approximately 66 loans thatsecured by office properties are all in good standing. Given the quality and diversity of the underlying real estate, positive debt service coverage and significant borrower cash investment generally ranging between 30 and 40%, we remain confident that borrowers will continue to perform as expected under their contract terms.

74

Other Long-term Investments

Other long-term investments of $1.9$2.8 billion as of December 31, 2020 included investments in securities limited partnerships and real estate limited partnerships, as well as direct investments in real estate joint ventures.ventures and other deposit activity that is required to support various insurance and health services businesses. The increase in other long-term investments is driven by net new funding activity. These limited partnership entities typically invest in mezzanine debt or equity of privately heldprivately-held companies (securities partnerships) and equity real estate. Given our subordinate position in the capital structure of these underlying entities, we assume a higher level of risk for higher expected returns. To mitigate risk, these investments are diversified across approximately 135175 separate partnerships and approximately 7090 general partners who manage one or more of these partnerships. Also, the underlying investments are diversified by industry sector or property type and geographic region. No single partnership investment exceeded 4% of our securities and real estate partnership portfolio.

Problem and Potential Problem Investments

"Problem" bondsIncome from our limited partnership investments is generally reported on a one quarter lag due to the timing of when financial information is received from the general partner or manager of the investments. We could experience losses into future periods, but the magnitude of these losses will depend in part on the length and commercial mortgage loans are either delinquentextent of the economic disruption, the speed of the recovery and the overall economic impacts.

We participate in an insurance joint venture in China with a 50% ownership interest. We account for this joint venture on the equity method of accounting and report our share of the net assets of $0.8 billion in Other assets. Our 50% share of the investment portfolio supporting the joint venture's business is approximately $5.6 billion, primarily invested in Chinese corporate and government debt securities diversified by 60 days or more or have been restructuredissuer, industry and geography, as to terms, including concessions by us for modificationappropriate. To a lesser extent and consistent with its investment strategy, the joint venture is invested in Chinese equity investments comprised of interest rate, principal payment or maturity date. "Potential problem" bondsapproximately 50% equity mutual funds, with the remainder invested in equity securities and commercial mortgage loans are considered current (no payment is more than 59 days past due), but management believes they have certain characteristics that increaseprivate equity partnerships. We participate in the likelihood that they may become problems.

approval of the joint venture's investment strategy and continuously review its execution. There were no significant problem or potential problem investments atwith a material unrealized loss as of December 31, 20182020.

Investment Outlook
The impact of COVID-19 on the economy, despite unprecedented monetary and 2017.

Investment Outlook

Despitefiscal support, and the continueduncertainty as to the strength and sustainability of the U.S. economy, concerns related to trade and tariffs and rising interest rates contributedrecovery prior to a returnwidely available vaccine, continues to dominate financial markets. The low interest rate environment continues to pressure income from both short-term and longer-term investments. U.S. treasury rates remain near all-time lows and the wider market credit spreads experienced during the beginning of financial market volatility and public equity market declinesthe second quarter of 2020 have meaningfully narrowed, resulting in 2018.historically low yields for investment grade assets. We continue to closelyactively monitor global macroeconomic conditionsthe economic impact of the pandemic, as well as fiscal and trends, including the uncertainty caused by the United Kingdom's decision to exit the European Union,monetary responses, and their potential impact to ouron the portfolio. Net investment portfolio. Certainincome projections into 2021 reflect continued market volatility and portfolio impacts, particularly in certain sectors such as retail,aviation, hospitality and energy, and natural gas have been volatile and we expect that to continue.as well as other areas most severely impacted by COVID-19. Future realized and unrealized investment results will be driven largely by market conditions that exist when a transaction occurs or at the reporting date. These future conditions are not reasonably predictable; however, we believe that the vast majority of our investments will continue to perform under their contractual terms. Based on our strategy to match the duration of invested assets to the duration of insurance and contractholder liabilities, we expect to hold a significant portion of these assets for the long term.long-term. Although future impairment losses resulting from interest rate movements and credit deterioration due to both investment-specific and the global economic uncertainties discussed above remain possible, we do not expect these losses to have a material adverse effect on our financial condition or liquidity.

MARKET RISK

Market Risk

Financial Instruments

Financial Instruments

Our assets and liabilities include financial instruments subject to the risk of potential losses from adverse changes in market rates and prices. Consistent with disclosure requirements, the following items have been excluded from this consideration of market risk for financial instruments:

•
changes in the fair values of insurance-related assets and liabilities because their primary risks are insurance rather than market risk;

•
changes in the fair values of investments recorded using the equity method of accounting and liabilities for pension and other postretirement and postemployment benefit plans (and related assets); and

•
changes in the fair values of other significant assets and liabilities, such as goodwill, deferred policy acquisition costs, taxes and various accrued liabilities. Because they are not financial instruments, their primary risks are other than market risk.
​62    CIGNA CORPORATION - 2018 Form10-K​​

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PART II
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Excluding these items, our primary market risk exposures from financial instruments 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.

75

•
Foreign currency exchange rate risk of the U.S. dollar, net of derivatives used for hedging, is primarily to the South Korean won, Euro, New Zealand dollar, Chinese yuan renminbi and TaiwanNew Zealand dollar. An unfavorable change in exchange rates reduces the carrying value of net assets denominated in foreign currencies.

Our Management of Market Risks

We predominantly rely on three techniques to manage our exposure to market risk:

•
Investment/liability matching. We generally select investment assets with characteristics (such as duration, yield, currency and liquidity) that correspond to the underlying characteristics of our related insurance and contractholder liabilities so that we can match the investments to our obligations. Shorter-term investments generally support shorter-term life and health liabilities. Medium-term, fixed-rate investments support interest-sensitive and health liabilities. Longer-term investments generally support products with longer pay outpayout periods such as annuities and long-term disability liabilities.

annuities.
•
Use of local currencies for foreign operations.operations. We generally conduct our international business through foreign operating entities that maintain assets and liabilities in local currencies. This technique limits exchange rate risk to our net assets.

•
Use of derivatives. We use derivative financial instruments to minimize certainreduce our primary market risks.

See Note 911 to ourthe Consolidated Financial Statements for additional information about derivative financial instruments.

Effect of Market Fluctuations

Assuming a 100 basis point increase in interest rates and 10% strengthening in the U.S. dollar to foreign currencies, the effect of hypothetical changes in market rates or prices on the fair value of certain financial instruments, subject to the exclusions noted above (particularly insurance liabilities), would have been as follows as of December 31:

Market scenario for certain non-insurance financial instrumentsLoss in Fair Value
(in billions)20202019
100 basis point increase in interest rates (excluding long-term debt)$1.4 $1.6 
10% strengthening in U.S. dollar to foreign currencies$0.4 $0.3 

  Loss in fair value
​​​ ​ ​​ ​

Market scenario for certain non-insurance financial instruments (in billions)

  2018  2017
​​​ ​ ​​​

100 basis point increase in interest rates (excluding long-term debt)

 $1.6 $1.6

10% strengthening in U.S. dollar to foreign currencies

 $0.4 $0.5
​ ​​ ​​​ ​

The effect of a hypothetical increase in interest rates, primarily on fixed maturitiesdebt securities and commercial mortgage loans, was determined by estimating the present value of future cash flows using various models, primarily duration modeling. The impact of a hypothetical increasedecrease in our sensitivity to market interest rates atsince the prior year is primarily due to our decreased interest sensitive investment portfolio base, due to the transfer of debt securities and commercial mortgage loans to New York Life on December 31, 2018 is consistent with2020. See Note 5 to the impact at December 31, 2017, which has been restated to exclude long-term debt, as discussed below.

Consolidated Financial Statements for additional information on the divestiture of our U.S. Group Disability and Life business.

In the event of a hypothetical 100 basis point increase in interest rates, the fair value of the Company'sCompany’s long-term debt would decrease approximately $2.4$3.0 billion at December 31, 20182020 and $0.5$2.5 billion at December 31, 2017. The impact at December 31, 2018 was greater than that at December 31, 2017 due to additional long-term debt issued in acquiring Express Scripts.2019. Changes in the fair value of our long-term debt do not impact our financial position or operating results. See Note 57 to ourthe Consolidated Financial Statements for additional information about the Company'sCompany’s debt.

The effect of a hypothetical strengthening of the U.S. dollar relative to the foreign currencies of certain financial instruments held by us was estimated to be 10% of the fair value of these instruments, translated to the U.S. dollar equivalent fair value.dollar. Our foreign operations hold investment assets, such as fixed maturities,debt securities, cash and cash equivalents that are generally invested in the currency of the related liabilities. The effect of a hypothetical 10% strengthening in the U.S. dollar to foreign currencies at December 31, 2018 is consistent with that at December 31, 2017.

​​​CIGNA CORPORATION - 2018 Form10-K    63

Table of Contents

PART II
ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk


ITEM 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"“Market Risk” in the MD&A section of this Form 10-K is incorporated by reference.

​64    CIGNA CORPORATION - 2018 Form10-K​​

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PART II
ITEM 8. Financial Statements and Supplementary Data

76

ITEM 8. Financial Statements and Supplementary Data

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Independent Registered Public Accounting Firm

To theBoard of Directors
and Shareholders of Cigna Corporation


Opinions on the Financial Statements and Internal Control over Financial Reporting


We have audited the accompanying consolidated balance sheets of Cigna Corporation and its subsidiaries (the "Company"“Company”) as of December 31, 20182020 and 2017,2019, and the related consolidated statements of income, comprehensive income, changes in total equity and cash flows for each of the three years in the period ended December 31, 2018,2020, including the related notes (collectively referred to as the "consolidated“consolidated financial statements"statements”).We also have audited the Company's internal control over financial reporting as of December 31, 2018,2020, based on criteria established inInternal Control –- Integrated Framework(2013)issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).


In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20182020 and 2017,2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 20182020 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 20182020, based on criteria established inInternal Control –- Integrated Framework(2013)issued by the COSO.


Basis for Opinions


The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management'sManagement’s Annual Report on Internal Control over Financial Reporting.Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company'sCompany’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB")(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.


We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidatedfinancial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.


Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

As described in Management's Annual Report on Internal Control over Financial Reporting, management has excluded Express Scripts Holding Company ("legacy Express Scripts") from its assessment of internal control over financial reporting as of December 31, 2018 because it was acquired by the Company in a purchase business combination during 2018. We have also excluded legacy Express Scripts from our audit of internal control over financial reporting. Legacy Express Scripts is a wholly-owned subsidiary whose total assets and total revenues excluded from management's assessment and our audit of internal control over financial reporting represent 10% and 5%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2018.


Definition and Limitations of Internal Control over Financial Reporting


A company'scompany’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company'scompany’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company'scompany’s assets that could have a material effect on the financial statements.


77

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.


Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Goodwill Impairment Assessment - Evernorth and U.S. Medical Reporting Units

As described in Note 17 to the consolidated financial statements, as of December 31, 2020, goodwill is primarily reported in the Evernorth segment ($33.8 billion), the U.S. Medical segment ($10.4 billion) and, to a lesser extent, the International Markets segment ($0.4 billion). Management conducts its annual quantitative evaluation for goodwill impairment during the third quarter at the reporting unit level and writes it down through shareholders’ net income if impaired. On a quarterly basis, management performs a qualitative impairment assessment to determine if events or changes in circumstances indicate that it is more likely than not that the carrying value of a reporting unit exceeds its estimated fair value. Fair value of a reporting unit is generally estimated based on either a market approach or a discounted cash flow analysis using assumptions that management believes a hypothetical market participant would use to determine a current transaction price. The significant assumptions and estimates used in determining fair value include the discount rate and future cash flows. A discount rate is selected to correspond with each reporting unit's weighted average cost of capital, consistent with that used for investment decisions considering the specific and detailed operating plans and strategies within that reporting unit. Projections of future cash flows for each reporting unit are consistent with management’s annual planning process for revenues, pharmacy costs, benefits expenses, operating expenses, taxes, capital levels and long-term growth rates.

The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment of the Evernorth and U.S. Medical reporting units is a critical audit matter are the significant judgment by management when determining the fair value measurement of the reporting units. This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s estimate of the reporting units’ fair value related to the assumptions for the discount rate and projection of future cash flows. In addition, the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s goodwill impairment assessment, including controls over management’s methodology, inputs and assumptions used in its goodwill impairment assessment of the Evernorth and U.S. Medical reporting units. These procedures also included, among others, testing management’s process for determining the fair value estimate of the reporting units; evaluating the appropriateness of the discounted cash flow analysis; testing the completeness and accuracy of underlying data used in the discounted cash flow analysis; and evaluating the key inputs and significant assumptions related to the discount rate and the projections of future cash flows. The underlying inputs and assumptions used in the development of the discount rate and the projections of future cash flows that were evaluated related to the weighted average cost of capital, revenues, pharmacy costs, benefits expenses, operating expenses, capital levels and long-term growth rates. Evaluating the reasonableness of management’s inputs and assumptions involved considering (i) the current and past performance of the reporting unit, (ii) the consistency of the discount rate and long-term growth rates with external market and industry data, and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of certain significant assumptions related to the discount rate.

/s/ PricewaterhouseCoopers LLP
Hartford, Connecticut
February 28, 2019





/s/ PricewaterhouseCoopers LLP
Hartford, Connecticut
February 25, 2021

We have served as the Company'sCompany’s auditor since 1983.

​​​CIGNA CORPORATION - 2018 Form10-K    65

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ITEM 8. Financial Statements and Supplementary Data


78

Cigna Corporation
Consolidated Statements of Income


Cigna Corporation
Consolidated Statements of Income
For the Years Ended December 31,
(In millions, except per share amounts)202020192018
Revenues
Pharmacy revenues$107,769 $103,099 $5,479 
Premiums42,627 39,714 36,113 
Fees and other revenues8,761 9,363 5,578 
Net investment income1,244 1,390 1,480 
TOTAL REVENUES160,401 153,566 48,650 
Benefits and expenses
Pharmacy and other service costs103,484 97,668 4,793 
Medical costs and other benefit expenses32,710 30,819 27,528 
Selling, general and administrative expenses14,072 14,053 11,934 
Amortization of acquired intangible assets1,982 2,949 235 
TOTAL BENEFITS AND EXPENSES152,248 145,489 44,490 
Income from operations8,153 8,077 4,160 
Interest expense and other(1,438)(1,682)(498)
Debt extinguishment costs(199)(2)0 
Gain (loss) on sale of business4,203 0 0 
Net realized investment gains (losses)149 177 (81)
Income before income taxes10,868 6,570 3,581 
TOTAL INCOME TAXES2,379 1,450 935 
Net income8,489 5,120 2,646 
Less: Net income attributable to noncontrolling interests31 16 9 
SHAREHOLDERS' NET INCOME$8,458 $5,104 $2,637 
Shareholders’ net income per share
Basic$23.17 $13.58 $10.69 
Diluted$22.96 $13.44 $10.54 
   For the years ended
December 31,
​​​ ​ ​​ ​ ​​ ​
(In millions, except per share amounts)  2018  2017  2016
​ ​​ ​ ​​ ​​​ ​
Revenues ​  ​  ​ 
Premiums $36,113 $32,491 $30,824
Fees and other revenues ​5,578 ​5,110 ​4,901
Pharmacy revenues  5,479  2,979  2,966
Net investment income ​1,480 ​1,226 ​1,147
​​​ ​ ​​​ ​​ ​
TOTAL REVENUES  48,650  41,806  39,838
​​​ ​ ​​​ ​​ ​
Benefits and expenses ​  ​  ​ 
Medical costs and other benefit expenses  27,528  25,263  24,341
Pharmacy and other service costs ​4,793 ​2,456 ​2,468
Selling, general and administrative expenses  11,934  10,030  9,790
Amortization of acquired intangible assets ​235 ​115 ​151
​​ ​ ​ ​ ​ ​ ​ ​​
TOTAL BENEFITS AND EXPENSES  44,490  37,864  36,750
​ ​​ ​​​ ​ ​​​
Income from operations ​4,160 ​3,942 ​3,088
​​ ​ ​ ​ ​ ​ ​ ​​
Interest expense and other  (498)  (252)  (278)
Debt extinguishment costs ​— ​(321) ​—
Net realized investment (losses) gains  (81)  237  169
​​​ ​ ​​ ​ ​​ ​
Income before income taxes ​3,581 ​3,606 ​2,979
​​​ ​ ​​​ ​​ ​
TOTAL INCOME TAXES  935  1,374  1,136
​​​ ​ ​​​ ​​ ​
Net income ​2,646 ​2,232 ​1,843
Less: net income (loss) attributable to noncontrolling interests  9  (5)  (24)
​ ​​ ​ ​​ ​​​ ​
SHAREHOLDERS' NET INCOME $2,637 $2,237 $1,867
​ ​ ​​ ​ ​ ​ ​ ​ ​
Shareholders' net income per share         
Basic $10.69 $8.92 $7.31
Diluted $10.54 $8.77 $7.19
​ ​​ ​​​ ​ ​​​

The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.

​66    CIGNA CORPORATION - 2018 Form10-K​​

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PART II
ITEM 8. Financial Statements and Supplementary Data

79

Cigna Corporation
Consolidated Statements of Comprehensive Income


   For the years ended
December 31,
​​​ ​ ​​ ​ ​​ ​
(In millions)  2018  2017  2016
​ ​​ ​​​ ​ ​​​
Shareholders' net income $2,637 $2,237 $1,867
​​​ ​ ​​ ​ ​​ ​
Shareholders' other comprehensive income (loss), net of tax         
Net unrealized (depreciation) on securities and derivatives ​(365) ​(37) ​(60)
Net translation (losses) gains on foreign currencies  (152)  304  (95)
Postretirement benefits liability adjustment ​127 ​33 ​23
​ ​ ​ ​​ ​ ​ ​ ​ ​
Shareholders' other comprehensive (loss) income, net of tax  (390)  300  (132)
​ ​​ ​ ​​ ​​​ ​
Shareholders' comprehensive income ​2,247 ​2,537 ​1,735
​ ​ ​ ​​ ​ ​ ​ ​ ​
Comprehensive income attributable to noncontrolling interests         
Net income (loss) attributable to redeemable noncontrolling interests ​9 ​— ​(7)
Net (loss) attributable to other noncontrolling interests  —  (5)  (17)
Other comprehensive (loss) attributable to redeemable noncontrolling interests ​(15) ​(3) ​(10)
​​ ​ ​ ​ ​ ​ ​ ​​
Total comprehensive (loss) attributable to noncontrolling interests  (6)  (8)  (34)
​ ​​ ​​​ ​ ​​​
TOTAL COMPREHENSIVE INCOME $2,241 $2,529 $1,701
​​ ​ ​ ​ ​ ​ ​ ​​

Cigna Corporation
Consolidated Statements of Comprehensive Income
For the Years Ended December 31,
(In millions)202020192018
Net income$8,489 $5,120 $2,646 
Other comprehensive income (loss), net of tax
Net unrealized (depreciation) appreciation on securities and derivatives(75)957 (365)
Net translation gains (losses) on foreign currencies252 (59)(167)
Postretirement benefits liability adjustment(105)(133)127 
Other comprehensive income (loss), net of tax72 765 (405)
Total comprehensive income8,561 5,885 2,241 
Comprehensive income (loss) attributable to noncontrolling interests
Net income attributable to redeemable noncontrolling interest14 11 9 
Net income attributable to other noncontrolling interests17 5 0 
Other comprehensive (loss) attributable to redeemable noncontrolling interest(8)(5)(15)
Total comprehensive income (loss) attributable to noncontrolling interests23 11 (6)
SHAREHOLDERS' COMPREHENSIVE INCOME$8,538 $5,874 $2,247 
The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.

​​​CIGNA CORPORATION - 2018 Form10-K    67

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PART II
ITEM 8. Financial Statements and Supplementary Data

80

Cigna Corporation
Consolidated Balance Sheets


Cigna Corporation
Consolidated Balance Sheets
As of December 31,
(In millions)20202019
Assets
Cash and cash equivalents$10,182 $4,619 
Investments1,331 937 
Accounts receivable, net12,191 10,716 
Inventories3,165 2,661 
Other current assets930 1,400 
Assets of business held for sale0 9,512 
Total current assets27,799 29,845 
Long-term investments23,262 21,542 
Reinsurance recoverables5,200 5,100 
Deferred policy acquisition costs3,385 2,958 
Property and equipment4,205 4,417 
Goodwill44,648 44,602 
Other intangible assets35,179 36,562 
Other assets2,687 2,283 
Separate account assets9,086 8,465 
TOTAL ASSETS$155,451 $155,774 
Liabilities
Current insurance and contractholder liabilities$5,308 $4,921 
Pharmacy and other service costs payable13,347 10,454 
Accounts payable5,478 5,090 
Accrued expenses and other liabilities8,515 7,347 
Short-term debt3,374 5,514 
Liabilities of business held for sale0 6,812 
Total current liabilities36,022 40,138 
Non-current insurance and contractholder liabilities16,844 16,052 
Deferred tax liabilities, net8,939 9,387 
Other non-current liabilities4,629 4,460 
Long-term debt29,545 31,893 
Separate account liabilities9,086 8,465 
TOTAL LIABILITIES105,065 110,395 
Contingencies — Note 2100
Redeemable noncontrolling interests58 35 
Shareholders’ equity
Common stock (1)
4 4 
Additional paid-in capital28,975 28,306 
Accumulated other comprehensive loss(861)(941)
Retained earnings28,575 20,162 
Less: treasury stock, at cost(6,372)(2,193)
TOTAL SHAREHOLDERS’ EQUITY50,321 45,338 
Other noncontrolling interests7 6 
Total equity50,328 45,344 
Total liabilities and equity$155,451 $155,774 
   As of December 31,
​​​ ​ ​​ ​
(In millions, except per share amounts)  2018  2017
​ ​​ ​ ​​ ​
Assets ​  ​ 
Cash and cash equivalents $3,855 $2,972
Investments ​2,045 ​2,136
Accounts receivable, net  10,473  3,155
Inventories ​2,821 ​228
Other current assets  1,236  820
​ ​​ ​ ​​ ​

Total current assets

 ​20,430 ​9,311
Long-term investments  26,929  26,483
Reinsurance recoverables ​5,507 ​5,763
Deferred policy acquisition costs  2,821  2,237
Property and equipment ​4,562 ​1,563
Deferred tax assets, net  –  39
Goodwill ​44,505 ​6,164
Other intangible assets  39,003  345
Other assets ​1,630 ​1,431
Separate account assets  7,839  8,423
​ ​​ ​ ​​ ​
TOTAL ASSETS ​153,226 ​61,759
​ ​ ​ ​​ ​ ​
Liabilities      
Current insurance and contractholder liabilities ​6,801 ​6,317
Pharmacy and service costs payable  10,702  305
Accounts payable ​4,366 ​184
Accrued expenses and other liabilities  7,071  3,963
Short-term debt ​2,955 ​240
​ ​ ​ ​​ ​ ​

Total current liabilities

  31,895  11,009
Non-current insurance and contractholder liabilities ​19,974 ​20,530
Deferred tax liabilities, net  9,453  —
Other non-current liabilities ​3,470 ​2,838
Long-term debt  39,523  5,199
Separate account liabilities ​7,839 ​8,423
​ ​ ​ ​​ ​ ​
TOTAL LIABILITIES  112,154  47,999
​ ​ ​ ​​ ​ ​
Contingencies – Note 19 ​  ​ 
Redeemable noncontrolling interests  37  49
Shareholders' equity ​  ​ 
Common stock (1)  4  74
Additional paid-in capital ​27,751 ​2,940
Accumulated other comprehensive loss  (1,711)  (1,082)
Retained earnings ​15,088 ​15,800
Less: treasury stock, at cost  (104)  (4,021)
​ ​ ​ ​​ ​ ​
TOTAL SHAREHOLDERS' EQUITY ​41,028 ​13,711
Noncontrolling interests  7  –
​ ​ ​​ ​ ​ ​
Total equity ​41,035 ​13,711
​ ​ ​ ​​ ​ ​
Total liabilities and equity $153,226 $61,759
​ ​ ​​ ​ ​ ​
SHAREHOLDERS' EQUITY PER SHARE $107.71 $56.20
​ ​ ​ ​​ ​ ​
(1)
Par value per share, $0.01 in 2018 and $0.25 in 2017;$0.01; shares issued, 381390 million in 2018as of December 31, 2020 and 296386 million in 2017;as of December 31, 2019; authorized shares, 600 million in 2018 and 2017.
million.

The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.

​68    CIGNA CORPORATION - 2018 Form10-K​​
81

Table



Cigna Corporation
Consolidated Statements of Changes in Total Equity
(In millions)Common StockAdditional Paid-in CapitalAccumulated Other Comprehensive (Loss)Retained EarningsTreasury StockShareholders’ EquityOther Non- controlling InterestsTotal
Equity		Redeemable Noncontrolling Interests
Balance at December 31, 2017$74 $2,940 $(1,082)$15,800 $(4,021)$13,711 $0 $13,711 $49 
Cumulative effect of accounting for financial instruments and hedging(10)68 58 58 
Reclassification adjustment related to U.S. tax reform legislation(229)229 0 0 
Retirement of treasury stock(13)(529)(3,498)4,040 0 0 
Exchange of Old Cigna common stock(58)58 0 0 
Acquisition of Express Scripts (see Note 5)1 25,223 25,224 7 25,231 
Effect of issuing stock for employee benefit plans59 (138)206 127 127 
Other comprehensive (loss)(390)(390)(390)(15)
Net income2,637 2,637 2,637 9 
Common dividends declared (per share: $0.04)(10)(10)(10)
Repurchase of common stock(329)(329)(329)
Other transactions impacting noncontrolling interests0 0 (6)
Balance at December 31, 2018$4 $27,751 $(1,711)$15,088 $(104)$41,028 $7 $41,035 $37 
Cumulative effect of adopting new lease accounting guidance (ASU 2016-02)(15)(15)(15)
Effect of issuing stock for employee benefit plans555 (104)451 451 
Other comprehensive income (loss)770 770 770 (5)
Net income5,104 5,104 5 5,109 11 
Common dividends declared (per share: $0.04)(15)(15)(15)
Repurchase of common stock(1,985)(1,985)(1,985)
Other transactions impacting noncontrolling interests0 (6)(6)(8)
Balance at December 31, 2019$4 $28,306 $(941)$20,162 $(2,193)$45,338 $6 $45,344 $35 
Cumulative effect of adopting new credit loss guidance (ASU 2016-13) (1)
(30)(30)(30)
Effect of issuing stock for employee benefit plans672 (90)582 582 
Other comprehensive income (loss)80 80 80 (8)
Net income8,458 8,458 17 8,475 14 
Common dividends declared (per share: $0.04)(15)(15)(15)
Repurchase of common stock(4,089)(4,089)(4,089)
Other transactions impacting noncontrolling interests(3)(3)(16)(19)17 
Balance at December 31, 2020$4 $28,975 $(861)$28,575 $(6,372)$50,321 $7 $50,328 $58 
(1)See Note 3 for further information about the Company's adoption of Contents

PART II
ITEM 8. Financial Statements and Supplementary Data

new credit loss guidance (ASU 2016-13).

Cigna Corporation
Consolidated Statements of Changes in Total Equity

(In millions, except per share amounts)
 Common
Stock
 Additional
Paid-in
Capital
 Accumulated
Other
Comprehensive
Loss
 Retained
Earnings
 Treasury
Stock
 Shareholders'
Equity
 Non-controlling
Interests
 Total
Equity
 Redeemable
Non-controlling
Interests
​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​​​ ​ ​​​ ​​ ​
Balance at December 31, 2015 $74 $2,859 $(1,250) $12,121 $(1,769) $12,035 $9 $12,044 $69
Cumulative effect of accounting for revenue recognition           (24)     (24)     (24)   
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​​ ​ ​ ​ ​ ​ ​ ​ ​
Balance at December 31, 2015, as retrospectively adjusted ​74 ​2,859 ​(1,250) ​12,097 ​(1,769) ​12,011 ​9 ​12,020 ​69
2016 Activity                           
Effect of issuing stock for employee benefit plans ​​ ​51 ​​ ​(123) ​163 ​91 ​​ ​91 ​​
Other comprehensive (loss)        (132)        (132)     (132)  (10)
Net income (loss) ​​ ​​ ​​ ​1,867 ​​ ​1,867 ​(17) ​1,850 ​(7)
Common dividends declared (per share: $0.04)           (10)     (10)     (10)   
Repurchase of common stock ​​ ​​ ​​ ​​ ​(110) ​(110) ​​ ​(110) ​​
Other transactions impacting noncontrolling interests     (18)           (18)  12  (6)  6
​​ ​ ​ ​ ​ ​ ​ ​ ​​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​​ ​ ​
Balance at December 31, 2016 ​74 ​2,892 ​(1,382) ​13,831 ​(1,716) ​13,699 ​4 ​13,703 ​58
​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​
2017 Activity                           
Effect of issuing stock for employee benefit plans ​​ ​51 ​​ ​(258) ​455 ​248 ​​ ​248 ​​
Other comprehensive income (loss)        300        300     300  (3)
Net income (loss) ​​ ​​ ​​ ​2,237 ​​ ​2,237 ​(5) ​2,232 ​–
Common dividends declared (per share: $0.04)           (10)     (10)     (10)   
Repurchase of common stock ​​ ​​ ​​ ​​ ​(2,760) ​(2,760) ​​ ​(2,760) ​​
Other transactions impacting noncontrolling interests     (3)           (3)  1  (2)  (6)
​​ ​ ​ ​ ​ ​ ​ ​ ​​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​​ ​ ​
Balance at December 31, 2017 ​74 ​2,940 ​(1,082) ​15,800 ​(4,021) ​13,711 ​– ​13,711 ​49
​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​
2018 Activity                           
Cumulative effect of accounting for financial instruments and hedging ​​ ​​ ​(10) ​68 ​​ ​58 ​​ ​58 ​​
Reclassification adjustment related to U.S. tax reform legislation        (229)  229     –     –   
Retirement of treasury stock ​(13) ​(529) ​​ ​(3,498) ​4,040 ​– ​​ ​– ​​
Exchange of Old Cigna common stock  (58)  58           –     –   
Acquisition of Express Scripts (see Note 3) ​1 ​25,223 ​​ ​​ ​​ ​25,224 ​7 ​25,231 ​​
Effect of issuing stock for employee benefit plans     59     (138)  206  127     127   
Other comprehensive (loss) ​​ ​​ ​(390) ​​ ​​ ​(390) ​​ ​(390) ​(15)
Net income           2,637     2,637     2,637  9
Common dividends declared (per share: $0.04) ​​ ​​ ​​ ​(10) ​​ ​(10) ​​ ​(10) ​​
Repurchase of common stock              (329)  (329)     (329)   
Other transactions impacting noncontrolling interests ​​ ​​ ​​ ​​ ​​ ​– ​​ ​– ​(6)
​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​
Balance at December 31, 2018 $4 $27,751 $(1,711) $15,088 $(104) $41,028 $7 $41,035 $37
​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​

The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.

​​​CIGNA CORPORATION - 2018 Form10-K    69
82

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PART II
ITEM 8. Financial Statements



Cigna Corporation
Consolidated Statements of Cash Flows
For the Years Ended December 31,
(In millions)202020192018
Cash Flows from Operating Activities
Net income$8,489 $5,120 $2,646 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization2,802 3,651 695 
Realized investment losses (gains), net(149)(177)81 
Deferred income tax (benefit)(386)(313)(101)
Gain on sale of business(4,203)0 0 
Debt extinguishment costs199 2 0 
Net changes in assets and liabilities, net of non-operating effects:
Accounts receivable(1,496)(713)705 
Inventories(504)149 (107)
Deferred policy acquisition costs(307)(242)(237)
Reinsurance recoverable and Other assets230 (277)(234)
Insurance liabilities841 575 560 
Pharmacy and other service costs payable2,891 (192)(842)
Accounts payable and Accrued expenses and other liabilities1,346 1,343 332 
Other, net597 559 272 
NET CASH PROVIDED BY OPERATING ACTIVITIES10,350 9,485 3,770 
Cash Flows from Investing Activities
Proceeds from investments sold:
Debt securities and equity securities2,283 3,487 2,655 
Investment maturities and repayments:
Debt securities and equity securities1,519 1,825 2,151 
Commercial mortgage loans19 199 215 
Other sales, maturities and repayments (primarily short-term and other long-term investments)1,575 1,311 734 
Investments purchased or originated:
Debt securities and equity securities(4,765)(4,282)(5,637)
Commercial mortgage loans(113)(307)(312)
Other (primarily short-term and other long-term investments)(1,924)(1,753)(1,189)
Property and equipment purchases, net(1,094)(1,050)(528)
Acquisitions, net of cash acquired(139)(153)(24,455)
Divestiture, net of cash sold5,592 0 0 
Other, net23 (11)(12)
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES2,976 (734)(26,378)
Cash Flows from Financing Activities
Deposits and interest credited to contractholder deposit funds1,023 955 1,040 
Withdrawals and benefit payments from contractholder deposit funds(979)(1,097)(1,151)
Net change in short-term debt60 (681)1,487 
Net proceeds on issuance of term loan1,398 0 0 
Repayment of term loan(1,400)0 0 
Payments for debt extinguishment(212)(3)0 
Repayment of long-term debt(8,047)(4,491)(131)
Net proceeds on issuance of long-term debt3,465 0 22,856 
Repurchase of common stock(4,042)(1,987)(342)
Issuance of common stock376 224 68 
Other, net(175)(107)(312)
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES(8,533)(7,187)23,515 
Effect of foreign currency rate changes on cash, cash equivalents and restricted cash41 (8)(24)
Net increase in cash, cash equivalents and restricted cash4,834 1,556 883 
Cash, cash equivalents and restricted cash January 1, (1)
5,411 3,855 2,972 
Cash, cash equivalents and restricted cash, December 31,10,245 5,411 3,855 
Cash reclassified to assets of business held for sale0 (743)0 
Cash, cash equivalents and restricted cash December 31, per Consolidated Balance Sheets (2)
$10,245 $4,668 $3,855 
Supplemental Disclosure of Cash Information:
Income taxes paid, net of refunds$1,837 $1,776 $1,019 
Interest paid$1,439 $1,645 $267 
(1)Includes $743 million reported in Assets of business held for sale as of January 1, 2020. See table below for Cash, cash equivalents and Supplementary Data

restricted cash reconciliation.
(2)See table below for Cash, cash equivalents and restricted cash reconciliation as of December 31, 2020 and December 31, 2019.
83

Cigna Corporation
Consolidated Statements of Cash Flows

The following table provides a reconciliation of cash, cash equivalents and restricted cash and cash equivalents reported within the Consolidated Balance Sheets to the totals above:
As of December 31,
(In millions)20202019
Cash and cash equivalents$10,182 $4,619 
Restricted cash and cash equivalents, included in other long-term investments63 49 
Total cash, cash equivalents, and restricted cash and cash equivalents$10,245 $4,668 
 
 For the years ended December 31,
​​​ ​ ​​ ​ ​​ ​
(In millions)  2018  2017  2016
​ ​​​ ​​ ​ ​​ ​
Cash Flows from Operating Activities ​  ​  ​ 
Net income $2,646 $2,232 $1,843
Adjustments to reconcile net income to net cash provided by operating activities: ​  ​  ​ 

Depreciation and amortization

  695  566  610

Realized investment losses (gains), net

 ​81 ​(237) ​(169)

Deferred income tax (benefit) expense

  (101)  242  74

Debt extinguishment costs

 ​– ​321 ​–

Net changes in assets and liabilities, net of non-operating effects:

         

Accounts receivable

 ​705 ​(233) ​663

Inventories

  (107)  (72)  30

Deferred policy acquisition costs

 ​(237) ​(282) ​(213)

Reinsurance recoverable and other assets

  (234)  115  246

Insurance liabilities

 ​560 ​506 ​683

Pharmacy and service costs payable

  (842)  35  (46)

Accounts payable and accrued expenses and other liabilities

 ​332 ​696 ​171

Other, net

  272  197  134
​​​ ​ ​​ ​​​ ​
NET CASH PROVIDED BY OPERATING ACTIVITIES ​3,770 ​4,086 ​4,026
​​​ ​ ​​ ​​​ ​
Cash Flows from Investing Activities         
Proceeds from investments sold: ​  ​  ​ 

Fixed maturities and equity securities

  2,655  2,012  1,544
Investment maturities and repayments: ​  ​  ​ 

Fixed maturities and equity securities

  2,151  2,051  1,755

Commercial mortgage loans

 ​215 ​335 ​316
Other sales, maturities and repayments (primarily short-term and other long-term investments)  734  1,702  1,431
Investments purchased or originated: ​  ​  ​ 

Fixed maturities and equity securities

  (5,637)  (5,628)  (5,191)

Commercial mortgage loans

 ​(312) ​(430) ​(165)

Other (primarily short-term and other long-term investments)

  (1,189)  (1,065)  (1,698)
Property and equipment purchases, net ​(528) ​(471) ​(461)
Acquisitions, net of cash acquired  (24,455)  (209)  (4)
Other, net ​(12) ​– ​(101)
​ ​​ ​ ​​ ​ ​​ ​
NET CASH (USED IN) INVESTING ACTIVITIES  (26,378)  (1,703)  (2,574)
​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Cash Flows from Financing Activities ​  ​  ​ 
Deposits and interest credited to contractholder deposit funds  1,040  1,230  1,460
Withdrawals and benefit payments from contractholder deposit funds ​(1,151) ​(1,363) ​(1,362)
Net change in short-term debt  1,487  80  (148)
Payments for debt extinguishment ​– ​(313) ​–
Repayment of long-term debt  (131)  (1,250)  –
Net proceeds on issuance of long-term debt ​22,856 ​1,581 ​–
Repurchase of common stock  (342)  (2,725)  (139)
Issuance of common stock ​68 ​131 ​36
Other, net  (312)  (22)  (72)
​ ​ ​ ​ ​ ​ ​ ​ ​​
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES ​23,515 ​(2,651) ​(225)
​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Effect of foreign currency rate changes on cash and cash equivalents  (24)  55  (10)
​ ​ ​​ ​ ​ ​ ​ ​ ​
Net increase (decrease) in cash and cash equivalents ​883 ​(213) ​1,217
Cash and cash equivalents, January 1,  2,972  3,185  1,968
​​ ​ ​ ​ ​ ​ ​ ​ ​
Cash and cash equivalents, December 31, $3,855 $2,972 $3,185
​ ​ ​ ​ ​ ​ ​ ​ ​​
Supplemental Disclosure of Cash Information:         

Income taxes paid, net of refunds

 $1,019 $1,036 $1,064

Interest paid

 $267 $240 $244
​ ​​ ​ ​​ ​ ​​ ​

The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.

​70    CIGNA CORPORATION - 2018 Form10-K​​

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PART II
ITEM 8. Financial Statements and Supplementary Data

84

Notes to the Consolidated Financial Statements

Table of Contents


CIGNA CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
Note NumberFootnotePage
BUSINESS AND CAPITAL STRUCTURE
86
87
87
94
Mergers, Acquisitions and Divestitures
95
96
97
99
INSURANCE INFORMATION
100
104
INVESTMENTS
108
115
120
122
WORKFORCE MANAGEMENT AND COMPENSATION
123
127
PROPERTY, LEASES AND OTHER ASSET BALANCES
130
132
COMPLIANCE, REGULATION AND CONTINGENCIES
134
134
Contingencies and Other Matters
137
RESULTS DETAILS
138

85
​​​CIGNA CORPORATION - 2018 Form10-K    71

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PART II
ITEM 8. Financial Statements and Supplementary Data


Note 1

Note 1 – Description of Business

Cigna Corporation, together with its subsidiaries (either individually or collectively referred to as "Cigna,"“Cigna,” the "Company," "we," "our"“Company,” “we,” “our” or "us"“us”) is a global health serviceservices organization dedicated towith a mission of helping those we serve improve their health, well-being and peace of mind. Our evolved strategy in support of our mission isGo Deeper, Go Local, Go Beyond usingWe offer a differentiated set of pharmacy, medical, pharmacy, dental, disability, life and accident insurance and related products and services offered by our subsidiaries.

The majority of these products are offered through employers and other groups such as governmental and non-governmental organizations, unions and associations. Cigna also offers commercial health and dental insurance, Medicare and Medicaid products and health, life and accident insurance coverages to individuals in the United States and selected international markets. In addition to these ongoing operations, Cigna also has certain run-off operations.

As described more fully in Note 3, on March 8, 2018, the

The Company entered into a merger agreement with Express Scripts Holding Company ("Express Scripts"). Following entry into the merger agreement and throughout the pendency of the transaction, Cigna and Express Scripts designed integration plans to implement a new management and business reporting structure for the combined company immediately upon closing. On December 20, 2018, Cigna completed the acquisition of Express Scripts. As a result, our segments have changed as described below, effectivereports its results in the fourthsegments detailed below:
In connection with the launch of Evernorth in the third quarter of 2018. Financial data for all prior periods presented2020, 2 reporting segments were re-named: Health Services was restated to reflect this new segment presentation.

renamed as Evernorth and Integrated Medical offers was renamed as U.S. Medical. In addition, 2 of our operating segments were re-named: Commercial and Government were renamed as U.S. Commercial and U.S. Government, respectively. There were no changes to the underlying businesses reported in the segments.

Evernorth includes a varietybroad range of coordinated and point solution health services capabilities, as well as those from partners across the health care system in pharmacy solutions, benefits management solutions, care solutions and intelligence solutions, which are provided to health plans, employers, government organizations and health care providers.
U.S. Medical includes Cigna’s U.S. Commercial and U.S. Government businesses that provide comprehensive medical and coordinated solutions to employersclients and individuals.

•
Thecustomers. U.S. Commercial operating segment serves employers (also referred to as "clients") products and their employees (also referred to as "customers") and other groups. This segment provides deeply integrated medical and specialty offerings includingservices include medical, pharmacy, dental, behavioral health, anddental, vision, health advocacy programs and other products and services tofor insured and self-insured clients.

•
The U.S. Government operating segment offers solutions include Medicare Advantage, Medicare Supplement, and Medicare Part D plans to Medicare-eligible beneficiaries as well asfor seniors, Medicaid plans. This operating segment also offersplans, and individual health insurance coverage to individual customersplans both on and off the public exchanges. This segment includes the acquired Express Scripts' Medicare Part D business.

Health Services includes pharmacy benefits management ("PBM"), pharmacy home delivery, and certain medical management services. This segment includes Express Scripts' business from the date of acquisition with the exception of Express Scripts' Medicare Part D business that is reported in the Government operating segment.

International Markets includes supplemental health, life and accident insurance products and health care coverage in our international markets, as well as health care benefits tofor globally mobile employees of multinational organizations.

The remainder of our business operations are reported inGroup Disability and Other, consisting of the following:

•
Group Disability and Life provides group long-term and short-term disability, group life, accident, voluntary and specialty insurance products and related services.

On December 31, 2020, Cigna completed the sale of its U.S. Group Disability and Life business to New York Life Insurance Company. See Note 5 for additional information.
•
Corporate-Owned Life Insurance ("COLI"(“COLI”) offers permanent insurance contracts sold to corporations to provide coverage on the lives of certain employees for the purpose of financing employer-paid future benefit obligations.

•
Run-off businesses:

•
Reinsurance: predominantly comprised of guaranteed minimum death benefit ("GMDB"(“GMDB”) and guaranteed minimum income benefit ("GMIB"(“GMIB”) business effectively exited through reinsurance with Berkshire Hathaway Life Insurance Company of Nebraska ("Berkshire"(“Berkshire”) in 2013.

•
Settlement Annuity business in run-off.

•
Individual Life Insurance and Annuity and Retirement Benefits Businesses:businesses: deferred gains from the sales of these businesses.

•
Certain international run-off businesses

Corporatereflects amounts not allocated to operating segments, including net interest expense (defined as interest on corporate debt less net investment income on investments not supporting segment and other operations, interest on uncertain tax positions,operations), certain litigation matters, compensation cost for stock options and related excess tax benefits, expense associated with our frozen pension plans, charitable contributions, severance, certain overhead and project costs and intersegment eliminations for products and services sold between segments.

86

Note 2 – COVID-19 and Related Economic Impact
All aspects of our business were impacted in fiscal year 2020 by the ongoing coronavirus ("COVID-19") pandemic. The Company initiated several actions to assist our customers, clients, health care providers and employees in this time of crisis. As described below, management has taken a number of steps to assess the impact on our business, including the financial reporting implications associated with this pandemic.
The COVID-19 pandemic has pervasively impacted the economy, financial markets and the global health care delivery systems. The effects of the COVID-19 pandemic on the Company began to emerge in the United States at the end of the first quarter and were not material to the Company's results of operations or financial condition for that period.
Beginning in April, we experienced a significant deferral of care by our customers. The deferral of care moderated over the course of the second quarter with utilization levels eventually returning to nearly normal levels by the end of June. In the third quarter, we experienced increased medical utilization as we observed a reduction to the level of deferred care and our customers sought care for COVID-19 testing and treatment.
In the fourth quarter, as COVID-19 cases increased, the costs for testing and treatment exceeded the savings related to the deferral of care. These impacts were most prevalent in the U.S. Medical segment where fourth quarter earnings were adversely impacted by increased costs of COVID-19 care and decreased contributions from our specialty products. Full year U.S. Medical results reflect COVID-19 impacts of deferral of care by our customers partially offset by the cost of COVID-19 care, the cost of COVID-19 related actions including premium relief programs for employer clients, cost share waivers for customers, customer disenrollment and actions to support providers and employees.
Our Group Disability and Other results reflect significantly elevated life insurance claims related to the COVID-19 pandemic and its effects in the third and fourth quarters. Quarterly and year-to-date earnings in our Evernorth segment also reflected effects of the pandemic, specifically, a favorable mix of claims as a result of both the type of drugs dispensed as well as the distribution method used for dispensing and fulfilling, partially offset by lower 30-day retail script volume.
The Company conducted its annual quantitative evaluation of goodwill impairment during the third quarter of 2020. These evaluations were performed at the reporting unit level, based on discounted cash flow analyses and market data. The estimated fair value of each of our reporting units exceeded their carrying values by significant margins. During the fourth quarter of 2020, the Company conducted its normal quarterly qualitative assessment and concluded that the current economic and business conditions did not result in a triggering event requiring a quantitative analysis.
For all other long-lived assets, including intangible assets, the Company conducted its normal quarterly qualitative impairment assessment and concluded that the current economic and business conditions did not result in a triggering event requiring a quantitative impairment analysis. There were no material impairments recorded for the year ended December 31, 2020.
The Company reviewed all classes of financial instruments including investments, accounts receivable and reinsurance recoverables. The additional allowance for expected credit losses recorded was not material for the year ended December 31, 2020.

Note 2    Summary of Significant Accounting Policies

Note 3 – Summary of Significant Accounting Policies    

Basis of Presentation

The Consolidated Financial Statements include the accounts of Cigna Corporation and its consolidated subsidiaries. Intercompany transactions and accounts have been eliminated in consolidation. These Consolidated Financial Statements were prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP"(“GAAP”). The Company adopted Article 5 of Regulation S-X issued by the Securities and Exchange Commission effective December 31, 2018 in conjunction with the acquisition of Express Scripts. As a result, the Company now presents current assets and liabilities on its balance sheet. The Company reclassified realized investment gains (losses) from revenue and now reports them below income from operations with interest expense in our Consolidated Statements of Income, in conformity with Article 5. Prior years' information was reclassified to conform to this new presentation.

Amounts recorded in the Consolidated Financial Statements necessarily reflect management'smanagement’s estimates and assumptions about medical costs, investment valuation,and receivable valuations, interest rates and other factors. Significant estimates are discussed throughout these Notes; however, actual results could differ from those estimates. The impact of a change in estimate is generally included in earnings in the period of adjustment. Certain reclassifications have been made
Recently Adopted Accounting Guidance
The Company adopted Accounting Standards Update (“ASU”) No. 2016-13, Measurement of Credit Losses on Financial Instruments, and its related amendments, as of January 1, 2020, using the modified retrospective transition method. The new standard requires the use of a current expected credit loss impairment model to prior year amountsdevelop and recognize credit losses for financial instruments at amortized cost when the asset is first originated or acquired, and each subsequent reporting period. The new standard also eliminates the concept
87

of other-than-temporary impairments and changes the criteria for impairment of available-for-sale debt securities. A cumulative effect adjustment of $30 million after-tax was recorded as a reduction to conformretained earnings as of January 1, 2020, reflecting an additional allowance for future expected credit losses required under the new model, primarily related to reinsurance recoverables. Subsequent changes in the allowance are reported in current period earnings. See additional information regarding the Company’s accounting policy for establishing the allowance for credit losses in Accounts Receivable, Net (Note 4), Reinsurance (Note 10) and Investments (Note 11).
The Company adopted ASU 2017-04, Simplifying the Test for Goodwill Impairment, as of January 1, 2020, on a prospective basis. The new standard eliminates the need to determine the fair value of individual assets and liabilities of a reporting unit to measure a goodwill impairment. There was no impact of adopting this new standard to the current presentation.

Variable interest entities.   See Note 11Company’s financial statements because our quarterly qualitative assessments did not result in a triggering event for a discussionimpairment of variable interest entities.

​72    CIGNA CORPORATION - 2018 Form10-K​​

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PART II
ITEM 8. Financial Statementsgoodwill, and Supplementary Data

the results of our annual quantitative evaluation performed in the third quarter of 2020 indicated that the estimated fair value of each of our reporting units exceeded their carrying values by significant margins.

Recent Accounting Guidance

​​​ ​​ ​​ ​​
Accounting Standard and Adoption Date​Requirements and Effects of Adopting New Guidance​
​ ​​ ​​​​ ​​
GUIDANCE ADOPTED JANUARY 1, 2018
​ ​​ ​​ ​​ ​​
Revenue from Contracts with Customers (Accounting Standards Update ("ASU") 2014-09 and related amendments)Requires:

•

Revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services

•

Additional revenue-related disclosures

Effects of adoption:

•

Applies to the Company's service and pharmacy contracts with customers

•

Adopted through full retrospective restatement

•

Cumulative-effect adjustment of $24 million after-tax was recorded, reducing the December 31, 2015 balance of retained earnings. This adjustment established a contract liability for service fee revenue billed that must be deferred and allocated to services performed after a customer contract terminates. Subsequent changes in the contract liability and the related impact to net income and per share amounts since adoption were immaterial.

•

Immaterial reclassifications were made to prior periods in the Consolidated Statements of Income to conform to the current presentation. The ASU and related interpretive guidance provide clarification on topics including whether all or a part of a contract is within its scope, and the definition of a customer. Companies are required to identify and evaluate distinct performance obligations within their contracts. These clarifications resulted in reclassifications within the Integrated Medical segment affecting premiums, fees and other revenues, benefit expenses, and selling, general and administrative expenses and had no impact on revenue recognition patterns or net income.

Expedients and exemptions elected:

•

Incremental costs of obtaining service and pharmacy contracts for short-term arrangements are expensed as incurred.

•

The Company does not disclose information about the aggregate amount of transaction price allocated to remaining performance obligations as its contracts are either short-term, or the remaining transaction price consists of variable consideration that relates specifically to wholly unsatisfied future periods of service. See the discussion of the Company's accounting policies for fees and pharmacy revenues beginning on page 79.

​ ​​​​ ​​ ​​
Recognition and Measurement of Financial Assets and Financial Liabilities (ASU 2016-01)Requires:

•

Entities to measure equity investments at fair value in net income if they are neither consolidated nor accounted for under the equity method

Effects of adoption:

•

Certain limited partnership interests previously carried at cost of approximately $200 million were increased to fair value of approximately $275 million on January 1, 2018. Subsequent changes in fair value are reported in net investment income.

•

Changes in fair value for equity securities having a readily determinable fair value that were previously reported in accumulated other comprehensive income ("AOCI") are now reported in net realized investment gains (losses).

•

Cumulative-effect adjustment of $62 million after-tax was recorded, increasing the opening balance of retained earnings in 2018.

•

See Notes 9 and 10 for updated disclosures about equity securities.

​ ​​​​ ​​ ​​
​​​CIGNA CORPORATION - 2018 Form10-K    73

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PART II
ITEM 8. Financial Statements and Supplementary Data

​​​ ​​ ​​ ​​
Accounting Standard and Adoption date​Requirements and Effects of Adopting New Guidance​
​ ​​ ​​​​ ​​
GUIDANCE ADOPTED JANUARY 1, 2018
​ ​​ ​​ ​​ ​​
Targeted Improvements to Accounting for Hedging Activities (ASU 2017-12)

Early adopted as of January 1, 2018		Guidance:

•

Relaxes eligibility requirements for financial and nonfinancial hedging strategies for hedge accounting and changes how companies assess effectiveness

•

Amends presentation and disclosure requirements to improve transparency about the uses and results of hedging programs

Effects of adoption:

•

An immaterial amount of retained earnings was reclassified to AOCI, decreasing the opening balance in 2018, for a portion of the hedging instruments that was previously excluded from the assessment of hedge effectiveness for fair value hedges.

•

See Note 9 for the Company's disclosures about derivatives.

​ ​​​​ ​​ ​​
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (ASU 2018-02)

Early adopted as of January 1, 2018		Guidance:

•

Allows companies to reclassify the tax effects stranded in AOCI to retained earnings as a result of H.R.1, An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018 (referred to throughout this Form 10-K as "U.S. tax reform" or "U.S. tax reform legislation")

•

Requires additional disclosures of the Company's accounting policy for releasing income tax effects from AOCI

•

Allows companies to apply the guidance retrospectively or in the period of adoption

Effects of adoption: AOCI of $229 million was reclassified to retained earnings, increasing the opening balance in 2018. See Note 12 for additional information including accounting policy disclosures.

​ ​​​​ ​​ ​​

In addition to these standards, the Company adopted the following guidance in first quarter 2018 with no material impact to our financial statements: Intra-Entity Transfers of Assets Other than Inventory (ASU 2016-16), Clarifying the Definition of a Business (ASU 2017-01), Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (ASU 2017-07), Statement of Cash Flows: Restricted Cash (ASU 2016-18), Gains and Losses from the Derecognition of Nonfinancial Assets (ASU 2017-05), and Stock Compensation Scope of Modification Accounting (ASU 2017-09).


Accounting Guidance Not Yet Adopted

Facilitation of the Effects of Reference Rate Reform on Financial Reporting (ASU 2020-04)
•Optional, effective upon issuance (March 12, 2020) through December 31, 2022.
•Provides temporary optional relief to ease the potential burden of accounting for reference rate reform under existing GAAP. Amendments are elective and apply to all entities that have contracts, hedging relationships and other transactions that reference interbank offered rates, including LIBOR, expected to be discontinued for new contracts by December 31, 2021.
•Permits optional expedients and exceptions to simplify the accounting for contract modifications, hedging arrangements and held-to-maturity investments, when certain changes are made to a contract or instrument to facilitate reference rate reform.
•An entity may elect to apply the amendments, by topic or subsection, at any point prospectively through December 31, 2022. When elected, the optional expedients must be applied consistently for all eligible contracts or transactions.
To date, the Company has identified minimal exposure to LIBOR and does not anticipate that LIBOR’s phase-out will have a material impact on its operations or financial results.
88

​​​ ​​ ​​ ​​
Accounting Standard and Effective Date​Requirements and Expected Effects of New Guidance Not Yet Adopted​
​ ​​ ​​​​ ​​
Leases (ASU 2016-02 and related amendments)

Required as of January 1, 2019		Requires:

•

Balance sheet recognition of assets and liabilities arising from leases, including leases embedded in other contracts

•

Additional disclosures of the amount, timing and uncertainty of cash flows from leases

•

Modified retrospective approach for leases in effect as of and after the date of adoption with a cumulative-effect adjustment recorded in retained earnings

Expected effects:

•

The Company will adopt this ASU in the first quarter of 2019 on a modified retrospective basis and will not restate comparative periods. While we are still finalizing our adoption procedures, we estimate the primary impact to our Consolidated Balance Sheet will be an increase to assets and liabilities of approximately $700 million for the right-of-use asset and corresponding lease liability related to existing operating leases. We do not expect the impact to retained earnings to be material.

•

The Company elected the optional practical expedient to retain the current classification of leases, and therefore, we do not expect a material impact to the Consolidated Statements of Income or Cash Flows.

•

The Company has implemented a new lease system and developed requisite changes to internal controls over financial reporting.

•

The Company is continuing to work to develop required disclosures.

•

The Company adopted this new guidance as of the effective date and will not present comparative periods in the financial statements, as recently allowed.

​ ​​​​ ​​ ​​
​74    CIGNA CORPORATION - 2018 Form10-K​​

BackTargeted Improvements to Contents

PART II
ITEM 8. Financial Statementsthe Accounting for Long-Duration Contracts (ASU 2018-12)

•Effective date of January 1, 2023 for Cigna (early adoption permitted) and Supplementary Data

requires the following key provisions (for insurance entities that issue long-duration contracts)
•Changes to the measurement of the future policy benefits liability for traditional and limited-pay insurance contracts:
•Assumptions used to measure cash flows (such as mortality, morbidity and lapse assumptions) to be updated at least annually with the effect of changes in those assumptions remeasured retrospectively and reflected in current period net income.
•Discount rate assumptions to be updated quarterly based on an upper-medium grade fixed-income instrument yield that maximizes the use of observable market inputs, with any changes reflected in other comprehensive income.
•Deferred policy acquisition costs ("DAC") related to long-duration insurance contracts to be amortized on a constant-level basis over the expected term of the related contracts. Other related deferred or capitalized balances (such as unearned revenue liability and value of business acquired) may use this simplified amortization method.
•Market risk benefits (defined as protecting the contractholder from other-than-nominal capital market risk and exposing the insurer to that risk) to be measured at fair value, with changes in fair value recognized in net income each period, except for the effect of changes in the insurance entity’s credit risk to be recognized in other comprehensive income.
•Additional disclosures, including disaggregated rollforwards for the liability for future policy benefits, market risk benefits, separate account liabilities and deferred acquisition costs, as well as information about significant inputs, judgments, assumptions and methods used in measurement.
•Transition methods at adoption vary:
•Changes to the liability for future policy benefits to use a modified retrospective approach applied to all outstanding contracts on the basis of their existing carrying amounts as of the beginning of the earliest period presented, with an option to elect a full retrospective transition under certain criteria. Remeasuring the future policy benefits liability for the discount rate to be recorded through accumulated other comprehensive income at transition.
•DAC to follow the transition method used for future policyholder benefits.
•Market risk benefits to be transitioned retrospectively and measured at fair value at the beginning of the earliest period presented. The difference between this fair value and carrying value to be recognized in the opening balance of retained earnings, excluding the effect of credit risk changes that are to be recognized in accumulated other comprehensive income.
Expected effects:
•The new guidance will apply to our long-duration insurance products predominantly within the International Markets and Other segments.
•The Company will adopt the standard on January 1, 2023, using the modified retrospective transition method for changes to the liability for future policy benefits and DAC.
•The Company has developed a cross-functional implementation project plan and expects to have significant changes to our processes, systems, controls and financial results and disclosures.
•Although we continue to evaluate the new requirements of the standard and model their impacts across various products, we are unable to project or estimate the magnitude or frequency of expected changes to our financial results. However, it is possible that our income recognition pattern could change for several reasons:
•Applying periodic assumption updates, versus the current locked-in model, may change our timing of profit or loss recognition.
•DAC amortization will be on a constant level basis over the expected term of the related contracts, and no longer tied to the emergence of profit on such contracts.
•Features, such as the Company’s GMDB product, that provide market-risk benefits are not currently measured at fair value, so these liabilities and related reinsurance recoverables will become subject to market sensitivity, notably to interest rates.
•While not yet quantified, the cumulative effect of implementing this guidance may be material to the Company’s beginning shareholders' equity balance upon adoption.
•The Company continues to monitor developing implementation guidance, particularly with respect to reinsured blocks of business.
89
​​​ ​​ ​​ ​​
Accounting Standard and Effective Date​Requirements and Expected Effects of New Guidance Not Yet Adopted​
​ ​​ ​​​​ ​​
Measurement of Credit Losses on Financial Instruments (ASU 2016-13)

Required as of January 1, 2020, with early adoption permitted as of January 1, 2019		Requires:

•

A new approach using expected credit losses to estimate and recognize credit losses for certain financial instruments such as mortgage loans, reinsurance recoverables and other receivables when such instruments are first originated or acquired.

•

Changes in the criteria for impairment of available-for-sale debt securities

•

Adoption using a modified retrospective approach with a cumulative-effect adjustment recorded in retained earnings

Expected effects:

•

The Company is continuing to evaluate this new standard and its effects on our financial statements and disclosures. We expect to adopt the standard as of January 1, 2020.

•

An additional allowance for future expected credit losses for certain financial instruments may be required at adoption.

​ ​​​​ ​​ ​​
Simplifying the Test for Goodwill Impairment (ASU 2017-04)

Required as of January 1, 2020, with early adoption permitted as of January 1, 2017		Guidance:

•

Simplifies the accounting for goodwill impairment by eliminating the need to determine the fair value of individual assets and liabilities of a reporting unit to measure a goodwill impairment

•

Redefines the amount of goodwill impairment to equal the amount by which a reporting unit's carrying value exceeds its fair value, limited to the total amount of goodwill of the reporting unit

•

Requires prospective adoption

Expected effects:

•

The Company is evaluating this new standard and its expected timing of adoption.

​ ​​​​ ​​ ​​
Targeted Improvements to the Accounting for Long-Duration Contracts (ASU 2018-12)

Required as of January 1, 2021		Requires (for insurance entities that issue long-duration contracts):

•

Cash flow assumptions used to measure the liability for future policy benefits for traditional and limited-pay contract to be reconsidered at least annually with any changes reflected in net income.

•

Discount rate assumptions to be reviewed quarterly (based on an upper-medium grade (low credit risk) fixed-income instrument yield that maximizes the use of observable market inputs) with any changes reflected in other comprehensive income.

•

Deferred policy acquisition costs to be amortized on a constant-level basis over the expected term of the related contract.

•

Fair value measurement of all market risk benefits.

•

Additional disclosures, including liability rollforwards and information about significant inputs, judgments, assumptions and methods used in measurement.

•

Transition methods at adoption vary:

•

Changes to the liability for future policy benefits will use a modified retrospective approach (applied to all contracts on the basis of their carrying amounts as of the beginning of the earliest period presented), with an option to elect a full retrospective transition under certain criteria.

•

Deferred policy acquisition costs are to be transitioned consistent with the method applied to the liability for future policyholder benefits.

•

Market risk benefits are required to transition using retrospective application.

Expected effects:

•

The Company is evaluating the impact of this newly-issued guidance, but it is expected to have a significant impact on our processes, controls, systems and financial results. The new guidance will apply to insurance products predominantly sold in the International Markets segment and Group Disability and Other.

​ ​​​​ ​​ ​​
​​​CIGNA CORPORATION - 2018 Form10-K    75

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PART II
ITEM 8. Financial Statements and Supplementary Data


Significant Accounting Policies

The Company'sCompany’s accounting policies are described either in this Note or in the applicable Notes to the Consolidated Financial Statements as indicatedlisted in the table below.

of contents.
A.Cash and Cash Equivalents
Note
Number
 
Footnote and policy
 Page
4 Earnings per share 83
7 Insurance and contractholder liabilities 86
 

•

Contractholder deposit funds

 86
 

•

Future policy benefits

 86
 

•

Liabilities for unpaid claims and claim expenses – Integrated Medical

 87
 

•

Liabilities for unpaid claims and claim expenses – International Markets and Group Disability and Other

 88
8 Reinsurance 91
 

•

GMDB

 92
 

•

GMIB

 92
9 Investments, derivatives, investment income and gains and losses 93
 

•

Fixed maturities

 93
 

•

Equity securities

 95
 

•

Commercial mortgage loans

 95
 

•

Other long-term investments

 96
 

•

Short-term investments and cash equivalents

 96
 

•

Derivative financial instruments

 97
 

•

Net investment income

 98
 

•

Realized investment gains and losses

 98
10 Fair value measurements 98
 

•

Fixed maturities, equity securities, short-term investments and derivatives

 100
 

•

 Separate accounts

 101
  

•

Commercial mortgage loans

 102
  

•

Long-term debt

 102
11 Variable interest entities 103
13 Pension and other postretirement benefit plans 104
14 Employee incentive plans 108
15 Goodwill, other intangibles and property and equipment 110
18 Income taxes 113
19 Contingencies and other matters 115

A.        Cash and Cash Equivalents

Cash and cash equivalents are carried at cost that approximates fair value. Cash equivalents consist of short-term investments with maturities of three months or less from the time of purchase. The Company reclassifies cash overdraft positions to liabilities when the legal right of offset does not exist.

B.        Accounts Receivable, Net

The following amounts are included within accounts receivable, net:

B.Inventories
(In millions)  2018  2017
​ ​​ ​​​ ​
Insurance customer receivables $1,888 $1,818
Noninsurance customer receivables  4,988  441
Pharmaceutical manufacturers receivable (1) ​3,321 ​645
Other receivables  276  251
​ ​​ ​​​ ​
Total accounts receivable, net $10,473 $3,155
​ ​​ ​ ​​ ​
(1)
Includes $406 million at December 31, 2018 and $336 million at December 31, 2017 of receivables under noninsurance customer contracts.

These accounts receivable balances primarily include amounts due from clients, third-party payors, customers and pharmaceutical manufacturers. Receivables totaling $1.2 billion related to the acquired Express Scripts business are unbilled as of December 31, 2018 and are typically billed to PBM clients within 30 days based on contractual billing schedules. Unbilled receivables for medical benefit management

​76    CIGNA CORPORATION - 2018 Form10-K​​

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PART II
ITEM 8. Financial Statements and Supplementary Data

services represent amounts due from clients at contracted rates, and are billed when settlement provisions for capitated risk contracts are met, at least annually.

The receivables balances above are reported net of allowances for doubtful accounts of $217 million as of December 31, 2018 and $210 million as of December 31, 2017. The allowances are based on the current status of each customer's receivable balance as well as current economic and market conditions and a variety of other factors including the length of time the receivables are past due, the financial health of customers and our past experience. Receivables are written off against allowances only when such amounts are determined to be not recoverable and all collection attempts have failed. We regularly review the adequacy of these allowances based on a variety of factors, including age of the outstanding receivable and collection history. When circumstances related to specific collection patterns change, estimates of the recoverability of receivables are adjusted.

Express Scripts' receivables were recorded at their estimated fair values at the acquisition date. These fair values considered estimated discounts and claims adjustments issued to customers in the form of client credits, and amounts from third-party payors and pharmaceutical manufacturers that are not considered realizable based on contract terms and historical payment experience.

C.        Inventories

Inventories consist of prescription drugs and medical supplies and are stated at the lower of first-in-first-out cost or net realizable value.

D.        Reinsurance Recoverables

Reinsurance recoverables represent amounts due from reinsurers for both paid and unpaid claims of the Company's insurance businesses. Most reinsurance recoverables are classified as non-current assets. The current portion of reinsurance recoverables is reported in other current assets and consists primarily of recoverables on paid claims expected to be settled within one year. Reinsurance recoverables are presented net of allowances for uncollectible reinsurance that were immaterial as of December 31, 2018 and 2017.

C.Deferred Policy Acquisition Costs

E.        Deferred Policy Acquisition Costs

Costs eligible for deferral include incremental, direct costs of acquiring new or renewal insurance and investment contracts and other costs directly related to successful contract acquisition. Examples of deferrable costs include commissions, sales compensation and benefits, policy issuance and underwriting costs and premium taxes.costs. The Company records acquisition costs differently depending on the product line. Acquisition costs for:

•
Supplemental health, life and accident insurance products (primarily individual products) that comprise the majority of the Company'sCompany’s deferred policy acquisition costs andgroup health and accident insurance products are deferred and amortized, generally in proportion to the ratio of periodic revenue to the estimated total revenues over the contract periods.

•
Universal life products are deferred and amortized in proportion to the present value of total estimated gross profits over the expected lives of the contracts.

•
Other products are expensed as incurred.

Deferred policy acquisition costs also include the value of business acquired ("VOBA"(“VOBA”) for certain acquisitions with material long-duration insurance contracts. The Company recorded amortization of deferred policy acquisition costs of $502 million in 2020, $483 million in 2019 and $406 million in 2018 $322 million in 2017 and $292 million in 2016 primarily in selling,Selling, general and administrative expenses.

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 estimates the sum of unearned premiums and anticipated net investment income less future expected claims and related costs. If management'smanagement’s estimates of these sums are less than the deferred costs, the Company reduces deferred policy acquisition costs and records an additional expense.

F.        Other Assets (Current and Non-Current)

D.Other Assets (Current and Non-Current)

Other current assets consist primarily of prepaid expenses, accrued investment income and the current portion of reinsurance recoverables. Other non-current assets consist primarily of GMIB assets, operating lease right-of-use assets and various other insurance-related assets. See Note 810 for the Company’s accounting policy for GMIB assets and Note 18 for the Company's accounting policy for GMIB assets.related to leases. Additionally, other non-current assets include the carrying value of our equity-method investments in joint ventures in China, India, the U.S. and other foreign jurisdictions.

G.        Redeemable Noncontrolling Interests

ProductsE.Assets and services are offered in Turkey and India through joint venture entities. Liabilities of Business Held for Sale


The Company classifies assets and liabilities as held for sale (“disposal group”) when management commits to a plan to sell the disposal group, the sale is probable within one year and the principal equity holder and primary beneficiarydisposal group is available for immediate sale in its present condition. The Company considers various factors, particularly whether actions required to complete the plan indicate it is unlikely that significant changes to the plan will be made or the plan will be withdrawn. Assets held for sale are measured at the lower of carrying value or fair value less costs to sell.Any loss resulting from the measurement is recognized in the period the held for sale criteria are met. Conversely, gains are not recognized until the date of the Turkey joint venturesale. When the disposal group is classified as held for sale, depreciation and accordingly, this entity is consolidated. In 2017, Cigna modified the agreement governing its joint venture in India due to changes in the local regulatory environment that require control by a local partner. As a result of the changes in the joint venture agreement,amortization ceases and the Company determined that it is no longertests the primary beneficiary of the joint venture and, effective with the third quarter of 2017, no longer consolidates its results.

assets for impairment.


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F.Redeemable Noncontrolling Interest
Redeemable noncontrolling interestsinterest on our Consolidated Balance Sheets representrepresents the Turkey joint venture partner'snoncontrolling shareholders preferred and common stock interests inof the entity as of December 31, 2018 and 2017. Our joint venture partnerCompany's consolidated less than fully owned subsidiaries. Those shareholders may choose to require the Company to purchase their redeemable noncontrolling interests.interest. We also have the right to require our joint venture partnerthose shareholders to sell their redeemable noncontrolling

​​​CIGNA CORPORATION - 2018 Form10-K    77

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PART II
ITEM 8. Financial Statements and Supplementary Data

interests interest to us. The redeemable noncontrolling interests wereinterest was recorded at fair value as of the datesdate of purchase. When the estimated redemption value for a redeemable noncontrolling interest exceeds its carrying value, an adjustment to increase the redeemable noncontrolling interest is recorded with an offsetting reduction to retained earnings or additional paid-in capital.capital in the absence of retained earnings. When an adjustment is made to the carrying value of the redeemable noncontrolling interest, the calculation of shareholders'shareholders’ net income per share will be adjusted if the redemption value exceeds the greater of the carrying value or fair value.

H.        Accrued Expenses and Other Current and Non-Current Liabilities

G.Accrued Expenses and Other Current and Non-Current Liabilities

Accrued expenses (current) primarily includes financial and performance guarantee liabilities under pharmacy contracts (see section L)I), management compensation and various insurance-related liabilities, including experience-rated refunds, reinsurance contracts and the risk adjustment and minimum medical loss ratio rebate accruals under The Patient Protection and Affordable Care Act.Act (the “ACA”). Other non-current liabilities include obligations for pension other postretirement and postemployment benefits (see Note 13)15), GMIB contract liabilities (see Note 8)10), lease liabilities (see Note 18) and self-insured exposures not expected to be settled within one year.
The Company accrues for legal and regulatory matters when a loss contingency is both probable and estimable. The estimated loss is generally recorded in Selling, general and administrative expenses and represents the Company’s best estimate of the loss contingency. If the loss estimate is a range, the Company accrues the minimum amount in the range if no amount is better than any other estimated amount in the range. Legal costs to defend the Company'sCompany’s litigation and arbitration matters are expensed whenas incurred in cases wherethat the Company cannot reasonably estimate the ultimate cost to defend. If the Company can reasonably estimate the cost to defend, a liability for these costs is accrued when the claim is reported.

Litigation and legal or regulatory matters that the Company has identified with a reasonable possibility of material loss are described in Note 21.

I.         Translation of Foreign Currencies

H.Translation of Foreign Currencies

The Company generally conducts its international business through foreign operating entities that maintain assets and liabilities in local currencies that are generally their functional currencies. The Company uses exchange rates as of the balance sheet date to translate assets and liabilities into U.S. dollars. Translation gains or losses on functional currencies, net of applicable taxes, are recorded in accumulatedAccumulated other comprehensive income (loss). The Company uses average monthly exchange rates during the year to translate revenues and expenses into U.S. dollars.

I.Pharmacy revenues and Costs
Pharmacy revenues. Pharmacy revenues are primarily derived from providing pharmacy benefit management services to clients and customers. Pharmacy revenues are recognized when control of the promised goods or services is transferred to clients and customers, in an amount that reflects the consideration the Company expects to receive for those goods or services.
The Company provides or makes available various services supporting benefit management and claims administration and is generally obligated to provide prescription drugs to clients’ members using multiple distribution methods including retail networks, home delivery and specialty pharmacies. These goods and services are integrated into a single performance obligation to process claims, dispense prescription drugs and provide other services over the contract period (generally three years). This performance obligation is satisfied as the business stands ready to fulfill its obligation.
Revenues for dispensing prescription drugs through retail pharmacies are reported gross and consist of the prescription price (ingredient cost and dispensing fee) contracted with clients, including the customer copayment, and any associated fees for services because the Company acts as the principal in these arrangements. When a prescription is presented to a retail network pharmacy, the Company is solely responsible for customer eligibility, drug utilization review, drug-to-drug interaction review, any required clinical intervention, plan provision information, payment to the pharmacy and client billing. These revenues are recognized based on the full prescription price when the pharmacy claim is processed and approved for payment. The Company also provides benefit design and formulary consultation services to clients and negotiates separate contractual relationships with clients and network pharmacies. These factors indicate that the Company has control over these transactions until the prescription is processed. Revenues are billed, due and recognized at contract rates either on a periodic basis or as services are provided (such as based on volume of claims processed). This recognition pattern aligns with the benefits from services provided.
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J.        Premiums and Related Expenses

Home delivery and specialty pharmacy revenues are due and recognized as each prescription is shipped, net of reserves for discounts and contractual allowances estimated based on historical experience. Any differences between estimates and actual collections are reflected in operations when payments are received. Historically, adjustments to original estimates and returns have not been material. The Company has elected the practical expedient to account for shipping and handling as a fulfillment activity.

We may also provide certain financial and performance guarantees, including a minimum level of discounts a client may receive, generic utilization rates and various service levels. Clients may be entitled to receive compensation if we fail to meet the guarantees. Actual performance is compared to the contractual guarantee for each measure throughout the period and the Company defers revenue for any estimated payouts within Accrued expenses and other liabilities (current). These estimates are adjusted at the end of the guarantee period. Historically, adjustments to original estimates have not been material. The performance guarantee liability was $1.1 billion as of December 31, 2020 and $1.0 billion as of December 31, 2019.
The Company administers programs through which we may receive rebates and other vendor consideration from pharmaceutical manufacturers. The amounts of such rebates or other vendor consideration shared with pharmacy benefit management services clients vary based on the contractual arrangement with the client and in some cases the type of consideration received from the pharmaceutical manufacturer. Rebates and other vendor consideration payable to pharmacy benefit management services clients are recorded as a reduction of Pharmacy revenues. Estimated amounts payable to clients are based on contractual sharing arrangements between the Company and the client and these amounts are adjusted when amounts are collected from pharmaceutical manufacturers in accordance with the contractual arrangement between the Company and the client. Historically, these adjustments have not been material.
In certain retail, home delivery and specialty transactions certain amounts may be collected from third-party payors. These are billed and collected subject to normal account receivable collections procedures.
Other pharmacy service revenues are earned by distributing specialty pharmaceuticals and medical supplies to providers, clinics and hospitals and services to specialty pharmacy manufacturers. These revenues are recognized as prescriptions and supplies are shipped and services are provided.
Pharmacy costs. Pharmacy costs include the cost of prescriptions sold, network pharmacy claim costs and copayments. Also included are direct costs of dispensing prescriptions including supplies, shipping and handling and direct costs associated with clinical programs, such as drug utilization management and medication adherence counseling. Home delivery and specialty pharmacy costs are recognized when the drug is shipped and retail network costs are recognized when the drug is processed and approved for payment. Rebates and other vendor consideration received when providing pharmacy benefit management services are recorded as a reduction of pharmacy costs. Rebates are recognized as prescriptions are shipped or processed and approved for payment. Historically, the effect of adjustments resulting from the reconciliation of rebates recognized to the amounts billed and collected has not been material. The Company maintains reimbursement guarantees with certain retail network pharmacies. For each such guarantee, the Company records a pharmacy and other service costs payable or prepaid asset for applicable retail network claims based on our actual performance throughout the period against the contractual reimbursement rate. The Company’s contracts with certain retail pharmacies give the Company the right to adjust reimbursement rates during the annual guarantee period.
Other. Incremental costs of obtaining service and pharmacy contracts for short-term arrangements are expensed as incurred.
J.Premiums and Related Expenses
Premiums for group life, accident and health insurance and managed care coverages are recognized as revenue on a pro rata basis over the contract period. Benefits and expenses are recognized when incurred and, for our IntegratedU.S. Medical insured business, are presented net of pharmaceutical manufacturer rebates. For experience-rated contracts, premium revenue includes an adjustment for experience-rated refunds based on contract terms and calculated using the customer'scustomer’s experience (including estimates of incurred but not reported claims).

Premium revenue also includes an adjustment to reflect the estimated effect of rebates due to customers under the commercial minimum medical loss ratio provisions of the ACA. These rebates are settled in the year following the policysubsequent calendar year.

Premiums received for the Company'sCompany’s Medicare Advantage plans and Medicare Part D products from the Centers for Medicare and Medicaid Services ("CMS"(“CMS”) and customers are recognized as revenue ratably over the contract period. CMS provides risk-adjusted premium payments for Medicare Advantage Plans and Medicare Part D products based on theour customer demographics and wellness of customers.wellness. The Company recognizes periodic changes to risk-adjusted premiums as revenue when the amounts are determinable and collection is reasonably assured. Additionally, Medicare Part D premiums include payments from CMS for risk sharingrisk-sharing adjustments. The risk sharing These
92

adjustments are estimated quarterly based on claim experience by comparing actual incurred drug benefit costs to estimated costs submitted in original contracts. These adjustments may result in more or less revenue from CMS. Final revenue adjustments are determined and settled with CMS in the year following the contract year. Premium revenue may also includesinclude an adjustment to reflect the estimated effect of rebates due to CMS under the Medicare Advantage and Medicare Part D minimum medical loss ratio provisions of the ACA.

The ACA prescribed three programs to mitigate the risk for participating health insurance companies selling coverage on the public exchanges: risk adjustment, reinsurance and risk corridor. The reinsurance and ACA risk corridor programs expired at the end of 2016, while the permanent risk adjustmentrisk-adjustment program continues.

The risk adjustmentrisk-adjustment program reallocates funds from insurers with lower risk populations to insurers with higher risk populations based on the relative risk scores of participants in non-grandfathered plans in the individual and small group markets, both on and off the exchanges. We estimate our receivable or payable based on the risk of our memberscustomers compared to the risk of other memberscustomers in the same state and market, considering data obtained from industry studies and the United States Department of Health and Human Services ("HHS"(“HHS”). Receivables or payables are recorded as adjustments to premium revenue based on our year-to-date experience when the amounts are reasonably estimable and collection is reasonably assured. Final revenue adjustments are determined by HHS in the year following the policy year.

Premiums for individual life, accident and supplemental health insurance and annuity products, excluding universal life and investment-related products, are recognized as revenue when due. Benefits and expenses are matched with premiums.

Revenue for universal life products is recognized as follows:

•
Investment income on assets supporting universal life products is recognized in netNet investment income as earned.

•
Charges for mortality, administration and policy surrender are recognized in premiums as earned. Administrative fees are considered earned when services are provided.

Benefits and expenses for universal life products consist of benefit claims in excess of policyholder account balances and income earned by policyholders. Expenses are recognized when claims are incurred, and income is credited to policyholders in accordance with contract provisions.

The unrecognized portion of premiums received is recorded as unearned premiums included in insurance and contractholder liabilities (see Note 79 for further information).

​78    CIGNA CORPORATION - 2018 Form10-K​​

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PART II
ITEM 8. Financial Statements

K.Fees and Supplementary Data

Related Expenses

K.        Fees and Related Expenses

The majority of the Company'sCompany’s service fees are derived from administrative services only ("ASO"(“ASO”) arrangements, thatfee-for-service clinical solutions and health benefit management services.

ASO arrangements allow corporate clientsplan sponsors to self-fund claims and assume the risk of medical or other benefit costs. Most of the Company'sCompany’s ASO arrangements are for medical and specialty services, including pharmacy benefits. Generally, the Company'sCompany’s ASO arrangements are short-term. Contract modifications typically occur on renewal and are prospective in nature.

In return for fees from these clients, the Company provides or makes available variousaccess to our participating provider networks and other services supporting benefit management, andincluding claims administration. In addition,administration, behavioral health services, offered through our Integrated Medical segment include access to the Company's participating provider networks, disease management, utilization management and cost containment services.

programs. In general, the Company considers these services to be a combined performance obligation to provide cost effective administration of plan benefits over the contract period. Fees are billed, due and recognized monthly at contracted rates based on current membership or utilization. This recognition pattern aligns with the benefits from services provided to clients. These revenues are reported in feesFees and other revenues in the Consolidated Statements of Income.

For most ASO arrangements, the Company is required to perform services for a limited period after a client cancels. If these services will not be separately billed to the client as they are performed, the Company estimates and defers a portion of compensation attributable to this service obligation received in advance. Deferred revenue is recorded as a contract liability and recognized when the related services are performed. The balance was immaterial as of December 31, 2018 and 2017.

The Company may also provide performance guarantees that provide potential refunds to clients if certain service standards, clinical outcomes or financial metrics are not met. If these standards, outcomes and metrics are not met, the Company may be financially at risk up to a stated percentage of the contracted fee or a stated dollar amount. The Company defers revenue by recording a liability for estimated payouts associated with these guarantees within accruedAccrued expenses and other liabilities (current).liabilities. The amount of revenue deferred is estimated for each type of guarantee using either a most likely amount or expected value method depending uponon the nature of the guarantee and the information available to estimate refunds. Estimates are refined each reporting period as additional information on the Company'sCompany’s performance becomes available and upon final reconciliation and settlement at the end of the guarantee period. Amounts accrued and paid for these performance guarantees during the reporting periods were not material.

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Rebates from pharmaceutical manufacturers resulting fromfor ASO client utilizationpurchases at retail pharmacies, net of amounts payable to ASO clients, arewere considered compensation for pharmacy servicesuse of the manufacturer’s products and recorded in feesFees and other revenues. Rebates generally representrevenues prior to transitioning U.S. Commercial customers to Express Scripts’ retail pharmacy network in the third quarter of 2019. After this transition, these rebates are reflected as a per-script amount from the manufacturer and are determined based on scripts filled during the reporting period.

reduction to pharmacy costs (See “Pharmacy Costs” above).

Expenses associated with administrative programs and services are recognized as incurred in selling,Selling, general and administrative expenses.
The Company also earns revenue, as part of its integrated pharmacy benefits performance obligation, by offering fee-for-service clinical solutions to our clients, such as drug utilization management and medication adherence counseling. These clinical programs help clients to drive better health outcomes at a lower cost by identifying and addressing potentially unsafe or wasteful prescribing, dispensing and utilization of prescription drugs and communicating with, or supporting communications with physicians, pharmacies and patients. Fees are billed, due and recognized at contracted rates either on a periodic basis or as services are provided. This recognition pattern aligns with the benefits from services provided. These revenues are reported in Fees and other revenues in the Consolidated Statements of Income. Direct costs associated with these programs are recognized in Pharmacy and other service costs, and other related expenses are recorded as incurred.

incurred in Selling, general and administrative expenses.

The Company also earns fees by providing integrated medicalhealth benefit management solutions that drive cost reductions and improve quality outcomes. These solutions were part of the business acquired from Express Scripts. Clients are primarily sponsors of health benefit plans and fees may be stated as a per-member-per-month fee or as a per-claim fee. The Company considers the services to be a single performance obligation to stand ready to provide utilization management services over the contract period (generally three years). In certain arrangements, the Company assumes the financial obligation for third-party provider costs for medical services provided to the health plan's members.plan’s customers. Fees are recorded gross in Fees and other revenues in the Consolidated Statements of Income because the Company is acting as a principal in arranging for and controlling the services provided by third-party network providers. Contractual fees vary based on enrollment and provider costs and are estimated, billed, due and recognized monthly. Direct costs associated with these programs are includedrecognized in pharmacyPharmacy and other service costs.

costs, and other related expenses are recorded in Selling, general and administrative expenses as incurred.

Certain medicalhealth benefit management contracts require the Company to share the results of medical cost experience that differsdiffer from specified targets. This variable consideration is estimated at contract inception and adjusted through the contract period. The estimated profits and costs are recognized net in Fees and other revenues.

Note 4 – Accounts Receivable, Net

L.        Pharmacy Revenues and Costs

Pharmacy Revenues.   Pharmacy revenuesAccounting policy. The Company's accounts receivable balances primarily include revenueamounts due from clients, third-party payors, customers and pharmaceutical manufacturers, and are presented net of allowances. The Company's adoption of ASU 2016-13, Measurement of Credit Losses on Financial Instruments (ASU 2016-13), as of January 1, 2020 did not have a material impact on our accounts receivable credit loss allowance, as there were no substantive changes to our methodology for this class of assets. The allowance for expected credit losses for current accounts receivable is based primarily on past collections experience relative to the acquired Express Scripts businesslength of time receivables are past due; however, when available evidence reasonably supports an assumption that counterparty credit risk over the expected payment period will differ from current and historical payment collections, a forecasting adjustment is reflected in the allowance for expected credit losses.

All other (non-credit) allowances are based on the current status of each customer's receivable balance as well as current economic and market conditions and a variety of other factors, including the length of time the receivables are past due, the financial health of customers and our past experience. We bill pharmaceutical manufacturers based on management's interpretation of contractual terms and estimate a contractual allowance based on the best information available at the time a claim is processed. Contractual allowances for certain rebates receivable from pharmaceutical manufacturers are determined by reviewing payment experience and specific known items that could be adjusted under contract terms. The Company's estimation process for contractual allowances for pharmaceutical manufacturer receivables generally results in an allowance for balances outstanding greater than 90 days. Contractual allowances for certain receivables from third-party payors are based on their contractual terms and are estimates based on the Company's legacy mail order pharmacy business. Pharmacy revenues are recognized when control ofbest information available at the promised goods or servicestime revenue is transferred to clients, in an amount that reflects the consideration the Company expects to receive for those goods or services.

The Express Scripts business provides or makes available various services supporting benefit management and claims administration and is generally obligated to provide prescription drugs to clients' members through multiple distribution methods including retail networks, home delivery and specialty pharmacies. These goods and services are integrated into a single performance obligation to process claims, dispense prescription drugs, and provide other services over the contract period (generally three years). The Company has elected the practical expedient to account for shipping and handling as a fulfillment activity. This performance obligation is satisfied as the business stands ready to fulfill its obligation.

Fees are billed, due and recognized at contract rates either on a periodic basis or as services are provided (such as, based on volume of claims processed). This recognition pattern aligns with the benefits from services provided.

Revenues for dispensing prescription drugs through retail pharmacies consist of the prescription price (ingredient cost and dispensing fee) contracted with clients, including the member co-payment,recognized.

Receivables and any associated fees for services because we act as principal inallowance are written off only when all collection attempts have failed and such amounts are determined unrecoverable. We regularly review the adequacy of these arrangements. When a prescription is presented to a retail network pharmacy, we are solely responsible for member eligibility, drug utilization review, drug-to-drug interaction review, any required clinical intervention, plan provision information, payment to the pharmacy and client billing. These revenues are recognizedallowances based on a variety of factors, including age of the full prescription price whenoutstanding receivable and collection history. When circumstances related to specific collection patterns change, estimates of the pharmacy claim is processed and approved for payment. We also provide benefit design and formulary consultation services to clients, and negotiate separate contractual relationships with clients and network pharmacies. recoverability of receivables are adjusted.
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The following amounts were included within Accounts receivable, net:
(In millions)December 31, 2020December 31, 2019
Noninsurance customer receivables$5,534 $5,143 
Pharmaceutical manufacturers receivable4,676 3,439 
Insurance customer receivables1,789 2,321 
Other receivables192 334 
Total11,237 
Accounts receivable, net classified as assets of business held for sale(521)
Accounts receivable, net per Consolidated Balance Sheets$12,191 $10,716 
These factors indicate that we have control over these transactions until the prescription is dispensed.

​​​CIGNA CORPORATION - 2018 Form10-K    79

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PART II
ITEM 8. Financial Statements and Supplementary Data

Home delivery and specialty pharmacy revenuesreceivables are due and recognized as each prescription is shipped,reported net of reserves for discountsour allowances of $1.2 billion as of December 31, 2020 and contractual allowances estimated based on historical experience. Any differences between estimates and actual collections are reflected in operations when payments are received. Historically, adjustments to original estimates and returns have not been material.

We may also provide certain financial and performance guarantees, including a minimum level of discounts a client may receive, generic utilization rates and various service levels. Clients may be entitled to receive performance penalties if we fail to meet guarantees. Actual performance is compared to the guarantee for each measure throughout the period and the Company defers revenue for any estimated payouts within accrued expenses and other liabilities (current). These estimates are adjusted at the end of the guarantee period. Historically, adjustments to original estimates have not been material. The balance was $895$778 million as of December 31, 2018 and immaterial2019. The allowances as of December 31, 2017.

2020 include contractual allowances for certain rebates receivable with pharmaceutical manufacturers of $757 million and contractual allowances from third-party payors of $208 million based upon the contractual payment terms. The acquired Express Scriptsremaining allowances of $224 million include allowances, discounts and claims adjustments issued to customers in the form of client credits, an allowance for current expected credit losses and other non-credit adjustments.

The Company's allowance for current expected credit losses was $65 million as of December 31, 2020 and $39 million as of January 1, 2020 (no change to allowance for credit losses from December 31, 2019).
Note 5 – Mergers, Acquisitions and Divestitures
A.Divestiture of Group Disability and Life business
On December 31, 2020, Cigna completed the sale of its U.S. Group Disability and Life business to New York Life Insurance Company for cash proceeds of $6.2 billion. The Company recognized a gain of $4.2 billion pre-tax ($3.2 billion after-tax), which includes recognition of previously unrealized capital gains on investments sold (see Note 14 for further information).
In December 2019, Cigna entered into a definitive agreement to sell this business and Cigna's legacy home delivery business administer a program through which we receive rebatessince the sale was expected to close in the fourth quarter of 2020 following applicable regulatory approvals and administrative fees from pharmaceutical manufacturers. If these rebates and administrative fees are provided in conjunction with claims processing and home delivery services provided to clients, the amount payable to clients is recorded as a reduction of pharmacy revenues. These amounts are based on expected sharing percentages in contractual arrangements. These estimated payables are adjusted when amounts are collected from pharmaceutical manufacturers. Historically, these adjustments have not been material. If pharmacy rebates and administrative fees are provided in a contract that does not include claims processing, the performance obligation is to arrange for the customer to receive these rebates. In these cases, rebates and administrative fees are recorded as pharmacy revenue, net of contractual amounts payable to the client.

Other pharmacy service revenues are earned by distributing specialty pharmaceuticals and medical supplies to providers, clinics and hospitals and services to specialty pharmacy manufacturers. These revenues are recognized as prescriptions and supplies are shipped and services provided.

Pharmacy costs.   Pharmacy costs include the cost of prescriptions sold and for the acquired Express Scripts business, network pharmacy claim costs and co-payments. Also included are direct costs of dispensing prescriptions including supplies, shipping and handling. Home delivery costs are recognized when the drug is shipped and retail network costs are recognized when the drug is dispensed. Pharmacy rebates and administrative fees received for providing claims processing and home delivery services are recorded as a reduction of pharmacy costs. Rebates are recognized as prescriptions are shipped or dispensed. For periods following completion of the merger with Express Scripts,other customary closing conditions, the Company records a pharmacyaggregated and service costs payableclassified the assets and liabilities directly associated with the pending sale of its Group Disability and Life business as held for certain retail network claims basedsale and has reported them separately on our performance throughout the period against the contractual pricing guarantee with each pharmacy network.

Consolidated Balance Sheet as of December 31, 2019.
The assets and liabilities of business held for sale were as follows:

Note 3    Mergers, Acquisitions

(In millions)December 31, 2019
Cash and Dispositions

cash equivalents		$743 
Accounts receivable, net521 
Investments7,709 
Other assets539 
Total assets of business held for sale9,512 
Insurance and contractholder liabilities6,308 
Other liabilities504 
Total liabilities of business held for sale$6,812 

B.Acquisition of Express Scripts

A.        Acquisition of Express Scripts

On December 20, 2018, Cigna acquired Express Scripts Holding Company (“Express Scripts") through a series of mergers (collectively, the "Merger"). Cigna Holding Company (formerly named Cigna Corporation and referred to as "Old Cigna") and Express Scripts each merged with and intofor a wholly-owned subsidiary of Cigna. As a result of these transactions, Cigna became the parent of the combined company.

Old Cigna shareholders received one share of Cigna common stock in exchange for each share of Old Cigna common stock held immediately prior to the Merger. Express Scripts shareholders received (1) 0.2434 of a share of Cigna common stock and (2) cash of $48.75, without interest, subject to applicable withholding taxes (the "Merger Consideration"), in exchange for each share of Express Scripts common stock held immediately prior to the Merger. Cash consideration was funded primarily through a combination of cash available and debt financing discussed further in Note 5. After completion of the Merger, shares of Cigna common stock were listed for trading on the New York Stock Exchange.

The acquired Express Scripts business accelerates Cigna'sGo Deeper, Go Local, Go Beyond strategy by greatly increasing the Company's ability to put medicine within reach of customers and also helping to make it more affordable. We can improve patient outcomes and help control the cost of the drug benefit by: 1) identifying products and offering solutions that improve patient outcomes and assist in controlling costs; 2) evaluating drugs for efficacy, value andpurchase price to select a cost-effective formulary; 3) offering cost-effective home delivery pharmacy and specialty services that produce cost savings for plan sponsors and better care for members; 4) leveraging purchasing volume to provide discounts to health benefit providers; and 5) promoting generic and lower-cost brands.

​80    CIGNA CORPORATION - 2018 Form10-K​​

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PART II
ITEM 8. Financial Statements and Supplementary Data


Merger consideration:   The estimated merger consideration of $52.8 billion, was calculated as follows:

(Dollars and shares in millions, except per share amounts)   
​ ​​ ​
Cash consideration ​ 
Express Scripts common stock outstanding  564.3
Cash consideration per share $48.75
​ ​​ ​
Cash consideration paid to Express Scripts common stockholders $27,510
Cash paid in lieu of fractional shares $4
Cash consideration paid to Express Scripts performance share holders $65
​ ​​ ​

Total cash consideration

 $27,579
​​​ ​
Stock consideration   
Express Scripts common stock outstanding ​564.3
Per share exchange ratio  0.2434
​ ​ ​ ​
Shares of Cigna issued to Express Scripts common stockholders ​137.3
Shares of Cigna issued to Express Scripts performance share holders and other equity holders  0.3
​ ​ ​ ​
Shares of Cigna issued to Express Scripts shareholders ​137.6
Closing price of Cigna common stock on December 20, 2018 $179.80
​​​ ​

Total stock consideration

 $24,745
​ ​​ ​
Noncontrolling interest $7
Fair value of other share-based compensation awards $479
​​​ ​
Total merger consideration $52,810
​ ​​ ​

Fair valuewhich consisted of share-based compensation award.   Express Scripts employees' awards of options and restricted stock units of Express Scripts stock were rolled over to Cigna stock options and restricted stock units on the date of the acquisition. Each holder of an Express Scripts stock option or restricted stock unit received 0.4802 of a Cigna stock option or restricted stock award. The Cigna stock option exercise price was determined by using this same conversion ratio. Vesting periods and the remaining life of the options remained consistent with the original Express Scripts awards.

The Company valued the restricted stock units at Cigna's stock pricecash and stock options using a Black-Scholes pricing model as of the acquisition date.consideration. The assumptions used were generally consistent with those disclosed in Note 14, except the expected life of these options averaged 4.3 years and the exercise price did not equal the market value at the date of grant.

The fair value of these options and restricted stock unit awards was included in the purchase price to the extent that services had been provided prior to the acquisition based on the grant date of the original Express Scripts award and vesting period. The remaining fair value not included in the purchase price will be recorded as compensation expense in future periods over the remaining vesting periods. Most of the expense is expected to be recognized in 2019 and 2020.

Purchase price allocation:   In accordance with GAAP, the total purchase price has beenwas allocated to the tangible and intangible net assets acquired based on management's preliminarymanagement’s final estimates of their fair values and may change as additional information becomes available overvalues. Total goodwill of $38.4 billion was recorded, of which $33.7 billion resides in the next several months. Most of the goodwill ($33.7 billion) is assigned to the Health ServicesCompany’s Evernorth segment, with the remainder toin the IntegratedCompany’s U.S. Medical segment and is not deductible for federal income tax purposes. The following table summarizes the estimated fair values of assets acquired and liabilities assumed at the closing date.

(In millions)   
​ ​​ ​
Cash and cash equivalents $3,517
Receivables  7,802
Inventory ​2,483
Other current assets  600
Property and equipment ​2,973
Goodwill  38,361
Other identifiable intangible assets ​38,725
Other assets acquired, non-current  314
​​​ ​
Total assets acquired ​94,775
​ ​​ ​
Other current liabilities  18,616
Long-term debt, including current portion ​12,816
Deferred income tax liabilities  9,511
Other liabilities, non-current assumed ​1,022
​​​ ​
Total liabilities acquired  41,965
​ ​​ ​
Total $52,810
​​​ ​
​​​CIGNA CORPORATION - 2018 Form10-K    81

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PART II
ITEM 8. Financial Statements and Supplementary Data

A portion of the purchase price has been allocated to intangible assets that are presented and discussed below.

(In millions)  Estimated
Fair Value		 Estimated Useful
Life in Years		 Amortization
Method
​ ​​ ​ ​​ ​​
Customer relationships $30,210 14 - 29 Cash flow trended
Internal-use software (1)  2,443 3 - 7 Straight Line
Trade name – Express Scripts ​8,400 N/A Indefinite
Trade name – Other  115 10 Straight Line
​ ​​ ​ ​​ ​​
Total $41,168 ​ ​
​ ​​ ​ ​​ ​​
(1)
Reported in property and equipment.

The fair value of the customer relationships and the amortization period and method were determined using an income approach that relies heavily on projected future net cash flows including key assumptions for customer attrition, margins, and discount rates. The estimated useful life reflects the time period and pattern that Cigna expects to receive the benefits of the related cash flows.

segment. The results of Express Scripts have been included in the Company'sCompany’s Consolidated Financial Statements from the date of the acquisition. Revenues of Express Scripts included in the Company'sCompany’s results for 2018 approximated $2.6 billion and Express Scripts'Scripts’ results of operations were immaterial to Cigna'sCigna’s net income.

Unaudited pro forma information.   The following table presents selected unaudited pro forma information for the Company assuming the acquisition of Express Scripts had occurred on January 1, 2017. The primary adjustments reflected in the pro forma results relate to the interest expense on the debt issued to fund the Merger, the amortization of the acquired intangible assets

C.Integration and the presentation of transaction related costs. Transaction related costs incurred by the Company and Express Scripts in 2018 have been presented as if they had been incurred on January 1, 2017. The pro forma information does not purport to represent what the Company's actual results would have been if the acquisition had occurred as of the date indicated or what such results would be for any future periods.

Transaction-related Costs
   Unaudited
 
​​​ ​ ​​ ​ ​
   Year Ended
December 31,
 
​​​ ​ ​​ ​​
(In millions, except per share amounts)  2018  2017
 
​​​ ​ ​​ ​ ​
Total revenues $149,544 $143,288 
Shareholders' net income $5,632 $4,435 
​ ​​ ​ ​​ ​​

Pro forma shareholders' net income for the year ended December 3l, 2017 includes $1.2 billion in transaction-related costs incurred in connection with the acquisition.

B.        Acquisition of OnePath Life NZ Limited ("OnePath Life")

On November 30, 2018, the Company acquired OnePath Life for NZ$700 million (approximately $480 million at closing) using internal cash resources. OnePath Life is one of the largest life insurance companies in New Zealand. This acquisition will support diversifying distribution capabilities and product offerings in the New Zealand market. It will also enable better service delivery to clients and customers. The purchase price has been allocated to the tangible and intangible net assets acquired based on management's preliminary estimates of their fair value and may change as additional information becomes available over the next several months. Goodwill has been assigned to the International Markets segment as of December 31, 2018 and is not tax deductible.

The results of this business have been included in the Company's Consolidated Financial Statements from the date of acquisition and were not material. In addition, the pro forma effects on total revenues and net income assuming the acquisition had occurred January 1, 2017 were not material to the Company for the years ended December 31, 2018 and 2017.

C.        Transaction-related Costs

The Company has incurred costs detailed in the table below inrelated to the acquisition and integration of Express Scripts, the terminated merger with Anthem, Inc. ("Anthem"(“Anthem”), the sale of the U.S. Group Disability and Life business and other transactions.

95

These costs consisted primarily of certain projects to integrate the Company’s systems, products and services, fees for legal, advisory and other professional services and certain employment-related costs. Costs in 2018 also included charitable contributions and amortization of the Bridge Facilitycertain financing fees in 2018 and interest expense on the debt issued in the third quarter of 2018 to fund the Express Scripts merger, through the closing date, net of investment income earned on proceeds of the debt proceeds. A portion of the costs, primarily legal and advisory fees, related to the completed Express Scripts acquisition are not deductible for federal income tax purposes.

issuance.
 202020192018
(In millions)Before-taxAfter-taxBefore-taxAfter-taxBefore-taxAfter-tax
Interest expense on newly-issued debt$0 $0 $0 $0 $227 $179 
Net investment income on debt proceeds0 0 0 0 (123)(97)
Charitable contributions0 0 0 0 200 158 
Legal and advisory fees48 36 53 41 204 185 
Bridge facility fees0 0 0 0 140 111 
All other integration and transaction-related costs479 368 499 386 204 133 
Integration and transaction-related costs, net$527 $404 $552 $427 $852 $669 

Note 6 – Earnings Per Share (“EPS”)
 
 2018
 2017
 2016
 
 
   
(In millions)
 Before-tax

 After-tax

 Before-tax

 After-tax

 Before-tax

 After-tax

 
​​​ ​ ​​ ​ ​​ ​​​ ​ ​​​ ​​ ​ ​
Interest expense on newly issued debt $227 $179 $– $– $– $– 
Net investment income on debt proceeds  (123) (97) –  –  –  – 
Charitable contributions ​200 ​158 ​– ​– ​– ​– 
Legal and advisory fees  204  185  36  23  96  95 
Bridge facility fees ​140 ​111 ​– ​– ​– ​– 
All other transaction-related costs  204  133  90  69  70  52 
Tax (benefit) – previously non-deductible costs ​– ​– ​– ​(59)​– ​– 
​ ​​ ​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​ ​
Transaction-related costs, net $852 $669 $126 $33 $166 $147 
​ ​​ ​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​ ​
​82    CIGNA CORPORATION - 2018 Form10-K​​

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PART II
ITEM 8. Financial Statements and Supplementary Data

Note 4    Earnings Per Share ("EPS")

Accounting policy.The Company computes basic earnings per share using the weighted-average number of unrestricted common and deferred shares outstanding. Diluted earnings per share also includes the dilutive effect of outstanding employee stock options and restricted stock using the treasury stock method and the effect of strategic performance shares.

Basic and diluted earnings per share were computed as follows:

 
 2018
 2017
 2016
 
 
   
(Shares in thousands,
dollars in millions, except per share amounts)
 Basic

 Effect of
Dilution

 Diluted

 Basic

 Effect of
Dilution

 Diluted

 Basic

 Effect of
Dilution

 Diluted

 
​​​ ​ ​​ ​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​​​ ​ ​
Shareholders' net income $2,637 $– $2,637 $2,237 $– $2,237 $1,867 $– $1,867 
​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​​​ ​ ​​​ ​​ ​ ​
Shares                            

Weighted average

 ​246,652 ​– ​246,652 ​250,892 ​– ​250,892 ​255,360 ​– ​255,360 

Common stock equivalents

     3,573  3,573     4,180  4,180     4,287  4,287 
​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​ ​
Total shares ​246,652 ​3,573 ​250,225 ​250,892 ​4,180 ​255,072 ​255,360 ​4,287 ​259,647 
​​​ ​ ​​ ​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​​​ ​ ​
EPS $10.69 $(0.15)$10.54 $8.92 $(0.15)$8.77 $7.31 $(0.12)$7.19 
​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​​​ ​ ​​​ ​​ ​ ​
202020192018
(Shares in thousands, dollars in millions, except per share amounts)BasicEffect of
Dilution		DilutedBasicEffect of
Dilution		DilutedBasicEffect of
Dilution		Diluted
Shareholders’ net income$8,458 $8,458 $5,104 $5,104 $2,637 $2,637 
Shares:
Weighted average364,979 364,979 375,919 375,919 246,652 246,652 
Common stock equivalents3,410 3,410 3,898 3,898 3,573 3,573 
Total shares364,979 3,410 368,389 375,919 3,898 379,817 246,652 3,573 250,225 
EPS$23.17 $(0.21)$22.96 $13.58 $(0.14)$13.44 $10.69 $(0.15)$10.54 

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)202020192018
Anti-dilutive options4.1 3.5 0.9 

96
(In millions)  2018  2017  2016
 
​ ​​ ​​​ ​ ​​​ ​
Anti-dilutive options ​0.9 ​0.9 ​2.3 
​ ​​ ​​​ ​ ​​​ ​

​​​CIGNA CORPORATION - 2018 Form10-K    83

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PART II
ITEM 8. Financial Statements and Supplementary Data


Note 5Note 7 – Debt

The outstanding amounts of debt and capitalfinance leases for the years ended December 31 were as follows:

(In millions)December 31, 2020December 31, 2019
Short-term debt
$1,000 million, Floating Rate Notes due 3/2020$0 $999 
$300 million, 5.125% Notes due 6/20200 300 
$1,750 million, 3.2% Notes due 9/20200 1,748 
$349 million, 4.125% Notes due 9/20200 351 
$500 million, 2.6% Notes due 11/20200 496 
$400 million, Floating Rate Notes due 11/20200 400 
$250 million, 4.375% Notes due 12/20200 249 
$78 million, 6.37% Notes due 6/202178 0 
$1,000 million, Floating Rate Notes due 9/2021999 0 
$1,250 million, 3.4% Notes due 9/20211,249 0 
Commercial paper1,030 944 
Other, including finance leases18 27 
Total short-term debt$3,374 $5,514 
Long-term debt
$500 million, 3.3% Notes due 2021$0 $499 
$300 million, 4.5% Notes due 20210 298 
$78 million, 6.37% Notes due 20210 78 
$1,000 million, Floating Rate Notes due 20210 998 
$1,250 million, 3.4% Notes due 20210 1,247 
$1,248 million, 4.75% Notes due 20210 1,272 
$277 million, 4% Notes due 2022276 747 
$973 million, 3.9% Notes due 2022972 999 
$500 million, 3.05% Notes due 2022490 485 
$17 million, 8.3% Notes due 202317 17 
$63 million, 7.65% Notes due 202363 100 
$700 million, Floating Rate Notes due 2023698 698 
$1,000 million, 3% Notes due 2023975 966 
$2,187 million, 3.75% Notes due 20232,181 3,088 
$1,000 million, 3.5% Notes due 2024977 970 
$900 million, 3.25% Notes due 2025896 895 
$2,200 million, 4.125% Notes due 20252,191 2,188 
$1,500 million, 4.5% Notes due 20261,505 1,506 
$1,500 million, 3.4% Notes due 20271,410 1,396 
$259 million, 7.875% Debentures due 2027259 259 
$600 million, 3.05% Notes due 2027595 595 
$3,800 million, 4.375% Notes due 20283,780 3,776 
$1,500 million, 2.4% Notes due 20301,489 0 
$45 million, 8.3% Step Down Notes due 203345 45 
$190 million, 6.15% Notes due 2036190 190 
$2,200 million, 4.8% Notes due 20382,180 2,178 
$750 million, 3.2% Notes due 2040742 0 
$121 million, 5.875% Notes due 2041119 119 
$448 million, 6.125% Notes due 2041490 491 
$317 million, 5.375% Notes due 2042315 315 
$1,500 million, 4.8% Notes due 20461,465 1,465 
$1,000 million, 3.875% Notes due 2047988 988 
$3,000 million, 4.9% Notes due 20482,966 2,964 
$1,250 million, 3.4% Notes due 20501,235 0 
Other, including finance leases36 61 
Total long-term debt$29,545 $31,893 
97

(In millions) Issuer  2018  2017
​ ​​​​ ​ ​​​
Short-term debt   ​  ​ 

Current maturities: $1,000 million, 2.25% Senior Notes

 Express Scripts $995 $–

Current maturities: $337 million, 7.25% Senior Notes

 ESI ​343 ​–

Commercial paper

 Old Cigna  1,500  100

Current maturities: $131 million, 6.35% Notes

 Old Cigna ​– ​131

Other, including capital leases

 various  117  9
​ ​​ ​​ ​ ​​ ​
Total short-term debt ​ $2,955 $240
​ ​​ ​​ ​ ​​ ​
Long-term uncollateralized debt        

Cigna debt (issued to finance acquisition)

   ​  ​ 

$1,000 million, Floating Rate Notes due 2020

 Cigna $997 $–

$1,750 million, 3.2% Notes due 2020

 Cigna  1,743  –

$1,000 million, Floating Rate Notes due 2021

 Cigna ​996 ​–

$1,250 million, 3.4% Notes due 2021

 Cigna  1,245  –

$3,000 million, Floating Rate Term Loan due 2021

 Cigna ​2,997 ​–

$700 million, Floating Rate Notes due 2023

 Cigna  697  –

$3,100 million, 3.75% Notes due 2023

 Cigna ​3,085 ​–

$2,200 million, 4.125% Notes due 2025

 Cigna  2,187  –

$3,800 million, 4.375% Notes due 2028

 Cigna ​3,774 ​–

$2,200 million, 4.8% Notes due 2038

 Cigna  2,178  –

$3,000 million, 4.9% Notes due 2048

 Cigna ​2,964 ​–

Express Scripts debt (assumed in acquisition)

        

$500 million, 4.125% Senior Notes due 2020

 Medco ​506 ​–

$500 million, 2.600% Senior Notes due 2020

 Express Scripts  493  –

$400 million, Floating Rate Senior Notes due 2020

 Express Scripts ​399 ​–

$500 million, 3.300% Senior Notes due 2021

 Express Scripts  499  –

$1,250 million, 4.750% Senior Notes due 2021

 Express Scripts ​1,285 ​–

$1,000 million, 3.900% Senior Notes due 2022

 Express Scripts  998  –

$500 million, 3.050% Senior Notes due 2022

 Express Scripts ​481 ​–

$1,000 million, 3.000% Senior Notes due 2023

 Express Scripts  959  –

$1,000 million, 3.500% Senior Notes due 2024

 Express Scripts ​966 ​–

$1,500 million, 4.500% Senior Notes due 2026

 Express Scripts  1,508  –

$1,500 million, 3.400% Senior Notes due 2027

 Express Scripts ​1,386 ​–

$449 million, 6.125% Senior Notes due 2041

 Express Scripts  493  –

$1,500 million, 4.800% Senior Notes due 2046

 Express Scripts ​1,465 ​–

Old Cigna debt (pre-acquisition)

        

$250 million, 4.375% Notes due 2020

 Old Cigna ​248 ​249

$300 million, 5.125% Notes due 2020

 Old Cigna  298  299

$78 million, 6.37% Notes due 2021

 CGC ​78 ​78

$300 million, 4.5% Notes due 2021

 Old Cigna  297  299

$750 million, 4% Notes due 2022

 Old Cigna ​746 ​745

$100 million, 7.65% Notes due 2023

 Old Cigna  100  100

$17 million, 8.3% Notes due 2023

 Old Cigna ​17 ​17

$900 million, 3.25% Notes due 2025

��Old Cigna  895  894

$600 million, 3.05% Notes due 2027

 Old Cigna ​595 ​594

$259 million, 7.875% Debentures due 2027

 Old Cigna  259  258

$45 million, 8.3% Step Down Notes due 2033

 Old Cigna ​45 ​45

$191 million, 6.15% Notes due 2036

 Old Cigna  190  190

$121 million, 5.875% Notes due 2041

 Old Cigna ​119 ​119

$317 million, 5.375% Notes due 2042

 Old Cigna  315  315

$1,000 million, 3.875% Notes due 2047

 Old Cigna ​988 ​988

Other, including capital leases

 Other  32  9
​​​ ​​ ​​​ ​
Total long-term debt ​ $39,523 $5,199
​ ​​ ​​ ​ ​​ ​

Notes issuedDebt Issuance and Redemption. In order to funddecrease future interest expense and reduce future refinancing risk, the Express Scripts acquisition.   As presented inCompany entered into the table above,following transactions during 2020:

•Debt issuance: On March 16, 2020, the Company issued private placement Notes with registration rights in$3.5 billion of new senior notes. The proceeds of this issuance were mainly used to pay the third quarter of 2018 to financeconsideration for the Express Scripts acquisition. Total proceeds were approximately $20.0 billion.cash tender and redemption offer as described below. Interest on this debt is generally paid semi-annually except for quarterly interestsemi-annually.
PrincipalMaturity DateInterest RateNet Proceeds
$1,500 millionMarch 15, 20302.4%$1,491 million
$750 millionMarch 15, 20403.2%$743 million
$1,250 millionMarch 15, 20503.4%$1,237 million
•Debt tender and redemption: In March and April 2020, the Company completed a tender offer and an optional redemption totaling $3.5 billion of aggregate principal amount of certain of its outstanding debt securities. The principal amount repurchased in this tender offer was $1.5 billion. Additionally, $2.0 billion of notes were repurchased via optional redemption. The Company recorded a pre-tax loss of $199 million ($151 million after-tax), consisting primarily of premium payments on the floating rate notes.

Term Loan Credit Agreement.tender and optional redemption.

Debt Exchange.In the fourth quarter of 2019, the Company settled an exchange of approximately $12.7 billion of Notes issued by Express Scripts Holding Company, Medco Health Solutions, Inc. and Cigna borrowed $3.0Holding Company (formerly named Cigna Corporation) for privately placed Notes issued by Cigna with the same interest rates and maturities and comparable other terms. We initiated an exchange offer to register such debt in the second quarter of 2020 and completed the exchange in July 2020.
Debt Repayment. In 2020, the Company repaid $8.0 billion under its Term Loan Credit Agreementof long-term debt, including the $3.5 billion debt tender and redemption described above. On December 31, 2020 Cigna issued a notice of full redemption to the holders of Cigna’s Senior Floating Rate Notes due 2021 (the "Term Loan Credit Agreement"“Notes”) pursuant to financewhich Cigna redeemed the Merger and to pay fees and expensesentire $1.0 billion aggregate principal amount of the Merger. The Term Loan Credit Agreement is diversified among 26 banks and contains customary covenants and restrictions, includingNotes outstanding on January 15, 2021 at a financial covenant that Cigna's leverage ratio may not exceed 60%. There is no remaining amount available for borrowing under this agreement.

Bridge Facility.   In March 2018, Cigna entered into a commitment letter (the "Commitment Letter") with Morgan Stanley Senior Funding, Inc., The Bank of Tokyo-Mitsubishi UFJ, Ltd and 21 additional banks, to provide a $26.7 billion, 364-day senior unsecured bridge facility (the "Bridge Facility")redemption price calculated in connectionaccordance with the Merger. The Company incurred approximately $140 million in fees in 2018 for the Bridge Facility that expired upon the closeterms and conditions of the Merger.

​84    CIGNA CORPORATION -��2018 Form10-K​​

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PART II
ITEM 8. Financial Statements and Supplementary Data

indenture governing the Notes.

Revolving Credit Agreement.Agreements. Cigna has a Revolving Creditrevolving credit and Letterletter of Credit Agreement (the "Revolving Credit Agreement")credit agreement that matures onin April 6, 2023 and is diversified among 23 banks.

Cigna can borrow up to $3.25 billion for general corporate purposes, with up to $500 million available for issuance of letters of credit. This revolving credit decreased by $22 million of letters of credit under the Revolving Credit Agreement as of December 31, 2018. The Revolving Credit Agreementagreement also includes an option to increase the facility amount up to $500 million and an option to extend the termination date for additional one yearone-year periods, subject to consent of the banks.

Additionally, Cigna has a 364-day $1.0 billion revolving credit agreement that will mature in October 2021. The Revolving Credit Agreement containsagreement replaces the $1.0 billion 364-day revolving credit agreement that expired in October 2020. The agreement is diversified among 23 banks. Pursuant to this revolving credit agreement, Cigna can borrow up to $1.0 billion for general corporate purposes. The agreement includes the option to “term out” any revolving loans that are outstanding at maturity by converting them into a term loan maturing on the one year anniversary of conversion.
The revolving credit agreements contain customary covenants and restrictions including a financial covenant that the Company'sCompany’s leverage ratio may not exceed 60%.

Cigna is the borrower As of December 31, 2020, there were 0 outstanding balances under the Revolving Credit Agreement and the revolving credit agreements.

Term Loan Credit Agreement and certain subsidiaries. On April 1, 2020, the Company borrowed an aggregate principal amount of Cigna may be required to guarantee these obligations under certain circumstances.

Commercial Paper.   Old Cigna issued $1.5$1.4 billion under a new 364-Day Term Loan Credit Agreement. In connection with the sale of the Group Life and Disability business, on December 31, 2020 we repaid the entire $1.4 billion balance outstanding.

Commercial Paper. Under our commercial paper program we may issue short-term, unsecured commercial paper notes privately placed on a discount basis through certain broker dealers at any time not to financeexceed $4.25 billion. Amounts available under the Merger.

Assumptionprogram may be borrowed, repaid and re-borrowed from time to time. The net proceeds of Express Scripts Debt.issuances have been and are expected to be used for general corporate purposes. The Company assumed debt obligationscommercial paper program had approximately $1.0 billion outstanding at December 31, 2020 at an average interest rate of Express Scripts, ESI and Medco as described in the table above in the acquisition under substantially unchanged terms.

0.2%.

The Company was in compliance with its debt covenants as of December 31, 2018.

Other debt financing transactions.   In the third quarter of 2017, Old Cigna entered into the following debt transactions:

•
On September 14, 2017, Old Cigna issued $1.6 billion long-term debt and the proceeds were used to pay for the cash tender offer described below. Old Cigna also used the proceeds for general corporate purposes, including the repayment of its Notes that matured in 2018.

•
Old Cigna completed a cash tender offer to purchase $1.0 billion of aggregate principal amount of certain of its outstanding debt securities in the third quarter of 2017 and recorded a pre-tax loss of $321 million ($209 million after-tax), primarily for premiums paid.

Old Cigna repaid $131 million and $250 million of long-term notes that matured during the first quarter of 2018 and 2017 respectively.

2020.

98

Maturities of outstanding long-term debt and capital leases are as follows:

(in millions)
Scheduled Maturities (1)
2021$2,328 
2022$1,749 
2023$3,967 
2024$1,000 
2025$3,100 
Maturities after 2025$19,981 
   Scheduled Maturities
​​​ ​ ​​ ​
(In millions)  Long-term
Debt  (1)		  Capital
Leases
​​​ ​ ​​ ​
2019 $1,337 $17
2020 $4,700 $14
2021 $7,378 $4
2022 $2,250 $4
2023 $4,917 $4
Maturities after 2023 $20,582 $7
​​​ ​ ​​​
(1)
Long-term debt maturity amounts exclude capital leases.
include current maturities of long-term debt.    

Interest expense on long-term and short-term debt was $1.4 billion in 2020, $1.6 billion in 2019 and $507 million in 2018, $243 million in 2017, and $251 million in 2016, excluding losses on the early extinguishment of debt.

2018.

Note 6    Common and Preferred Stock

As more fully described in

Note 3,8 – Common and Preferred Stock
On December 20, 2018 Cigna acquired Express Scripts on December 20, 2018.through a series of mergers (collectively, the "Merger"). Cigna Holding Company (formerly named Cigna Corporation and referred to as "Old Cigna") and Express Scripts each merged with and into a wholly-owned subsidiary of Cigna. As a result of these transactions, Cigna became the parent of the combined company. Old Cigna shareholders exchanged each of their shares for a share of Cigna common stock and shareholders of Express Scripts received 0.2434 of a share of Cigna (and $48.75 in cash) for each share of Express Scripts. Following the Merger, Old Cigna was de-listed and shares of Cigna were listed on the New York Stock Exchange for trading.

Cigna (and, prior to the Merger, Old Cigna) has a total of 25 million shares of $1 par value preferred stock authorized for issuance. NoNaN shares of preferred stock were outstanding at December 31, 2018, 20172020, 2019 or 2016.

​​​CIGNA CORPORATION - 2018 Form10-K    85

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PART II
ITEM 8. Financial Statements and Supplementary Data

2018.

The following table presents the share activity of Old Cigna and Old Cigna for the years ended December 31, 2018, 20172020, 2019 and 2016.

2018.
(Shares in thousands)202020192018
Common: Par value $0.01; 600,000 shares authorized - Cigna
Outstanding- January 1,372,531 380,924 0 
Shares issued to Old Cigna shareholders243,785 
Shares issued to Express Scripts shareholders137,337 
Issued for stock option exercises and other benefit plans4,142 3,413 91 
Repurchased common stock(21,902)(11,806)(289)
Outstanding- December 31,354,771 372,531 380,924 
Treasury stock35,505 13,012 570 
Issued- December 31,390,276 385,543 381,494 
Common: Par value $0.25; 600,000 shares authorized - Old Cigna
Outstanding- January 1,243,967 
Issued for stock option exercises and other benefit plans1,118 
Repurchased common stock(1,300)
Balance, December 20, 2018 (Merger Date)243,785 
Exchange of Old Cigna shares for shares of Cigna(243,785)
Outstanding- December 31,0 
Retirement of treasury stock on December 20, 2018(52,358)
Exchange of Old Cigna certificated treasury stock for new Cigna certificated treasury stock(2)
Treasury stock- December 31,0 
Issued- December 31,0 

99
(Shares in thousands)  2018  2017  2016
​​​ ​ ​​ ​​​ ​
Common: Par value $0.25; 600,000 shares authorized – Old Cigna ​  ​  ​ 

Outstanding – January 1,

  243,967  256,869  256,544

Issued for stock option exercises and other benefit plans

 ​1,118 ​2,761 ​1,110

Repurchased common stock

  (1,300)  (15,663)  (785)
​ ​​ ​ ​​ ​ ​​ ​

Balance, December 20, 2018 (Merger Date)

 ​243,785 ​– ​–

Exchange of Old Cigna shares for shares of Cigna

  (243,785)  –  –
​ ​​ ​ ​​ ​ ​​ ​

Outstanding – December 31,

 ​– ​243,967 ​256,869

Retirement of treasury stock on December 20, 2018

  (52,358)  –  –

Exchange of Old Cigna certificated treasury stock for new Cigna certificated treasury stock

 ​(2) ​– ​–

Treasury stock – December 31, 2018

  –  52,178  39,276
​​​ ​ ​​ ​​​ ​

Issued – December 31,

 ​– ​296,145 ​296,145
​​​ ​ ​​ ​​​ ​
Common: Par value $0.01; 600,000 shares authorized – Cigna         

Shares issued to Old Cigna shareholders

 ​243,785 ​– ​–

Shares issued to Express Scripts shareholders

  137,337  –  –

Issued for stock option exercises and other benefit plans including Express Scripts performance share holders

 ​91 ​– ​–

Repurchased common stock

  (289)  –  –
​ ​​ ​ ​​ ​ ​​ ​

Outstanding – December 31, 2018

 ​380,924 ​– ​–

Treasury stock

  570  –  –
​ ​​ ​ ​​ ​ ​​ ​

Issued – December 31, 2018

 ​381,494 ​– ​–
​ ​​ ​ ​​ ​ ​​ ​


Note 7

Note 9 – Insurance and Contractholder Liabilities

A.        Account Balances – Insurance and Contractholder Liabilities

A.Account Balances – Insurance and Contractholder Liabilities

As of December 31, 20182020 and 2017,December 31, 2019, the Company'sCompany’s insurance and contractholder liabilities were comprised of the following:

December 31, 2020December 31, 2019
(In millions)CurrentNon-currentTotalCurrentNon-currentTotal
Contractholder deposit funds$350 $6,823 $7,173 $600 $7,139 $7,739 
Future policy benefits327 9,317 9,644 553 9,281 9,834 
Unearned premiums485 394 879 453 360 813 
Unpaid claims and claim expenses
U.S. Medical3,166 18 3,184 2,875 17 2,892 
Other segments980 292 1,272 2,529 3,474 6,003 
Total7,010 20,271 27,281 
Insurance and contractholder liabilities classified as liabilities of business held for sale (1)
(2,089)(4,219)(6,308)
Total insurance and contractholder liabilities$5,308 $16,844 $22,152 $4,921 $16,052 $20,973 
   December 31, 2018  December 31, 2017
​​​ ​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​
(In millions)  Current  Non-current  Total  Current  Non-current  Total
​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​
Contractholder deposit funds $641 $7,365 $8,006 $713 $7,483 $8,196
Future policy benefits  740  8,981  9,721  706  9,334  10,040
Unpaid claims and claim expenses ​  ​  ​  ​  ​  ​ 

Integrated Medical

  2,678  19  2,697  2,401  19  2,420

Other segments

 ​2,394 ​3,230 ​5,624 ​2,178 ​3,289 ​5,467
Unearned premiums  348  379  727  319  405  724
​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​
Total insurance and contractholder liabilities $6,801 $19,974 $26,775 $6,317 $20,530 $26,847
​​​ ​ ​​ ​ ​​ ​​​ ​ ​​​ ​​ ​
(1)Amounts classified as Liabilities of business held for sale primarily include $4.9 billion of unpaid claims, $717 million of contractholder deposit funds and $653 million of future policy benefits as of December 31, 2019.

Insurance and contractholder liabilities expected to be paid within one year are classified as current.

Accounting Policy –- Contractholder Deposit Funds:Funds. Liabilities for contractholder deposit funds primarily include deposits received from customers for investment-related and universal life products and investment earnings on their fund balances. These liabilities are adjusted to reflect administrative charges and, for universal life fund balances, mortality charges. In addition, this caption includes: 1) premium stabilization reserves under group health insurance contracts representing experience refunds left with the Company to pay future premiums; 2) deposit administration funds used to fund non-pension retiree insurance programs; 3) retained asset accounts;accounts and 4) annuities or supplementary contracts without significant life contingencies. Interest credited on these funds is accrued ratably over the contract period.

Accounting Policy –- Future Policy Benefits:Benefits. Future policy benefits represent the present value of estimated future obligations under long-term life and supplemental health insurance policies and annuity products currently in force. These obligations are estimated using actuarial methods and consist primarily of reserves for annuity contracts, life insurance benefits, GMDB contracts (see(GMDB contracts are fully reinsured, see Note 810 for additional information) and certain health, life and accident insurance products of our International Markets segment.

Obligations for annuities represent specified periodic benefits to be paid to an individual or groups of individuals over their remaining lives. Obligations for life insurance policies and GMDB contracts represent benefits expected to be paid to policyholders, net of future premiums expected to be received. Management estimates these obligations based on assumptions as to premiums, interest rates, mortality or morbidity, future claim adjudication expenses and surrenders, allowing for adverse deviation as appropriate. Mortality, morbidity and surrender assumptions are based on the Company'sCompany’s own experience and published actuarial tables. Interest rate assumptions are based on management'smanagement’s judgment considering the Company'sCompany’s experience and future expectations, and range from 1% to 9%. Obligations for the direct and assumed run-off settlement annuity business include adjustments for realized and unrealized investment returns consistent with GAAP when a premium deficiency exists.

​86    CIGNA CORPORATION - 2018 Form10-K​​

Table As of Contents

PART II
ITEM 8. Financial StatementsDecember 31, 2020, approximately 20% of the liability for future policy benefits was supported by assets held in trust for the benefit of the ceding company under reinsurance agreements.

Accounting Policy - Unearned Premium. The unrecognized portion of premiums received is recorded as unearned premiums included in insurance and Supplementary Data

contractholder liabilities.

B.        Unpaid Claims and Claim Expenses – Integrated Medical

B.Unpaid Claims and Claim Expenses – U.S. Medical

This liability reflects estimates of the ultimate cost of claims that have been incurred but not reported, including expected development on reported claims, those that have been reported but not yet paid (reported claims in process), and other medical care expenses and services payable that are primarily comprised of accruals for incentives and other amounts payable to health care professionals and facilities. This liability no longer includes amounts from the international health care business now reported in International Markets following our change in segment reporting in 2018. Prior year rollforwards have been updated to reflect this segment change.

100

Accounting policy.The Company uses actuarial principles and assumptions that are consistently applied each reporting period and recognizes the actuarial best estimate of the ultimate liability along with a margin for adverse deviation. This approach is consistent with actuarial standards of practice that the liabilities be adequate under moderately adverse conditions.

The Company compares key assumptions used to establish the medical costs payable to actual experience for each reporting period. The unpaid claims liability is adjusted through current period shareholders'shareholders’ net income when actual experience differs from these assumptions. Additionally, the Company evaluates expected future developments and emerging trends that may impact key assumptions. The process used to determine this liability requires the Company to make critical accounting estimates that involve considerable judgment, reflecting the variability inherent in forecasting future claim payments. These estimates are highly sensitive to changes in the Company'sCompany’s key assumptions, specifically completion factors and medical cost trends.

trend.

The liability is primarily calculated using "completion factors"“completion factors” developed by comparing the claim incurral date to the date claims were paid. Completion factors are impacted by several key items including changes in: 1) electronic (auto-adjudication) versus manual claim processing; 2) frequency and timeliness of provider claims submission rates;submissions; 3) membership;membership and 4) the mix of products. The Company uses historical completion factors combined with an analysis of current trends and operational factors to develop current estimates of completion factors. The Company estimates the liability for claims incurred in each month by applying the current estimates of completion factors to the current paid claims data. This approach implicitly assumes that historical completion rates will be a useful indicator for the current period.

The Company relies more heavily on medical cost trend analysis that reflects expected claim payment patterns and other relevant operational considerations for more recent months. Medical cost trend is primarily impacted by medical service utilization and unit costs that are affected by changes in the level and mix of medicalhealth benefits offered, including inpatient, outpatient and pharmacy, the impact of copays and deductibles, changes in provider practices and changes in consumer demographics and consumption behavior.

This liability predominately consists of incurred but not reported amounts and reported claims in process including expected development on reported claims.

The total of incurred but not reported liabilities plus expected development on reported claims, including reported claims in process, was $2.5$2.9 billion at December 31, 20182020 and $2.3$2.7 billion at December 31, 2017. The remaining balance in both periods reflects amounts due for physician incentives and other medical care expenses and services payable.

2019.

Activity, net of intercompany transactions, in the unpaid claims liability for the IntegratedU.S. Medical segment for the years ended December 31 was as follows:

(In millions)202020192018
Beginning balance$2,892 $2,697 $2,420 
Less: Reinsurance and other amounts recoverable303 264 262 
Beginning balance, net2,589 2,433 2,158 
Acquired, net0 0 40 
Incurred costs related to:
Current year25,889 24,368 21,331 
Prior years(115)(165)(173)
Total incurred25,774 24,203 21,158 
Paid costs related to:
Current year23,005 21,851 18,978 
Prior years2,398 2,196 1,945 
Total paid25,403 24,047 20,923 
Ending balance, net2,960 2,589 2,433 
Add: Reinsurance and other amounts recoverable224 303 264 
Ending balance$3,184 $2,892 $2,697 
(In millions)  2018  2017  2016
​​​ ​ ​​ ​ ​​ ​
Balance at January 1, $2,420 $2,261 $2,105
Less: Reinsurance and other amounts recoverable  262  273  237
​ ​​ ​ ​​ ​​​ ​
Balance at January 1, net ​2,158 ​1,988 ​1,868
Acquired, net  40  —  —
Incurred costs related to: ​  ​  ​ 

Current year

  21,331  19,334  18,085

Prior years

 ​(173) ​(227) ​(70)
​​​ ​ ​​​ ​​ ​

Total incurred

  21,158  19,107  18,015
Paid costs related to: ​  ​  ​ 

Current year

  18,978  17,179  16,142

Prior years

 ​1,945 ​1,758 ​1,753
​ ​​ ​​​ ​ ​​​

Total paid

  20,923  18,937  17,895
Balance at December 31, net ​2,433 ​2,158 ​1,988
Add: Reinsurance and other amounts recoverable  264  262  273
​​​ ​ ​​ ​ ​​ ​
Balance at December 31, $2,697 $2,420 $2,261
​​​ ​ ​​​ ​​ ​

Reinsurance and other amounts recoverable reflect amounts due from reinsurers and policyholders to cover incurred but not reported and pending claims forof certain business wherefor which the Company administers the plan benefits but thewithout any right of offset does not exist.offset. See Note 810 for additional information on reinsurance.


101

Variances in incurred costs related to prior years'years’ unpaid claims and claimsclaim expenses that resulted from the differences between actual experience and the Company'sCompany’s key assumptions were as follows for the years ended December 31:

31 were as follows:
Year Ended
(Dollars in millions)December 31, 2020December 31, 2019
$
%(1)
$
%(2)
Actual completion factors$42 0.2 %$90 0.4 %
Medical cost trend73 0.3 75 0.4 
Total favorable variance$115 0.5 %$165 0.8 %
   2018  2017
​​​ ​ ​​ ​ ​​ ​ ​​ ​
($ in millions)  $  % (1)  $  % (2)
​​​ ​ ​​ ​ ​​ ​​​ ​
Actual completion factors $92 ​0.5% $87 ​0.6%
Medical cost trend  72  0.4  131  0.7
Other ​9 ​— ​9 ​—
​​​ ​ ​​ ​ ​​ ​ ​​ ​
Total favorable variance $173  0.9% $227  1.3%
​​​ ​ ​​ ​ ​​ ​​​ ​
(1)
Percentage of current year incurred costs as reported for 2017.

the year ended December 31, 2019.
(2)
Percentage of current year incurred costs as reported for 2016.
​​​CIGNA CORPORATION - 2018 Form10-K    87

Back to Contents

PART II
ITEM 8. Financial Statements and Supplementary Data

Incurred costs related to prior years in the table above, although adjusted through shareholders' net income, do not directly correspond to an increase or decrease to shareholders' net income. The primary reason for this difference is that decreases to prior year incurred costs pertaining to the portion of the liability established for moderately adverse conditions are not considered as impacting shareholders' net income if they are offset by increases in the current year provision for moderately adverse conditions.

Prior year development increased shareholders' net income by $77 million ($97 million before tax) for the year ended December 31, 2018, compared with $96 million ($148 million before tax) in 2017. 2018.

Favorable prior year development implies primarilyin both years reflects lower than expected utilization of medical services while unfavorable prior year development implies higher than expected utilization of medical services. Prior year development amounts close to zero imply utilization of medical services that are consistent with expectations.

The following table depicts the incurred and paid claims development as of December 31, 20182020 (net of reinsurance), claims frequency metrics and incurred but not reported liabilities reported in the IntegratedU.S. Medical segment. The information about incurred and paid claims development for the year ended December 31, 20172019 is presented as supplementary information and is unaudited.

 Incurred Costs  
Incurral Year2019
(Unaudited)		2020Unpaid Claims & Claim ExpensesClaims Frequency
(In millions)   
2019$23,306 $23,211 60 3.5  million
202024,927 2,764 3.7  million
Cumulative incurred costs for the periods presented$48,138   
 Cumulative Costs Paid  
Incurral Year2019
(Unaudited)		2020  
2019$20,920 $23,151   
202022,163   
Cumulative paid costs for the periods presented$45,314   
Outstanding liabilities for the periods presented, net of reinsurance$2,824   
Other long-duration liabilities not included in development table above136   
Net unpaid claims and claims expenses - U.S. Medical2,960   
Reinsurance and other amounts recoverable224   
Unpaid claims and claim expenses - U.S. Medical$3,184   
   Incurred Costs   
​​​ ​ ​​ ​ ​​ ​ ​​ ​
Incurral Year
(in millions)		  2017
(Unaudited)		  2018  Unpaid Claims &
Claim Expenses		  Claims Frequency
​​​ ​ ​​ ​ ​​ ​​​ ​
2017 $18,692 $18,528 $22 ​2.6 million
2018     20,458 $2,266  2.9 million
​ ​​ ​ ​​ ​​​ ​ ​​​
Cumulative incurred costs plus acquired for the periods presented ​​ $38,986 ​​ ​​
​ ​​ ​ ​​ ​​​ ​ ​​​


   Cumulative Costs Paid      
​​​ ​ ​​​ ​​​​​​
Incurral Year  2017
(Unaudited)		  2018      
​​​ ​ ​​​ ​​​​​​
2017 $16,628 $18,506      
2018     18,192      
​ ​​ ​ ​​ ​ ​​​​​​
Cumulative paid costs for the periods presented ​​ $36,698      
​ ​ ​ ​ ​ ​ ​​​​​​​
Outstanding liabilities for the periods presented, net of reinsurance    $2,288      
Other long-duration liabilities not included in development table above ​​ ​145      
​ ​ ​ ​ ​ ​ ​ ​​​​​​
Net unpaid claims and claims expenses — Integrated Medical     2,433      
Reinsurance and other amounts recoverable ​​ ​264      
​​​ ​ ​​ ​​​​​​​
Unpaid claims and claim expenses — Integrated Medical    $2,697      
​ ​​ ​ ​​ ​ ​​​​​​

More than 95% of health claims for an accidentincurred in a calendar year are paid within one year of their incurred date.

There is no single or common claim frequency metric used in the health care industry. The Company believes a relevant metric for its health insurance business is the number of customers for whom an insured medical claim was paid. Customers for whom no insured medical claim was paid are excluded from the calculation. Claims that did not result in a liability are not included in the frequency metric.

C.Unpaid Claims and Claim Expenses – Group Disability and Other and International Markets

C.        Unpaid Claims and Claim Expenses – International Markets and Group Disability and Other

This liability now includes amounts from international health care following our change in segment reporting in 2018. Prior year rollforwards have been updated to reflect this segment change.

Accounting policy.Liabilities for unpaid claims and claim expenses are established by book of business within the Company's International Markets segment and Group Disability and Other. Liabilities for unpaidOther and International Markets. Unpaid claims and claim expenses within the group disabilityGroup Disability and life business consist of the following primary products: long-termOther and short-term disability, life insurance, and accident coverages. Unpaid claims and claim expensesInternational Markets segments consist of (1) case or claims reserves for reported claims that are unpaid as of the balance sheet date; (2) incurred but not reported reserves for claims when the insured event has occurred but has not been reported to the Company;Company and (3) loss adjustment expense reserves for the expected costs of settling these claims. The Company consistently estimates incurred but not yet reported losses using actuarial principles and assumptions based on historical and projected claim incidence patterns, claim size and the expected payment period. The Company recognizes the actuarial best estimate of the ultimate liability within a level of confidence, consistent with actuarial standards of practice that the liabilities be adequate under moderately adverse conditions. The Company immediately records an adjustment in medicalMedical costs and other benefit expenses when estimates of these liabilities change.

The

102

See Note 5 for a discussion of the divestiture of the Group Disability and Life business on December 31, 2020. For the year ended December 31, 2019, liabilities for unpaid claims and claim expenses within the Group Disability and Life business reflect the following primary products: long-term and short-term disability, life insurance and accident coverages and the majority of the Company'sCompany’s liability for disability claims consistsconsisted of “disabled life reserves”, measured as the present value of estimated future benefit payments, including expected development, for each reported claim that is currently receiving benefit payments over the expected disability period or pending a decision on eligibility for benefits, over the expected disability period.benefits. The Company projectsprojected the expected disability period by using historical resolution rates combined with an analysis of current trends and operational factors to develop current estimates of resolution rates. Expected claim resolution rates may vary based upon the Company'sCompany’s experience for the anticipated disability period, the covered benefit period, the cause of disability, the benefit design and the claimant'sclaimant’s age, gender and income level. The gross monthly benefit is reduced (offset) by disability income received under other benefit programs, most commonly Social Security Disability Income, workers'workers’ compensation, statutory disability or other group benefit plans. The Company estimatesestimated the probability and amount of future offset awards and lapses based on the Company'sCompany’s experience for certain offsets not yet finalized.

​88    CIGNA CORPORATION - 2018 Form10-K​​

Back to Contents

PART II
ITEM 8. Financial Statements and Supplementary Data

The Company also establishes a liability for the expected present value of future benefit payments for known claims that have recently been resolved but may reopen in the future, based on Company experience. Prior to a claim becoming known, the Company establishes a liability for incurred but not reported claims using standard actuarial techniques and calculations based on completion factors and loss ratio assumptions using the Company'sCompany’s experience combined with an analysis of current trends and operational factors. Completion factors are impacted by several key items including changes in claim inventory levels, claim payment patterns, changes in business volume and other factors. Loss ratio assumptions are developed using historical Company experience, adjusted prospectively for expected changes in the underlying business including rate actions, persistency and inforce growth.

Liability balance details. The liability details for unpaid claims and claim expenses as offor the years ended December 31 are as follows:

(In millions)2020
2019 (1)
Group Disability and Other
Group Disability and Life$150 $4,972 
Other Operations159 187 
Total Group Disability and Other309 5,159 
International Markets963 844 
Unpaid claims and claim expenses Group Disability and Other and International Markets$1,272 $6,003 
(In millions)  2018  2017
​​​ ​ ​​ ​
Group Disability and Other ​  ​ 

Group Disability and Life

 $4,674 $4,491

Other Operations

 ​192 ​193

Total Group Disability and Other

  4,866  4,684
International Markets ​758 ​783
​ ​​ ​ ​​ ​
Unpaid claims and claim expenses Group Disability and Other and International Markets $5,624 $5,467
​ ​​ ​ ​​ ​
(1)Includes unpaid claim amounts classified as Liabilities of business held for sale, see Note 5.

Group Disability and Life balances as of December 31, 2020 include reserves associated with retained business and amounts reinsured to New York Life as part of the sale of the Group Disability and Life business.
The Company discounts certain liabilities, predominantly long-term disability liabilities, because benefits payments are made over extended periods. Discount rate assumptions for these liabilities are based on projected investment returns for the supporting asset portfolios.
Details of the Company'sCompany’s Group Disability and Life unpaid claim discounted liability balancesbalance as of December 31, 2019 were as follows:

(In billions)
2019 (1)
Discounted liabilities$4.5 
Aggregate amount of discount$1.2 
Range of discount rates4.0 %— 5.2 %
(1)Includes unpaid claims amounts classified as Liabilities held for sale.
103

(In billions)  2018  2017
​ ​​ ​​​ ​
Discounted liabilities $4.2 $4.0
Aggregate amount of discount $1.1 $1.0
Range of discount rates ​4.2% - 5.2% ​4.5% - 5.2%
​ ​​ ​ ​​ ​

Interest is accreted and recognized in medical costs and other benefit expenses in the Consolidated Statements of Income.

Activity in the Company'sCompany’s liabilities for unpaid claims and claim expenses, excluding Other Operations, are presented in the following table. Liabilities associated with Other Operations are excluded because they pertain to obligations for long-duration insurance contracts or, if short-duration, the liabilities have been fully reinsured.

(In millions)2020
2019 (1)
2018
Beginning balance$5,816 $5,432 $5,274 
Less: Reinsurance184 156 140 
Beginning balance, net5,632 5,276 5,134 
Incurred claims related to:
Current year5,810 5,616 5,350 
Prior years:
Interest accretion154 152 156 
All other incurred19 (40)(147)
Total incurred5,983 5,728 5,359 
Paid claims related to:
Current year3,595 3,488 3,391 
Prior years2,015 1,873 1,808 
Total paid5,610 5,361 5,199 
Acquisitions0 0 23 
Foreign currency42 (11)(41)
Divestiture of Group Disability and Life business(5,093)0 0 
Ending balance, net954 5,632 5,276 
Add: Reinsurance159 184 156 
Ending balance$1,113 $5,816 $5,432 
(In millions)  2018  2017  2016
​​​ ​ ​​ ​​​ ​
Balance at January 1, $5,274 $4,997 $4,609
Less: Reinsurance  140  123  121
​ ​​ ​ ​​ ​ ​​ ​
Balance at January 1, net ​5,134 ​4,874 ​4,488
Incurred claims related to:         

Current year

 ​5,350 ​5,097 ​5,116

Prior years

         

Interest accretion

 ​156 ​163 ​161

All other incurred

  (147)  (43)  85
​ ​​ ​ ​​ ​ ​​ ​

Total incurred

 ​5,359 ​5,217 ​5,362
Paid claims related to:         

Current year

 ​3,391 ​3,229 ​3,221

Prior years

  1,808  1,757  1,739
​ ​​​ ​​ ​ ​​ ​

Total paid

 ​5,199 ​4,986 ​4,960
Acquisitions  23  —   
Foreign currency ​(41) ​29 ​(16)
​​​ ​ ​​ ​​​ ​
Balance at December 31, net  5,276  5,134  4,874
Add: Reinsurance ​156 ​140 ​123
​ ​​​ ​​ ​ ​​ ​
Balance at December 31, $5,432 $5,274 $4,997
​​​ ​ ​​ ​ ​​ ​
(1)Includes unpaid claims amounts classified as Liabilities of business held for sale.

Reinsurance in the previous table above reflects amounts due from reinsurers related to unpaid claims liabilities. The Company'sCompany’s insurance subsidiaries enter into agreements with other companies primarily to limit losses from large exposures and to permit recovery of a portion of incurred losses. See Note 810 for additional information on reinsurance.

The

Following the sale of the Company's Group Disability and Life business (see Note 5 for further information), the majority of the liability for unpaid claims and claim expenses isrelates to products sold in the International Markets segment. Prior to the sale, the majority of the liability for unpaid claims and claim expenses related to disability claims with long-tailed payouts. The rollforward above reflects activity inclusive of these reserves, which were sold on December 31, 2020. Interest earned on assets backing these liabilities is an integral part of pricing and reserving. Therefore, interest accreted on prior year balances is shown as a separate component of prior year incurred claims.claims and reported in Medical costs and other benefit expenses in the Consolidated Statements of Income. This interest is calculated by applying the average discount rate used in determining the liability balance to the average liability balance over the period. The remaining prior year incurred claims amount primarily reflects updates to the Company'sCompany’s liability estimates and variances between actual experience during the period relative to the assumptions and expectations reflected in determining the liability. Assumptions reflect the Company'sCompany’s expectations over the life of the book of business and will vary from actual experience in any period, both favorably and unfavorably, with variation in resolution rates being the most significant driver for the long-term disability business. Favorable prior year incurred claims reported in 2018 largely reflectfor the year ended December 31, 2019 primarily reflected favorable loss ratio experience for long-term disability and life relative to expectations. Favorable prior year incurred claims reported in 2017 largely reflect improved resolution rate experience for long-term disability relative to expectations. Prior year incurred claims reported in 2016 included the impact of changes made to our disability claims management process and a period of elevated life claims.

​​​CIGNA CORPORATION - 2018 Form10-K    89

Back to Contents

PART II
ITEM 8. Financial Statements and Supplementary Data

Long-term disability development tables.   The table below presents information about incurred and paid claims development as of December 31, 2018 (net of reinsurance), total incurred but not reported liabilities, and cumulative claims frequency for the Company's long-term disability book of business. The information about incurred and paid claims development for the years ended 2012 through 2017 is presented as supplementary information and is unaudited. As permitted under GAAP, the Company presented development table information beginning in 2012 because obtaining information beyond this period was impracticable as historical data was not maintained in such detail.

(In millions, except for claims frequency)

     
​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​​​ ​ ​​​ ​​

  Incurred Claims (undiscounted)  Incurred
But Not		  
​​​ ​ ​​ ​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​ ​​​​​

  Unaudited  Reported Claims
​​​​ ​​ ​ ​​ ​ ​​ ​​​ ​ ​​ ​ ​​​​​​​​

Accident Year

  2012  2013  2014  2015  2016  2017  2018  Liabilities (1) Frequency
​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​​​ ​ ​​​ ​​

2012

 $995 $951 $889 $876 $883 $880 $861 $— 21,183

2013

     1,063  1,037  1,062  1,072  1,057  1,032  — 23,526

2014

 ​​ ​​ ​1,158 ​1,129 ​1,167 ​1,146 ​1,094 ​— 25,314

2015

           1,184  1,154  1,185  1,160  — 25,737

2016

 ​​ ​​ ​​ ​​ ​1,246 ​1,184 ​1,199 ​3 25,349

2017

                 1,226  1,193  10 23,382

2018

 ​​ ​​ ​​ ​​ ​​ ​​ ​1,348 ​515 12,025
​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​​​ ​ ​​ ​ ​​ ​ ​​

Cumulative incurred claims for the periods presented

 $7,887     
​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​​​ ​ ​​ ​ ​​ ​ ​​
(1)
Incurred but not reported amounts are included in 2018 incurred claims.


  Cumulative Paid Claims     
​​​ ​​​ ​ ​​ ​​​ ​ ​​ ​​​ ​ ​​ ​​​​​​

  Unaudited        
​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​​​​​​​

Accident Year

  2012  2013  2014  2015  2016  2017  2018     
​​​ ​ ​​​ ​​ ​ ​​​ ​​ ​ ​​​ ​​ ​ ​​​​​

2012

 $81 $288 $429 $504 $571 $621 $661      

2013

     92  342  503  600  670  732      

2014

 ​​ ​​ ​111 ​379 ​575 ​667 ​743      

2015

           114  417  603  702      

2016

 ​​ ​​ ​​ ​​ ​122 ​411 ​598      

2017

                 110  396      

2018

 ​​ ​​ ​​ ​​ ​​ ​​ ​116      
​​​ ​ ​​ ​​​ ​ ​​ ​​​ ​ ​​ ​​​ ​ ​​​​​

Cumulative paid claims for the periods presented

    $3,948      
​​​ ​ ​​ ​​​ ​ ​​ ​​​ ​ ​​ ​​​ ​ ​​​​​

All outstanding liabilities for the periods presented, net of reinsurance

 ​​ $3,939      

All outstanding liabilities prior to 2012, net of reinsurance

     921      

Impact of discounting

 ​​ ​(885)     
​​​ ​ ​​​ ​​ ​ ​​​ ​​ ​ ​​​ ​​ ​ ​​​​​

Liability for long-term disability unpaid claims and claim expenses, net of reinsurance

    $3,975      
​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​​​​

The claims frequency metric used for the Company's long-term disability line of business represents the number of unique claim events for which benefits have been approved and payments made. Claim events are identified using a unique claimant identifier and incurral date. Thus, if an individual has multiple claims for different disabling events (and therefore different incurral dates), each will be determined to be a unique claim event. However, if an individual receives multiple benefits under more than one policy (for example for supplemental disability benefits such as pension contribution benefits or survivor benefits), the Company treats this as a single claim occurrence because they related to the same claim event. Claims frequency metrics for the most recent year are expected to be low reflecting the long-term disability product features including waiting and elimination periods that result in delayed eligibility for contract benefits. Claims that did not result in a liability are not includedexpectations reflected in the frequency metric.

The following is supplementaryprior year reserve and unaudited information about average historical claims payout patterns for the long-term disability business for the years presented in thefavorable reserve development table as of December 31, 2018. The average annual percentage payout of incurred claims, net of reinsurance, is approximately 9% in year one, 24% in year two, 16% in year three, 9% in year four, 7% in year five, 6% in year six and 5% in year seven.

​90    CIGNA CORPORATION - 2018 Form10-K​​

Table of Contents

PART II
ITEM 8. Financial Statements and Supplementary Data

The following table reconciles the long-term disability net incurred and paid claims development table to the liability for unpaid claims and claim expenses in the Company's Consolidated Balance Sheets as of December 31, 2018.

(In millions)
  
 
​ ​​ ​ ​

Net outstanding liabilities — Group Disability and Life businesses

 ​  

Long-term disability liabilities, net of reinsurance

 $3,975 

Other short-duration insurance books of business, net of reinsurance

 ​594 
​ ​​ ​ ​

Liabilities for unpaid claims and claim expenses, net of reinsurance

  4,569 
​ ​​ ​ ​

Reinsurance recoverable on unpaid claims — Group Disability and Life businesses

 ​  

Long-term disability

  94 

Other short-duration insurance books of business

 ​11 
​ ​​ ​ ​

Total reinsurance recoverable on unpaid claims

  105 
​​​ ​ ​

Total liability for unpaid claims and claim expenses — Group Disability and Life businesses

 ​4,674 
​ ​​ ​ ​

International Markets segment

  758 

Other Operations

 ​192 
​ ​​ ​ ​

Unpaid claims and claim expenses — Group Disability and Other and International Markets

 $5,624 
​​​ ​ ​

The other short-duration insurance books of business, net of reinsurance, primarily include liabilities for life, accident and short-term disability insurance products. Liabilities for these products are typically complete within one year. Claim development on these liabilities is largelyvoluntary driven by completion factors and loss ratio assumptions.

lower than expected incidence. Development for the year ended December 31, 2020 was immaterial.
Note 10 – Reinsurance

Note 8    Reinsurance

The Company'sCompany’s insurance subsidiaries enter into agreements with other insurance companies to assume and cede reinsurance. Reinsurance is ceded primarily in acquisition and disposition transactions when the underwriting company is not being acquired. Reinsurance is also used to limit losses from large exposures and to permit recovery of a portion of direct or assumed losses. Reinsurance does not relieve the originating insurer of liability. Therefore, reinsured liabilities must continue to be reported along with the related reinsurance recoverables. The Company regularly evaluates the financial condition of its reinsurers and monitors concentrations of its credit risk.

104

A.       Reinsurance Recoverables

A.Reinsurance Recoverables

Accounting policy. Reinsurance recoverables represent amounts due from reinsurers for both paid and unpaid claims of the Company’s insurance businesses. Most reinsurance recoverables are classified as non-current assets. The current portion of reinsurance recoverables is reported in Other current assets and consists primarily of recoverables on paid claims expected to be settled within one year. Reinsurance recoverables are presented net of allowances for uncollectible reinsurance that, effective with adopting ASU 2016-13 on January 1, 2020, consists primarily of an allowance for expected credit losses. $31 million was recorded as a cumulative effect adjustment to retained earnings at adoption. Estimates of the allowance for expected credit losses are based on internal and external data used to develop expected loss rates over the anticipated duration of the recoverable asset that vary by external credit rating and collateral level. The Company's allowance for credit losses on reinsurance recoverables was $32 million as of December 31, 2020, of which $31 million was recorded as a cumulative effect adjustment to retained earnings at adoption.
The majority of the Company'sCompany’s reinsurance recoverables resulted from acquisition and disposition transactions in which the underwriting company was not acquired. Components of the Company's reinsurance recoverables are presented in the following table. Included in the table below is $297$217 million as of December 31, 2018 and $282 million as of December 31, 2017 of current reinsurance recoverables that are reported in otherOther current assets as of December 31, 2020; as of December 31, 2019 there was $222 million of current reinsurance recoverables reported in Other current assets.

The Company’s reinsurance recoverables are presented in the following table by range of external credit rating and collateral level.
(Dollars in millions)Fair value of collateral contractually required to meet or exceed carrying value of recoverable
Collateral provisions exist that may mitigate risk of credit loss(3)
No collateralTotal
Ongoing Operations
Upper-medium grade and higher (1)
$0 $0 $173 $173 
Lower-medium grade (2)
0 0 64 64 
Not rated92 0 29 121 
Total recoverables related to ongoing operations92 0 266 358 
Acquisition, disposition or runoff activities
Upper-medium grade and higher (1)
Lincoln National Life and Lincoln Life & Annuity of New York0 3,033 0 3,033 
Berkshire309 409 0 718 
Prudential Retirement Insurance and Annuity625 0 0 625 
Life Insurance Company of North America0 424 0 424 
Other232 18 20 270 
Not rated0 17 4 21 
Total recoverables related to acquisition, disposition or runoff activities1,166 3,901 24 5,091 
Total$1,258 $3,901 $290 $5,449 
Allowance for uncollectible reinsurance(32)
Total reinsurance recoverables$5,417 
(Dollars in millions)
Line of Business
 Reinsurer(s)
 December 31,
2018
 December 31,
2017
 Collateral and Other Terms at December 31, 2018
​​​ ​​ ​ ​​ ​ ​​
Ongoing Operations   ​  ​   
Integrated Medical, International Markets, Group Disability, COLI Various $464 $454 Balances range from less than $1 million up to $70 million. Over 70% of the balance is from companies rated as investment grade by Standard & Poor's.
Total recoverables related to ongoing operations ​ ​464 ​454 ​
Acquisition, disposition or runoff activities        
Individual Life and Annuity (sold in 1998) Lincoln National Life and Lincoln Life & Annuity of New York ​3,312 ​3,436 Both companies' ratings were well above the level that would trigger a contractual obligation to fully secure the outstanding balance.
GMDB (effectively exited in 2013) Berkshire  893  928 100% secured by assets in a trust.
Retirement Benefits Business (sold in 2004) Prudential Retirement Insurance and Annuity ​787 ​850 100% secured by assets in a trust.
Supplemental Benefits Business (2012 acquisition) Great American Life  261  283 100% secured by assets in a trust.
Other Various ​87 ​95 100% secured by assets in a trust or other deposits.
​​​ ​​ ​​​ ​ ​​
Total recoverables related to acquisition, disposition or runoff activities    5,340  5,592  
​​​ ​​ ​​​ ​ ​​
Total reinsurance recoverables

​ $5,804 $6,046 ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
(1)Includes A- equivalent and higher current ratings certified by a nationally recognized statistical rating organization ("NRSRO")

(2)Includes BBB- to BBB+ equivalent current credit ratings certified by an NRSRO
(3)Includes collateral provisions requiring the reinsurer to fully collateralize its obligation if its external credit rating is downgraded to a specified level
Collateral levels are defined internally based on the fair value of the collateral relative to the carrying amount of the reinsurance recoverable, the frequency at which collateral is required to be replenished and the potential for volatility in the collateral’s fair value.
The Company bears the risk of loss if its reinsurers and retrocessionaires do not meet or are unable to meet their reinsurance obligations to the Company. The Company reviews its reinsurance arrangements and establishes reserves against the recoverables, if recovery is not considered probable.

​​​CIGNA CORPORATION - 2018 Form10-K    91

Back to Contents

PART II
ITEM 8. Financial Statements and Supplementary Data

as further described above.

105

B.       Effects of Reinsurance


B.Effects of Reinsurance
The following table presents direct, assumed and ceded premiums for both short-duration and long-duration insurance contracts. It also presents reinsurance recoveries that have been netted against benefit expenses in the Company'sCompany’s Consolidated Statements of Income.

(In millions)202020192018
Premiums
Short-duration contracts
Direct$38,425 $35,690 $32,148 
Assumed85 64 77 
Ceded(230)(203)(182)
Total short-duration contract premiums38,280 35,551 32,043 
Long-duration contracts
Direct4,517 4,352 4,268 
Assumed99 105 116 
Ceded
Individual life insurance and annuity business sold(119)(126)(133)
Other(150)(168)(181)
Total long-duration contract premiums4,347 4,163 4,070 
Total premiums$42,627 $39,714 $36,113 
Reinsurance recoveries
Individual life insurance and annuity business sold$240 $238 $249 
Other191 157 203 
Total reinsurance recoveries$431 $395 $452 

C.Effective Exit of GMDB and GMIB Business
(In millions)
 2018
 2017
 2016
 
​​​ ​ ​​​ ​​ ​ ​

Premiums

 ​  ​  ​  

Short-duration contracts

          

Direct

 $32,148 $28,838 $27,694 

Assumed

  77  199  247 

Ceded

 ​(182)​(150)​(229)
​​​ ​ ​​​ ​​ ​ ​

Total short-duration contract premiums

  32,043  28,887  27,712 
​ ​​ ​​​ ​ ​​​ ​

Long-duration contracts

 ​  ​  ​  

Direct

  4,268  3,748  3,259 

Assumed

 ​116 ​130 ​137 

Ceded

          

Individual life insurance and annuity business sold

 ​(133)​(143)​(153)

Other

  (181) (131) (131)
​ ​​ ​​​ ​ ​​​ ​

Total long-duration contract premiums

 ​4,070 ​3,604 ​3,112 
​ ​​ ​ ​​ ​​​ ​ ​

Total premiums

 $36,113 $32,491 $30,824 
​ ​​ ​​​ ​ ​​​ ​

Reinsurance recoveries

 ​  ​  ​  

Individual life insurance and annuity business sold

 $249 $259 $279 

Other

 ​203 ​66 ​261 
​ ​​ ​ ​​ ​​​ ​ ​

Total reinsurance recoveries

 $452 $325 $540 
​​​ ​ ​​ ​ ​​ ​​

The effects of reinsurance on written premiums for short-duration contracts were not materially different from the recognized premium amounts shown in the table above.

C.       Effective Exit of GMDB and GMIB Business

The Company entered into an agreement with Berkshire to effectively exit the GMDB and GMIB business via a reinsurance transaction in 2013. Berkshire reinsured 100% of the Company'sCompany’s future claim payments in this business, net of other reinsurance arrangements existing at that time. The reinsurance agreement is subject to an overall limit with approximately $3.4$3.2 billion remaining at December 31, 2018.

2020.

GMDB is accounted for as assumed and ceded reinsurance and GMIB assets and liabilities are reported as derivatives at fair value as discussed below. GMIB assets are reported in otherOther current assets and otherOther assets, and GMIB liabilities are reported in accruedAccrued expenses and other liabilities and otherOther non-current liabilities.

GMDB

The GMDB exposure arises under annuities written by ceding companies that guarantee the benefit received at death. The Company'sCompany’s exposure arises when the guaranteed minimum death benefit exceeds the fair value of the related mutual fund investments at the time of a contractholder'scontractholder’s death.

Accounting policy.The Company estimates the gross liability and reinsurance recoverable with an internal model based on the Company'sCompany’s experience and future expectations over an extended period, consistent with the long-term nature of this product. As a result of the reinsurance transaction, reserve increases have a corresponding increase in the recorded reinsurance recoverable, provided the increased recoverable remains within the overall Berkshire limit (including the GMIB asset presented below).

106

The following table presents the account value, net amount at risk and average attained agethe number of underlying contractholders for guarantees assumed by the Company in the event of death. The net amount at risk is the amount that the Company would have to pay if all contractholders died as of the specified date. Unless the Berkshire reinsurance limit is exceeded, theThe Company should be reimbursed in full for these payments.

payments unless the Berkshire reinsurance limit is exceeded.
(Dollars in millions, excludes impact of reinsurance ceded)December 31, 2020December 31, 2019
Account value$9,523 $9,110 
Net amount at risk$1,570 $1,764 
Average attained age of contractholders (weighted by exposure)7776
Number of contractholders (estimated)185,000 200,000 
(Dollars in millions, excludes impact of reinsurance ceded)  2018  2017
​ ​​ ​ ​​ ​
Account value $8,402 $10,109
Net amount at risk $2,466 $2,112
Average attained age of contractholders (weighted by exposure) ​74 ​75
Number of contractholders  220,000  245,000
​ ​​ ​ ​​ ​
GMIB

GMIB

The Company reinsured contracts with issuers of GMIB products. The Company'sCompany’s exposure represents the excess of a contractually guaranteed amount over the level of variable annuity account values. Payment by the Company depends on the actual account value in the related underlying mutual funds and the level of interest rates when the contractholders elect to receive minimum income payments that mustcan only occur within 30 days of a policy anniversary after the appropriate waiting period. The Company has purchased retrocessional coverage ("(“GMIB assets"assets”), for these contracts including retrocessional coverage from Berkshire, for these contracts.

​92    CIGNA CORPORATION - 2018 Form10-K​​

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PART II
ITEM 8. Financial Statements and Supplementary Data

Berkshire.

Accounting policy. The Company reports GMIB liabilities and assets as derivatives at fair value because cash flows of these liabilities and assets are affected by equity markets and interest rates, but are without significant life insurance risk and are settled in lump sum payments. The Company receives and pays fees periodically based on either contractholders'contractholders’ account values or deposits increased at a contractual rate. The Company will also pay and receive cash depending on changes in account values and interest rates when contractholders first elect to receive minimum income payments. Cash flows on these contracts are reported in operating activities.

Assumptions used in fair value measurement.measurement. GMIB assets and liabilities are established using capital market assumptions and assumptions related to future annuitant behavior (including mortality, lapse and annuity election rates). The Company classifies GMIB assets and liabilities in Level 3 inof the fair value hierarchy described in Note 1012 because assumptions related to future annuitant behavior are largely unobservable.

The only assumption expected to impact future shareholders'shareholders’ net income is non-performance risk. The non-performance risk adjustment reflects a market participant'sparticipant’s view of nonpayment risk by adding an additional spread to the discount rate in the calculation of both (a) the GMIB liabilities to be paid by the Company, and (b) the GMIB assets to be paid by the reinsurers, after considering collateral.

The Company regularly evaluates eachimpact of the assumptions used in establishing these assets and liabilities. Significant decreases in assumed lapse rates or spreads used to calculate non-performance risk ofwas immaterial for the Company, or significant increases in assumed annuity election rates or spreads used to calculate the non-performance risk of the reinsurers, would result in higher fair value measurements. A change in one of these assumptions is not necessarily accompanied by a change in another assumption.

years ended December 31, 2020 and December 31, 2019.

GMIB liabilities totaling $706$729 million as of December 31, 20182020 and $762$688 million as of December 31, 20172019 were reported in accruedAccrued expenses and other liabilities and otherOther non-current liabilities. There were three3 reinsurers covering 100% of the GMIB exposures as of December 31, 20182020 and 2017December 31, 2019 as follows:

(In millions)
Line of BusinessReinsurerDecember 31, 2020December 31, 2019Collateral and Other Terms at December 31, 2020
GMIBBerkshire$353 $332 100% were secured by assets in a trust.
Sun Life Assurance Company of Canada215 202 
Liberty Re (Bermuda) Ltd.190 179 100% were secured by assets in a trust.
Total GMIB recoverables reported in Other current assets and Other assets$758 $713 
(In millions)
Line of Business
 Reinsurer
 December 31,
2018
 December 31,
2017
 Collateral and Other Terms at December 31, 2018
​ ​​ ​​ ​ ​​ ​​​
GMIB Berkshire $341 $359 100% were secured by assets in a trust.
  Sun Life Assurance Company of Canada  208  221  
​ Liberty Re (Bermuda) Ltd. ​184 ​197 86% were secured by assets in a trust.
​ ​​ ​​ ​ ​​ ​​​
Total GMIB recoverables reported in other current assets and other assets $733 $777  
​ ​​ ​​ ​ ​​ ​​​
All reinsurers are rated A- equivalent and higher by an NRSRO.

Amounts included in shareholdersshareholders’ net income for GMIB assets and liabilities were not material in 2018, 20172020, 2019 and 2016.

2018.
107

Note 9    Investments, Investment Income and Gains and Losses

Cigna's


Note 11 – Investments
Cigna’s investment portfolio consists of a broad range of investments including fixed maturities,debt securities, equity securities, commercial mortgage loans, policy loans, other long-term investments, short-term investments and derivative financial instruments. The sections below provide more detail regarding our accounting policies, investment balances net investment income and realized investment gains and losses. See Note 1012 for information about the valuation of the Company'sCompany’s investment portfolio. Fixed maturities,Debt securities, commercial mortgage loans, derivative financial instruments and short-term investments with contractual maturities during the next 12twelve months are classified on the balance sheet as current investments, unless they are held as statutory deposits or restricted for other purposes whereand then they are classified in long-termLong-term investments. Equity securities classified as currentmay include exchange traded funds that are used in our cash management process.strategy and are classified as current investments. All other investments are classified in long-termas Long-term investments. The following table summarizes the Company's investments by category and current or long-term classification.


   December 31, 2018  December 31, 2017
​​​ ​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​
(In millions)  Current  Long-term  Total  Current  Long-term  Total
​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​
Fixed Maturities $1,320 $21,608 $22,928 $1,516 $21,622 $23,138
Equity securities  377  171  548  406  182  588
Commercial mortgage loans ​32 ​1,826 ​1,858 ​15 ​1,746 ​1,761
Policy loans  –  1,423  1,423  –  1,415  1,415
Other long-term investments ​– ​1,901 ​1,901 ​– ​1,518 ​1,518
Short-term investments  316  –  316  199  –  199
​​​ ​ ​​ ​ ​​ ​​​ ​ ​​​ ​​ ​
Total $2,045 $26,929 $28,974 $2,136 $26,483 $28,619
​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​​​ ​

December 31, 2020December 31, 2019
(In millions)CurrentLong-termTotalCurrentLong-termTotal
Debt securities$959 $17,172 $18,131 $928 $22,827 $23,755 
Equity securities0 501 501 0 303 303 
Commercial mortgage loans13 1,406 1,419 0 1,947 1,947 
Policy loans0 1,351 1,351 0 1,357 1,357 
Other long-term investments0 2,832 2,832 0 2,403 2,403 
Short-term investments359 0 359 423 0 423 
Total1,351 28,837 30,188 
Investments classified as assets of business held for sale(1)
(414)(7,295)(7,709)
Investments per Consolidated Balance Sheets$1,331 $23,262 $24,593 $937 $21,542 $22,479 
(1)On December 31, 2020, Cigna completed the sale of its U.S. Group Disability and Life business and transferred a total of $8.4 billion of investments to New York Life Insurance Company as part of this divestiture. The table above includes $7.7 billion as of December 31, 2019 of investments associated with this business that was previously held for sale.

A.       Investment Portfolio

A.Investment Portfolio

Fixed Maturities

Debt Securities

Accounting policy.   Fixed maturitiesDebt securities (including bonds, mortgage and other asset-backed securities and preferred stocks redeemable by the investor) are classified as available for sale and are carried at fair value with changes in fair value recorded either in accumulatedAccumulated other comprehensive income (loss) within shareholders' equity.Shareholders’ equity or in credit loss expense based on fluctuations in the allowance for credit losses, as further discussed below. Net unrealized appreciation on investmentsdebt securities supporting the Company'sCompany’s run-off settlement annuity business is reported in future policy benefitNon-current insurance and contractholder liabilities rather than accumulatedAccumulated other comprehensive income (loss).

The Company records impairment losses in net income for fixed maturities with fair value below amortized cost that meet either of the following conditions:

•
If When the Company intends to sell or determines that it is more likely than not to be required to sell these fixed maturities before their fair values recover, an impairment loss is recognized forimpaired debt security, the excess of the amortized cost over fair value.
​​​CIGNA CORPORATION - 2018 Form10-K    93

Backvalue is directly written down with a charge to Contents

PART II
ITEM 8. Financial StatementsRealized investment gains and Supplementary Data

•
Iflosses. A portion of these investments are unconsolidated variable interest entities, see Note 13 for additional information.
As of January 1, 2020, the Company adopted ASU 2016-13 that included certain targeted improvements to the accounting for available-for-sale debt securities. The new guidance resulted in certain policy changes related to the process used by the Company to review declines in fair value from a security’s amortized cost basis to determine whether a credit loss exists. For example, the length of time that a debt security has been impaired is no longer a criterion for this review. In addition, under this new guidance, the Company recognizes an allowance for credit loss with a corresponding charge to credit loss expense, presented in Realized investment gains and losses in the Company’s income statement. Prior to this new guidance, the Company recorded a direct write-down of the instrument’s amortized cost basis. The allowance for credit loss represents the excess of amortized cost over the greater of its fair value or the net present value of the debt security's projected future cash flows of a fixed maturity (based on qualitative and quantitative factors, including the probability of default, and the estimated timing and amount of recovery). Each period, the allowance for credit loss is belowadjusted through credit loss expense.
The Company elected the amortized cost basis, that differenceexpedient to not measure an allowance for credit losses for accrued interest receivables. Consistent with prior practice, when interest payments are delinquent based on contractual terms or when certain terms (interest rate or maturity date) of the investment have been restructured, accrued interest, reported in Other current assets, is written off through a charge to Net investment income, and interest income is recognized as an impairment loss. For mortgage and asset-backed securities, estimated futureon a cash flows are also based on assumptions about the collateral attributes including prepayment speeds, default rates and changes in value.

basis.

108

Debt securities are classified as either currentCurrent or long-termLong-term investments based on their contractual maturities.
The amortized cost and fair value by contractual maturity periods for fixed maturitiesdebt securities were as follows at December 31, 2018:

2020:
(In millions)Amortized
Cost		Fair
Value
Due in one year or less$991 $1,001 
Due after one year through five years5,412 5,699 
Due after five years through ten years5,581 6,178 
Due after ten years3,809 4,818 
Mortgage and other asset-backed securities427 435 
Total$16,220 $18,131 
(In millions)
 Amortized
Cost
 Fair Value
​​​ ​ ​​ ​

Due in one year or less

 $1,323 $1,327

Due after one year through five years

  6,452  6,522

Due after five years through ten years

 ​10,205 ​9,992

Due after ten years

  4,064  4,577

Mortgage and other asset-backed securities

 ​506 ​510
​ ​​​ ​​ ​

Total

 $22,550 $22,928
​ ​​ ​​​ ​

Actual maturities of these securities could differ from their contractual maturities used in the table above. This could occurabove because issuers may have the right to call or prepay obligations, with or without penalties.

Gross unrealized appreciation (depreciation) on fixed maturitiesdebt securities by type of issuer is shown below.

As a result of the U.S. Group Disability and Life business divestiture, debt securities with a fair value of $7.8 billion, primarily in the Corporate and State and local government sectors, were transferred to New York Life on December 31, 2020. These debt securities included unrealized appreciation of $864 million and unrealized depreciation of $2 million. See Note 5 for further information.
(In millions)Amortized
Cost		Allowance for Credit LossUnrealized
Appreciation		Unrealized
Depreciation		Fair
Value
December 31, 2020
Federal government and agency$334 $0 $122 $0 $456 
State and local government150 0 17 0 167 
Foreign government2,201 0 318 (8)2,511 
Corporate13,108 (19)1,506 (33)14,562 
Mortgage and other asset-backed427 (7)27 (12)435 
Total$16,220 $(26)$1,990 $(53)$18,131 
Investments supporting liabilities of the Company’s run-off settlement annuity business (included in total above) (1)
$2,282 $(5)$838 $(3)$3,112 
December 31, 2019
Federal government and agency$498 $0 $235 $0 $733 
State and local government729 0 81 0 810 
Foreign government2,027 0 230 (1)2,256 
Corporate18,149 0 1,299 (28)19,420 
Mortgage and other asset-backed506 0 31 (1)536 
Total$21,909 $0 $1,876 $(30)$23,755 
Investments supporting liabilities of the Company’s run-off settlement annuity business (included in total above) (1)
$2,229 $0 $740 $(4)$2,965 
(In millions)  Amortized
Cost		  Unrealized
Appreciation		  Unrealized
Depreciation		  Fair Value
​​​ ​ ​​ ​ ​​ ​ ​​ ​
December 31, 2018            
Federal government and agency $507 $204 $(1) $710
State and local government  920  66  (1)  985
Foreign government ​2,214 ​155 ​(7) ​2,362
Corporate  18,403  411  (453)  18,361
Mortgage and other asset-backed ​506 ​16 ​(12) ​510
​​​ ​ ​​ ​ ​​ ​​​ ​
Total $22,550 $852 $(474) $22,928
​ ​​ ​​​ ​ ​​​ ​​ ​
Investments supporting liabilities of the Company's run-off settlement annuity business (included in total above) (1) $2,264 $479 $(40) $2,703
​ ​​ ​​​ ​ ​​​ ​​ ​
December 31, 2017            
Federal government and agency $541 $239 $(1) $779
State and local government  1,196  93  (2)  1,287
Foreign government ​2,360 ​142 ​(15) ​2,487
Corporate  17,301  868  (81)  18,088
Mortgage and other asset-backed ​469 ​29 ​(1) ​497
​ ​​ ​​​ ​ ​​​ ​​ ​
Total $21,867 $1,371 $(100) $23,138
​ ​​ ​​​ ​ ​​​ ​​ ​
Investments supporting liabilities of the Company's run-off settlement annuity business (included in total above) (1) $2,200 $681 $(2) $2,879
​ ​​ ​​​ ​ ​​​ ​​ ​
(1)
Net unrealized appreciation for these investments is excluded from accumulated other comprehensive income.

The Company had commitments to purchase $106$149 million of fixed maturitiesdebt securities as of December 31, 2018, all of which bear2020, bearing interest at a fixed market rate.

Review of declines in fair value.Management reviews fixed maturities withimpaired debt securities to determine whether a decline in fair value from cost for impairmentcredit loss allowance is needed based on criteria that include:

•
length of time and severity of decline;

•
financial health and specific near term prospects of the issuer;

and
•
changes in the regulatory, economic or general market environment of the issuer'sissuer’s industry or geographic region; and

•
the Company's intent to sell or the likelihood of a required sale prior to recovery.
​94    CIGNA CORPORATION - 2018 Form10-K​​
region.
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PART II
ITEM 8. Financial Statements and Supplementary Data

Management believes the unrealized depreciation below to be temporary based on this review, and therefore has not impaired these amounts.


The table below summarizes fixed maturitiesdebt securities with a decline in fair value from amortized cost for which an allowance for credit losses has not been recorded, by investment grade and the length of time these securities have been in an unrealized loss position.

These debt securities are primarily corporate securities with a decline in fair value that reflects an increase in market yields since purchase. See discussion of Realized Investment Gains and Losses below for further information on the credit loss expense recorded for the Company's investments.
December 31, 2020December 31, 2019
(Dollars in millions)Fair
Value		Amortized
Cost		Unrealized
Depreciation		Number
of Issues		Fair
Value		Amortized
Cost		Unrealized
Depreciation		Number
of Issues
One year or less
Investment grade$1,026 $1,045 $(19)300$723 $729 $(6)267 
Below investment grade$381 $405 $(24)232$340 $348 $(8)355 
More than one year
Investment grade$18 $18 $0 6$366 $378 $(12)118 
Below investment grade$90 $100 $(10)33$84 $88 $(4)93 
Total$1,515 $1,568 $(53)571$1,513 $1,543 $(30)833 

  December 31, 2018  December 31, 2017
​​​ ​ ​​ ​ ​​ ​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​

(Dollars in millions)

  Fair
Value		  Amortized
Cost		  Unrealized
Depreciation		  Number of
Issues		  Fair
Value		  Amortized
Cost		  Unrealized
Depreciation		  Number of
Issues
​ ​​ ​ ​​ ​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​​​ ​

One year or less

 ​  ​  ​  ​  ​  ​  ​  ​ 

Investment grade

 $7,127 $7,367 $(240)  1,324 $3,272 $3,309 $(37)  797

Below investment grade

 $1,185 $1,240 $(55) ​1,190 $543 $553 $(10) ​643

More than one year

                        

Investment grade

 $3,023 $3,181 $(158) ​784 $1,503 $1,549 $(46) ​373

Below investment grade

 $249 $270 $(21)  245 $155 $162 $(7)  42
​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​​​ ​ ​​​ ​​ ​

The table below presents a roll-forward of the allowance for credit losses on debt securities for the year ended December 31, 2020.

Equity Securities

(In millions)2020
Balance at beginning of period$0
Additions for debt securities where no credit loss has previously been recognized82
Reductions for securities sold during the period(15)
Decrease for debt securities where credit losses have previously been recorded(41)
Balance December 31,$26

Equity Securities
Accounting policy.   Upon adopting ASU 2016-01 beginning in 2018, changespolicy. Changes in the fair values of equity securities that have a readily determinable fair value (primarily exchange-traded funds) are reported in netNet realized investment gains (losses). As of December 31, 2018, the fair values of theseEquity securities were $415 million and cost was $433 million. Also beginning in 2018, private equity securities of $89 million as of December 31, 2018 without a readily determinable fair value are carried at cost minus impairment, if any, plus or minus changes resulting from observable price changes. The amount of impairments or value changes resulting from observable price changes was not material.

Equity securities also include hybrid investments consisting of preferred stock with call features that are carried at fair value with changes in fair value reported in netNet realized investment gains (losses) and dividends reported in netNet investment income. As

Equity securities with a readily determinable fair value consist primarily of mutual funds that invest in fixed income debt securities while those without a readily determinable fair value consist of private equity investments. The amount of impairments or value changes resulting from observable price changes on equity securities still held was not material as of December 31, 2018, fair2020 or 2019.
The following table provides the values of these securitiesthe Company's equity security investments as of December 31, 2020 and December 31, 2019.
December 31, 2020December 31, 2019
(In millions) CostCarrying Value CostCarrying Value
Equity securities with readily determinable fair values$180 $202 $61 $64 
Equity securities with no readily determinable fair value$225 $255 $183 $192 
Hybrid equity securities$58 $44 $58 $47 
Total$463 $501 $302 $303 
Commercial Mortgage Loans
Accounting policy.Commercial mortgage loans are carried at unpaid principal balances. Beginning January 1, 2020 with the adoption of ASU 2016-13, unpaid principal balances are presented net of an allowance for expected credit losses. Changes in the allowance for expected credit losses are recognized as credit loss expense and presented in Realized investment gains and losses in the Company’s income statement. Each period, the Company establishes (or adjusts) its allowance for expected credit losses for commercial mortgage loans. The allowance for expected credit losses is based on a credit risk category that is assigned to each loan at origination using key credit quality indicators, including debt service coverage and loan-to-value ratios. Credit risk categories are updated as key credit quality indicators change. An expected loss rate, assigned based on the credit risk category, is applied to each loan's unpaid principal balance to develop an aggregate allowance for expected credit losses. Prior to adoption, impaired commercial mortgage loans were $44 million and cost was $58 million, compared withwritten down to the lower of unpaid principal or fair value of $49the underlying collateral when it became probable that the Company
110

would not collect all amounts due under its promissory note. The Company recorded an allowance of $7 million and cost of $61through a cumulative effect adjustment to retained earnings to reflect expected credit losses at adoption. The credit loss allowance for the Company’s commercial mortgage loan investments was $6 million as of December 31, 2017.

2020.

Commercial Mortgage Loans

Commercial mortgage loans are considered impaired and written off against the allowance when it is probable that the Company will not collect all amounts due per the terms of the promissory note. The Company elected the expedient to not measure an allowance for credit losses for accrued interest receivables. Consistent with our prior practice, accrued interest, reported in Other current assets, is written off through a charge to Net investment income; interest income on impaired loans is only recognized when a payment is received.

In the event of a foreclosure, the allowance for credit losses is based on the excess of the carrying value of the mortgage loan over the fair value of its underlying collateral.
Mortgage loans held by the Company are made exclusively to commercial borrowers and are diversified by property type, location and borrower. Loans are generally issued at a fixed raterates of interest and are secured by high quality, primarily completed and substantially leased operating properties.

Accounting policy.   Commercial mortgage loans are carried at unpaid principal balances or, if impaired, the lower of unpaid principal or fair value of the underlying real estate. See the "Impaired commercial mortgage loans" section below for the Company's accounting policy for impaired commercial mortgage loans. Commercial mortgage loans are classified as either current or long-term investments based on their contractual maturities.

As of December 31, 2018, approximately 93% of the Company's commercial mortgage loan portfolio is scheduled to mature in 2022 or thereafter.

Actual maturities could differ from contractual maturities for several reasons: borrowers may have the right to prepay obligations with or without prepayment penalties; the maturity date may be extended; and loans may be refinanced.

Credit quality.quality. The Company regularly evaluates and monitors credit risk, beginning with the initial underwriting of a mortgage loan and 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 portfolio loan review. The Company evaluates and monitors credit quality on a consistent and ongoing basis, classifying each loan as a loan in good standing, potential problem loan or problem loan.

basis.

Quality ratings are based on our evaluation of a number of key inputs related to the loan, including real estate market-related factors such as rental rates and vacancies, and property-specific inputs such as growth rate assumptions and lease rollover statistics. However, the two most significant contributors to the credit quality rating are the debt service coverage and loan-to-value ratios. The debt service coverage ratio measures the amount of property cash flow available to meet annual interest and principal payments on debt, with a ratio below 1.0 indicating that there is not enough cash flow to cover the required loan payments. The loan-to-value ratio, commonly expressed as a percentage, compares the amount of the loan to the fair value of the underlying property collateralizing the loan.

The following table summarizes the credit risk profile of the Company'sCompany’s commercial mortgage loan portfolio based on loan-to-value and debt service coverage ratios as of December 31, 20182020 and 2017:

December 31, 2019. As a result of the U.S. Group Disability and Life business divestiture, $0.6 billion of commercial mortgage loans were transferred to New York Life on December 31, 2020, see Note 5 for further information.
(Dollars in millions)December 31, 2020December 31, 2019
Loan-to-Value RatioCarrying ValueAverage Debt Service Coverage RatioAverage Loan-to-Value RatioCarrying ValueAverage Debt Service Coverage RatioAverage Loan-to-Value Ratio
Below 60%$533 2.28$1,136 2.19
60% to 79%751 2.08723 1.98
80% to 100%141 1.3388 1.62
Allowance for credit losses(6)0
Total$1,419 2.0861 %$1,947 2.0958 %
   2018  2017
​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​​​ ​
(Dollars in millions)
Loan-to-Value Ratio		  Carrying
Value		  Average
Debt Service
Coverage
Ratio		  Average
Loan-to-
Value
Ratio		  Carrying
Value		  Average
Debt Service
Coverage
Ratio		  Average
Loan-to-
Value
Ratio
​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​​​ ​
Below 60% $1,132 ​2.14 ​​ $1,109 ​2.03 ​​
60% to 79%  650  1.93     652  2.24   
80% to 100% ​76 ​1.49 ​​ ​— ​— ​​
​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​​​ ​
Total $1,858  2.04  58% $1,761  2.11  57%
​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​
​​​CIGNA CORPORATION - 2018 Form10-K    95

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PART II
ITEM 8. Financial Statements and Supplementary Data

The Company'sCompany’s annual in-depth review of its commercial mortgage loan investments is the primary mechanism for identifying emerging risks in the portfolio. The most recent review was completed by the Company'sCompany’s investment professionals completed the annual in-depth review in the second quarter of 2018 and2020 that included an analysis of each underlying property'sproperty’s most recent annual financial statements, rent rolls, operating plans, budgets, a physical inspection of the property and other pertinent factors. Based on historical results, current leases, lease expirations and rental conditions in each market, the Company estimated the current year and future stabilized property income and fair value for each loan.

The Company re-evaluates a loan'sloan’s credit quality between annual reviews if new property information is received or an event such as delinquency or a borrower'sborrower’s request for restructure causes management to believe that the Company'sCompany’s estimate of financial performance, fair value or the risk profile of the underlying property has been impacted.

Impaired

All commercial mortgage loans.   A commercial mortgage loan is considered impaired when it is probable thatloans in the Company will not collect all amounts due per the terms of the promissory note. Impaired loansCompany's portfolio are carried at the lower of the unpaid principal balance or fair value of the underlying collateral. Interest income on impaired mortgage loans is only recognized when a payment is received.

There were no impaired commercial mortgage loanscurrent as of December 31, 20182020 and 2017.

December 31, 2019.
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Policy Loans

Accounting policy.policy. Policy loans, primarily associated with our corporate ownedcorporate-owned life insurance business, are carried at unpaid principal balances plus accumulated interest, the total of which approximates fair value. These loans are collateralized by life insurance policy cash values and therefore have minimal exposure to credit loss. Interest rates are reset annually based on a rolling average of benchmark interest rates.

Other Long-Term Investments

Accounting policy.Other long-term investments include investments in unconsolidated entities. These entities, includeincluding certain limited partnerships and limited liability companies holding real estate, securities or loans. These investments are carried at cost plus the Company's ownership percentage of reportedreporting income or loss, based on the financial statements of the underlying investments that are generally reported at fair value. Income or loss from these investments is reported on a one quarter lag due to the timing of when financial information is received from the general partner or manager of the investments.

Other long-term investments also include investment real estate carried at depreciated cost less any impairment write-downs to fair value when cash flows indicate that the carrying value may not be recoverable. Depreciation is generally recorded using the straight-line method based on the estimated useful life of each asset. Investment real estate as of December 31, 20182020 and 20172019 is expected to be held longer than one year and includesmay include real estate acquired through the foreclosure of commercial mortgage loans.

Additionally, statutory and other long-term investments includesrestricted deposits, healthcare related investment partnerships and foreign currency swaps carried at fair value.value are reported in the table below as Other. See discussion below for information on the Company'sCompany’s accounting policies for these derivative financial instruments.

Other long-term investments and related commitments are diversified by issuer, property type and geographic regions. A majority of these investments are unconsolidated variable entities, see Note 13 for additional information. The following table provides unfunded commitment and carrying value information for these investments. The Company expects to disburse approximately 26%38% of the committed amounts in 2019.

2021.
Unfunded Commitments as of
Carrying value as of December 31,
(In millions)20202019December 31, 2020
Real estate investments$951 $788 $677 
Securities partnerships1,683 1,409 1,617 
Other198 206 31 
Total$2,832 $2,403 $2,325 

  Carrying value as of
December 31,		  Unfunded
Commitments
as of
​​​ ​ ​​ ​​​​

(In millions)

  2018  2017  December 31, 2018
​ ​​ ​​​ ​ ​​​

Real estate investments

 $679 $591 $376

Securities partnerships

  1,045  863  1,063

Other

 ​177 ​64 ​33
​​​ ​ ​​​ ​​ ​

Total

 $1,901 $1,518 $1,472
​​​ ​ ​​ ​ ​​ ​

Short-Term Investments and Cash Equivalents

Short-Term Investments and Cash Equivalents

Accounting policy.Security investments with maturities of greater than three months to one year from time of purchase are classified as short-term, available for sale and carried at fair value that approximates cost. Cash equivalents consist of short-term investments with maturities of three months or less from the time of purchase and are carried at cost that approximates fair value.

Short-term investments and cash equivalents included the following types of issuers:

issuers. The increase since prior year end is substantially attributable to proceeds received on December 31, 2020 from the U.S. Group Disability and Life business divestiture, see Note 5 for further information.
(In millions)December 31, 2020December 31, 2019
Corporate securities$2,669 $1,985 
Federal government securities$158 $472 
Foreign government securities$90 $65 
Money market funds$5,134 $631 

(In millions)

  December 31,
2018		  December 31,
2017
​ ​​ ​​​ ​

Corporate securities

 $581 $1,143

Federal government securities

 $82 $604

Foreign government securities

 $238 $159

Money market funds

 $1,174 $12
​ ​​ ​​​ ​

​96    CIGNA CORPORATION - 2018 Form10-K​​

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PART II
ITEM 8.B.Derivative Financial Statements and Supplementary Data

Instruments

Derivative Financial Instruments

The Company uses derivative financial instruments to manage the characteristics of investment assets (such as duration, yield, currency and liquidity) to meet the varying demands of the related insurance and contract holder liabilities. The Company also uses derivative financial instruments to hedge the risk of changes in the net assets of certain of its foreign subsidiaries due to changes in foreign currency exchange rates. The Company has written and purchased GMIB reinsurance contracts in its run-off reinsurance business that are accounted for as freestanding derivatives andas discussed further in Note 8.10. Derivatives in the Company'sCompany’s separate accounts

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are excluded from the following discussion because associated gains and losses generally accrue directly to separate account policyholders.

Derivative instruments used by the Company typically include foreign currency swap contracts and foreign currency forward contracts. Foreign currency swap contracts periodically exchange cash flows between two currencies for principal and interest. Foreign currency forward contracts require the Company to purchase a foreign currency in exchange for the functional currency of its operating unit at a future date, generally within three months from the contracts' trade dates.

date.

The Company manages the credit risk of these derivative instruments by diversifying its portfolio among approved dealers of high credit quality and through routine monitoring of credit risk exposures. Certain of the Company'sCompany’s over-the-counter derivative instruments require either the Company or the counterparty to post collateral or demand immediate payment depending on the amount of the net liability position of the derivative instrument and predefined financial strength or credit rating thresholds. These collateral posting requirements vary by counterpartycounterparty. The Company may incur a loss if dealers failed to perform under derivative contracts, however collateral has been posted by dealers to cover substantially all of the net fair values owed at December 31, 2020 and amountsDecember 31, 2019. The fair value of collateral posted wereby the Company was not significant as of December 31, 20182020 or 2017.

December 31, 2019.

Accounting policy.Derivatives are recorded on our balance sheet at fair value and are classified as current or non-current according to their contractual maturities. Further information on our policies for determining fair value are discussed in Note 10. Derivative cash flows are generally reported in operating activities.12. The Company applies hedge accounting when derivatives are designated, qualified and highly effective as hedges. Under hedge accounting, the changes in fair value of the derivative and the hedged risk are generally recognized together and offset each other when reported in shareholders'Shareholders’ net income. Various qualitative or quantitative methods appropriate for each hedge are used to formally assess and document hedge effectiveness at inception and each period throughout the life of a hedge.

The gross fair values of our derivative financial instruments are presented in Note 12. The following table summarizes the types and notional quantity of derivative instruments held by the Company. As of December 31, 2020 and December 31, 2019, the effects of these individual hedging strategies were not material to the Consolidated Financial Statements, including gains or losses reclassified from accumulated other comprehensive income into shareholders' net income, as well as amounts excluded from the assessment of hedge effectiveness.
Notional Value as of
(In millions)December 31, 2020December 31, 2019
PurposeType of Instrument
Fair value hedge: To hedge the foreign exchange-related changes in fair values of certain foreign-denominated bonds. The notional value of these derivatives matches the amortized cost of the hedged bonds.
Foreign currency swap contracts$925 $817 
Net investment hedge: To reduce the risk of changes in net assets due to changes in foreign currency spot exchange rates for certain foreign subsidiaries that conduct their business principally in Euros, Korean Won and Taiwan Dollar. The notional value of hedging instruments matches the hedged amount of subsidiary net assets.
Foreign currency swap contracts$526 $438 
Foreign currency forward contracts$636 $406 
Economic hedge: To hedge the foreign exchange-related changes in fair value of U.S. dollar-denominated investment assets to reflect the local currency for the Company’s foreign subsidiary in South Korea. The notional value of hedging instruments generally aligns with the fair value of the hedged investments.
Foreign currency forward contracts$538 $410 
The Company’s derivative financial instruments are presented as follows: 
•
Fair value hedges of the foreign exchange-related changes in fair values of certain fixed maturity foreign-denominated bonds:bonds: Swap fair values are reported in long-termLong-term investments or otherOther non-current liabilities. Changes in fair values attributable to foreign exchange risk of the swap contracts and the hedged bonds are reported in other realizedRealized investment gains and losses. The portion of the swap contracts'contracts’ changes in fair value excluded from the assessment of hedge effectiveness is recorded in accumulated otherOther comprehensive income and recognized in netNet investment income as swap coupon payments are accrued, offsetting the foreign denominatedforeign-denominated coupons received on the designated bonds.

Net cash flows are reported in Operating activities, while exchanges of notional principal amounts are reported in Investing activities.
•
Net investment hedges of certain foreign subsidiaries that conduct their business principally in Euros:currencies other than the U.S. dollar: The fair values of the foreign currency swap and forward contracts are reported in otherOther assets or other non-currentOther liabilities. The changes in fair values of these instruments are reported in otherOther comprehensive income, specifically in translation of foreign currencies. The portion of the change in swap fair values relating to foreign exchange spot rates will be recognized in earnings upon deconsolidation of the hedged foreign subsidiaries. The remaining changes in swap fair value of these instruments are excluded from theour effectiveness assessment and recognized in selling, general and administrative expenses as swapinterest expense when coupon payments are accrued.accrued or ratably
113

over the term of the instrument. The notional value of hedging instruments matches the hedged amount of subsidiary net assets.

Cash flows relating to these contracts are reported in Investing activities.
•
Economic hedges for derivatives not designated as accounting hedges:hedges: Fair values of derivative instrumentsforward contracts are reported in currentCurrent investments or accruedAccrued expenses and other liabilities. The changes in fair values are reported in net realizedRealized investment gains and losses.

Gross fair values Cash flows relating to these contracts are reported in Investing activities.

Concentration of our derivative financial instruments are presented in Note 10. As of December 31, 2018 and 2017, the effects of derivative instruments on the Consolidated Financial Statements were not material, including gains or losses reclassified from accumulated other comprehensive income into shareholders' net income, as well as amounts excluded from the assessment of hedge effectiveness. The following table summarizes the types and notional quantity of derivative instruments held by the Company.

Risk
(In millions)    Notional Value as
of December 31,
​​​​​ ​ ​​​
Type of Instrument Purpose  2018  2017
​ ​​ ​​ ​ ​​ ​
Foreign currency swap contracts Fair value hedge: To hedge the foreign exchange-related changes in fair values of certain fixed maturity foreign-denominated bonds. The notional value of these derivatives matches the amortized cost of the hedged bonds. $525 $318
Foreign currency swap contracts Net investment hedge: To reduce the risk of changes in net assets due to changes in foreign currency spot exchange rates for certain foreign subsidiaries that conduct their business principally in Euros. The notional value of hedging instruments matches the hedged amount of subsidiary net assets. $439 $—
Foreign currency forward contracts Economic hedge: To hedge the foreign exchange related changes in fair values of a U.S. dollar-denominated fixed maturity bond portfolio to reflect the local currency for the Company's foreign subsidiary in South Korea. The notional value of hedging instruments generally aligns with the fair value of the hedged bond portfolio. $309 $255

Concentration of Risk

The Company did not have a concentration of investments in a single issuer or borrower exceeding 10% of shareholders' equity as of December 31, 2018 and 2017.

​​​CIGNA CORPORATION - 2018 Form10-K    97

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PART II
ITEM 8. Financial Statements and Supplementary Data

2020 or 2019.
C.Net Investment Income

B.       Net Investment Income

Accounting policy. When interest and principal payments on investments are current, the Company recognizes interest income when it is earned. The Company recognizes interest income on a cash basis when interest payments are delinquent based on contractual terms or when certain terms (interest rate or maturity date) of the investment have been restructured. For unconsolidated entities that are included in Other long-term investments, investment income is generally recognized according to the Company'sCompany’s share of the reported income or loss on the underlying investments. Investment income attributed to the Company'sCompany’s separate accounts is excluded from our earnings because associated gains and losses generally accrue directly to separate account policyholders.

The components of pre-tax netNet investment income for the years ended December 31 were as follows:

(In millions)202020192018
Debt Securities$962 $986 $1,009 
Equity securities11 5 28 
Commercial mortgage loans80 88 78 
Policy loans64 66 70 
Other long-term investments127 167 156 
Short-term investments and cash52 131 194 
Total investment income1,296 1,443 1,535 
Less investment expenses52 53 55 
Net investment income$1,244 $1,390 $1,480 

D.Realized Investment Gains and Losses
(In millions)  2018  2017  2016 
​​​ ​ ​​ ​​​ ​ ​
Fixed maturities $1,009 $946 $899 
Equity securities  28  14  4 
Commercial mortgage loans ​78 ​81 ​91 
Policy loans  70  69  72 
Other long-term investments ​156 ​124 ​98 
Short-term investments and cash  194  42  26 
​​​ ​ ​​ ​​​ ​ ​
Total investment income ​1,535 ​1,276 ​1,190 
Less investment expenses  55  50  43 
​​​ ​ ​​ ​​​ ​ ​
Net investment income $1,480 $1,226 $1,147 
​​​ ​ ​​ ​ ​​ ​ ​

Real estate investments and securities partnerships with a carrying value of $150 million at December 31, 2018 and $191 million at December 31, 2017 were non-income producing during the preceding twelve months.

C.       Realized Investment Gains And Losses

Accounting policy.Realized investment gains and losses are based on specifically identified assets and resultsresult from sales, investment asset write-downs, changeschange in the fair valuesvalue of certain derivatives and equity securities and changes in valuation reserves on commercial mortgage loans.

Commencing January 1, 2020, realized gains and losses also include credit loss expense resulting from the impact of changes in the allowances for credit losses on debt securities and commercial mortgage loan investments under ASU 2016-13.

Gains and losses relating to the transfers of investment assets associated with the divestiture of the U.S. Group Disability and Life business are excluded from the activity below, see Note 5 for further information. The following realized gains and losses on investments for the years ended December 31 exclude amounts required to adjust future policy benefits for the run-off settlement annuity business (consistent with accounting for a premium deficiency, see Note 9 for further information), as well as realized gains and losses attributed to the Company'sCompany’s separate accounts because those gains and losses generally accrue directly to separate account policyholders.

(In millions)202020192018
Net realized investment gains (losses), excluding credit loss expense and asset write-downs$186 $189 $(34)
Credit loss (expense) recoveries on invested assets(27)0 0 
Other investment asset write-downs(10)(12)(47)
Net realized investment gains (losses), before income taxes$149 $177 $(81)
(In millions)  2018  2017  2016 
​​​ ​ ​​ ​ ​​ ​ ​
Net realized investment (losses) gains, excluding investment asset write-downs $(34)$268 $227 
Write-downs on debt securities  (43) (26) (35)
Write-downs on other invested assets ​(4)​(5)​(23)
​​​ ​ ​​ ​ ​​ ​ ​
Net realized investment (losses) gains, before income taxes $(81)$237 $169 
​​​ ​ ​​ ​​​ ​ ​

Net realized investment gains, excluding credit loss expense and asset write-downs for the year ended December 31, 2020 was primarily driven by mark-to-market gains on equity securities and sales of debt securities, while this activity for the year ended December 31, 2019 was primarily driven by gains on the sales of real estate partnerships and debt securities. Net realized investment losses, excluding investmentcredit loss expense and asset write-downs in 2018 represent primarily mark to marketrepresented mark-to-market losses on equity securities and

114

derivatives, and net losses on sales of fixed maturities, partially offset by net gains on the sales of real estate properties heldpartnerships. Credit loss (expense) recoveries on invested assets for the year ended December 31, 2020reflects credit losses incurred primarily on debt securities due to uncertainty around issuers in joint ventures. Net realized investmentcertain industries that are particularly impacted by the global COVID-19 pandemic. Realized gains excluding asset write-downs in 2017 and 2016 represented primarily gains on sales of real estate properties held in joint ventures and gains on sales of fixed maturities and equity securities. Realized losses on equity securities still held at December 31, 2020, 2019 and 2018 were $33 million in 2018.

not material.

The following table presents sales information for available-for-sale securities (fixed maturities for the year ended in 2018, and fixed maturities and equity securities for the years ended in 2017 and 2016).debt securities. Gross gains on sales and gross losses on sales exclude amounts required to adjust future policy benefits for the run-off settlement annuity business.

(In millions)202020192018
Proceeds from sales$2,186 $3,077 $2,625 
Gross gains on sales$89 $72 $28 
Gross losses on sales$(23)$(19)$(47)

(In millions)  2018  2017  2016 
​​​ ​ ​​ ​​​ ​ ​
Proceeds from sales $2,625 $2,012 $1,544 
Gross gains on sales $28 $103 $83 
Gross losses on sales $(47)$(18)$(7)
​ ​​ ​ ​​ ​ ​​ ​ ​

Note 10

Note 12 – Fair Value Measurements

The Company carries certain financial instruments at fair value in the financial statements including fixed maturities,debt securities, certain equity securities, short-term investments and derivatives. Other financial instruments are measured at fair value only under certain conditions, such as when impaired.

impaired or when there are observable price changes for equity securities with no readily determinable fair value.

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. A liability'sliability’s fair value is defined as the amount that would be paid to transfer the liability to a market participant, not the amount that would be paid to settle the liability with the creditor.

The Company'sCompany’s financial assets and liabilities carried at fair value have been classified based upon a hierarchy defined by GAAP. The hierarchy gives the highest ranking to fair values determined using unadjusted quoted prices in active markets for identical assets and liabilities (Level 1) and the lowest ranking to fair values determined using methodologies and models with unobservable inputs (Level 3). An asset'sasset’s or a liability's

​98    CIGNA CORPORATION - 2018 Form10-K​​

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PART II
ITEM 8. Financial Statements and Supplementary Data

liability’s classification is based on the lowest level of input that is significant to its measurement. For example, a financial asset or liability carried at fair value would be classified in Level 3 if unobservable inputs were significant to the instrument'sinstrument’s fair value, even though the measurement may be derived using inputs that are both observable (Levels 1 and 2) and unobservable (Level 3).

The Company estimates fair values using prices from third parties or internal pricing methods. Fair value estimates received from third-party pricing services are based on reported trade activity and quoted market prices when available, and other market information that a market participant maywould use to estimate fair value. The internal pricing methods are performed by the Company'sCompany’s investment professionals and generally involve using discounted cash flow analyses, incorporating current market inputs for similar financial instruments with comparable terms and credit quality as well as other qualitative factors. In instances where there is little or no market activity for the same or similar instruments, fair value is estimated using methods, models and assumptions that the Company believes a hypothetical market participant would use to determine a current transaction price. These valuation techniques involve some level of estimation and judgment that becomes significant with increasingly complex instruments or pricing models.

The Company is responsible for determining fair value as well asand for assigning the appropriate level within the fair value hierarchy based on the significance of unobservable inputs. The Company reviews methodologies, processes and controls of third-party pricing services and compares prices on a test basis to those obtained from other external pricing sources or internal estimates. The Company performs ongoing analyses of both prices received from third-party pricing services and those developed internally to determine that they represent appropriate estimates of fair value. The controls executed by the Company include evaluating changes in prices and monitoring for potentially stale valuations. The Company also performs sample testing of sales values to confirm the accuracy of prior fair value estimates. The minimal exceptions identified during these processes indicate that adjustments to prices are infrequent and do not significantly impact valuations. Annually, we conduct an on-site visitAn annual due-diligence review of the most significant pricing service is conducted to review their processes, methodologies and controls. This on-site review includes a walk-through of inputs for a sample of securities held across various asset types to validate the documented pricing process.

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A.       Financial Assets and Financial Liabilities Carried at Fair Value

A.Financial Assets and Financial Liabilities Carried at Fair Value

The following table provides information as of December 31, 20182020 and 2017December 31, 2019 about the Company'sCompany’s financial assets and liabilities carried at fair value. As a result of the U.S. Group Disability and Life business divestiture, debt securities with a fair value of $7.8 billion, primarily classified in Level 2 of the fair value hierarchy, were transferred to New York Life on December 31, 2020. See Note 5 for further information. Separate account assets that are also recorded at fair value on the Company'sCompany’s Consolidated Balance Sheets and are reported separately in the Separate Accounts section below as gains and losses related to these assets generally accrue directly to policyholders.

(In millions)Quoted Prices in Active Markets for Identical Assets
(Level 1)		Significant Other Observable Inputs
(Level 2)		Significant Unobservable Inputs
(Level 3)		Total
As of December 31, 2020As of December 31, 2019As of December 31, 2020As of December 31, 2019As of December 31, 2020As of December 31, 2019As of December 31, 2020As of December 31, 2019
Financial assets at fair value
Debt securities
Federal government and agency$207 $197 $249 $536 $0 $0 $456 $733 
State and local government0 0 167 810 0 0 167 810 
Foreign government0 0 2,498 2,228 13 28 2,511 2,256 
Corporate0 0 13,878 19,063 684 357 14,562 19,420 
Mortgage and other asset-backed0 0 309 398 126 138 435 536 
Total debt securities207 197 17,101 23,035 823 523 18,131 23,755 
Equity securities (1)
50 7 165 72 31 32 246 111 
Short-term investments0 0 325 423 0 0 325 423 
Derivative assets (3)
0 0 72 83 0 0 72 83 
Real estate funds priced at NAV as a practical expedient (2)
156 184 
Financial liabilities at fair value
Derivative liabilities$0 $0 $108 $18 $0 $0 $108 $18 
   Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)		  Significant Other
Observable Inputs
(Level 2)		  Significant
Unobservable
Inputs
(Level 3)		  Total
​​​ ​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​​​ ​ ​​​
As of December 31,
(In millions)		  2018  2017  2018  2017  2018  2017  2018  2017
​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​​​ ​ ​​ ​ ​​ ​
Financial assets at fair value ​  ​  ​  ​  ​  ​  ​  ​ 
Fixed maturities                        

Federal government and agency

 $209 $253 $501 $526 $— $— $710 $779

State and local government

  —  —  985  1,287  —  —  985  1,287

Foreign government

 ​— ​— ​2,356 ​2,442 ​6 ​45 ​2,362 ​2,487

Corporate

  —  —  18,127  17,658  234  430  18,361  18,088

Mortgage and other asset-backed

 ​— ​— ​372 ​343 ​138 ​154 ​510 ​497
​ ​​ ​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​​​ ​ ​​​
Total fixed maturities  209  253  22,341  22,256  378  629  22,928  23,138
Equity securities (1) ​384 ​412 ​43 ​73 ​32 ​103 ​459 ​588
Short-term investments  —  —  316  199  —  —  316  199
Derivative assets ​— ​— ​53 ​2 ​— ​— ​53 ​2
Real estate funds priced at NAV as a practical expedient (2)                    239  N/A
Financial liabilities at fair value ​  ​  ​  ​  ​  ​  ​  ​ 
Derivative liabilities $— $— $10 $25 $— $— $10 $25
​ ​​ ​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​​​ ​
(1)
Certain privateExcludes certain equity securities arethat have no longer carried atreadily determinable fair value under the policy election of ASU 2016-01 (Recognition and Measurement of Financial Assets and Financial Liabilities) beginning in 2018. Such private equity securities of $70 million were included in the Level 3 amount as of December 31, 2017. See Note 9 for additional information on this accounting policy change.

value.
(2)
CertainAs a practical expedient, certain real estate funds are carried at fair value (previously carried at cost) based on the Company'sCompany’s ownership share of the equity of the investee (Net Asset Value ("NAV"(“NAV”)) as a practical expedient including changes in the fair value of its underlying investments upon adopting ASU 2016-01 beginning in 2018.investments. The funds have a quarterly redemption frequency, 45-90 day redemption notice period and $57Company has $50 million in unfunded commitments in these funds as of December 31, 2018.2020.
(3)Derivative assets above include $34 million that are presented in the Short-term investments category in Note 11. See Note 911 for additionalmore information on thisour accounting change. Prior years are designated as not applicable ("N/A") in this table.for Derivative Financial Instruments.

Level 1 Financial Assets

Inputs for instruments classified in Level 1 include unadjusted quoted prices for identical assets in active markets accessible at the measurement date. Active markets provide pricing data for trades occurring at least weekly and include exchanges and dealer markets.

Assets in Level 1 include actively-traded U.S. government bonds and exchange-listed equity securities. A relatively small portion of the Company'sCompany’s investment assets are classified in this category given the narrow definition of Level 1 and the Company'sCompany’s investment asset strategy to maximize investment returns.

​​​CIGNA CORPORATION - 2018 Form10-K    99

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PART II
ITEM 8. Financial Statements and Supplementary Data

Level 2 Financial Assets and Financial Liabilities

Inputs for instruments classified in Level 2 include quoted prices for similar assets or liabilities in active markets, quoted prices from those willing to trade in markets that are not active or other inputs that are market observable or can be corroborated by market data for the term of the instrument. Such other inputs include market interest rates and volatilities, spreads and yield curves. An instrument is classified in Level 2 if the Company determines that unobservable inputs are insignificant.

Fixed maturities

Debt and equity securities.securities. Approximately 96%94% of the Company'sCompany’s investments in fixed maturitiesdebt and equity securities are classified in Level 2 including most public and private corporate debt and hybrid equity securities, federal agency and municipal bonds, non-government mortgage-backed securities and preferred stocks. Third-party pricing services and internal methods often use recent trades of securities
116

with similar features and characteristics because many fixed maturitiesdebt securities do not trade daily. Pricing models are used to determine these prices when recent trades are not available. These models calculate fair values by discounting future cash flows at estimated market interest rates. Such market rates are derived by calculating the appropriate spreads over comparable U.S. Treasury securities based on the credit quality, industry and structure of the asset. Typical inputs and assumptions to pricing models include, but are not limited to, a combination of benchmark yields, reported trades, issuer spreads, liquidity, benchmark securities, bids, offers, reference data and industry and economic events. For mortgage-backed securities, inputs and assumptions may also include characteristics of the issuer, collateral attributes, prepayment speeds and credit rating.

Nearly all of these instruments are valued using recent trades or pricing models. Less than 1% of the fair value of investments classified in Level 2 represents foreign bonds that are valued using a single, unadjusted market-observable input derived by averaging multiple broker-dealer quotes, consistent with local market practice.

Short-term investments are carried at fair value whichthat approximates cost. The Company compares market prices for these securities to recorded amounts on a regular basis to validate that current carrying amounts approximate exit prices. The short-term nature of the investments and corroboration of the reported amounts over the holding period support their classification in Level 2.

Derivative assets and liabilities classified in Level 2 represent over-the-counter instruments such as foreign currency forward and swap contracts. Fair values for these instruments are determined using market observable inputs including forward currency and interest rate curves and widely published market observable indices. Credit risk related to the counterparty and the Company is considered when estimating the fair values of these derivatives. However, the Company is largely protected by collateral arrangements with counterparties and determined that no adjustment0 adjustments for credit risk waswere required as of December 31, 20182020 or 2017.2019. The nature and use of these derivative financial instruments are described in Note 9.

11.

Level 3 Financial Assets and Financial Liabilities

Certain inputs for instruments classified in Level 3 are unobservable (supported by little or no market activity) and significant to their resulting fair value measurement. Unobservable inputs reflect the Company'sCompany’s best estimate of what hypothetical market participants would use to determine a transaction price for the asset or liability at the reporting date.

The Company classifies certain newly issued,newly-issued, privately-placed, complex or illiquid securities in Level 3. Approximately 2%5% of fixed maturitiesdebt and equity securities are priced using significant unobservable inputs and classified in this category.

Fair values of mortgage and other asset-backed securities, as well as corporate and government fixed maturitiesdebt securities, are primarily determined using pricing models that incorporate the specific characteristics of each asset and related assumptions including the investment type and structure, credit quality, industry and maturity date in comparison to current market indices, spreads and liquidity of assets with similar characteristics. Inputs and assumptions for pricing may also include characteristics of the issuer, collateral attributes and prepayment speeds for mortgage and other asset-backed securities. Recent trades in the subject security or similar securities are assessed when available, and the Company may also review published research in its evaluation, as well as the issuer'sissuer’s financial statements.

Quantitative Information about Unobservable Inputs

The following table summarizes the fair value and significant unobservable inputs used in pricing the following fixed maturitiesdebt securities that were developed directly by the Company as of December 31, 20182020 and 2017.2019. The range and weighted average basis point (“bps”) amounts ("bps") for liquidity and credit spreads (adjustment to discount rates) reflect the Company'sCompany’s best estimates of the unobservable adjustments a market participant would make to calculate these fair values.

These liquidity and credit spreads have increased over the reported periods, resulting from continued uncertainty over the economic impacts related to COVID-19.

Corporate and government debt securities. The significant unobservable input used to value the following corporate and government debt securities is an adjustment for liquidity. This adjustment is needed to reflect current market conditions and issuer circumstances when there is limited trading activity for the security.
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Mortgage and other asset-backed securities. The significant unobservable inputs used to value the following mortgage and other asset-backed securities are liquidity and weighting of credit spreads. An adjustment for liquidity is made as of the measurement date that considers current market conditions, issuer circumstances and complexity of the security structure when there is limited trading activity for the security. An adjustment to weight credit spreads is needed to value a more complex bond structure with multiple underlying collateral and no standard market valuation technique. The weighting of credit spreads is primarily based on the underlying collateral'scollateral’s characteristics and their proportional cash flows supporting the bond obligations.

​100    CIGNA CORPORATION - 2018 Form10-K​​

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PART II
ITEM 8. Financial Statements and Supplementary Data

Corporate and government fixed maturities.   The significant unobservable input used to value the following corporate and government fixed maturities is an adjustment for liquidity. An adjustment is needed to reflect current market conditions and issuer circumstances when there is limited trading activity for the security.

Fair Value as ofUnobservable Adjustment Range (Weighted Average by Quantity) as of
(Fair value in millions )December 31, 2020December 31, 2019Unobservable input December 31, 2020December 31, 2020December 31, 2019
Debt securities
Corporate and government debt securities$696 $385 Liquidity60 - 1370 (470)bps70 - 930 (280)bps
Mortgage and other asset-backed securities126 138 Liquidity60 - 380 (80)bps60 - 370 (70)bps
Weighting of credit spreads300 - 670 (480)bps240 - 460 (330)bps
Securities not priced by the Company (1)
1 0 
Total Level 3 debt securities$823 $523 

  Fair Value   Unobservable Adjustment
Range (Weighted Average)
​​​ ​ ​​ ​ ​​ ​​ ​​

As of December 31,
(Fair value in millions)

  2018  2017 Unobservable Input 2018 2017
​ ​​ ​​​ ​ ​​​​ ​​

Fixed maturities

 ​  ​       

Mortgage and other asset-backed securities

 $138 $154 Liquidity 60 – 340 (70) bps 60 – 370 (90) bps

​

 ​​ ​​ Weighting of credit spreads 190 – 340 (260) bps 180 – 290 (230) bps

Corporate and government fixed maturities

  229  446 Liquidity 50 – 930 (230) bps 70 – 1,650 (300) bps
​ ​​ ​​​ ​ ​​​​ ​​

Securities not priced by the Company (1)

 ​11 ​29 ​ ​ ​
​​​ ​ ​​ ​ ​​ ​​ ​​

Total Level 3 fixed maturities

 $378 $629      
​ ​​ ​​​ ​ ​​​​ ​​
(1)
The fair values for these securities use single, unadjusted non-binding broker quotes not developed directly by the Company.

Significant increases in liquidity or credit spreads would result in lower fair value measurements while decreases in these inputs would result in higher fair value measurements. The unobservable inputs are generally not interrelated and a change in the assumption used for one unobservable input is not accompanied by a change in the other unobservable input.

Changes in Level 3 Financial Assets and Financial Liabilities Carried at Fair Value

The following table summarizestables summarize the changes in financial assets and financial liabilities classified in Level 3 for the years ended December 31, 20182020 and 2017.2019. Gains and losses reported in this tablethese tables may include net changes in fair value that are attributable to both observable and unobservable inputs.

(In millions)20202019
Balance at beginning of period$555 $410 
Total gains (losses) included in shareholders’ net income(7)(8)
Gains (losses) included in other comprehensive income(12)22 
Gains (losses) required to adjust future policy benefits for settlement annuities (1)
7 2 
Purchases, sales and settlements
Purchases107 72 
Sales (2)
(121)0 
Settlements(89)(19)
Total purchases, sales and settlements$(103)$53 
Transfers into/(out of) Level 3
Transfers into Level 3774 170 
Transfers out of Level 3(360)(94)
Total transfers into/(out of) Level 3$414 $76 
Balance at December 31,$854 $555 
Total gains (losses) included in shareholders’ net income attributable to instruments held at the reporting date$(17)$(8)
Change in unrealized gains or losses included in other comprehensive income for assets held at the end of the reporting period$(6)N/A
 
 Fixed
Maturities &
Equity
Securities
​​​ ​ ​​ ​

(In millions)

  2018  2017
​ ​​ ​ ​​ ​

Balance at January 1,

 $732 $776

Total gains (losses) included in shareholders' net income

  (22)  25

Losses included in other comprehensive income

 ​(8) ​(11)

Gains (losses) required to adjust future policy benefits for settlement annuities (1)

  (8)  7

Purchases, sales, settlements

 ​  ​ 

Purchases

  22  133

Sales

 ​(11) ​(95)

Settlements

  (70)  (74)
​ ​​ ​ ​​ ​

Total purchases, sales and settlements

  (59)  (36)

Transfers into/(out of) Level 3

 ​  ​ 

Transfers into Level 3

  44  275

Transfers out of Level 3 (2)

 ​(269) ​(304)
​ ​ ​ ​ ​ ​​

Total transfers into/(out of) Level 3

  (225)  (29)
​ ​​ ​ ​​ ​

Balance at December 31,

 $410 $732
​ ​ ​ ​ ​ ​​

Total gains (losses) included in shareholders' net income attributable to instruments held at the reporting date

 $(9) $(9)
​ ​​ ​ ​​ ​
(1)
Amounts do not accrue to shareholders.

(2)
BeginningSales in 2018, certain private equity securities are no longer carried at fair value under the policy election of ASU 2016-01 (Recognition and Measurement of Financial Assets and Financial Liabilities). Private equity securities of $702020 include $108 million as of December 31, 2017 are included in the 2018 Transfers out of Level 3 amount.
debt securities transferred to New York Life Insurance Company on December 31, 2020 as part of the U.S. Group Disability and Life business divestiture. See Note 5 for further details.

Total gains and losses included in shareholders'Shareholders’ net income in the tabletables above are reflected in the Consolidated Statements of Income as Net realized investment gains (losses) and netNet investment income.

Gains and losses included in otherOther comprehensive income in the tables above are reflected in netNet unrealized (depreciation) appreciation (depreciation) on securities and derivatives in the Consolidated Statements of Comprehensive Income.

Transfers into or out of the Level 3 category occur when unobservable inputs, such as the Company'sCompany’s best estimate of what a market participant would use to determine a current transaction price, become more or less significant to the fair value measurement. Market
118

activity typically decreases during periods of economic uncertainty, and this decrease in activity reduces the availability of market observable data. As a result, the level of unobservable judgement that must be applied to the pricing of certain instruments increases, and is typically observed through the widening of liquidity and credit spreads. Transfers between Level 2 and Level 3 during 20182020 and 20172019 primarily reflected changes in liquidity and credit risk estimates for certain private placement issuers across several sectors. As noted above, transfersTransfers into and out of Level 3 during 2018 also include $70 million of private equity securities that are no longer carried at fair value.

higher in 2020 due to fluctuations in liquidity and credit spreads over the reported periods, resulting from continued uncertainty over the economic impacts related to COVID-19. See discussion under Quantitative Information about Unobservable Inputs above for more information.


Separate Accounts

Accounting policy.Separate account assets and liabilities are contractholder funds maintained in accounts with specific investment objectives. The assets of these accounts are legally segregated and are not subject to claims that arise out of any of the Company'sCompany’s other businesses. These separate account assets are carried at fair value with equal amounts recorded for related separate account liabilities. The investment income and fair value gains and losses of these accountsseparate account assets generally accrue directly to the contractholders and, together with their deposits and withdrawals, are excluded from the Company'sCompany’s Consolidated Statements of Income and Cash Flows. Fees and charges earned for

​​​CIGNA CORPORATION - 2018 Form10-K    101

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PART II
ITEM 8. Financial Statements and Supplementary Data

mortality risks, asset management or administrative services are reported in either premiumsPremiums or feesFees and other revenues. Investments that are measured using the practical expedient of NAV are excluded from the fair value hierarchy.

Fair values of separate account assets at December 31 were as follows:

(In millions)Quoted Prices in Active Markets for Identical Assets
(Level 1)		Significant Other Observable Inputs
(Level 2)		Significant Unobservable Inputs
(Level 3)		Total
20202019202020192020201920202019
Guaranteed separate accounts (See Note 21)$226 $219 $297 $271 $0 $0 $523 $490 
Non-guaranteed separate accounts (1)
1,925 1,450 5,600 5,522 355 263 7,880 7,235 
Subtotal$2,151 $1,669 $5,897 $5,793 $355 $263 8,403 7,725 
Non-guaranteed separate accounts priced at NAV as a practical expedient (1)
683 756 
Total8,481 
Separate account assets of business classified as held for sale(16)
Separate account assets per Consolidated Balance Sheets$9,086 $8,465 
 
 Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
 Significant
Other
Observable
Inputs
(Level 2)
 Significant
Unobservable
Inputs
(Level 3)
 Total
​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​

(In millions)

  2018  2017  2018  2017  2018  2017  2018  2017
​​​ ​ ​​ ​​​ ​ ​​ ​​​ ​ ​​ ​​​ ​ ​​ ​

Guaranteed separate accounts (See Note 19)

 $187 $215 $267 $308 $— $— $454 $523

Non-guaranteed separate accounts (1)

  1,204  1,536  5,216  5,298  233  292  6,653  7,126
​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​

Subtotal

 $1,391 $1,751 $5,483 $5,606 $233 $292 ​7,107 ​7,649

Non-guaranteed separate accounts priced at NAV as a practical expedient (1)

                    732  774
​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​

Total separate account assets

 ​​ ​​ ​​ ​​ ​​ ​​ $7,839 $8,423
​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​
(1)
Non-guaranteed separate accounts included $3.8$4.2 billion as of December 31, 20182020 and $3.9$4.0 billion as of December 31, 20172019 in assets supporting the Company'sCompany’s pension plans, including $0.3 billion classified in Level 3 as of December 31, 2020 and $0.2 billion classified in Level 3 as of December 31, 2018 and $0.3 billion classified in Level 3 as of December 31, 2017.
2019.

Separate account assets inclassified as Level 1 primarily include exchange-listed equity securities. Level 2 assets primarily include:

•
corporate and structured bonds valued using recent trades of similar securities or pricing models that discount future cash flows at estimated market interest rates as described above; and

•
actively-traded institutional and retail mutual fund investments.

Separate account assets classified in Level 3 primarily support Cigna'sCigna’s pension plans and include commercial mortgage loans as well as certain newly issued,newly-issued, privately-placed, complex, or illiquid securities that are priced using methods discussed above.above, as well as commercial mortgage loans. Activity, including transfers into and out of Level 3, was not material for 2018in 2020 or 2017.

2019.

119

Separate account investments in securities partnerships, real estate and hedge funds are generally valued based on the separate account'saccount’s ownership share of the equity of the investee (NAV as a practical expedient), including changes in the fair values of its underlying investments. Substantially all of these assets support the Cigna Pension Plans. The following table provides additional information on these investments.

Fair Value as ofUnfunded Commitment as of December 31, 2020Redemption Frequency
(if currently eligible)		Redemption Notice
Period
(In millions)December 31, 2020December 31, 2019
Securities partnerships$463 $531 $272 Not applicableNot applicable
Real estate funds215 220 0 Quarterly30 - 90 days
Hedge funds5 5 0 Up to annually, varying by fund30 - 90 days
Total$683 $756 $272 
 
 Fair Value as of Unfunded
Commitments
as of
December 31,
2018
  
  
(In millions)
 December 31,
2018
 December 31,
2017
 Redemption Frequency
(if currently eligible)
 Redemption
Notice Period
​ ​​ ​ ​​ ​​​ ​ ​​​​ ​

Securities partnerships

 $477 $458 $308 Not applicable ​Not applicable

Real estate funds

  237  239  — Quarterly  30-90 days

Hedge funds

 ​18 ​77 ​— Up to annually, varying by fund ​30-90 days
​​​ ​ ​​​ ​​ ​ ​​ ​​ ​

Total

 $732 $774 $308     
​​​ ​ ​​​ ​​ ​ ​​ ​​ ​

As of December 31, 2020, the Company does not have plans to sell any of these assets at less than fair value. These investments are structured to satisfy longer-term investment objectives. Securities partnerships are contractually non-redeemable, and the underlying investment assets are expected to be liquidated by the fund managers within ten years after inception.

B.    Assets and Liabilities Measured at Fair Value under Certain Conditions

B.Assets and Liabilities Measured at Fair Value under Certain Conditions

Some financial assets and liabilities are not carried at fair value each reporting period, but may be measured using fair value only under certain conditions such as investments when theyinvestments become impaired, including investment real estate and commercial mortgage loans and certain equity securities with no readily determinable fair value. RecordedFor 2020 and 2019, there were 0 such impairments. Equity securities with no readily determinable fair value are also measured at fair value when there are observable price changes from orderly transactions with the same issuer. There were $75 million in 2020 and $22 million in 2019 of realized investment gains relating to price changes for equity securities with no readily determinable fair value. Carrying values for these asset types representingrepresented less than 1% of total investments were written down to their fair values, resulting in immaterial realized investment losses in 2018as of both 2020 and 2017.

2019.

C.    Fair Value Disclosures for Financial Instruments Not Carried at Fair Value

C.Fair Value Disclosures for Financial Instruments Not Carried at Fair Value

The following table includes the Company'sCompany’s financial instruments not recorded at fair value that are subject to fair value disclosure requirements at December 31, 20182020 and 2017.2019. In addition to universal life products and capitalfinance leases, financial instruments that are carried in the Company'sCompany’s Consolidated Financial Statements at amounts that approximate fair value are excluded from the following table.

December 31, 2020December 31, 2019
(In millions)Classification in Fair Value HierarchyFair ValueCarrying ValueFair ValueCarrying Value
Commercial mortgage loansLevel 3$1,456 $1,419 $1,989 $1,947 
Long-term debt, including current maturities, excluding finance leasesLevel 2$37,676 $31,835 $39,439 $36,375 
 
 Classification in
 December 31, 2018
 December 31, 2017
​​​​​ ​​​ ​ ​​ ​ ​​ ​

(In millions)

 Fair Value
Hierarchy		  Fair Value  Carrying
Value		  Fair Value  Carrying
Value
​​​ ​​ ​ ​​ ​ ​​ ​ ​​ ​

Commercial mortgage loans

 Level 3 $1,832 $1,858 $1,766 $1,761

Long-term debt, including current maturities, excluding capital leases

 Level 2 $40,819 $40,829 $5,730 $5,321
​ ​​ ​​ ​ ​​ ​ ​​ ​​​ ​

FairOff-balance sheet financial instruments include commitments to purchase debt securities or fund commercial mortgage loans at fixed rates of interest. The fair values of off-balance sheet financial instruments were not material as of December 31, 20182020 and 2017.

​102    CIGNA CORPORATION - 2018 Form10-K​​

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PART II
ITEM 8. Financial Statements and Supplementary Data

2019.

Note 11

Note 13 – Variable Interest Entities

When the Company becomes involved with a variable interest entity as well asand when there is a change in the Company'sCompany’s involvement with an entity, the Company must determine if it is the primary beneficiary and must consolidate the entity. The Company would beis considered the primary beneficiary if it has the power to direct the entity'sentity’s most significant economic activities orand has the right to receive benefits or obligation to absorb losses that could be significant to the entity. The Company evaluates the following criteria:

•
the structure and purpose of the entity;

•
the risks and rewards created by, and shared through, the entity; and

•
the Company'sCompany’s ability to direct its activities, receive its benefits and absorb its losses relative to the other parties involved with the entity including its sponsors, equity holders, guarantors, creditors and servicers.

120

The Company determined it was not a primary beneficiary in any material variable interest entities as of December 31, 2018 and 2017.2020 or December 31, 2019. The Company'sCompany’s involvement in variable interest entities wherefor which it is not the primary beneficiary is described below.

Securities limited partnerships and real estate limited partnerships. The Company owns interests in securities limited partnerships and real estate limited partnerships that are defined as unconsolidated variable interest entities. These partnerships invest in the equity or mezzanine debt of privately heldprivately-held companies and real estate properties. General partners unaffiliated with the Company control decisions that most significantly impact the partnership'spartnership’s operations and the limited partners do not have substantive kick-out or participating rights. The Company's maximum exposure to these entitiesCompany’s investments in approximately 150 limited partnerships that have a carrying value of $2.9$2.1 billion across approximately 130 limited partnerships as of December 31, 2018 includes $1.5 billion2020 and are reported in long-term investments andLong-term investments. We have commitments to contribute an additional $1.4 billion.$1.9 billion to these entities. The Company's non-controllingmaximum exposure to loss from these investments is $4.0 billion, calculated as the sum of our carrying value and the additional funding commitments. Our noncontrolling interest in each of these limited partnerships is generally less than 10%15% of the partnership ownership interests.

See Note 11 for further information on the Company's accounting policy for long-term investments.

Other asset-backed and corporate securities. In the normal course of its investing activities, the Company also makes passive investments in certain asset-backed and corporate securities that are issued by variable interest entities whose sponsors or issuers are unaffiliated with the Company. TheThese investments provide the Company receives fixed-rate cash flows from these investments and the maximum potential exposure to loss is limited to the carrying amount of $0.6 billionare accounted for as debt securities. As of December 31, 2018 that2020 the carrying value of these investments is reported in fixed maturities. The$0.5 billion, which represents the Company's maximum exposure related to these instruments. Our combined ownership interests are insignificant relative to the total principal amounts issued by these entities.

See Note 11 for further information on the Company's accounting policy for debt securities.

The Company is also involved in other types of variable interest entities, including real estate joint ventures that develop properties for residential and commercial use, independent physician associations ("IPAs")(IPAs) that provide care management services and ainternational healthcare joint venture in India that are variable interest entities.ventures. The carrying values and maximum exposures associated withfor each of these arrangements are immaterial.

types of unconsolidated variable interest entities was not material as of December 31, 2020.

The Company has not provided, and does not intend to provide, financial support to any of the abovevariable interest entities that it is not contractually required to provide. The Company performsin excess of its maximum exposure. We perform ongoing qualitative analyses of itsour involvement with these variable interest entities to determine if consolidation is required.

​​​CIGNA CORPORATION - 2018 Form10-K    103

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ITEM 8. Financial Statements and Supplementary Data

121

Note 12    Accumulated Other Comprehensive Income (Loss) ("AOCI")


Note 14 – Accumulated Other Comprehensive Income (Loss) (“AOCI”)
AOCI includes the Company's share from entities accounted for using the equity method. AOCI excludes amounts required to adjustunrealized appreciation on securities and derivatives (excluding appreciation on investments supporting future policy benefits forbenefit liabilities of the run-off settlement annuity businessbusiness) (See Note 11), foreign currency translation and a portion of deferred acquisition costs associated with the corporate-owned life insurance business.net postretirement benefits liability adjustment. AOCI includes the Company’s share from unconsolidated entities reported on the equity method. Generally, tax effects in AOCI are established at the currently enacted tax rate and reclassified to net income in the same period that the related pre-tax AOCI reclassifications are recognized. As discussed in Note 2, the Company early adopted ASU 2018-02 effective January 1, 2018 and $229 million of stranded tax effects resulting from U.S. tax reform legislation enacted in 2017 were reclassified from AOCI to retained earnings. Changes in the components of accumulated other comprehensive income (loss)AOCI were as follows:

For the Years Ended December 31,
(In millions)202020192018
Securities and Derivatives
Beginning balance$975 $18 $328 
Reclassification adjustment to retained earnings related to U.S. tax reform legislation— — 65 
Reclassification adjustment to retained earnings related to new financial instruments guidance— — (4)
Reclassification adjustment from retained earnings related to new hedging guidance— — (6)
Adjusted beginning balance975 18 383 
Appreciation (depreciation) on securities and derivatives776 1,266 (512)
Tax (expense) benefit(150)(270)100 
Net appreciation (depreciation) on securities and derivatives626 996 (412)
Reclassification adjustment for (gains) included in shareholders' net income ((gain) loss on sale of business)(862)0 0 
Reclassification adjustment for (gains) losses included in shareholders' net income (net realized investment (gains) losses)(26)(49)60 
Reclassification adjustment for tax expense (benefit) included in shareholders’ net income187 10 (13)
Net (gains) losses reclassified from AOCI to net income(701)(39)47 
Other comprehensive (loss) income, net of tax(75)957 (365)
Ending balance$900 $975 $18 
Translation of foreign currencies
Beginning balance$(275)$(221)$(65)
Reclassification adjustment to retained earnings related to U.S. tax reform legislation— — (4)
Adjusted beginning balance(275)(221)(69)
Translation of foreign currencies232 (57)(167)
Tax (expense) benefit12 (2)0 
Net translation of foreign currencies244 (59)(167)
Reclassification adjustment for losses included in shareholders' net income ((gain) loss on sale of business)11 0 0 
Reclassification adjustment for tax expense (benefit) included in shareholders’ net income(3)0 0 
Net translation losses reclassified from AOCI to net income8 0 0 
Other comprehensive income (loss), net of tax252 (59)(167)
Less: Net translation gain (loss) on foreign currencies attributable to noncontrolling interests(8)(5)(15)
Shareholders' other comprehensive income (loss), net of tax260 (54)(152)
Ending balance$(15)$(275)$(221)
Postretirement benefits liability
Beginning balance$(1,641)$(1,508)$(1,345)
Reclassification adjustment to retained earnings related to U.S. tax reform legislation— — (290)
Adjusted beginning balance(1,641)(1,508)(1,635)
Reclassification adjustment for amortization of net prior actuarial losses and prior service costs (interest expense and other)70 62 69 
Reclassification adjustment for settlement (interest expense and other)0 10 0 
Reclassification adjustment for tax expense (benefit) included in shareholders’ net income(17)(15)(15)
Net adjustments reclassified from AOCI to net income53 57 54 
Valuation update(206)(249)93 
Tax (expense) benefit48 59 (20)
Net change due to valuation update(158)(190)73 
Other comprehensive (loss) income, net of tax(105)(133)127 
Ending balance$(1,746)$(1,641)$(1,508)
122


Note 15 – Pension
(In millions)
 2018
 2017
 2016
 
​​​ ​ ​​ ​​​ ​ ​

Securities and Derivatives

 ​  ​  ​  

Beginning balance

 $328 $365 $425 

Reclassification adjustment to retained earnings related to U.S. tax reform legislation (1)

 ​65 ​– ​– 

Reclassification adjustment to retained earnings related to new financial instruments guidance (1)

  (4) –  – 

Reclassification adjustment from retained earnings related to new hedging guidance (1)

 ​(6)​– ​– 
​ ​​ ​ ​​ ​ ​​ ​ ​

Adjusted beginning balance

  383  365  425 
​ ​​ ​​​ ​ ​​ ​​

(Depreciation) appreciation on securities and derivatives

 ​(512)​34 ​(48)

Tax benefit (expense)

  100  (19) 6 
​ ​​ ​ ​​ ​ ​​ ​ ​

Net (depreciation) appreciation on securities and derivatives

 ​(412)​15 ​(42)
​​​ ​ ​​ ​ ​​ ​ ​

Reclassification adjustment for losses (gains) included in shareholders' net income (net realized investment losses (gains))

  60  (81) (29)

Reclassification adjustment for losses included in shareholders' net income (selling, general and administrative expenses)

 ​– ​1 ​1 

Tax (expense) benefit

  (13) 28  10 
​ ​​ ​​​ ​ ​​ ​​

Net losses (gains) reclassified from AOCI to net income

 ​47 ​(52)​(18)
​​​ ​ ​​ ​​​ ​ ​

Other comprehensive (loss), net of tax

  (365) (37) (60)
​ ​​​ ​​ ​ ​​​ ​

Ending balance

 $18 $328 $365 
​​​ ​ ​​ ​​​ ​ ​

Translation of foreign currencies

          

Beginning balance

 $(65)$(369)$(274)

Reclassification adjustment to retained earnings related to U.S. tax reform legislation (1)

  (4) –  – 
​​​ ​ ​​ ​​​ ​ ​

Adjusted beginning balance

 ​(69)​(369)​(274)
​ ​​ ​​​ ​ ​​ ​​

Translation of foreign currencies

  (152) 309  (95)

Tax (expense)

 ​– ​(5)​– 
​ ​​ ​ ​​ ​ ​​ ​ ​

Net translation of foreign currencies

  (152) 304  (95)
​ ​​ ​​​ ​ ​​ ​​

Ending balance

 $(221)$(65)$(369)

Postretirement benefits liability

          

Beginning balance

 $(1,345)$(1,378)$(1,401)

Reclassification adjustment to retained earnings related to U.S. tax reform legislation (1)

  (290) –  – 
​ ​​ ​​​ ​ ​​ ​​

Adjusted beginning balance

 ​(1,635)​(1,378)​(1,401)
​​​ ​ ​​ ​​​ ​ ​

Reclassification adjustment for amortization of net losses from past experience and prior service costs (selling, general and administrative expenses)

  69  64  64 

Reclassification adjustment for settlement (selling, general and administrative expenses)

 ​– ​7 ​– 

Tax (expense)

  (15) (24) (22)
​ ​​ ​​​ ​ ​​ ​​

Net adjustments reclassified from AOCI to net income

 ​54 ​47 ​42 
​​​ ​ ​​ ​​​ ​ ​

Valuation update

  93  (22) (29)

Tax (expense) benefit

 ​(20)​8 ​10 
​​​ ​ ​​ ​​​ ​ ​

Net change due to valuation update

  73  (14) (19)
​ ​​​ ​​ ​ ​​​ ​

Other comprehensive income, net of tax

 ​127 ​33 ​23 
​​​ ​ ​​ ​​​ ​ ​

Ending balance

 $(1,508)$(1,345)$(1,378)
​ ​​​ ​​ ​ ​​​ ​
A.About Our Plans
(1)
See Note 2 for further information about adjustments resulting from the Company's adoption of new accounting standards in 2018.

Note 13    Pension and Other Postretirement Benefit Plans

A.       About our Plans

Pension plans.   We frozeThe Company sponsors U.S. and non-U.S. defined benefit pension plans; future benefit accruals for the Company's principal domestic defined benefit pension plans in 2009. The Company also has foreign pension and other postretirement benefit plans that are immaterial to our results of operations, liquidity and financial position. Additionally, in connection with the acquisition of Express Scripts on December 20, 2018, the Company assumed a frozen cash balance retirement plan, the results of which are immaterial to our results of operations, liquidity and financial position.

Other postretirement benefit plans.   The Company's postretirement medical plan was frozen in 2013. The Company also offers certain postretirement life insurance benefits through various plans.

​104    CIGNA CORPORATION - 2018 Form10-K​​

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PART II
ITEM 8. Financial Statements and Supplementary Data

frozen.

Accounting policy. The Company measures the assets and liabilities of its domestic pension and other postretirement benefit plans as of December 31. Benefit obligations are measured at the present value of estimated future payments based on actuarial assumptions. Changes in these assumptions are called net unrecognized actuarial gains (losses) because theThe Company uses the "corridor"“corridor” method to account for changes in the benefit obligation when actual results differ from those assumed, or when assumptions change. These changes are called net unrecognized actuarial gains (losses). Under the corridor method, net unrecognized actuarial gains (losses) are initially recorded in accumulated other comprehensive income. When the unrecognized gain (loss) exceeds 10% of the benefit obligation, that excess is amortized to expense over the expected remaining lives of plan participants. The net plan expense is reported in interestInterest expense and other in the Consolidated Statements of Income.

For balance sheet purposes, we measure plan assets at fair value. When the actual return differs from the expected return, those differences are reflected in the net unrealized actuarial gain (loss) discussed above. However, to measure pension benefit costs, we use a "market-related"“market-related” asset valuation that differs from the actual fair value for domestic pension plan assets invested in non-fixed income investments. The "market-related"“market-related” value recognizes the difference between actual and expected long-term returns in the portfolio over five years, a method that reduces the short-term impact of market fluctuations on pension costs. The market-related asset value was approximately $4.0$4.4 billion, compared with a fair value of approximately $4.2$4.6 billion at December 31, 2018.

2020.

B.       Funded Status and Amounts Included in Accumulated Other Comprehensive Income

B.Funded Status and Amounts Included in Accumulated Other Comprehensive Income

The following table summarizes the projected benefit obligations and assets related to our domesticU.S. and internationalnon-U.S. pension and other postretirement benefit plans as of, and for the years ended December 31:

 Pension Benefits
(In millions)20202019
Change in benefit obligation
Benefit obligation, January 1$5,314 $4,741 
Service cost2 2 
Interest cost168 194 
Litigation settlement0 142 
Actuarial losses, net (1)
416 574 
Benefits paid from plan assets(285)(325)
Benefits paid — other(15)(14)
Benefit obligation, December 315,600 5,314 
Change in plan assets
Fair value of plan assets, January 14,441 4,151 
Actual return on plan assets449 594 
Benefits paid(285)(325)
Contributions18 21 
Fair value of plan assets, December 314,623 4,441 
Funded status$(977)$(873)
Liability in Consolidated Balance Sheets
Accrued expenses and other liabilities$(15)$(18)
Other non-current liabilities$(962)$(855)
   Pension Benefits  Other
Postretirement
Benefits
​​​ ​ ​​​ ​​ ​ ​​ ​
(In millions)  2018  2017  2018  2017
​​​ ​ ​​ ​ ​​ ​​​ ​
Change in benefit obligation ​  ​  ​  ​ 
Benefit obligation, January 1 $4,969 $4,888 $258 $277
Service cost ​3 ​3 ​– ​–
Interest cost  169  186  8  9
Assumed in acquisition ​137 ​– ​– ​–
Partial litigation settlement-attorneys' fees  32  –  –  –
(Gain) loss from past experience ​(235) (1)​181 (2)​(31) ​1
Benefits paid from plan assets  (314) (277) –  (3)
Benefits paid – other ​(20)​(12)​(25) ​(26)
​ ​​ ​​​ ​ ​​ ​ ​​ ​
Benefit obligation, December 31  4,741  4,969  210  258
​ ​​ ​​​ ​ ​​ ​ ​​ ​
Change in plan assets ​  ​  ​  ​ 
Fair value of plan assets, January 1  4,281  3,977  2  5
Assumed in acquisition ​96 ​– ​– ​–
Actual return on plan assets  85  418  –  –
Benefits paid ​(314)​(277)​(2) ​(3)
Contributions  3  163  –  –
​ ​​ ​ ​​ ​​​ ​ ​​​
Fair value of plan assets, December 31 ​4,151 ​4,281 ​– ​2
​​​ ​ ​​​ ​​ ​ ​​ ​
Funded status $(590)$(688)$(210) $(256)
​​​ ​ ​​ ​ ​​ ​​​ ​
Liability in Consolidated Balance Sheets ​  ​  ​  ​ 
Accrued expenses and other liabilities $(30)$(25)$(23) $(27)
Other non-current liabilities $(560)$(663)$(187) $(229)
​​ ​ ​ ​ ​ ​ ​ ​ ​​ ​ ​
(1)
Gain reflects an increase in the discount rate and a favorable change in the mortality assumption.

(2)
2020 Loss reflects a decrease in the discount rate, partially offset by a favorable change in the mortality assumption; 2019 loss reflects a decrease in the discount rate and an unfavorable change in the mortality assumption.

We fund our qualified pension plans at least at the minimum amount required by the Employee Retirement Income Security Act of 1974 and the Pension Protection Act of 2006. The Company made immaterial contributions to the qualified pension plans in 2020. For 2019,2021, contributions to the qualified pension plans are expected to be immaterial. Future years'years’ contributions will ultimately be based on a wide range of factors including but not limited to asset returns, discount rates and funding targets. Non-qualified pension and other postretirement benefit plans are generally funded on a pay-as-you-go basis as there are no0 plan assets for these plans.

123

Benefit payments. The following benefit payments are expected to be paid in:

(In millions)Pension Benefits
2021$328 
2022$313 
2023$316 
2024$316 
2025$315 
2026-2030$1,551 
(In millions)  Pension
Benefits		  Other
Postretirement
Benefits
​ ​​ ​ ​​ ​
2019 $324 $25
2020 $311 $23
2021 $313 $22
2022 $316 $20
2023 $318 $19
2024-2028 $1,549 $72
​ ​​ ​ ​​ ​
​​​CIGNA CORPORATION - 2018 Form10-K    105

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PART II
ITEM 8. Financial Statements and Supplementary Data

Amounts reflected in the pension and other postretirement benefit liabilities shown above that have not yet been reported in net income and, therefore, arehave been included in accumulatedAccumulated other comprehensive loss consisted of the following as of December 31:

 Pension Benefits
(In millions)20202019
Unrecognized net (losses)$(2,277)$(2,132)
Unrecognized prior service cost(5)(5)
Postretirement benefits liability adjustment$(2,282)$(2,137)
   Pension Benefits  Other
Postretirement
Benefits
​​​ ​ ​​​ ​​ ​ ​​ ​
(In millions)  2018  2017  2018  2017
​​​ ​ ​​ ​ ​​ ​​​ ​
Unrecognized net gains (losses) $(1,980)$(2,113)$32 $–
Unrecognized prior service cost  (6) (6) 44  46
​ ​​ ​ ​​ ​​​ ​ ​​​
Postretirement benefits liability adjustment $(1,986)$(2,119)$76 $46
​​​ ​ ​​​ ​​ ​ ​​ ​

C.Cost of Our Plans

C.       Cost of Our Plans

Net pension and other postretirement benefits cost was as follows for the years ended December 31:

follows:
 Pension Benefits
(In millions)202020192018
Service cost$2 $2 $3 
Interest cost168 194 169 
Expected long-term return on plan assets(260)(245)(257)
Amortization of:
Prior actuarial losses, net78 59 70 
Prior service cost0 0 0 
Litigation settlement - plan amendment0 142 32 
Settlement loss0 10 0 
Net (benefit) cost$(12)$162 $17 
   Pension Benefits  Other
Postretirement
Benefits
​​​ ​ ​​ ​​​ ​ ​​ ​ ​​ ​ ​​ ​
(In millions)  2018  2017  2016  2018  2017  2016
​​​ ​ ​​ ​ ​​ ​​​ ​ ​​​ ​​ ​
Service cost $3 $3 $2 $– $– $–
Interest cost  169  186  199  8  9  11
Expected long-term return on plan assets ​(257)​(260)​(249) ​– ​– ​–
Partial litigation settlement – attorneys' fees  32  –  –  –  –  –
Amortization of: ​  ​  ​  ​  ​  ​ 

Net loss from past experience

  70  66  65  1  1  1

Prior service cost

 ​– ​– ​1 ​(2)​(3)​(3)
Settlement loss  –  7  –  –  –  –
​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​​​ ​
Net plan cost $17 $2 $18 $7 $7 $9
​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​​​ ​

As further discussed in Note 19, Old Cigna and the Cigna Pension Plan are(the “Plan”) were defendants in a class action lawsuit related to the Plan'sPlan’s conversion of certain employees from an annuity to a cash balance benefit in 1997. In the fourth quarter of 2018, the CourtPlan was ordered the Plan to pay $32 million representing the attorney fee portion of the settlement. This payment was recognized as an expense in 2018. An offsetting expense creditIn the first quarter of $32 million was also recorded2019, the Plan implemented the court order resulting in an increase to reduce the pension liability of $142 million. The Company reversed a litigation reserve held,for the expenses recognized for this matter in both 2019 and 2018 aggregating to the same amount resulting in no impact toon net income in 2018 related to this matter. In 2019, barring any new order from the Court, it is expected that: 1) class participants will be notified of their increased benefits; 2) the plan will be amended; and 3) benefits will begin to be paid. However, the exact timing and amount of these actions remain uncertain. The Company's remaining litigation reserve is adequate to cover the expected benefits due to class participants.

income.
D.Assumptions Used for Pension
 20202019
Discount rate:
Pension benefit obligation2.49%3.30%
Pension benefit cost3.30%4.23%
Expected long-term return on plan assets:
Pension benefit cost6.75%6.75%
Mortality table for pension obligationsWhite Collar mortality table with MP 2020 projection scaleWhite Collar mortality table with MP 2019 projection scale
124

D.       Assumptions Used for Pension and Other Postretirement Benefit Plans

Management determined the present value of the projected benefit obligation and the accumulated other postretirement benefit obligation and related benefit costs based on the following weighted average assumptions as of and for the years ended December 31:

  2018 2017
​​​ ​​
Discount rate:    

Pension benefit obligation

 4.23% 3.51%

Other postretirement benefit obligation

 4.09% 3.37%

Pension benefit cost

 3.51% 3.95%

Other postretirement benefit cost

 3.37% 3.70%
Expected long-term return on plan assets:    

Pension benefit cost

 7.00% 7.25%

Other postretirement benefit cost

 5.00% 5.00%
Mortality table for pension and postretirement benefit obligations RP 2014 with MP 2018
projection scale
 		RP 2014 with MP 2017
projection scale
​ ​​ ​​

The Company used the Society of Actuaries mortality table RP2014 and the updated improvement scales published in 2017 and 2018 to value its benefit obligations because the Company's mortality experience closely matched these tables based on internal studies. The updated improvement scales published in 2017 and 2018 both indicated that mortality improvement is expected to be lower than was originally projected when the study was first published in 2014, resulting in decreases to the benefit obligations in both years.

The Company setsdevelops discount rates by applying actual annualized yields for high quality bonds at various durationsby duration to the expected pension plan liability cash flowsflows. The bond yields represent a diverse mix of the pension and other postretirement benefits liabilities. A discount rate curve is constructed using an array of bonds in various industries throughout the domestic market, but only selects those for the curveactively traded high quality fixed-income securities that have an above average return at each duration. Managementduration as management believes that this curveapproach is representative of the yields that the Company is able to achieveyield achieved through its plan asset investment strategy.

​106    CIGNA CORPORATION - 2018 Form10-K​​

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ITEM 8. Financial Statements and Supplementary Data

Expected

The expected long-term rates of return on plan assets werewas developed considering actualhistorical long-term historicalactual returns, expected long-term market conditions, plan asset mix and management's plan asset investment strategy that continues a significant allocation to domestic and foreign equity securities as well as securities partnerships, real estate and hedge funds. Expected long-term market conditions take into consideration certain key macroeconomic trends including expected domestic and foreign GDP growth, employment levels and inflation.

strategy.

E.       Pension Plan Assets

E.Pension Plan Assets

As of December 31, 2018,2020, pension assets included $3.8$4.2 billion invested in the separate accounts of Connecticut General Life Insurance Company, and Life Insurance Company of North America, subsidiariesa subsidiary of the Company, as well as an additional $265 million$0.4 billion, primarily invested directly in funds offered by the buyer of the retirement benefits business, and $116 million invested by others.

an unaffiliated insurance company.

The fair values of pension assets by category are as follows as of December 31, 20182020 and 2017.

2019.
(In millions)20202019
Debt securities:
Federal government and agency$9 $0 
Corporate1,680 1,906 
Asset-backed53 41 
Fund investments380 460 
Total debt securities2,122 2,407 
Equity securities:
Domestic978 582 
International, including funds and pooled separate accounts (1)
471 419 
Total equity securities1,449 1,001 
Securities partnerships463 531 
Real estate funds, including pooled separate accounts (1)
219 230 
Commercial mortgage loans95 96 
Hedge funds1 24 
Guaranteed deposit account contract98 100 
Cash equivalents and other current assets, net176 52 
Total pension assets at fair value$4,623 $4,441 
(In millions)  2018  2017
​ ​​ ​​​ ​
Fixed maturities: ​  ​ 

Federal government and agency

 $– $1

Corporate

 ​1,446 ​1,124

Asset-backed

  32  22

Fund investments

 ​768 ​884
​ ​​ ​ ​​ ​
Total fixed maturities  2,246  2,031
​ ​​ ​ ​​ ​
Equity securities: ​  ​ 

Domestic

  506  689

International, including funds and pooled separate accounts (1)

 ​360 ​476
​ ​​ ​​​ ​
Total equity securities  866  1,165
​​​ ​ ​​ ​
Securities partnerships ​477 ​457
Real estate funds, including pooled separate accounts (1)  250  300
Commercial mortgage loans ​110 ​140
Hedge funds  36  73
Guaranteed deposit account contract ​107 ​63
Cash equivalents and other current assets, net  59  52
​ ​​ ​ ​​ ​
Total pension assets at fair value $4,151 $4,281
​​​ ​ ​​ ​
(1)
A pooled separate account has several participating benefit plans and each owns a share of the total pool of investments.

The Company'sCompany’s current target investment allocation percentages (55%(50% fixed income, 25%33% public equity securities and 20%17% in other investments, including private equity (securities partnerships) and real estate,estate) are developed by management as guidelines, although the fair values of each asset category are expected to vary as a result of changes in market conditions. The Company would expect towill evaluate further reduce the allocation changes to equity securities, and other investments and increase the allocation to fixed income investmentssecurities as funding levels improve.

change.

See Note 1012 for further details regarding how fair value is determined, including the level within the fair value hierarchy and the procedures we use to validate fair value measurements. The Company classifies substantially all fixed maturitiesdebt securities in Level 2 for pension plan assets. These assets are valued using recent trades of similar securities or are fund investments priced using their daily net asset value that is the exit price. A substantial portion of domestic equity securities within pension assets are classified as Level 1, while international equity funds within pension assets are predominantly classified in Level 2 using daily net asset value.

Securities partnerships, real estate and hedge funds are valued using NAV as a practical expedient and are excluded from the fair value hierarchy. See Note 1012 for additional disclosures related to these assets invested in the separate accounts of the Company'sCompany’s subsidiaries. Certain securities as described in Note 10,12, as well as commercial mortgage loans and guaranteed deposit account contracts, are classified in Level 3 because unobservable inputs used in their valuation are significant.

125

F.       401(k) Plans

F.401(k) Plans

The Company sponsors a 401(k) plan in which the Company matches a portion of employees'employees’ pre-tax contributions. Participants in the plan may invest in various funds that invest in the Company'sCompany’s common stock, several diversified stock funds, a bond fund or a fixed-income fund.

The Company may elect to increase its matching contributions if the Company'sCompany’s annual performance meets certain targets. The Company'sCompany’s annual expense for these plans was as follows:

(In millions)202020192018
Expense$243 $256 $196 

126
(In millions)  2018  2017  2016
​​​ ​ ​​ ​ ​​ ​
Expense $196 $122 $113
​​​ ​ ​​​ ​​ ​
​​​CIGNA CORPORATION - 2018 Form10-K    107

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PART II
ITEM 8. Financial Statements and Supplementary Data


Note 14

Note 16 – Employee Incentive Plans

A.About Our Plans

The People Resources Committee (the "Committee"“Committee”) of the Board of Directors awards stock options, restricted stock grants, restricted stock units, deferred stock and strategic performance shares ("SPS") to certain employees. The Committee has issued common stock instead of cash compensation.
Prior to the acquisition of Express Scripts, the Company issued shares from Treasury stock for these awards. Following the acquisition, original issuesissue shares were used.

Awards of Express Scripts options and restricted stock units were rolled over to Cigna stock options and restricted stock units in connection with the Express Scripts acquisition on December 20, 2018 as explained further in Note 3.2018. Information in this footnote includes the effect of the Express Scripts rollover awards unless otherwise indicated.

The Company records compensation expense for stock and option awards over their vesting periods primarily based on the estimated fair value at the grant date. Fair value is determined differently for each type of award as discussed below.

Shares of common stock available for award at December 31, were as follows:

(In millions)202020192018
Common shares available for award20.6 23.2 25.7 
(In millions)  2018  2017  2016
​​​ ​ ​​ ​ ​​ ​
Common shares available for award ​25.7 ​14.0 ​6.8
​​​ ​ ​​​ ​​ ​

B.Stock Options

B.   Stock Options

Accounting policy. The Company awards options to purchase Cigna common stock at the market price of the stock on the grant date except for rollover option awards issued to Express Scripts employees in connection with the acquisition (see Note 3).acquisition. Options vest over periods ranging from one year to three years and expire no later than 10 years from grant date. Fair value is estimated using the Black-Scholes option-pricing model by applying the assumptions presented below. That fair value is reduced by options expected to be forfeited during the vesting period. The Company estimates forfeitures at the grant date based on our experience and adjusts the expense to reflect actual forfeitures over the vesting period. The fair value of options, net of forfeitures, is recognized in selling,Selling, general and administrative expenses on a straight linestraight-line basis over the vesting period.

Black-Scholes option-pricing model assumptions and the resulting fair value of options are presented in the following table. The average fair value of options and the expected option life exclude the rollover options granted to Express Scripts employees in connection with the acquisition. See Note 3 for further information.

 202020192018
Dividend yield0 %0 %0 %
Expected volatility30.0 %30.0 %35.0 %
Risk-free interest rate1.4 %2.5 %2.5 %
Expected option life4.5 years4.4 years4.4 years
Weighted average fair value of options$52.42 $53.10 $64.18 
   2018  2017  2016
​​​ ​ ​​​ ​​ ​
Dividend yield ​0.0% ​0.0% ​0.0%
Expected volatility  35.0%  35.0%  35.0%
Risk-free interest rate ​2.5% ​1.8% ​1.2%
Expected option life  4.4 years  4.3 years  4.3 years
Weighted average fair value of options $64.18 $46.38 $42.01
​​​ ​ ​​​ ​​ ​

The expected volatility reflects the past daily stock price volatility of Cigna stock. The Company does not consider volatility implied in the market prices of traded options to be a good indicator of future volatility because remaining traded options will expire within one year. The risk-free interest rate is derived using the four-year U.S. Treasury bond yield rate as of the award date for the primary annual grant. Expected option life reflects the Company'sCompany’s historical experience.

127

The following table shows the status of, and changes in, common stock options during the last three years.

(Options in thousands)202020192018
 OptionsWeighted Average Exercise PriceOptionsWeighted Average Exercise PriceOptionsWeighted Average Exercise Price
Outstanding - January 111,438 $136.19 12,370 $125.46 6,156 $100.79 
Granted1,851 $191.86 1,569 $183.41 7,080 $143.62 
Exercised(3,289)$115.38 (2,297)$106.75 (771)$88.35 
Expired or canceled(258)$188.79 (204)$180.08 (95)$165.04 
Outstanding - December 319,742 $152.40 11,438 $136.19 12,370 $125.46 
Options exercisable at year-end6,837 $137.08 8,874 $123.87 9,446 $114.22 
   2018  2017  2016
 
​​​ ​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​​
(Options in thousands)  Options  Weighted
Average
Exercise Price		  Options  Weighted
Average
Exercise Price		  Options  Weighted
Average
Exercise Price
 
​ ​​ ​ ​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​​
Outstanding – January 1 ​6,156 $100.79 ​7,097 $82.01 ​6,433 $68.86 

Granted

  7,080 $143.62  1,230 $149.17  1,336 $139.20 

Exercised

 ​(771) $88.35 ​(2,072) $63.41 ​(577) $62.09 

Expired or canceled

  (95) $165.04  (99) $138.41  (95) $117.18 
​ ​​ ​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​ ​
Outstanding – December 31 ​12,370 $125.46 ​6,156 $100.79 ​7,097 $82.01 
​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​​​ ​ ​
Options exercisable at year-end  9,446 $114.22  3,894 $77.36  4,409 $58.36 
​ ​​ ​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​ ​

Compensation expense of $61$66 million related to unvested stock options at December 31, 20182020 will be recognized over the next two years (weighted average period).

The table below summarizes information for stock options exercised during the last three years:

(In millions)202020192018
Intrinsic value of options exercised$304 $180 $86 
Cash received for options exercised$376 $224 $68 
Tax benefit from options exercised$57 $34 $8 

(In millions)

  2018  2017  2016
​​​ ​ ​​ ​ ​​ ​

Intrinsic value of options exercised

 $86 $218 $41

Cash received for options exercised

 $68 $131 $36

Tax benefit from options exercised

 $8 $41 $11
​​​ ​ ​​​ ​​ ​
​108    CIGNA CORPORATION - 2018 Form10-K​​

Back to Contents

PART II
ITEM 8. Financial Statements and Supplementary Data

The following table summarizes information for outstanding common stock options at December 31, 2018:

2020:
 Options
Outstanding		Options
Exercisable
Number (in thousands)9,742 6,837 
Total intrinsic value (in millions)$543 $486 
Weighted average exercise price$152.40 $137.08 
Weighted average remaining contractual life5.8 years4.6 years

  Options
Outstanding		  Options
Exercisable
​ ​​ ​ ​​ ​

Number (in thousands)

 ​12,370 ​9,446

Total intrinsic value (in millions)

 $804 $715

Weighted average exercise price

 $125.46 $114.22

Weighted average remaining contractual life

  5.4 years  4.5 years
​​​ ​ ​​​

C.Restricted Stock

C.   Restricted Stock

The Company awards restricted stock (grants and units) to the Company'sCompany’s employees with vestingthat vest over periods ranging from threeone to fivethree years. Recipients of restricted stock awards accumulate dividends during the vesting period, but forfeit their awards and accumulated dividends if their employment terminates before the vesting date.

Accounting policy. Fair value of restricted stock awards is equal to the market price of Cigna'sCigna’s common stock on the date of grant. This fair value is reduced by awards that are expected to forfeit. At the grant date, the Company estimates forfeitures based on experience and adjusts the expense to reflect actual forfeitures over the vesting period. This fair value, net of forfeitures, is recognized in selling,Selling, general and administrative expenses over the vesting period on a straight-line basis.

The following table shows the status of, and changes in, restricted stock awards during the last three years.

(Awards in thousands)202020192018
 Grants/UnitsWeighted Average Fair Value at Award DateGrants/UnitsWeighted Average Fair Value at Award DateGrants/UnitsWeighted Average Fair Value at Award Date
Outstanding - January 11,945 $178.78 2,138 $168.12 1,295 $126.44 
Awarded791 $191.22 870 $183.86 1,451 $183.29 
Vested(1,026)$161.58 (964)$160.74 (560)$112.53 
Forfeited(110)$186.63 (99)$168.68 (48)$150.84 
Outstanding - December 311,600 $186.12 1,945 $178.78 2,138 $168.12 
128

   2018  2017  2016
 
​​​ ​ ​​ ​ ​​ ​​​ ​ ​​​ ​​ ​ ​
(Awards in thousands)  Grants/Units  Weighted
Average Fair
Value at
Award Date		  Grants/Units  Weighted
Average Fair
Value at
Award Date		  Grants/Units  Weighted
Average Fair
Value at
Award Date
 
​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​​​ ​ ​
Outstanding – January 1 ​1,295 $126.44 ​1,309 $97.78 ​1,642 $72.58 

Awarded

  1,451 $183.29  451 $155.21  315 $138.61 

Vested

 ​(560) $112.53 ​(409) $67.09 ​(591) $50.01 

Forfeited

  (48) $150.84  (56) $121.74  (57) $92.51 
​ ​​ ​ ​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​​
Outstanding – December 31 ​2,138 $168.12 ​1,295 $126.44 ​1,309 $97.78 
​ ​​ ​ ​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​​

The fair value of vested restricted stock at the vesting date for the years ended December 31 was as follows:

(In millions)202020192018
Fair value of vested restricted stock$190 $171 $107 

(In millions)

  2018  2017  2016
​​​ ​ ​​ ​ ​​ ​

Fair value of vested restricted stock

 $107 $62 $82
​​​ ​ ​​​ ​​ ​

Approximately 10,40010,300 employees held 2.11.6 million restricted stock awards at the end of 20182020 with $174$152 million of related compensation expense to be recognized over the next two years (weighted average period).

D.   Strategic Performance Shares ("SPS")

D.Strategic Performance Shares (“SPS”)

The Company awards SPSs to executives and certain other key employees generally with a performance period of three years. Half of these shares are subject to a market condition (total shareholder return relative to industry peer companies) and half are subject to a performance condition (cumulative adjusted net income). These targets are set by the Committee.Committee at the beginning of the performance period. Holders of these awards receive shares of Cigna common stock at the end of the performance period ranging anywhere from 0 to 200% of the original awards.

Accounting policy. Compensation expense for SPSs is recorded over the performance period. Fair value is determined at the grant date for "market condition"“market condition” SPSs using a Monte Carlo simulation model and not subsequently adjusted regardless of the final outcome. Expense is initially accrued for "performance condition"“performance condition” SPSs based on the most likely outcome, but evaluated for adjustment each period for updates in the expected outcome. Expense is adjusted to the actual outcome (number of shares awarded times the share price at the grant date) at the end of the performance period. The Company estimates forfeitures at the grant date based on experience and adjusts the expense to reflect actual forfeitures over the vesting period.

​​​CIGNA CORPORATION - 2018 Form10-K    109

Table of Contents

PART II
ITEM 8. Financial Statements and Supplementary Data

The following table shows the status of, and changes in, SPSs during the last three years:

 202020192018
(Awards in thousands)SharesWeighted Average Fair Value at Award DateSharesWeighted Average Fair Value at Award DateSharesWeighted Average Fair Value at Award Date
Outstanding - January 1818 $177.94 707 $160.74 778 $136.57 
Awarded362 $191.52 389 $184.72 221 $197.51 
Vested(309)$159.67 (244)$139.27 (269)$121.57 
Forfeited(63)$187.76 (34)$178.98 (23)$158.16 
Outstanding - December 31808 $190.02 818 $177.94 707 $160.74 
   2018  2017  2016
 
​​​ ​ ​​ ​ ​​ ​​​ ​ ​​​ ​​ ​ ​
(Awards in thousands)  Shares  Weighted
Average Fair
Value at
Award Date		  Shares  Weighted
Average Fair
Value at
Award Date		  Shares  Weighted
Average Fair
Value at
Award Date
 
​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​​​ ​ ​
Outstanding – January 1 ​778 $136.57 ​942 $109.14 ​1,188 $81.68 

Awarded

  221 $197.51  275 $150.06  286 $139.05 

Vested

 ​(269) $121.57 ​(386) $78.91 ​(494) $60.15 

Forfeited

  (23) $158.16  (53) $138.19  (38) $112.70 
​ ​​ ​ ​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​​
Outstanding – December 31 ​707 $160.74 ​778 $136.57 ​942 $109.14 
​ ​​ ​ ​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​​

The fair value of vested SPSs at the vesting date for the years ended December 31 was as follows:

 202020192018
(Shares in thousands; $ in millions)SharesFair ValueSharesFair ValueSharesFair Value
Shares of Cigna common stock distributed upon SPS vesting306 $55 254 $45 380 $73 

  2018  2017  2016
 
​​​ ​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​​

(Shares in thousands; $ in millions)

  Shares  Fair Value  Shares  Fair Value  Shares  Fair Value
 
​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​​​ ​ ​

Shares of Cigna common stock distributed upon SPS vesting

 ​380 $73 ​476 $70 ​768 $109 
​ ​​ ​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​ ​

Approximately 1,500 employees held 707,000808,000 SPSs at the end of 20182020 and $51$63 million of related compensation expense is expected to be recognized over the next two years. The amount of expense for "performance condition"“performance condition” SPSs maywill vary based on actual performance in 20192021 and 2020.

2022.

E.   One-Time Employee Stock Award

The Company granted most employees a one-time stock award in 2017E.Compensation Cost and Tax Effects of five shares that immediately vested. Approximately 205,000 shares were issued in connection with this program at a price of $162.96, resulting in a pre-tax cost of $33 million.

Share-based Compensation

F.   Compensation Cost and Tax Effects of Share-based Compensation

The Company records tax benefits in shareholders'shareholders’ net income during the vesting period based on the amount of expense being recognized. The difference between tax benefits based on the expense and the actual tax benefit realized are also recorded in net income when stock options are exercised, or when restricted stock and SPSs vest.

(In millions)202020192018
Total compensation cost for shared-based awards$289 $299 $180 
Tax benefits recognized$63 $59 $36 

129

(In millions)

  2018  2017  2016
​​​ ​ ​​ ​ ​​ ​

Total compensation cost for shared-based awards

 $180 $178 $128

Tax benefits recognized

 $36 $79 $57
​​​ ​ ​​​ ​​ ​


Note 15

Note 17 – Goodwill, Other Intangibles and Property and Equipment

A.   Goodwill

A.Goodwill

Accounting policy. Goodwill represents the excess of the cost of businesses acquired over the fair value of their net assets. The resulting goodwill is assigned to those reporting units expected to realize cash flows from the acquisition, allocated to reporting units based on those reporting units’ relative fair values,values. As a result, goodwill is primarily reported in the Health ServicesEvernorth segment ($33.733.8 billion), the IntegratedU.S. Medical segment ($10.510.4 billion) and, to a lesser extent, the International Markets segment ($0.30.4 billion)

.

The Company evaluatesconducts its annual quantitative evaluation for goodwill for impairment at least annually during the third quarter at the reporting unit level and writes it down through shareholders'shareholders’ net income if impaired. On a quarterly basis, the Company performs a qualitative impairment assessment to determine if events or changes in circumstances indicate that it is more likely than not that the carrying value of a reporting unit exceeds its estimated fair value. Fair value of a reporting unit is generally estimated based on either a market dataapproach or a discounted cash flow analysis using assumptions that the Company believes a hypothetical market participant would use to determine a current transaction price. The significant assumptions and estimates used in determining fair value include the discount rate and future cash flows. A discount rate is selected to correspond with each reporting unit'sunit’s weighted average cost of capital, consistent with that used for investment decisions considering the specific and detailed operating plans and strategies within that reporting unit. Projections of future cash flows for each reporting unit are consistent with our annual planning process for revenues, claims,pharmacy costs, benefits expenses, operating expenses, taxes, capital levels and long-term growth rates.

Goodwill activity. Goodwill activity during 20182020 and 20172019 was as follows:

(In millions)20202019
Balance at January 1,$44,602 $44,505 
Goodwill acquired, net29 103 
Impact of foreign currency translation17 (6)
Balance at December 31,$44,648 $44,602 

(In millions)

  2018  2017
​ ​​ ​​​ ​

Balance at January 1,

 $6,164 $5,980

Goodwill acquired, net

  38,371  154

Impact of foreign currency translation

 ​(30) ​30
​ ​​ ​ ​​ ​

Balance at December 31,

 $44,505 $6,164
​​​ ​ ​​​

The significant increase in goodwill during 2018 reflects the Company's acquisition of Express Scripts as further discussed in Note 3.

​110    CIGNA CORPORATION - 2018 Form10-K​​

Back to Contents

PART II
ITEM 8. Financial Statements and Supplementary Data

B.Other Intangibles

B.   Other Intangibles

Accounting policy. The Company'sCompany’s other intangible assets primarily include purchased customer and producer relationships, provider networks and trademarks. The fair value of purchased customer relationships and the amortization method were determined as of the dates of purchase using an income approach that relies on projected future net cash flows including key assumptions for customer attrition and discount rates. The Company amortizes other intangiblesCompany’s definite-lived intangible assets are amortized on an accelerated or straight-line basis, reflecting their pattern of economic benefits, over periods from onethree to 39 years. Management revises amortization periods if it believes there has been a change in the length of time that an intangible asset will continue to have value. Costs incurred to renew or extend the terms of these intangible assets are generally expensed as incurred.

The Company’s amortized intangible assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the total of the expected future undiscounted cash flows generated by the underlying asset group is less than the carrying amount of the asset group, the Company recognizes an impairment charge equal to the difference between the carrying value of the asset group and its estimated fair value. The Company’s indefinite-lived intangible assets are each reviewed for impairment at least annually by comparing their fair value with their carrying value. If the carrying value exceeds fair value, that excess is recognized as an impairment loss.
There were no material impairments in the years ended December 31, 2020, 2019 or 2018.
130

Components of other assets, including other intangibles. Other intangible assets were comprised of the following at December 31:

(In millions)CostAccumulated AmortizationNet Carrying Value
2020   
Customer relationships$29,432 3,024 26,408 
Trade Name - Express Scripts8,400 8,400 
Other475 104 371 
Other intangible assets38,307 3,128 35,179 
Value of business acquired (reported in Deferred policy acquisition costs)670 152 518 
Total$38,977 3,280 35,697 
2019
Customer relationships$31,184 3,319 27,865 
Trade Name - Express Scripts8,400 8,400 
Other383 86 297 
Other intangible assets39,967 3,405 36,562 
Value of business acquired (reported in Deferred policy acquisition costs)643 122 521 
Total$40,610 3,527 37,083 

(In millions)

  Cost  Accumulated
Amortization		  Net Carrying
Value
​​​ ​ ​​ ​ ​​ ​

2018

 ​  ​  ​ 

Customer relationships

 $31,451  1,213  30,238

Trade Name – Express Scripts

 ​8,400 ​– ​8,400

Other

  560  195  365
​​​ ​ ​​ ​ ​​ ​

Other intangible assets

 ​40,411 ​1,408 ​39,003

Value of business acquired (reported in deferred policy acquisition costs)

  665  102  563
​ ​​ ​​​ ​ ​​​

Total

 $41,076 ​1,510 ​39,566
​​​ ​ ​​ ​ ​​ ​

2017

         

Customer relationships

 $1,280 ​1,056 ​224

Other

  291  170  121
​ ​​ ​ ​​ ​​​ ​

Other intangible assets

 ​1,571 ​1,226 ​345

Value of business acquired (reported in deferred policy acquisition costs)

  232  86  146
​ ​​ ​ ​​ ​​​ ​

Total

 $1,803 ​1,312 ​491
​ ​​ ​ ​​ ​​​ ​

The significant increase reflects theCompany has indefinite-lived intangible assets acquired from Express Scripts as discussed further in Note 3.

totaling $8.5 billion at December 31, 2020 and $8.4 billion at December 31, 2019, largely consisting of trade names and licenses.

C.   Property and Equipment

C.Property and Equipment

Accounting policy. Property and equipment is carried at cost less accumulated depreciation. Cost includes interest, real estate taxes and other costs incurred during construction when applicable. Internal-use software that is acquired, developed or modified solely to meet the Company'sCompany’s internal needs, with no plan to market externally, is also included in this category. Costs directly related to acquiring, developing or modifying internal-use software are capitalized.

The Company calculates depreciation and amortization principally using the straight-line method generally based on the estimated useful life of each asset as follows: buildings and improvements, 10 to 40 years; purchased software, three to five years; internally developed software, three to seven years;years and furniture and equipment (including computer equipment), three to 10 years. Improvements to leased facilities are depreciated over the lesser of the remaining lease term or the estimated life of the improvement. The Company considers events and circumstances that would indicate the carrying value of property, equipment or capitalized software might not be recoverable. An impairment charge is recorded if the Company determines the carrying value of any of these assets is not recoverable. The Company also reviews and shortens the estimated useful lives of these assets, if necessary.

Components of property and equipment. Property and equipment was comprised of the following as of December 31:

(In millions)CostAccumulated AmortizationNet Carrying Value
2020   
Internal-use software$7,061 $4,048 $3,013 
Other property and equipment2,719 1,527 1,192 
Total property and equipment$9,780 $5,575 $4,205 
2019
Internal-use software$6,578 $3,282 $3,296 
Other property and equipment2,569 1,353 1,216 
Total property and equipment9,147 4,635 4,512 
Property and equipment classified as Assets held for sale(226)(131)(95)
Total property and equipment per Consolidated Balance Sheet$8,921 $4,504 $4,417 



131

(In millions)

  Cost  Accumulated Amortization  Net Carrying Value
​​​ ​ ​​ ​ ​​ ​

2018

 ​  ​  ​ 

Internal-use software

 $5,694 $2,415 $3,279

Other property and equipment

 ​  ​  ​ 

Assets recorded under capital leases (1)

  56  4  52

Other property and equipment not recorded under capital leases

 ​2,208 ​977 ​1,231
​​​ ​ ​​ ​ ​​ ​

Total other property and equipment

  2,264  981  1,283
​ ​​ ​​​ ​ ​​​

Total property and equipment

 $7,958 $3,396 $4,562
​​​ ​ ​​ ​ ​​ ​

2017

         

Internal-use software

 $2,991 $2,184 $807

Other property and equipment

         

Assets recorded under capital leases (1)

 ​49 ​31 ​18

Other property and equipment not recorded under capital leases

  1,573  835  738
​ ​​ ​ ​​ ​​​ ​

Total other property and equipment

 ​1,622 ​866 ​756
​ ​​ ​ ​​ ​​​ ​

Total property and equipment

 $4,613 $3,050 $1,563
​​​ ​ ​​​ ​​ ​
(1)
Current capital lease agreements are for equipment and generally have a term of 48 months with the equipment expected to be returned to the lessor at termination.
​​​CIGNA CORPORATION - 2018 Form10-K    111

Back to Contents

PART II
ITEM 8. Financial Statements and Supplementary Data

Components of depreciation and amortization. Depreciation and amortization expense was comprised of the following for the years ended December 31:

(In millions)202020192018
Internal-use software$971 $850 $323 
Other property and equipment276 284 146 
Value of business acquired (reported in deferred policy acquisition costs)28 34 16 
Other intangibles1,527 2,483 210 
Total depreciation and amortization$2,802 $3,651 $695 

(In millions)

  2018  2017  2016
​​​ ​ ​​ ​ ​​ ​

Internal-use software

 $323 $298 $303

Other property and equipment (1)

  146  153  158

Value of business acquired (reported in deferred policy acquisition costs)

 ​16 ​18 ​20

Other intangibles

  210  97  129
​​​ ​ ​​​ ​​ ​

Total depreciation and amortization

 $695 $566 $610
​​​ ​ ​​​ ​​ ​
(1)
Other property and equipment includes amortization on assets recorded under capital leases of $9 million in 2018, $14 million in 2017 and $20 million in 2016.

The Company estimates annual pre-tax amortization for intangible assets, including internal-use software, over the next five calendar years to be as follows:

(In millions)Pre-tax Amortization
2021$2,719 
2022$2,236 
2023$2,014 
2024$1,821 
2025$1,760 

Note 18 – Leases

(In millions)

  Pre-tax Amortization
​​​ ​

2019

 $3,169

2020

 $2,164

2021

 $2,062

2022

 $1,844

2023

 $1,777
​ ​​ ​

Note 16    Leases and Rentals

DescriptionCigna adopted ASU 2016-2, Leases, as of operating leases.January 1, 2019. As permitted by the standard, the Company did not restate its Consolidated Financial Statements for periods prior to the adoption date and the required disclosures presented below are prospective from the date of adoption. The Company's operatingCompany’s leases are primarily for office space and certain computer and other equipment. Someequipment, and have terms of theseup to 34 years.

Accounting policy. The Company determines if an arrangement is a lease and its lease classification (operating or finance) at inception. Beginning in the first quarter of 2019, both operating and finance leases include renewalresult in (1) a right-of-use (“ROU”) asset that represents our right to use the underlying asset for the lease term and (2) a lease liability that represents our obligation to make lease payments arising from the lease. ROU assets and lease liabilities are reflected in the following lines in the Company’s Consolidated Balance Sheet:
ROU AssetCurrent Lease LiabilityNon-Current Lease Liability
Operating leaseOther assetsAccrued expenses and other liabilities (current)Other liabilities (non-current)
Finance leaseProperty and equipmentShort-term debtLong-term debt
These lease assets and liabilities are recognized at the lease commencement date based on the present value of the lease payments over the lease term. Most of the Company’s leases do not provide an implicit rate, so the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The ROU asset also includes any lease pre-payments made and excludes lease incentives for operating leases. The Company’s expected life of a lease may consider options to extend or terminate a lease when it is reasonably certain that the Company will exercise that option.
The Company has lease agreements with lease and non-lease components that are accounted for as a single lease component. Variable lease payments are expensed as incurred and represent amounts that are neither fixed in nature, such as maintenance and other incentives that are amortized overservices provided by the lifelessor, nor tied to an index or rate.





132

The components of the lease. Leases active in 2018 had terms ranging from one month to 18 years.

lease expense were as follows:

For the Years Ended December 31,
(In millions)20202019
Operating lease cost$190 $188 
Finance lease cost:
Amortization of ROU assets28 28 
Interest on lease liabilities3 3 
Total finance lease cost31 31 
Variable lease cost48 50 
Total lease cost$269 $269 
Rental expense and payments.   Forunder operating lease agreements was $162 million for the yearsyear ended December 31, net rental2018.
Supplemental cash flow information related to leases was as follows:
For the Years Ended December 31,
(In millions)20202019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows from operating leases$189 $173 
Operating cash outflows from finance leases$3 $3 
Financing cash outflows from finance leases$26 $25 
 
ROU assets obtained in exchange for lease obligations:
Operating leases$189 $89 
Finance leases$9 $68 
The non-cash impact of adopting the new lease guidance in 2019 was an increase of Other assets of $615 million and an increase to Accrued expenses and other liabilities of $630 million.
Operating and finance lease ROU assets and lease liabilities were as follows:
(In millions)December 31, 2020December 31, 2019
Operating leases:
Operating lease ROU assets$552 $536 
Accrued expenses and other liabilities$152 $166 
Other non-current liabilities491 465 
Total operating lease liabilities$643 $631 
Finance leases:
Property and equipment, gross$98 $110 
Accumulated depreciation(46)(23)
Property and equipment, net$52 $87 
Short-term debt$18 $27 
Long-term debt36 61 
Total finance lease liabilities$54 $88 
133

As of December 31, 2020, the weighted average remaining lease term was five years for operating leases were approximately:

(In millions)

  2018  2017  2016
​​​ ​ ​​ ​ ​​ ​

Net rental expense for operating leases

 $162 $162 $151
​​​ ​ ​​​ ​​ ​

Future net minimum rental payments under non-cancelableand four years for finance leases, and the weighted average discount rate was 3.51% for operating leases were approximately $860 millionand 3.95% for finance leases.

Maturities of lease liabilities as of December 31, 2018, payable2020 were as follows:

(In millions)Operating LeasesFinance Leases
2021$150 $20 
2022170 18 
2023118 6 
202489 3 
202557 3 
Thereafter121 10 
Total lease payments705 60 
Less: imputed interest62 6 
Total$643 $54 

(In millions)

  Operating Lease Payments
​​​ ​

2019

 $199

2020

 $182

2021

 $148

2022

 $116

2023

 $84

2024 and thereafter

 $132
​​​ ​

The Company also has capital lease arrangements. See Note 15 and Note 5 for further information on assets recorded under capital leases and our related obligations.

Note 17

Note 19 – Shareholders' Equity and Dividend Restrictions

State insurance departments and foreign jurisdictions that regulate certain of the Company'sCompany’s subsidiaries prescribe accounting practices (differing in some respects from GAAP) to determine statutory net income and surplus. The Company'sCompany’s life, accident and health insurance and Health Maintenance Organization ("HMO"(“HMO”) subsidiaries are regulated by such statutory requirements. Regulatory changes in the jurisdiction of one of our foreign insurance affiliates caused a significant increase in surplus in 2017, primarily from beginning to include deferred policy acquisition costs as an admitted asset. The statutory net income of the Company'sCompany’s life, accident and health insurance and HMO subsidiaries for the years ended, and their statutory surplus as of December 31, were as follows:

(In billions)202020192018
Net income$4.0 $3.8 $3.4 
Surplus$12.9 $13.8 $12.2 

(In billions)

  2018  2017  2016
​​​ ​ ​​ ​ ​​ ​

Net income

 $3.4 $2.5 $2.0

Surplus

 $12.2 $10.4 $8.5
​​​ ​ ​​ ​ ​​ ​

The Company'sCompany’s HMO and life, accident and health insurance subsidiaries are also subject to minimum statutory surplus requirements and may be required to maintain investments on deposit with state departments of insurance or other regulatory bodies. Additionally, these subsidiaries may be subject to regulatory restrictions on the amount of annual dividends or other distributions (such as loans or cash advances) that

​112    CIGNA CORPORATION - 2018 Form10-K​​

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PART II
ITEM 8. Financial Statements and Supplementary Data

insurance companies may extend to their parent companies without prior approval. As of December 31, 2018,2020, these amounts, including restricted GAAP net assets of the Company'sCompany’s subsidiaries, were as follows:

(In billions)2020
Minimum statutory surplus required by regulators$4.9
Investments on deposit with regulatory bodies$0.4
Maximum dividend distributions permitted in 2021 without regulatory approval$2.5
Maximum loans to the parent company permitted without regulatory approval$0.8
Restricted GAAP net assets of Cigna Corporation's subsidiaries$13.5

(In billions)

  2018
​ ​​ ​

Minimum statutory surplus required by regulators

 $3.9

Investments on deposit with regulatory bodies

 $0.6

Maximum dividend distributions permitted in 2019 without regulatory approval

 $2.1

Maximum loans to the parent company permitted without regulatory approval

 $1.3

Restricted GAAP net assets of Cigna Corporation's subsidiaries

 $15.5
​​​ ​

Permitted practices used by the Company'sCompany’s insurance subsidiaries in 20182020 that differed from prescribed regulatory accounting had an immaterial impact on statutory net income and surplus.

Note 20 – Income Taxes

Note 18    Income Taxes

Accounting policy. Deferred income taxes are reflected in the balance sheetConsolidated Balance Sheets for differences between the financial and income tax reporting bases of the Company’s underlying assets and liabilities, and established based upon enacted tax rates and laws. Deferred income tax assets are recognized when available evidence indicates that realization is more likely than not, and a valuation allowance is established to the extent this standard is not met a valuation allowance is established.met. The deferred income tax provision generally represents the net change in deferred income tax assets and liabilities during the reporting period excluding adjustments to accumulated other comprehensive income or amounts recorded in connection with a business combination. The current income tax provision generally represents estimated amounts due on income tax returns for the year reported to various jurisdictions plus the effect of any uncertain tax positions. The Company recognizes a liability for uncertain tax positions if management believes the probability that the positions will be sustained is less50% or less. For uncertain positions that management believes are more likely than 50 percent.

not to be sustained, the Company recognizes a liability based upon management's estimate of the most likely settlement outcome with the taxing authority. The

134

liabilities for uncertain tax positions are classified as current when the position is expected to be settled within 12 months or the statute of limitation expires within 12 months.
Income taxes attributable to the Company'sCompany’s foreign operations are generally provided using the respective foreign jurisdictions'jurisdictions’ tax rate.

The Company'sliquidity and regulatory capital requirements of our foreign operations continue to retainand certain international growth initiatives are supported by retaining overseas a significant portion of theirthe earnings overseas. These undistributed earnings are deployed outside ofgenerated by our foreign operations. This strategy does not materially limit Cigna's ability to meet the United States in support of theCompany's liquidity and capital needs of our foreign operations as well as to support growth initiatives overseas.in the United States. The Company generally does not intend to repatriate these earnings.

A.       Income Tax Expense

A.Income Tax Expense

The federal corporate income tax rate declined to 21% effective January 1, 2018 because of U.S. tax reform legislation enacted in late 2017. As a result, the Company's U.S. income tax expense and effective tax rate were notably lower in 2018. Prior year consolidated tax expense included a $232 million charge due to U.S. tax reform, driven by revaluation of deferred tax balances and the deemed repatriation tax on accumulated foreign earnings. The Company has continued to evaluate the provisional tax reform adjustments first recorded in 2017. The one-year measurement period under SEC requirements has expired with only minor adjustments to the initial amounts recorded.

The components of income taxes for the years ended December 31 were as follows:

(In millions)202020192018
Current taxes
U.S. income taxes$2,128 $1,476 $804 
Foreign income taxes334 173 185 
State income taxes303 114 47 
Total current taxes2,765 1,763 1,036 
Deferred taxes (benefits)
U.S. income taxes (benefits)(217)(236)(75)
Foreign income taxes11 16 8 
State income tax (benefits)(180)(93)(34)
Total deferred taxes (benefits)(386)(313)(101)
Total income taxes$2,379 $1,450 $935 

(In millions)

  2018  2017  2016
​​​ ​ ​​ ​ ​​ ​

Current taxes

 ​  ​  ​ 

U.S. income taxes

 $804 $974 $935

Foreign income taxes

 ​185 ​122 ​95

State income taxes

  47  36  32
​​​ ​ ​​​ ​​ ​

Total current taxes

 ​1,036 ​1,132 ​1,062
​​​ ​ ​​​ ​​ ​

Deferred taxes (benefits)

         

U.S. income taxes (benefits)

 ​(75) ​204 ​69

Foreign income taxes

  8  39  9

State income tax (benefits)

 ​(34) ​(1) ​(4)
​ ​​ ​ ​​ ​​​ ​

Total deferred taxes (benefits)

  (101)  242  74
​​​ ​ ​​​ ​​ ​

Total income taxes

 $935 $1,374 $1,136
​​​ ​ ​​​ ​​ ​

Total income taxes for the years ended December 31 were different from the amount computed using the nominal federal income tax rate for the following reasons:

 202020192018
(In millions)$%$%$%
Tax expense at nominal rate$2,282 21.0 %$1,380 21.0 %$752 21.0 %
Effect of U.S. tax reform legislation0 0 0 0 (4)(0.1)
Impact of sale of business104 1.0 0 0 0 0 
Effect of foreign earnings(61)(0.6)24 0.4 74 2.1 
Health insurance industry tax93 0.9 0 0 78 2.2 
State income tax (net of federal income tax benefit)24 0.2 32 0.5 10 0.3 
Other(63)(0.6)14 0.2 25 0.6 
Total income taxes$2,379 21.9 %$1,450 22.1 %$935 26.1 %

  2018  2017  2016
​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​​​ ​

(In millions)

  $  %  $  %  $  %
​ ​​ ​ ​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​

Tax expense at nominal rate

 $752 ​21.0% $1,262 ​35.0% $1,043 ​35.0%

Effect of U.S. tax reform legislation

  (4)  (0.1)  232  6.4  –  0.0

Effect of foreign earnings

 ​74 ​2.1 ​(70) ​(1.9) ​(57) ​(1.9)

Health insurance industry tax

  78  2.2  –  0.0  108  3.6

State income tax (net of federal income tax benefit)

 ​10 ​0.3 ​23 ​0.6 ​18 ​0.6

Other

  25  0.6  (73)  (2.0)  24  0.8
​ ​​ ​ ​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​

Total income taxes

 $935 ​26.1% $1,374 ​38.1% $1,136 ​38.1%
​ ​​ ​ ​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​
​​​CIGNA CORPORATION - 2018 Form10-K    113

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ITEM 8. Financial Statements and Supplementary Data

Consolidated pre-tax income from the Company'sCompany’s foreign operations was approximately 15%14% of the Company'sCompany’s pre-tax income in 2018. The comparable amount2020, 12% in prior years was 14%2019 and 15% in 2017 and 11% in 2016. South Korean operations produced a majority of the Company's foreign pre-tax earnings.

The effective tax rate for 2018 of 26.1% was considerably lower than the 38.1% rate for 2017. The decline was due to the reduction in the U.S. tax rate, and was partially offset by reinstatement of the non-deductible health insurance industry tax. The health insurance industry tax will again be suspended for 2019.

The Company continues to retain a significant portion of its foreign earnings overseas, where they are generally subject to a higher tax rate than that imposed in the U.S. Additional deferred tax liabilities of approximately $135 million for foreign withholding taxes would have been recorded if these earnings were intended to be remitted. A portion of these withholding taxes may be eligible for credit against the Company's U.S. tax liability.

2018.
135

B.       Deferred Income Taxes

B.Deferred Income Taxes

Deferred income tax assets and liabilities as of December 31, were as follows:

(In millions)20202019
Deferred tax assets
Employee and retiree benefit plans$477 $511 
Other insurance and contractholder liabilities278 282 
Loss carryforwards177 260 
Other accrued liabilities358 183 
Other209 218 
Deferred tax assets before valuation allowance1,499 1,454 
Valuation allowance for deferred tax assets(207)(196)
Deferred tax assets, net of valuation allowance1,292 1,258 
Deferred tax liabilities
Depreciation and amortization660 630 
Acquisition-related basis differences8,989 9,386 
Policy acquisition expenses289 113 
Unrealized appreciation on investments and foreign currency translation171 223 
Other122 293 
Total deferred tax liabilities10,231 10,645 
Net deferred income tax (liabilities) assets$(8,939)$(9,387)

(In millions)

  2018  2017
​ ​​ ​​​ ​

Deferred tax assets

 ​  ​ 

Employee and retiree benefit plans

 $411 $279

Other insurance and contractholder liabilities

 ​402 ​358

Loss carryforwards

  255  105

Other accrued liabilities

 ​340 ​101

Other

  205  91
​ ​​ ​​​ ​

Deferred tax assets before valuation allowance

 ​1,613 ​934

Valuation allowance for deferred tax assets

  (199)  (72)
​ ​​ ​​​ ​

Deferred tax assets, net of valuation allowance

 ​1,414 ​862
​ ​​ ​ ​​ ​

Deferred tax liabilities

      

Depreciation and amortization

 ​838 ​176

Acquisition-related basis differences

  9,792  320

Policy acquisition expenses

 ​211 ​190

Unrealized appreciation on investments and foreign currency translation

  (29)  102

Other

 ​55 ​35
​​​ ​ ​​ ​

Total deferred tax liabilities

  10,867  823
​​​ ​ ​​ ​

Net deferred income tax (liabilities) assets

 $(9,453) $39
​ ​​ ​ ​​ ​

The net deferred tax balance changed significantly due to the Company's acquisition of Express Scripts, primarily representing deferred tax liabilities on the intangible assets recognized in purchase accounting. No deferred tax liability has been recognized for goodwill that is nondeductible for tax purposes. Also certain prior year balances have been reclassified to align with our presentation as of December 31, 2018.

Management believes that future results will generally be sufficient to realize a majority of the Company'sCompany’s gross deferred tax assets. The Company establishes a valuation allowanceValuation allowances are established against deferred tax assets when it determinesis determined that it is not at least more likely than not that the asset will not be recognized. The Company has recognized deferred tax assets related toValuation allowances have been established against certain federal, state and foreign losses, a portion of which have been offset by a valuation allowance.tax attributes. There are multiple expiration dates associated with these losses, though a significant portion expires in 2021.

tax attributes.

C.       Uncertain Tax Positions

C.Uncertain Tax Positions and Other Tax Matters

A reconciliation

Reconciliations of unrecognized tax benefits for the years ended December 31 was as follows:

follow:
(In millions)202020192018
Balance at January 1,$1,018 $928 $35 
Increase due to prior year positions128 68 40 
Increase due to business combinations0 0 860 
Increase due to current year positions88 29 6 
Reduction related to settlements with taxing authorities0 0 (1)
Reduction related to lapse of applicable statute of limitations(24)(7)(12)
Balance at December 31,$1,210 $1,018 $928 

(In millions)

  2018  2017  2016
​​​ ​ ​​ ​ ​​ ​

Balance at January 1,

 $35 $31 $31

Increase due to prior year positions

  40  –  –

Increase due to business combinations

 ​860 ​– ​–

Increase due to current year positions

  6  7  10

Reduction related to settlements with taxing authorities

 ​(1) ​(1) ​(2)

Reduction related to lapse of applicable statute of limitations

  (12)  (2)  (8)
​ ​​ ​ ​​ ​​​ ​

Balance at December 31,

 $928 $35 $31
​ ​​ ​ ​​ ​​​ ​

The liability for uncertainSubstantially all unrecognized tax positions has increased significantly due to the Company's acquisition of Express Scripts, the majority of whichbenefits would impact shareholder'sshareholders’ net income if recognized. It is reasonably possible that the liability for uncertain tax positions could decline over the intervening twelve months.

The Company classifies net interest expense on uncertain tax positions as a component of income tax expense but excludes this amount fromand in Accrued expenses and other liabilities on the disclosed liability for uncertain tax positions. Thebalance sheet. In addition to the amounts in the table above, the liability for net interest expense on uncertain tax positions was not materialapproximately $127 million as of December 31, 2018 or 2017.

​114    CIGNA CORPORATION - 2018 Form10-K​​

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PART II
ITEM 8. Financial Statements2020, $100 million as of December 31, 2019 and Supplementary Data

immaterial for 2018.

D.       Other Tax Matters

D.Other Tax Matters

The statute of limitations for Cigna's consolidated federal income tax returns through 2014 has closed, and there are no pending examinations. The Company has2015 have closed. However, Cigna filed an amended 2014 consolidatedreturn for the 2015 tax returnyear, and the claimit is subject tobeing reviewed by the Internal Revenue Service ("IRS") review.(IRS). Additionally, the IRS has opened an examination of Cigna's 2017 return. It is expected that the IRS will add tax years 2016 and 2018 to the existing Cigna cycle. The IRS has examined Express Scripts'Scripts’ tax returns for 2010 through 2012, for which there is a significant disputed tax matter, and is currently examining returns for 2013 through 2015. 2017. In addition, the Company has pending refund claims for various years.
136

The Company conducts business in a number of state and foreign jurisdictions and may be engaged in multiple audit proceedings at any given time. Generally, no further state or foreign audit activity is expected for tax years prior to 20112012 for Cigna'sCigna’s entities and 2006 for Express Scripts'Scripts’ entities.

Note 19

Note 21 – Contingencies and Other Matters

The Company, through its subsidiaries, is contingently liable for various guarantees provided in the ordinary course of business.

A.       Financial Guarantees: Retiree and Life Insurance Benefits

A.Financial Guarantees: Retiree and Life Insurance Benefits

The Company guarantees that separate account assets will be sufficient to pay certain life insurance or retiree benefits. For the majority of these benefits, the sponsoring employers are primarily responsible for ensuring that assets are sufficient to pay these benefits and are required to maintain assets that exceed a certain percentage of benefit obligations. If employers fail to do so, the Company or an affiliate of the buyer of the retirement benefits business (Prudential Retirement Insurance and Annuity Company or "Prudential") has the right to redirect the management of the related assets to provide for benefit payments. As of December 31, 2018,2020, employers maintained assets that generally exceeded the benefit obligations under these arrangements of approximately $455$450 million. Approximately 11% of these are reinsured by Prudential. The remaining guarantees are provided by the Company with minimal reinsurance from third parties. The Company establishes anAn additional liability is established if management believes that the Company will be required to make paymentpayments under the guarantees; there were no0 additional liabilities required for these guarantees, net of reinsurance, as of December 31, 2018.2020. Separate account assets supporting these guarantees are classified in Levels 1 and 2 of the GAAP fair value hierarchy (see Note 10).

hierarchy.

The Company does not expect that these financial guarantees will have a material effect on the Company'sCompany’s consolidated results of operations, liquidity or financial condition.

B.       Certain Other Guarantees

B.Certain Other Guarantees

The Company had indemnification obligations as of December 31, 20182020 in connection with acquisition and disposition transactions. These indemnification obligations are triggered by the breach of representations or covenants provided by the Company, such as representations for the presentation of financial statements, the filing of tax returns, compliance with law or the identification of outstanding litigation. These obligations are typically subject to various time limitations, defined by the contract or by operation of law, such as statutes of limitation. In some cases, the maximum potential amount due is subject to contractual limitations based on a percentage of the transaction purchase price, while in other cases limitations are not specified or applicable. The Company does not believe that it is possible to determine the maximum potential amount due under these obligations because not all amounts due under these indemnification obligations are subject to limitation. There were no0 liabilities for these indemnification obligations as of December 31, 2018.

2020.

C.       Guaranty Fund Assessments

C.Guaranty Fund Assessments

The Company operates in a regulatory environment that may require its participation in assessments under state insurance guaranty association laws. The Company'sCompany’s exposure to assessments for certain obligations of insolvent insurance companies to policyholders and claimants is based on its share of business written in the relevant jurisdictions.

In first quarter 2017, the Commonwealth Court of Pennsylvania entered an order of liquidation of Penn Treaty Network America Insurance Company, together with its subsidiary American Network Insurance Company (collectively "Penn Treaty," a long-term care insurance carrier), triggering

There were no material effects for existing or new guaranty fund coverage and a charge of approximately $130 million before-tax ($85 million after-tax). As ofassessments for the year ended December 31, 2018, the recorded liability for this assessment was approximately $42 million. Updates to the amount of the Penn Treaty assessment were not material in 2018. A portion of this assessment is expected to be offset in the future by premium tax credits that will be recognized in the period received.

2020.

D.       Legal and Regulatory Matters

D.Legal and Regulatory Matters

The Company is routinely involved in numerous claims, lawsuits, regulatory inquiries and audits, government investigations, including under the federal False Claims Act and state false claims acts initiated by a government investigating body or by a qui tam relator'srelator’s filing of a complaint under court seal, and other legal matters arising, for the most part, in the ordinary course of managing a global health servicesservice business. Additionally, the Company has received and is cooperating with subpoenas or similar processes from various governmental agencies requesting information, all arising in the normal course of its business. Except for the specific matters noted below, the Company believes that the legal actions, regulatory matters, proceedings and investigations currently pending against it should not have a material adverse effect on the Company's results of operations, financial condition or liquidity based upon our current knowledge and taking into consideration current accruals. This includes certain matters previously discussed in Express Scripts' annual and quarterly reports that are no longer disclosed because they are not considered material legal proceedings for the combined company. Disputed tax matters arising from audits by the IRSInternal Revenue Service or other state and foreign jurisdictions, including those resulting in litigation, are accounted for under GAAP guidance for uncertain tax positions. FurtherSee Note 20 for additional information on income tax matters can be found in Note 18.

​​​CIGNA CORPORATION - 2018 Form10-K    115

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PART II
ITEM 8. Financial Statements and Supplementary Data

matters.

Pending litigation and legal or regulatory matters that the Company has identified with a reasonably possible material loss and certain other material litigation matters are described below. When litigation and regulatoryFor those matters present loss contingencies that are both probable and estimable, the Company accrues the estimatedhas identified with a reasonably possible material loss, by a charge to shareholders' net income. The estimated loss is the Company's best estimate of the probable loss at the time or an amount within a range of estimated losses reflecting the most likely outcome or the minimum amount of the range (if no amount is better than any other estimated amount in the range.) For material pending litigation and legal or regulatory matters discussed below, the Company provides disclosure in the aggregate of accruals and range of loss, or a statement that such information cannot be estimated. In light of the uncertainties involved in these matters, there is no assurance that their ultimate resolution will not exceed the amounts currently accrued by the Company. The Company has accrued approximately $190 million ($150 million after-tax) as of December 31, 2018Company’s accruals for the matters discussed below under "Litigation Matters" as well as litigation related to certain of the Company's claim operating practices“Litigation Matters” and disputes around reimbursement rates to providers.“Regulatory Matters” are not material. Due to numerous uncertain factors presented in these cases, it is not possible to estimate an aggregate range of loss (if any) for these matters at this time. In light of the uncertainties involved in these matters, there is no assurance that their ultimate
137

resolution will not exceed the amounts currently accrued by the Company. An adverse outcome in one or more of these matters could be material to the Company'sCompany’s results of operations, financial condition or liquidity for any particular period.

Litigation Matters

Amara cash balance pension plan litigation.   In December 2001, Janice Amara filed a class action lawsuit in the U.S. District Court for the District of Connecticut against Cigna Corporation and the Cigna Pension Plan (the "Plan") on behalf of herself and other similarly situated Plan participants affected by the 1998 conversion to a cash balance formula. The plaintiffs allege various violations of the Employee Retirement Income Security Act of 1974 ("ERISA"), including that the Plan's cash balance formula discriminates against older employees; that the conversion resulted in a wear-away period (when the pre-conversion accrued benefit exceeded the post-conversion benefit); and that the Plan communications contained inaccurate or inadequate disclosures about these conditions.

In 2008, the District Court (1) affirmed the Company's right to convert to a cash balance plan prospectively beginning in 1998; (2) found for plaintiffs on the disclosure claim only; and (3) required the Company to pay pre-1998 benefits under the pre-conversion traditional annuity formula and post-1997 benefits under the post-conversion cash balance formula. From 2008 through 2015, this case has undergone a series of court proceedings that resulted in the original District Court order being largely upheld. In 2015, the Company submitted to the District Court its proposed method for calculating the additional pension benefits due to class members and plaintiffs responded in August 2015.

Since then, there has been continued litigation regarding the calculation of benefits, attorneys' fees, and the administration of the remedy payments. On November 29, 2018, the Court ordered the Pension Plan to pay attorneys' and incentive fees of $32 million, and that the Plan must pay any past due lump sums and back benefits within 90 days of the Order. These payments were made as ordered in December 2018. Barring any new Order by the Court impacting the timing, the Company expects to amend the Plan and commence remedy benefit payments in 2019. Once these events occur, the Plan will reflect the additional remedy benefits ordered by the Court as an increase to the pension liability (see Note 13) and the Company will reduce the remaining litigation reserve accordingly. Management believes that the Company's remaining reserve is adequate as of December 31, 2018.

Litigation related to the Merger.   Following announcement of the Company's Merger Agreement with Express Scripts as discussed in Note 3, putative class action complaints (collectively the "complaints") have been filed against Express Scripts and the Express Scripts board of directors. Certain of these complaints also include Cigna, Old Cigna, Cigna Merger Sub and Express Scripts Merger Sub as defendants. The complaints alleged that the registration statement filed in connection with the Merger (and certain amendments thereto) omitted material information in violation of Sections 14(a) and 20(a) of the Exchange Act, rendering the registration statement false and misleading. The parties entered into a settlement agreement in November 2018 and notices of voluntary dismissal have been filed.

Cigna Litigation with Anthem.   In February 2017, the Company delivered a notice to Anthem terminating the 2015 merger agreement, and notifying Anthem that it must pay the Company the $1.85 billion reverse termination fee pursuant to the terms of the merger agreement. Also in February 2017, the Company filed suit against Anthem in the Delaware Court of Chancery (the "Chancery Court") seeking declaratory judgments that the Company's termination of the merger agreement was valid and that Anthem was not permitted to extend the termination date. The complaint also sought payment of the reverse termination fee and additional damages in an amount exceeding $13 billion, including the lost premium value to the Company's shareholders caused by Anthem's willful breaches of the merger agreement.

On February 15, 2017, the Chancery Court granted Anthem's motion for a temporary restraining order and temporarily enjoined the Company from terminating the merger agreement. In May 2017, the Chancery Court denied Anthem's motion for a preliminary injunction to enjoin Cigna from terminating the merger agreement but stayed its ruling pending Anthem's determination as to whether to seek an appeal. Anthem subsequently notified Cigna and the Chancery Court that it did not intend to appeal the Chancery Court's decision. As a result, the merger agreement was terminated.

The litigation between the parties remains pending. Trial commenced on February 25, 2019 and we await the outcome. We believe in the merits of our claims and dispute Anthem's claims, and we intend to vigorously defend ourselves and pursue our claims. The outcomes of lawsuits are inherently unpredictable and we may be unsuccessful in thethese ongoing litigation matters or any future claims or litigation.

Litigation Matters
Risk Corridors and CSR Litigation with the Federal Government. As a result of a Supreme Court decision in April 2020, the Company filed suit in early May 2020 against the United States in the U.S. Court of Federal Claims seeking to recover two types of payments the Federal Government owes Cigna under the risk corridors and cost-sharing reduction (“CSR”) programs of The Patient Protection and Affordable Care Act. In aggregate, the complaint seeks to recover more than $315 million: $120 million in risk corridors payments and more than $195 million in CSR payments. We received $120 million in payments in September 2020, which resolved our risk corridors claim. Our claim seeking recovery for CSR payments is stayed until either the Federal Circuit’s judgments in the CSR appeals become final and non-appealable or the Supreme Court resolves any petition for writ of certiorari.
Cigna Litigation with Anthem. In February 2017, the Company filed suit against Anthem, Inc. in the Delaware Court of Chancery (the “Chancery Court”) seeking, among other relief, payment of the $1.85 billion reverse termination fee under the parties’ 2015 merger agreement and damages. Anthem countersued, alleging its own claims for damages. A trial was held during the first quarter of 2019. In August 2020, the Chancery Court issued an opinion finding that, although Cigna breached its contractual obligation to use reasonable best efforts to support the Anthem/Cigna merger, its actions did not cause the merger to fail. The Court denied claims by both parties for damages and further denied Cigna’s claim for the reverse termination fee. The Company filed a Notice of Appeal with the Delaware Supreme Court on October 30, 2020, and seeks reversal of the portion of the Chancery Court’s decision denying Cigna the reverse termination fee. Briefing on the appeal was completed on January 29, 2021 and oral arguments are scheduled for April 14, 2021.
Express Scripts Litigation with Anthem.Anthem. In March 2016, Anthem filed a lawsuit in the United States District Court for the Southern District of New York alleging various breach of contract claims against Express Scripts relating to the parties'parties’ rights and obligations under the periodic pricing review section of the pharmacy benefit management agreement between the parties including allegations that Express Scripts failed to negotiate new pricing concessions in good faith, as well as various alleged service issues. Anthem requestsalso requested that the court enter declaratory judgment that Express Scripts is required to provide Anthem competitive benchmark pricing, that Anthem can terminate the agreement and that Express Scripts is required to provide Anthem with post-termination services at competitive benchmark pricing for one year following any termination by Anthem. Anthem claims it is entitled to $13.0$13 billion in additional pricing concessions over the remaining term of the agreement, as well as $1.8 billion for one year following any contract termination by Anthem and $150 million in damages for service issues ("Anthem's Allegations"(“Anthem’s Allegations”). On April 19, 2016, in response to Anthem'sAnthem’s complaint, Express Scripts filed its answer denying Anthem'sAnthem’s Allegations in their entirety and asserting affirmative defenses and counterclaims against Anthem. The court subsequently granted Anthem'sAnthem’s motion to dismiss

​116    CIGNA CORPORATION - 2018 Form10-K​​

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PART II
ITEM 8. Financial Statements and Supplementary Data

two 2 of six6 counts of Express Scripts'Scripts’ amended counterclaims. The current scheduling order runs through the completion of summary judgment briefing in December 2019.August 2021. There is no tentative trial date.

Regulatory Matters

Civil Investigative Demand.Demand. The U.S. Department of Justice ("DOJ"(“DOJ”) is conducting an industry reviewindustry-wide investigation of Medicare Advantage organizations'organizations’ risk adjustment practices under Medicare Parts C and D including medical chart reviews and health exams. For certain other Medicare Advantage organizations, the investigation has resulted in litigation. The Company is currently responding to information requests (civil investigative demands) received from the DOJ (U.S. Attorney'sAttorney’s Offices for the Eastern District of Pennsylvania and the Southern District of New York)York ("SDNY")). We will continue to cooperate with the DOJ'sDOJ’s investigation.

Disability Additionally, in relation to the SDNY’s pending investigation, a qui tam action that was filed by a relator in the United States District Court for the Southern District of New York in 2017 was unsealed on August 6, 2020. The action asserts claims regulatory matter.   During the second quarter of 2013, the Company finalized an agreement with the Departments of Insurance for Maine, Massachusetts, Pennsylvania, Connecticut and California (together, the "monitoring states") related to the Company's long-term disability claims handling practices.risk adjustment practices arising from certain health exams conducted as part of Cigna’s Medicare Advantage business. The agreement requires primarily: (1) enhanced procedures related to documentation and disposition and (2) a two-year monitoring period followed by a re-examination that beganDOJ has not intervened in the second quarter of 2016. Management believes the Company has addressed the requirements of the agreement. If the monitoring states find material non-compliance with the agreement upon re-examination, the Company may be subject to additional costs and penalties or requests to change its business practices that could negatively impact future earnings forcase at this business.

Note 20    Condensed Consolidating Financial Information

Effective with the Merger that closed on December 20, 2018 (see Note 3 for further information) the senior notes issued by Cigna, Old Cigna, Express Scripts, Inc. ("ESI"), Medco Health Solutions, Inc. ("Medco"), and Express Scripts became jointly and severally and fully and unconditionally (subject to certain customary release provisions, including sale, exchange, transfer or liquidation of the guarantor subsidiary) guaranteed by Cigna, Old Cigna, ESI, Medco and Express Scripts, as applicable. Details of these debt obligations are presented in Note 5. The following condensed consolidating financial information has been prepared in accordance with the requirements as prescribed by the SEC in Regulation S-X. The condensed consolidating financial information presented below is not indicative of what the financial position, results of operations or cash flows would have been had each of the entities operated as an independent company during the periods for various reasons, including, but not limited to, intercompany transactions and integration of systems.

The condensed consolidating financial information is presented separately for:

(i)
Cigna (the Parent Company), guarantor, the issuer of additional guaranteed obligations;
(ii)
Old Cigna (former Parent Company for the fiscal years ended 2017 and 2016), guarantor, the issuer of additional guaranteed obligations;
(iii)
Express Scripts, guarantor, the issuer of additional guaranteed obligations;
(iv)
ESI, guarantor, the issuer of additional guaranteed obligations;
(v)
Medco, guarantor, the issuer of additional guaranteed obligations;
(vi)
Non-guarantor subsidiaries, on a combined basis;
(vii)
Consolidating entries and eliminations representing adjustments to (a) eliminate intercompany transactions between or among Cigna, Old Cigna, Express Scripts, ESI, Medco and the non-guarantor subsidiaries, (b) eliminate the investments in our subsidiaries and (c) record consolidating entries; and
(viii)
Cigna and subsidiaries on a consolidated basis.
​​​CIGNA CORPORATION - 2018 Form10-K    117

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PART II
ITEM 8. Financial Statements and Supplementary Data

Condensed Consolidating Statements of Income

time.
Note 22 – Segment Information
   For the year ended December 31, 2018
​​​ ​ ​​ ​ ​​ ​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​
(In millions)
 Cigna
 Old Cigna
 Express
Scripts
Holding
Company
 Express
Scripts, Inc.
 Medco Health
Solutions, Inc.
 Non-
Guarantors
 Eliminations and
Consolidation
Adjustments
 Consolidated
​ ​​ ​ ​​ ​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​
Revenues ​  ​  ​  ​  ​  ​  ​  ​ 
Premiums $— $— $— $— $— $36,113 $— $36,113
Fees and other revenues ​— ​— ​— ​23 ​7 ​5,596 ​(48) ​5,578
Pharmacy revenues  —  —  —  1,866  418  4,165  (970)  5,479
Net investment income ​123 ​1 ​2 ​— ​— ​1,354 ​— ​1,480
​ ​ ​​ ​ ​ ​ ​ ​ ​ ​ ​ ​​ ​ ​ ​ ​​ ​ ​ ​ ​ ​ ​
Total revenues  123  1  2  1,889  425  47,228  (1,018)  48,650
​ ​​ ​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​​​ ​
Benefits and expenses ​  ​  ​  ​  ​  ​  ​  ​ 
Medical costs and other benefit expenses  —  —  —  —  —  27,528  —  27,528
Pharmacy and other service costs ​— ​— ​— ​1,763 ​417 ​3,583 ​(970) ​4,793
Selling, general and administrative expenses  200  535  —  44  8  11,195  (48)  11,934
Amortization of acquired intangible assets ​— ​— ​— ​94 ​13 ​128 ​— ​235
​​ ​ ​ ​ ​​ ​ ​ ​ ​ ​ ​ ​ ​ ​​ ​ ​ ​ ​​ ​ ​ ​
Total benefits and expenses  200  535  —  1,901  438  42,434  (1,018)  44,490
​​​ ​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​​​ ​
Income (loss) from operations ​(77) ​(534) ​2 ​(12) ​(13) ​4,794 ​— ​4,160
​ ​ ​ ​ ​ ​ ​​ ​ ​ ​ ​​ ​ ​ ​ ​ ​ ​ ​ ​ ​​ ​ ​
Interest and other income (expense)  (244)  (264)  15  (17)  (10)  22  —  (498)
Intercompany interest income (expense) ​(5) ​(58) ​(15) ​7 ​5 ​66 ​— ​—
Net realized investment (losses)  (1)  —  —  —  —  (80)  —  (81)
​​​ ​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​​​ ​
Income (loss) before income taxes ​(327) ​(856) ​2 ​(22) ​(18) ​4,802 ​— ​3,581
​ ​ ​ ​ ​ ​ ​​ ​ ​ ​ ​​ ​ ​ ​ ​ ​ ​ ​ ​ ​​ ​ ​
Total income tax (benefit) expense  (74)  (163)  —  (4)  (4)  1,180  —  935
​​​ ​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​​​ ​
Income (loss) before equity in earnings of subsidiaries ​(253) ​(693) ​2 ​(18) ​(14) ​3,622 ​— ​2,646
​ ​ ​ ​ ​ ​ ​​ ​ ​ ​ ​​ ​ ​ ​ ​ ​ ​ ​ ​ ​​ ​ ​
Equity in earnings (loss) of subsidiaries  2,890  3,613  (32)  (33)  29  —  (6,467)  —
​​​ ​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​​​ ​
Net income (loss) ​2,637 ​2,920 ​(30) ​(51) ​15 ​3,622 ​(6,467) ​2,646
​ ​ ​ ​ ​ ​ ​​ ​ ​ ​ ​​ ​ ​ ​ ​ ​ ​ ​ ​ ​​ ​ ​
Less: Net income attributable to noncontrolling interests  —  —  —  —  —  9  —  9
​​​ ​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​​​ ​
Shareholders' net income (loss) $2,637 $2,920 $(30) $(51) $15 $3,613 $(6,467) $2,637
​ ​ ​ ​ ​ ​ ​ ​ ​ ​​ ​ ​ ​ ​​ ​ ​ ​ ​ ​ ​ ​ ​​
Other comprehensive (loss), net of tax  (390)  (390)  —  —  —  (536)  926  (390)
​ ​​ ​ ​​ ​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​
Shareholders' comprehensive income (loss) $2,247 $2,530 $(30) $(51) $15 $3,077 $(5,541) $2,247
​ ​​​ ​​ ​ ​​ ​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​
​118    CIGNA CORPORATION - 2018 Form10-K​​

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PART II
ITEM 8. Financial Statements and Supplementary Data

Condensed Consolidating Statements of Income

   For the year ended December 31, 2017
​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​​​ ​ ​​ ​ ​​ ​
(In millions)
 Cigna
 Old Cigna
 Express
Scripts
Holding
Company
 Express
Scripts, Inc.
 Medco Health
Solutions, Inc.
 Non-
Guarantors
 Eliminations and
Consolidation
Adjustments
 Consolidated
​​​ ​ ​​ ​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​
Revenues ​  ​  ​  ​  ​  ​  ​  ​ 
Premiums $— $— $— $— $— $32,491 $— $32,491
Fees and other revenues ​— ​— ​— ​— ​— ​5,110 ​— ​5,110
Pharmacy revenues  —  —  —  —  —  2,979  —  2,979
Net investment income ​— ​— ​— ​— ​— ​1,226 ​— ​1,226
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​​ ​ ​ ​ ​​
Total revenues  —  —  —  —  —  41,806  —  41,806
​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​
Benefits and expenses ​  ​  ​  ​  ​  ​  ​  ​ 
Medical costs and other benefit expenses  —  —  —  —  —  25,263  —  25,263
Pharmacy and other service costs ​— ​— ​— ​— ​— ​2,456 ​— ​2,456
Selling, general and administrative expenses  —  195  —  —  —  9,835  —  10,030
Amortization of acquired intangible assets ​— ​— ​— ​— ​— ​115 ​— ​115
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​​ ​ ​ ​ ​​
Total benefits and expenses  —  195  —  —  —  37,669  —  37,864
​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​
Income (loss) from operations ​— ​(195) ​— ​— ​— ​4,137 ​— ​3,942
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​​ ​ ​ ​ ​​
Interest and other (expense)  —  (246)  —  —  —  (6)  —  (252)
Intercompany interest income (expense) ​— ​(18) ​— ​— ​— ​18 ​— ​—
Debt extinguishment (costs)  —  (321)  —  —  —  —  —  (321)
Net realized investment gains ​— ​— ​— ​— ​— ​237 ​— ​237
​​ ​ ​ ​ ​ ​ ​ ​ ​​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Income (loss) before income taxes  —  (780)  —  —  —  4,386  —  3,606
​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​
Total income tax (benefit) expense ​— ​(194) ​— ​— ​— ​1,568 ​— ​1,374
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​​ ​ ​ ​ ​​
Income (loss) before equity in earnings of subsidiaries  —  (586)  —  —  —  2,818  —  2,232
​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​
Equity in earnings of subsidiaries ​— ​2,823 ​— ​— ​— ​— ​(2,823) ​—
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​​ ​ ​ ​ ​​
Net income  —  2,237  —  —  —  2,818  (2,823)  2,232
​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​
Less: Net (loss) attributable to noncontrolling interests ​— ​— ​— ​— ​— ​(5) ​— ​(5)
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​​ ​ ​ ​ ​​
Shareholders' net income $— $2,237 $— $— $— $2,823 $(2,823) $2,237
​​​ ​ ​​​ ​​ ​ ​​​ ​​ ​ ​​​ ​​ ​ ​​​
Other comprehensive income, net of tax ​— ​300 ​— ​— ​— ​269 ​(269) ​300
​ ​ ​​ ​ ​ ​​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​​ ​ ​
Shareholders' comprehensive income $— $2,537 $— $— $— $3,092 $(3,092) $2,537
​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​
​​​CIGNA CORPORATION - 2018 Form10-K    119

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PART II
ITEM 8. Financial Statements and Supplementary Data

Condensed Consolidating Statements of Income

   For the year ended December 31, 2016
​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​​​ ​ ​​ ​ ​​ ​
(In millions)
 Cigna
 Old Cigna
 Express
Scripts
Holding
Company
 Express
Scripts, Inc.
 Medco Health
Solutions, Inc.
 Non-
Guarantors
 Eliminations and
Consolidation
Adjustments
 Consolidated
​​​ ​ ​​ ​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​
Revenues ​  ​  ​  ​  ​  ​  ​  ​ 
Premiums $— $— $— $— $— $30,824 $— $30,824
Fees and other revenues ​— ​— ​— ​— ​— ​4,901 ​— ​4,901
Pharmacy revenues  —  —  —  —  —  2,966  —  2,966
Net investment income ​— ​— ​— ​— ​— ​1,147 ​— ​1,147
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​​ ​ ​ ​ ​​
Total revenues  —  —  —  —  —  39,838  —  39,838
​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​
Benefits and expenses ​  ​  ​  ​  ​  ​  ​  ​ 
Medical costs and other benefit expenses  —  —  —  —  —  24,341  —  24,341
Pharmacy and other service costs ​— ​— ​— ​— ​— ​2,468 ​— ​2,468
Selling, general and administrative expenses  —  281  —  —  —  9,509  —  9,790
Amortization of acquired intangible assets ​— ​— ​— ​— ​— ​151 ​— ​151
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​​ ​ ​ ​ ​​
Total benefits and expenses  —  281  —  —  —  36,469  —  36,750
​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​
Income (loss) from operations ​— ​(281) ​— ​— ​— ​3,369 ​— ​3,088
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​​ ​ ​ ​ ​​
Interest and other (expense)  —  (244)  —  —  —  (34)  —  (278)
Intercompany interest income (expense) ​— ​(3) ​— ​— ​— ​3 ​— ​—
Net realized investment gains  —  —  —  —  —  169  —  169
​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​
Income (loss) before income taxes ​— ​(528) ​— ​— ​— ​3,507 ​— ​2,979
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​​ ​ ​ ​ ​ ​ ​ ​ ​
Total income tax (benefit) expense  —  (146)  —  —  —  1,282  —  1,136
​ ​​​ ​​ ​ ​​​ ​​ ​ ​​​ ​​ ​ ​​​ ​​ ​
Income (loss) before equity in earnings of subsidiaries ​— ​(382) ​— ​— ​— ​2,225 ​— ​1,843
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​​ ​ ​ ​ ​​
Equity in earnings of subsidiaries  —  2,249  —  —  —  —  (2,249)  —
​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​
Net income ​— ​1,867 ​— ​— ​— ​2,225 ​(2,249) ​1,843
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​​ ​ ​ ​ ​​
Less: Net (loss) attributable to noncontrolling interests  —  —  —  —  —  (24)  —  (24)
​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​
Shareholders' net income $— $1,867 $— $— $— $2,249 $(2,249) $1,867
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​​ ​ ​ ​ ​​
Other comprehensive (loss), net of tax  —  (132)  —  —  —  (154)  154  (132)
​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​
Shareholders' comprehensive income $— $1,735 $— $— $— $2,095 $(2,095) $1,735
​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​
​120    CIGNA CORPORATION - 2018 Form10-K​​

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PART II
ITEM 8. Financial Statements and Supplementary Data

Condensed Consolidating Balance Sheets

   As of December 31, 2018
​​​ ​ ​​ ​ ​​ ​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​
(In millions)
 Cigna
 Old Cigna
 Express
Scripts
Holding
Company
 Express
Scripts, Inc.
 Medco Health
Solutions, Inc.
 Non-
Guarantors
 Eliminations and
Consolidation
Adjustments
 Consolidated
​ ​​ ​ ​​ ​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​
Assets ​  ​  ​  ​  ​  ​  ​  ​ 
Cash and cash equivalents $243 $— $633 $43 $— $2,936 $— $3,855
Investments ​— ​— ​— ​— ​— ​2,045 ​— ​2,045
Accounts receivable, net  —  —  —  4,206  748  5,519  —  10,473
Inventories ​— ​— ​— ​— ​— ​2,821 ​— ​2,821
Other current assets  14  59  —  310  —  1,063  (210)  1,236
​ ​​ ​ ​​ ​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​

Total current assets

 ​257 ​59 ​633 ​4,559 ​748 ​14,384 ​(210) ​20,430
Long-term investments  —  10  —  —  —  26,919  —  26,929
Reinsurance recoverables ​— ​— ​— ​— ​— ​5,507 ​— ​5,507
Deferred policy acquisition costs  —  —  —  —  —  2,821  —  2,821
Property and equipment ​— ​— ​— ​2,432 ​— ​2,130 ​— ​4,562
Investments in subsidiaries  68,969  27,544  52,035  17,115  8,117  —  (173,780)  —
Intercompany receivables ​— ​4,505 ​— ​7,425 ​2,335 ​24,882 ​(39,147) ​—
Goodwill  —  —  31,049  —  —  13,456  —  44,505
Other intangible assets ​— ​— ​8,400 ​18,962 ​7,040 ​4,601 ​— ​39,003
Other assets  48  198  —  68  74  1,488  (246)  1,630
Separate account assets ​— ​— ​— ​— ​— ​7,839 ​— ​7,839
​​ ​ ​ ​ ​​ ​ ​ ​ ​ ​ ​ ​ ​ ​​ ​ ​ ​ ​​ ​ ​ ​
TOTAL ASSETS $69,274 $32,316 $92,117 $50,561 $18,314 $104,027 $(213,383) $153,226
​ ​​ ​ ​​ ​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​
Liabilities ​  ​  ​  ​  ​  ​  ​  ​ 
Current insurance and contractholder liabilities $— $— $— $— $— $6,801 $— $6,801
Pharmacy and service costs payable ​— ​— ​— ​8,422 ​1,579 ​701 ​— ​10,702
Accounts payable  22  —  —  834  4  3,506  —  4,366
Accrued expenses and other liabilities ​396 ​182 ​129 ​1,387 ​189 ​4,998 ​(210) ​7,071
Short-term debt  —  1,500  995  353  —  107  —  2,955
​ ​​ ​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​​​ ​
Total current liabilities ​418 ​1,682 ​1,124 ​10,996 ​1,772 ​16,113 ​(210) ​31,895
Non-current insurance and contractholder liabilities  —  —  —  —  —  19,974  —  19,974
Deferred tax liabilities, net ​— ​— ​2,001 ​5,012 ​1,685 ​1,001 ​(246) ​9,453
Other non-current liabilities  —  685  —  497  290  1,998  —  3,470
Intercompany payables ​4,965 ​4,361 ​29,569 ​— ​— ​252 ​(39,147) ​—
Long-term debt  22,863  5,110  10,932  24  506  88  —  39,523
Separate account liabilities ​— ​— ​— ​— ​— ​7,839 ​— ​7,839
​ ​ ​ ​ ​ ​ ​ ​ ​ ​​ ​ ​ ​ ​​ ​ ​ ​ ​ ​ ​ ​ ​​
TOTAL LIABILITIES  28,246  11,838  43,626  16,529  4,253  47,265  (39,603)  112,154
​​​ ​ ​​ ​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​
Redeemable noncontrolling interests ​— ​— ​— ​— ​— ​37 ​— ​37
TOTAL SHAREHOLDERS' EQUITY  41,028  20,478  48,491  34,032  14,061  56,718  (173,780)  41,028
Noncontrolling interests ​— ​— ​— ​— ​— ​7 ​— ​7
​​ ​ ​ ​ ​​ ​ ​ ​ ​ ​ ​ ​ ​ ​​ ​ ​ ​ ​​ ​ ​ ​
TOTAL EQUITY  41,028  20,478  48,491  34,032  14,061  56,725  (173,780)  41,035
​​​ ​ ​​ ​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​
TOTAL LIABILITIES AND EQUITY $69,274 $32,316 $92,117 $50,561 $18,314 $104,027 $(213,383) $153,226
​​​ ​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​​​ ​
​​​CIGNA CORPORATION - 2018 Form10-K    121

Table of Contents

PART II
ITEM 8. Financial Statements and Supplementary Data

Condensed Consolidating Balance Sheets

   As of December 31, 2017
​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​​​ ​ ​​ ​ ​​ ​
(In millions)
 Cigna
 Old
Cigna
 Express
Scripts
Holding
Company
 Express
Scripts,
Inc.
 Medco
Health
Solutions,
Inc.
 Non-
Guarantors
 Eliminations
and
Consolidation
Adjustments
 Consolidated
​​​ ​ ​​ ​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​
Assets ​  ​  ​  ​  ​  ​  ​  ​ 
Cash and cash equivalents $– $9 $– $– $– $2,963 $– $2,972
Investments ​– ​63 ​– ​– ​– ​2,073 ​– ​2,136
Accounts receivable, net  –  –  –  –  –  3,155  –  3,155
Inventories ​– ​– ​– ​– ​– ��228 ​– ​228
Other current assets  –  31  –  –  –  789  –  820
​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​

Total current assets

 ​– ​103 ​– ​– ​– ​9,208 ​– ​9,311
Long-term investments  –  –  –  –  –  26,483  –  26,483
Reinsurance recoverables ​– ​– ​– ​– ​– ​5,763 ​– ​5,763
Deferred policy acquisition costs  –  –  –  –  –  2,237  –  2,237
Property and equipment ​– ​– ​– ​– ​– ​1,563 ​– ​1,563
Investments in subsidiaries  –  22,631  –  –  –  –  (22,631)  –
Intercompany receivables ​– ​200 ​– ​– ​– ​2,980 ​(3,180) ​–
Deferred tax assets, net  –  221  –  –  –  (182)  –  39
Goodwill ​– ​– ​– ​– ​– ​6,164 ​– ​6,164
Other intangible assets  –  –  –  –  –  345  –  345
Other assets ​– ​– ​– ​– ​– ​1,431 ​– ​1,431
Separate account assets  –  –  –  –  –  8,423  –  8,423
​ ​​​ ​​ ​ ​​​ ​​ ​ ​​​ ​​ ​ ​​​ ​​ ​
TOTAL ASSETS $– $23,155 $– $– $– $64,415 $(25,811) $61,759
​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​
Liabilities                        
Current insurance and contractholder liabilities ​– ​– ​– ​– ​– ​6,317 ​– ​6,317
Pharmacy and service costs payable  –  –  –  –  –  305  –  305
Accounts payable, accrued expenses and other liabilities ​– ​270 ​– ​– ​– ​3,877 ​– ​4,147
Short-term debt  –  231  –  –  –  9  –  240
​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​
Total current liabilities ​– ​501 ​– ​– ​– ​10,508 ​– ​11,009
Non-current insurance and contractholder liabilities  –  –  –  –  –  20,530  –  20,530
Intercompany payables ​– ​2,980 ​– ​– ​– ​200 ​(3,180) ​–
Other non-current liabilities  –  851  –  –  –  1,987  –  2,838
Long-term debt ​– ​5,112 ​– ​– ​– ​87 ​– ​5,199
Separate account liabilities  –  –  –  –  –  8,423  –  8,423
​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​
TOTAL LIABILITIES ​– ​9,444 ​– ​– ​– ​41,735 ​(3,180) ​47,999
​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​
Redeemable noncontrolling interests  –  –  –  –  –  49  –  49
SHAREHOLDERS' EQUITY ​– ​13,711 ​– ​– ​– ​22,631 ​(22,631) ​13,711
​ ​​​ ​​ ​ ​​​ ​​ ​ ​​​ ​​ ​ ​​​ ​​ ​
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $– $23,155 $– $– $– $64,415 $(25,811) $61,759
​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​
​122    CIGNA CORPORATION - 2018 Form10-K​​

Back to Contents

PART II
ITEM 8. Financial Statements and Supplementary Data

Condensed Consolidating Cash Flow Statements

   For the year ended December 31, 2018
​​​ ​ ​​ ​ ​​ ​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​
(In millions)
 Cigna
 Old
Cigna
 Express
Scripts
Holding
Company
 Express
Scripts,
Inc.
 Medco
Health
Solutions,
Inc.
 Non-
Guarantors
 Eliminations
and
Consolidation
Adjustments
 Consolidated
​ ​​ ​ ​​ ​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​
Net cash provided by (used in) operating activities $145 $2,416 $(36) $80 $(304) $3,987 $(2,518) $3,770
​ ​​​ ​​ ​ ​​ ​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​
Cash Flows from Investing Activities                        
Net change in loans due (from) affiliates ​— ​(4,412) ​(200) ​— ​— ​(1,121) ​5,733 ​—
Proceeds from investments sold:                        

Fixed maturities and equity securities

 ​— ​— ​— ​— ​— ​2,655 ​— ​2,655
Investment maturities and repayments:                        

Fixed maturities and equity securities

 ​— ​— ​— ​— ​— ​2,151 ​— ​2,151

Commercial mortgage loans

  —  —  —  —  —  215  —  215
Other sales, maturities and repayments (primarily short-term and other long-term investments) ​— ​63 ​— ​— ​— ​671 ​— ​734
Investments purchased or originated:                        

Fixed maturities and equity securities

 ​— ​(10) ​— ​— ​— ​(5,627) ​— ​(5,637)

Commercial mortgage loans

  —  —  —  —  —  (312)  —  (312)

Other sales, maturities and repayments (primarily short-term and other long-term investments)

 ​— ​— ​— ​— ​— ​(1,189) ​— ​(1,189)
Property and equipment purchases, net  —  —  —  (6)  —  (522)  —  (528)
Acquisitions, net of cash acquired ​(27,115) ​— ​1,676 ​23 ​— ​961 ​— ​(24,455)
Other, net  —  —  —  —  —  (12)  —  (12)
​ ​​ ​ ​​ ​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES ​(27,115) ​(4,359) ​1,476 ​17 ​— ​(2,130) ​5,733 ​(26,378)
​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​​​ ​ ​​​
Cash Flows from Financing Activities                        
Net change in amounts due to (from) affiliates ​4,437 ​1,121 ​(807) ​(54) ​304 ​732 ​(5,733) ​—
Intercompany dividends paid  —  —  —  —  —  (2,518)  2,518  —
Deposits and interest credited to contractholder deposit funds ​— ​— ​— ​— ​— ​1,040 ​— ​1,040
Withdrawals and benefit payments from contractholder deposit funds  —  —  —  —  —  (1,151)  —  (1,151)
Net change in short-term debt ​— ​1,400 ​— ​— ​— ​87 ​— ​1,487
Payments for debt extinguishment  —  —  —  —  —  —  —  —
Repayment of long-term debt ​— ​(131) ​— ​— ​— ​— ​— ​(131)
Net proceeds on issuance of long-term debt  22,856  —  —  —  —  —  —  22,856
Repurchase of common stock ​(32) ​(310) ​— ​— ​— ​— ​— ​(342)
Issuance of common stock  1  67  —  —  —  —  —  68
Other, net ​(49) ​(213) ​— ​— ​— ​(50) ​— ​(312)
​​​ ​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​​​ ​
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES  27,213  1,934  (807)  (54)  304  (1,860)  (3,215)  23,515
​ ​​ ​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​​​ ​
Effect of foreign currency rate changes on cash and cash equivalents ​— ​— ​— ​— ​— ​(24) ​— ​(24)
​ ​​ ​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​​​ ​
Net increase (decrease) in cash and cash equivalents  243  (9)  633  43  —  (27)  —  883
Cash and cash equivalents, January 1, ​— ​9 ​— ​— ​— ​2,963 ​— ​2,972
​ ​ ​ ​ ​ ​ ​​ ​ ​ ​ ​​ ​ ​ ​ ​ ​ ​ ​ ​ ​​ ​ ​
Cash and cash equivalents, December 31, $243 $— $633 $43 $— $2,936 $— $3,855
​​​ ​ ​​ ​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​
​​​CIGNA CORPORATION - 2018 Form10-K    123

Back to Contents

PART II
ITEM 8. Financial Statements and Supplementary Data

Condensed Consolidating Cash Flow Statements

   For the year ended December 31, 2017
​​​ ​ ​​ ​ ​​ ​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​
(In millions)
 Cigna
 Old
Cigna
 Express
Scripts
Holding
Company
 Express
Scripts,
Inc.
 Medco
Health
Solutions,
Inc.
 Non-
Guarantors
 Eliminations
and
Consolidation
Adjustments
 Consolidated
​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​​​ ​ ​​ ​
Net cash provided by operating activities $– $602 $– $– $– $4,242 $(758) $4,086
​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​
Cash Flows from Investing Activities                        
Net change in loans due (from) affiliates ​– ​– ​– ​– ​– ​(1,955) ​1,955 ​–
Proceeds from investments sold:                        

Fixed maturities and equity securities

 ​– ​– ​– ​– ​– ​2,012 ​– ​2,012
Investment maturities and repayments:                        

Fixed maturities and equity securities

 ​– ​– ​– ​– ​– ​2,051 ​– ​2,051

Commercial mortgage loans

  –  –  –  –  –  335  –  335
Other sales, maturities and repayments (primarily short-term and other long-term investments) ​– ​– ​– ​– ​– ​1,702 ​– ​1,702
Investments purchased or originated:                        

Fixed maturities and equity securities

 ​– ​– ​– ​– ​– ​(5,628) ​– ​(5,628)

Commercial mortgage loans

  –  –  –  –  –  (430)  –  (430)

Other sales, maturities and repayments (primarily short-term and other long-term investments)

 ​– ​(6) ​– ​– ​– ​(1,059) ​– ​(1,065)
Property and equipment purchases, net  –  –  –  –  –  (471)  –  (471)
Acquisitions, net of cash acquired ​– ​– ​– ​– ​– ​(209) ​– ​(209)
Other, net  –  (11)  –  –  –  11  –  –
​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​
NET CASH (USED IN) INVESTING ACTIVITIES ​– ​(17) ​– ​– ​– ​(3,641) ​1,955 ​(1,703)
​​​ ​ ​​ ​​​ ​ ​​ ​​​ ​ ​​ ​​​ ​ ​​ ​
Cash Flows from Financing Activities                        
Net change in amounts due to affiliates ​– ​1,955 ​– ​– ​– ​– ​(1,955) ​–
Intercompany dividends paid  –  –  –  –  –  (758)  758  –
Deposits and interest credited to contractholder deposit funds ​– ​– ​– ​– ​– ​1,230 ​– ​1,230
Withdrawals and benefit payments from contractholder deposit funds  –  –  –  –  –  (1,363)  –  (1,363)
Net change in short-term debt ​– ​100 ​– ​– ​– ​(20) ​– ​80
Payments for debt extinguishment  –  (313)  –  –  –  –  –  (313)
Repayment of long-term debt ​– ​(1,250) ​– ​– ​– ​– ​– ​(1,250)
Net proceeds on issuance of long-term debt  –  1,581  –  –  –  –  –  1,581
Repurchase of common stock ​– ​(2,725) ​– ​– ​– ​– ​– ​(2,725)
Issuance of common stock  –  131  –  –  –  –  –  131
Other, net ​– ​(73) ​– ​– ​– ​51 ​– ​(22)
​ ​​​ ​​ ​ ​​​ ​​ ​ ​​​ ​​ ​ ​​​ ​​ ​
NET CASH (USED IN) FINANCING ACTIVITIES  –  (594)  –  –  –  (860)  (1,197)  (2,651)
​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​
Effect of foreign currency rate changes on cash and cash equivalents ​– ​– ​– ​– ​– ​55 ​– ​55
​​​ ​ ​​ ​​​ ​ ​​ ​​​ ​ ​​ ​​​ ​ ​​ ​
Net decrease in cash and cash equivalents  –  (9)  –  –  –  (204)  –  (213)
Cash and cash equivalents, January 1, ​– ​18 ​– ​– ​– ​3,167 ​– ​3,185
​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​
Cash and cash equivalents, December 31, $– $9 $– $– $– $2,963 $– $2,972
​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​
​124    CIGNA CORPORATION - 2018 Form10-K​​

Back to Contents

PART II
ITEM 8. Financial Statements and Supplementary Data

Condensed Consolidating Cash Flow Statements

   For the year ended December 31, 2016
​​​ ​ ​​ ​ ​​ ​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​
(In millions)
 Cigna
 Old
Cigna
 Express
Scripts
Holding
Company
 Express
Scripts,
Inc.
 Medco
Health
Solutions,
Inc.
 Non-
Guarantors
 Eliminations
and
Consolidation
Adjustments
 Consolidated
​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​​​ ​ ​​ ​
Net cash provided by operating activities $– $376 $– $– $– $4,230 $(580) $4,026
​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​
Cash Flows from Investing Activities                        
Net change in loans due to affiliates ​– ​– ​– ​– ​– ​78 ​(78) ​–
Proceeds from investments sold:                        

Fixed maturities and equity securities

 ​– ​– ​– ​– ​– ​1,544 ​– ​1,544
Investment maturities and repayments:                        

Fixed maturities and equity securities

 ​– ​– ​– ​– ​– ​1,755 ​– ​1,755

Commercial mortgage loans

  –  –  –  –  –  316  –  316
Other sales, maturities and repayments (primarily short-term and other long-term investments) ​– ​– ​– ​– ​– ​1,431 ​– ​1,431
Investments purchased or originated:                        

Fixed maturities and equity securities

 ​– ​– ​– ​– ​– ​(5,191) ​– ​(5,191)

Commercial mortgage loans

  –  –  –  –  –  (165)  –  (165)

Other sales, maturities and repayments (primarily short-term and other long-term investments)

 ​– ​(3) ​– ​– ​– ​(1,695) ​– ​(1,698)
Property and equipment purchases, net  –  –  –  –  –  (461)  –  (461)
Acquisitions, net of cash acquired ​– ​– ​– ​– ​– ​(4) ​– ​(4)
Other, net  –  (8)  –  –  –  (93)  –  (101)
​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​
NET CASH (USED IN) INVESTING ACTIVITIES ​– ​(11) ​– ​– ​– ​(2,485) ​(78) ​(2,574)
​​​ ​ ​​ ​​​ ​ ​​ ​​​ ​ ​​ ​​​ ​ ​​ ​
Cash Flows from Financing Activities                        
Net change in amounts due (from) affiliates ​– ​(78) ​– ​– ​– ​– ​78 ​–
Intercompany dividends paid  –  –  –  –  –  (580)  580  –
Deposits and interest credited to contractholder deposit funds ​– ​– ​– ​– ​– ​1,460 ​– ​1,460
Withdrawals and benefit payments from contractholder deposit funds  –  –  –  –  –  (1,362)  –  (1,362)
Net change in short-term debt ​– ​(100) ​– ​– ​– ​(48) ​– ​(148)
Payments for debt extinguishment  –  –  –  –  –  –  –  –
Repayment of long-term debt ​– ​– ​– ​– ​– ​– ​– ​–
Net proceeds on issuance of long-term debt  –  –  –  –  –  –  –  –
Repurchase of common stock ​– ​(139) ​– ​– ​– ​– ​– ​(139)
Issuance of common stock  –  36  –  –  –  –  –  36
Other, net ​– ​(82) ​– ​– ​– ​10 ​– ​(72)
​ ​​​ ​​ ​ ​​​ ​​ ​ ​​​ ​​ ​ ​​​ ​​ ​
NET CASH (USED IN) FINANCING ACTIVITIES  –  (363)  –  –  –  (520)  658  (225)
​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​
Effect of foreign currency rate changes on cash and cash equivalents ​– ​– ​– ​– ​– ​(10) ​– ​(10)
​​​ ​ ​​ ​​​ ​ ​​ ​​​ ​ ​​ ​​​ ​ ​​ ​
Net increase in cash and cash equivalents  –  2  –  –  –  1,215  –  1,217
Cash and cash equivalents, January 1, ​– ​16 ​– ​– ​– ​1,952 ​– ​1,968
​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​
Cash and cash equivalents, December 31, $– $18 $– $– $– $3,167 $– $3,185
​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​
​​​CIGNA CORPORATION - 2018 Form10-K    125

Table of Contents

PART II
ITEM 8. Financial Statements and Supplementary Data

Note 21    Segment Information

See Note 1 for a description of our segments. Effective with the fourth quarter of 2018, the Company uses adjusted income from operations on a before-tax basis as its principal financial measure of segment operating performance. Prior year segment information has been adjusted to reflect this change and aA description of our basis for reporting segment operating results is outlined below. Intersegment transactionsrevenues primarily reflect home delivery pharmacy salesrelated transactions between the Evernorth and U.S. Medical segments. Effective with the first quarter of 2019, the Company began allocating compensation cost for stock options to insured customerssegments. Prior year segment information was not restated for this change. A description of the Integrated Medical segment. These transactions are eliminated in consolidation.

our basis for reporting segment operating results is outlined below.

The Company uses "pre-tax“pre-tax adjusted income from operations"operations” and “adjusted revenues” as its principal financial measuremeasures of segment operating performance because management believes itthey best reflectsreflect the underlying results of business operations and permits permit
138

analysis of trends in underlying revenue, expenses and profitability. Pre-tax adjusted income from operations is defined as income before taxes excluding realized investment results, amortization of acquired intangible assets, special items and, for periods prior to 2020, earnings contribution from transitioning clients Anthem Inc. and Coventry Health Care, Inc. (the “transitioning clients”). As of December 31, 2019, the transition of these clients was substantially complete; therefore, beginning in 2020, we no longer exclude results of transitioning clients from our adjusted revenues and special items.adjusted income from operations. Income or expense amounts that are excluded from adjusted income from operations because they are not indicative of underlying performance or the responsibility of operating segment management include:

•
Realized investment gains (losses), including changes in market values of certain financial instruments between balance sheet dates, as well as gains and losses associated with invested asset sales

sales.
•
Amortization of acquired intangible assets because these relate to costs incurred for acquisitions

acquisitions.
•
Results of transitioning clients, for periods prior to 2020, because those results arewere not indicative of ongoing results

results.
•
Special items, if any, that management believes are not representative of the underlying results of operations due to the nature or size of these matters. Further context about these items
The Company does not report total assets by segment because this is provided innot a metric used to allocate resources or evaluate segment performance.
Adjusted revenues is defined as revenues excluding: 1) revenue contribution from transitioning clients for periods prior to 2020; 2) the footnotes listed in the table below.

The following table presents the special items recorded by the Company for the years ended December 31, 2018, 2017 and 2016.

(In millions)      
Description of Special Item Charges (Benefits) and Financial Statement Line Item(s)  After-tax  Before-tax
​ ​​ ​​​ ​
Year ended December 31, 2018 ​  ​ 

Transaction-related costs

      

– Selling, general and administrative expenses (see Note 3)

 $587 $748

– Interest expense and other (see Note 3)

  179  227

– Net investment income (see Note 3)

 ​(97) ​(123)
​​​ ​ ​​​

Total transaction-related costs

 $669 $852

Charges associated with litigation matters (Selling, general and adminstrative expenses, see Note 19D.)

 $19 $25

Charges associated with U.S. tax reform

      

– Selling, general and administrative expenses

 $1 $2

– Tax expense (see Note 18)

  (3)  —
​ ​​ ​​​ ​

Total charges associated with U.S. tax reform

 $(2) $2
Year ended December 31, 2017      

Transaction-related costs (see Note 3)

 $33 $126

Charges associated with U.S. tax reform

      

– Selling, general and administrative expenses

 $(36) $(56)

– Tax expense (see Note 18)

  232  –
​ ​​ ​​​ ​

Total charges associated with U.S. tax reform

 $196 $(56)

Debt extinguishment costs (see Note 5)

 $209 $321

Long-term care guaranty fund assessment (Selling, general and administrative expenses, see Note 19D. for details)

 $83 $129
Year ended December 31, 2016      

Transaction-related costs (see Note 3)

 $147 $166

Charges associated with litigation matters (Selling, general and administrative expenses, see Note 19D. for details)

 $25 $40

Risk corridor allowance (Selling, general and administrative expenses)

 $80 $124
​ ​​ ​​​ ​
​126    CIGNA CORPORATION - 2018 Form10-K​​

Back to Contents

PART II
ITEM 8. Financial Statements and Supplementary Data

Summarized segment financial information for the years ended December 31, was as follows:

(In millions)
 Integrated
Medical
 Health
Services
 International
Markets
 Group
Disability
and Other
 Corporate
and
Eliminations
 Total
​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​

2018

 ​  ​  ​  ​  ​  ​ 

Revenues from external customers (1)

 $31,759 $5,902 $5,174 $4,335 $– $47,170

Inter-segment revenues

 ​573 ​1,154 ​– ​14 ​(1,741) ​–

Net investment income

  459  9  149  712  151  1,480
​​​ ​ ​​ ​​​ ​ ​​ ​​​ ​ ​​ ​

Total revenues

 ​32,791 ​7,065 ​5,323 ​5,061 ​(1,590) ​48,650

Revenue contributions from transitioning clients

  –  (459)  –  –  –  (459)

Net realized investment results from equity method subsidiaries (2)

 ​– ​– ​43 ​– ​– ​43

Special items reported in transaction-related costs

  –  –  –  –  (123)  (123)
​​​ ​ ​​ ​​​ ​ ​​ ​​​ ​ ​​ ​

Adjusted revenues

 $32,791 $6,606 $5,366 $5,061 $(1,713) $48,111
​ ​​​ ​​ ​ ​​​ ​​ ​ ​​​ ​​ ​

Depreciation and amortization

 $466 $120 $55 $53 $1 $695
​​​ ​ ​​​ ​​ ​ ​​​ ​​ ​ ​​​

Income (loss) before taxes

 $3,342 $329 $670 $497 $(1,257) $3,581
​ ​​​ ​​ ​ ​​​ ​​ ​ ​​​ ​​ ​

Pre-tax adjustments to reconcile to adjusted income from operations

                  

Adjustment for transitioning clients

 ​– ​(62) ​– ​– ​– ​(62)

(Income) loss attributable to noncontrolling interests

  –  –  (14)  –  –  (14)

Net realized investment (gains) losses

 ​36 ​– ​61 ​25 ​2 ​124

Amortization of acquired intangible assets

  99  113  18  5  –  235

Special items

 ​  ​  ​  ​  ​  ​ 

Transaction-related costs

  –  –  –  –  852  852

Charges associated with litigation matters

 ​25 ​– ​– ​– ​– ​25

U.S. tax reform

  –  –  –  2  –  2
​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​

Pre-tax adjusted income (loss) from operations

 $3,502 $380 $735 $529 $(403) $4,743
​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​


(In millions)
 Integrated
Medical
 Health
Services
 International
Markets
 Group
Disability
and Other
 Corporate
and
Eliminations
 Total
​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​

2017

 ​  ​  ​  ​  ​  ​ 

Revenues from external customers (1)

 $28,193 $3,250 $4,774 $4,363 $– $40,580

Inter-segment revenues

 ​476 ​988 ​– ​12 ​(1,476) ​–

Net investment income

  366  3  127  700  30  1,226
​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​

Total revenues

 $29,035 $4,241 $4,901 $5,075 $(1,446) $41,806
​ ​​​ ​​ ​ ​​​ ​​ ​ ​​​ ​​ ​

Adjusted revenues

 $29,035 $4,241 $4,901 $5,075 $(1,446) $41,806
​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​

Depreciation and amortization

 $470 $– $61 $31 $4 $566
​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​

Income (loss) before taxes

 $2,859 $288 $667 $614 $(822) $3,606
​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​

Pre-tax adjustments to reconcile to adjusted income from operations

 ​  ​  ​  ​  ​  ​ 

(Income) loss attributable to noncontrolling interests

  1  –  1  –  –  2

Net realized investment (gains) losses

 ​(137) ​– ​(31) ​(69) ​– ​(237)

Amortization of acquired intangible assets

  93  –  17  5  –  115

Special items

 ​  ​  ​  ​  ​  ​ 

Transaction-related costs

  –  –  –  –  126  126

U.S. tax reform

 ​– ​– ​– ​(56) ​– ​(56)

Debt extinguishment costs

  –  –  –  –  321  321

Long-term care guaranty fund assessment

 ​106 ​– ​– ​23 ​– ​129
​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​

Pre-tax adjusted income (loss) from operations

 $2,922 $288 $654 $517 $(375) $4,006
​​​ ​ ​​ ​​​ ​ ​​ ​​​ ​ ​​ ​
(1)
Includes the Company'sCompany’s share of the earningscertain realized investment results of its joint ventures reported in the International Markets segment using the equity method of accounting.

(2)
Beginningaccounting; and 3) special items, if any.
The following tables present the special items recorded by the Company in 2018, includes2020, 2019 and 2018.
Three Months Ended
(In millions)202020192018
Description of Special Item Charges (Benefits) and Financial Statement Line Item(s)After-taxBefore-taxAfter-taxBefore-taxAfter-taxBefore-tax
Integration and transaction-related costs:
- Selling, general and administrative expenses$404 $527 $427 $552 $587 $748 
- Interest expense and other0 0 0 0 179 227 
- Net investment income0 0 0 0 (97)(123)
Integration and transaction-related costs$404 $527 $427 $552 $669 $852 
Debt extinguishment costs$151 $199 $0 $0 $0 $0 
Charge for organizational efficiency plan (Selling, general and administrative expenses)24 31 162 207 0 0 
Charges associated with litigation matters (Selling, general and administrative expenses)19 25 41 51 19 25 
Risk corridors recovery (Selling, general and administrative expenses)(76)(101)0 0 0 0 
Contractual adjustment for a former client (Pharmacy revenues)(155)(204)0 0 0 0 
(Gain) on sale of business(3,217)(4,203)0 0 0 0 
Charges (benefits) associated with tax reform:
- Selling, general and administrative expenses$— $— $— $— $1 $2 
- Tax (benefit)— — — — (3)— 
Charges (benefits) associated with tax reform$— $— $— $— $(2)$2 
Total impact from special items$(2,850)$(3,726)$630 $810 $686 $879 

139

Summarized segment financial information for the years ended December 31 was as follows:
(In millions)EvernorthU.S. MedicalInternational MarketsGroup Disability and OtherCorporate and EliminationsTotal
2020
Revenues from external customers$112,647 $36,027 $5,853 $4,630 $0 $159,157 
Inter-segment revenues3,655 1,977 0 23 (5,655)
Net investment income32 447 154 611 0 1,244 
Total revenues$116,334 $38,451 $6,007 $5,264 $(5,655)$160,401 
Net realized investment results from certain equity method investments
0 0 (130)0 0 (130)
Special item related to contractual adjustment for a former client(204)0 0 0 0 (204)
Adjusted revenues$116,130 $38,451 $5,877 $5,264 $(5,655)$160,067 
Depreciation and amortization$2,248 $426 $68 $35 $25 $2,802 
Income (loss) before taxes$3,684 $3,956 $1,048 $4,514 $(2,334)$10,868 
Pre-tax adjustments to reconcile to adjusted income from operations
(Income) attributable to noncontrolling interests(17)0 (20)0 0 (37)
Net realized investment (gains) losses (1)
(17)(77)(161)(24)0 (279)
Amortization of acquired intangible assets1,917 29 33 3 0 1,982 
Special items
Integration and transaction-related costs0 0 0 0 527 527 
Debt extinguishment costs0 0 0 0 199 199 
Charge for organizational efficiency plan0 0 0 0 31 31 
Charges associated with litigation matters0 0 0 0 25 25 
Risk corridors recovery0 (101)0 0 0 (101)
Contractual adjustment for a former client(204)0 0 0 0 (204)
(Gain) on sale of business0 0 0 (4,203)0 (4,203)
Pre-tax adjusted income (loss) from operations$5,363 $3,807 $900 $290 $(1,552)$8,808 
(In millions)EvernorthU.S. MedicalInternational MarketsGroup Disability and OtherCorporate and EliminationsTotal
2019
Revenues from external customers
$107,354 $34,861 $5,500 $4,461 $0 $152,176 
Inter-segment revenues2,380 1,180 0 26 (3,586)
Net investment income (loss)60 478 159 695 (2)1,390 
Total revenues$109,794 $36,519 $5,659 $5,182 $(3,588)$153,566 
Revenue contribution from transitioning clients(13,347)0 0 0 0 (13,347)
Net realized investment results from certain equity method investments0 0 (44)0 0 (44)
Adjusted revenues$96,447 $36,519 $5,615 $5,182 $(3,588)$140,175 
Depreciation and amortization$3,071 $449 $87 $41 $3 $3,651 
Income (loss) before taxes$3,983 $3,904 $785 $562 $(2,664)$6,570 
Pre-tax adjustments to reconcile to adjusted income from operations
Adjustment for transitioning clients(1,726)0 0 0 0 (1,726)
(Income) attributable to noncontrolling interests(4)0 (16)0 0 (20)
Net realized investment (gains) losses (1)
0 (112)(43)(66)0 (221)
Amortization of acquired intangible assets2,839 69 36 5 0 2,949 
Special items
Integration and transaction-related costs0 0 0 0 552 552 
Charge for organizational efficiency plan0 0 0 0 207 207 
Charges associated with litigation matters0 (30)0 0 81 51 
Pre-tax adjusted income (loss) from operations$5,092 $3,831 $762 $501 $(1,824)$8,362 
(1)Includes the Company's share of thecertain realized investment gains (losses) of its joint ventures reported using the equity method of accounting.
​​​CIGNA CORPORATION - 2018 Form10-K    127

Back to Contents

PART II
ITEM 8. Financial Statements and Supplementary Data

140
(In millions)
 Integrated
Medical
 Health
Services
 International
Markets
 Group
Disability
and Other
 Corporate
and
Eliminations
 Total
​ ​​ ​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​

2016

 ​  ​  ​  ​  ​  ​ 

Revenues from external customers (1)

 $26,695 $3,169 $4,424 $4,403 $– $38,691

Inter-segment revenues

 ​395 ​894 ​– ​– ​(1,289) ​–

Net investment income

  305  3  113  705  21  1,147
​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​

Total revenues

 $27,395 $4,066 $4,537 $5,108 $(1,268) $39,838
​ ​​​ ​​ ​ ​​​ ​​ ​ ​​​ ​​ ​

Adjusted revenues

 $27,395 $4,066 $4,537 $5,108 $(1,268) $39,838
​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​

Depreciation and amortization

 $519 $– $61 $29 $1 $610
​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​

Income (loss) before taxes

 $2,417 $268 $497 $324 $(527) $2,979
​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​

Pre-tax adjustments to reconcile to adjusted income from operations

 ​  ​  ​  ​  ​  ​ 

(Income) loss attributable to noncontrolling interests

  2  –  18  –  –  20

Net realized investment (gains) losses

 ​(116) ​– ​2 ​(54) ​(1) ​(169)

Amortization of acquired intangible assets

  125  –  21  5  –  151

Special items

 ​  ​  ​  ​  ​  ​ 

Transaction-related costs

  –  –  –  –  166  166

Risk corridor allowance

 ​124 ​– ​– ​– ​– ​124

Charges associated with litigation matters

  40  –  –  –  –  40
​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​

Pre-tax adjusted income (loss) from operations

 $2,592 $268 $538 $275 $(362) $3,311
​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​


(In millions)EvernorthU.S. MedicalInternational MarketsGroup Disability and OtherCorporate and EliminationsTotal
2018
Revenues from external customers$5,902 $31,759 $5,174 $4,335 $0 $47,170 
Inter-segment revenues1,154 573 0 14 (1,741)
Net investment income (loss)9 459 149 712 151 1,480 
Total revenues$7,065 $32,791 $5,323 $5,061 $(1,590)$48,650 
Revenue contributions from transitioning clients(459)0 0 0 0 (459)
Net realized investment results from certain equity method investments0 0 43 0 0 43 
Special items reported in integration and transaction-related costs0 0 0 0 (123)(123)
Adjusted revenues$6,606 $32,791 $5,366 $5,061 $(1,713)$48,111 
Depreciation and amortization$120 $466 $55 $53 $1 $695 
Income (loss) before taxes$329 $3,342 $670 $497 $(1,257)$3,581 
Pre-tax adjustments to reconcile to adjusted income from operations
Adjustment for transitioning clients(62)0 0 0 0 (62)
(Income) attributable to noncontrolling interests0 0 (14)0 0 (14)
Net realized investment (gains) losses (1)
0 36 61 25 2 124 
Amortization of acquired intangible assets113 99 18 5 0 235 
Special items
Integration and transaction-related costs0 0 0 0 852 852 
Charges associated with litigation matters0 25 0 0 0 25 
Charges (benefits) associated with tax reform0 0 0 2 0 2 
Pre-tax adjusted income (loss) from operations$380 $3,502 $735 $529 $(403)$4,743 
(1)
Includes the Company's share of the earningscertain realized investment gains (losses) of its joint ventures reported in the International Markets segment using the equity method of accounting.


141

Revenue from external customers includes premiums, pharmacy revenues, premiums and fees and other revenues. The following table presents these revenues by product, premium service and productservice type for the years ended December 31:

(In millions)202020192018
Products (Pharmacy revenues) (ASC 606)
Network revenues$53,574 $50,431 $1,415 
Home delivery and specialty revenues48,792 47,768 3,997 
Other5,403 4,900 67 
Total pharmacy revenues$107,769 $103,099 $5,479 
Insurance premiums (ASC 944)
U.S. Medical premiums
U.S. Commercial
Health Insurance13,389 12,523 10,710 
Stop loss4,614 4,328 4,008 
Other1,135 1,040 1,038 
U.S. Government
Medicare Advantage7,565 6,314 5,832 
Medicare Part D1,593 1,699 764 
Other4,301 4,185 4,496 
Total U.S. Medical premiums32,597 30,089 26,848 
International Markets premiums5,511 5,266 5,043 
Domestic disability, life and accident premiums4,423 4,225 4,000 
Other premiums96 134 222 
Total premiums42,627 39,714 36,113 
Services (ASC 606)
Fees8,532 9,229 5,558 
Other external revenues229 134 20 
Total services8,761 9,363 5,578 
Total revenues from external customers$159,157 $152,176 $47,170 

(In millions)
 2018
 2017
 2016
​ ​​ ​ ​​ ​​​ ​

Insurance premiums

 ​  ​  ​ 

Integrated Medical premiums (ASC 944)

         

Commercial Premiums

 ​  ​  ​ 

Risk

 $10,710 $9,439 $7,911

Stop loss

 ​4,008 ​3,483 ​3,082

Other

  1,038  917  886

Government

 ​  ​  ​ 

Medicare Advantage

  5,832  5,534  6,621

Medicare Part D

 ​764 ​764 ​1,122

Other

  4,496  3,494  2,640
​ ​​ ​ ​​ ​​​ ​

Total Integrated Medical premiums

 ​26,848 ​23,631 ​22,262

International Markets premiums

  5,043  4,619  4,273

Domestic disability, life and accident premiums

 ​4,000 ​3,973 ​4,002

Other premiums

  222  268  287
​ ​​ ​​​ ​ ​​​

Total premiums

 ​36,113 ​32,491 ​30,824
​​​ ​ ​​ ​ ​​ ​

Services (ASC 606)

         

Fees

 ​5,588 ​5,053 ​4,844

Other external revenues

  20  57  57
​​​ ​ ​​​ ​​ ​

Total services

 ​5,578 ​5,110 ​4,901
​ ​ ​ ​ ​ ​​ ​ ​ ​

Products (Pharmacy revenues) (ASC 606)

         

Home delivery and specialty revenues

 ​3,997 ​2,979 ​2,966

Network revenues

  1,415  –  –

Other

 ​67 ​– ​–
​ ​ ​​ ​ ​ ​​ ​ ​

Total pharmacy revenues

  5,479  2,979  2,966
​​​ ​ ​​ ​ ​​ ​

Total revenues from external customers

 $47,170 $40,580 $38,691
​ ​ ​ ​ ​ ​​ ​ ​ ​

Foreign and U.S. revenues from external customers for the three years ended December 31 are shown below. The Company'sCompany’s foreign revenues are generated by its foreign operating entities. In the periods shown, no foreign country contributed more than 5% of consolidated revenues from external customers.

(In millions)202020192018
United States$154,042 $147,332 $42,773 
South Korea2,123 2,022 2,093 
All other foreign countries2,992 2,822 2,304 
Total$159,157 $152,176 $47,170 
(In millions)
 2018
 2017
 2016
 
​​​ ​ ​​​ ​​ ​ ​

United States

 $42,773 $36,555 $35,011 

South Korea

  2,093  1,892  1,666 

All other foreign countries

 ​2,304 ​2,133 ​2,014 
​​​ ​ ​​ ​ ​​ ​​

Total

 $47,170 $40,580 $38,691 
​ ​​ ​​​ ​ ​​​ ​

Revenues from CMSU.S. Federal Government agencies, under a number of contracts, were 16%15% of consolidated revenues in 20182020, 14% in 2019 and 2017, compared with 19%16% in 2016. These amounts were reported in the Integrated Medical segment.

​128    CIGNA CORPORATION - 2018 Form10-K​​

Table of Contents

PART II
ITEM 8. Financial Statements and Supplementary Data

2018.
142

Quarterly Financial Data(unaudited)

The following unaudited quarterly financial data is presented on a consolidated basis for each of the years ended December 31, 2018 and December 31, 2017. Quarterly financial results necessarily rely heavily on estimates. This and certain other factors, such as the seasonal nature of portions of the insurance business, suggest the need to exercise caution in drawing specific conclusions from quarterly consolidated results.


  Three Months Ended
 
​​​ ​ ​​ ​ ​​ ​ ​​ ​ ​

(In millions, except per share amounts)

  March 31,  June 30,  September 30,  December 31, 
​ ​​ ​​​ ​ ​​ ​ ​​ ​ ​

Consolidated Results

 ​  ​  ​  ​  

2018

             

Total revenues

 $11,413 $11,480 $11,457 $14,300 

Income before income taxes

  1,218  1,102  1,033  228 

Shareholders' net income

 ​915(1)​806(1)​772(1)​144(1)

Shareholders' net income per share

             

Basic

 ​3.78 ​3.32 ​3.18 ​0.56 

Diluted

  3.72  3.29  3.14  0.55 

2017

 ​  ​  ​  ​  

Total revenues

 $10,428 $10,374 $10,372 $10,632 

Income before income taxes

 ​890 ​1,134 ​824 ​758 

Shareholders' net income

  598(1) 813(1) 560(1) 266(1)

Shareholders' net income per share

 ​  ​  ​  ​  

Basic

  2.34  3.20  2.25  1.09 

Diluted

 ​2.30 ​3.15 ​2.21 ​1.07 

Stock and dividend data

             

2018

 ​  ​  ​  ​  

Price range of common stock – high

 $227.13 $182.10 $208.73 $226.61 

                                   – low

 $163.02 $163.80 $166.88 $176.52 

Dividends declared per common share

 $0.04 $– $– $– 

2017

 ​  ​  ​  ​  

Price range of common stock – high

 $154.83 $173.21 $188.36 $212.46 

                                   – low

 $133.52 $146.70 $166.81 $183.08 

Dividends declared per common share

 $0.04 $– $– $– 
​ ​​ ​ ​​ ​​​ ​ ​​ ​​
(1)
Shareholders' net income includes the following after-tax charges (benefits), described in Note 21 to the Consolidated Financial Statements:
 
 March 31,
 June 30,
 September 30,
 December 31,
 
​ ​​ ​​​ ​ ​​ ​ ​​ ​ ​

2018 Transaction-related costs

 $50 $109 $108 $402 

2018 Charges associated with litigation matters

  –  –  35  (16) 

2018 U.S. tax reform

 ​– ​– ​(5) ​3 
​​​ ​ ​​ ​ ​​ ​​​ ​ ​

Total 2018 charges

 $50 $109 $138 $389 
​​​ ​ ​​​ ​​ ​ ​​ ​ ​


 
 March 31,
 June 30,
 September 30,
 December 31,
 
​ ​​ ​​​ ​ ​​ ​ ​​ ​ ​

2017 U.S. tax reform

 $– $– $– $196 

2017 Debt extinguishment costs

  –  –  209  – 

2017 Long-term care guaranty fund assessment

 ​83 ​– ​– ​– 

2017 Transaction-related costs

  49  (47)  6  25 
​​​ ​ ​​ ​ ​​ ​​​ ​ ​

Total 2017 charges (benefits)

 $132 $(47) $215 $221 
​ ​​ ​​​ ​ ​​​ ​​ ​ ​
​​​CIGNA CORPORATION - 2018 Form10-K    129

Table of Contents

PART II
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

ITEM 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Item 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. Controls and Procedures

Item 9A.CONTROLS AND PROCEDURES

A.Disclosure Controls and Procedures

A.       Disclosure Controls and Procedures

Based on an evaluation of the effectiveness of Cigna'sCigna’s disclosure controls and procedures conducted under the supervision and with the participation of Cigna'sCigna’s management (including Cigna’s Chief Executive Officer and Chief Financial Officer), Cigna's Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, Cigna'sCigna’s disclosure controls and 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'sSecurities and Exchange Commission’s rules and forms.

forms and is accumulated and communicated to Cigna’s management, including Cigna’s Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
B.Internal Control Over Financial Reporting

B.       Internal Control OverManagement’s Annual Report on Internal Control over Financial Reporting

Management's Annual Report on Internal Control over Financial Reporting

Management of Cigna Corporation is responsible for establishing and maintaining adequate internal controls over financial reporting. The Company'sCompany’s internal controls were designed to provide reasonable assurance to the Company's management and Board of Directors that the Company'sCompany’s consolidated published financial statements for external purposes were prepared in accordance with accounting principles generally accepted in the United States. The Company'sCompany’s internal control over financial reporting includes those policies and procedures that:

(i)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets and liabilities of the Company;
(ii)
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States, and that receipts and expenditures of the Company are being made only in accordance with authorization of management and directors of the Company; and
(iii)
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisitions, use or disposition of the Company'sCompany’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Management assessed the effectiveness of the Company'sCompany’s internal controls over financial reporting as of December 31, 2018.2020. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"(“COSO”) inInternal Control-Integrated Framework (2013). Based on management'smanagement’s assessment and the criteria set forth by COSO, it was determined that the Company'sCompany’s internal controls over financial reporting are effective as of December 31, 2018.

Management's assessment of the effectiveness of internal controls over financial reporting excludes Express Scripts, which was acquired on December 20, 2018 (See Note 3 in the accompanying consolidated financial statements for additional information).

Express Scripts' total assets (excluding goodwill and intangible assets recorded in connection with the acquisition) and total revenues excluded from our assessment of internal control over financial reporting represent approximately 10% and 5%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2018.

2020.

The Company'sCompany’s independent registered public accounting firm, PricewaterhouseCoopers LLP, has audited the effectiveness of the Company'sCompany’s internal control over financial reporting, as stated in their report located on page 65 in Item 8 of this Form 10-K.

Change in Internal Control over Financial Reporting

As of December 31, 2018, management is in the process of evaluating and integrating the internal controls of the acquired Express Scripts business into the Company's existing operations. Other than the controls enhanced or implemented to integrate the Express Scripts business, there hasInternal Control over Financial Reporting

There have been no changechanges in Cigna'sour internal controlscontrol over financial reporting during the yearquarter ended December 31, 20182020 that hashave materially affected, or isare reasonably likely to materially affect, Cigna's internal controlscontrol over financial reporting.

ITEM 9B. Other Information

Item 9B.OTHER INFORMATION

None.

​130    CIGNA CORPORATION - 2018 Form10-K​​
143

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PART III
ITEM 10. Directors, Executive Officers and Corporate Governance

PART III

ITEM 10.   Directors, Executive Officers and Corporate Governance

Item 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

A.   Directors of the Registrant

A.Directors of the Registrant

The information under the captions "Corporate“Corporate Governance Matters – Process for Director Elections," " – Board of Directors' Nominees"Directors’ Nominees” and " –“– Board Meetings and Committees"Committees” (as it relates to Audit Committee disclosure) in Cigna'sCigna’s definitive proxy statement related to the 20192021 annual meeting of shareholders is incorporated herein by reference.

B.   Executive Officers of the Registrant

B.Executive Officers of the Registrant

See PART I – "Executive Officers of the Registrant" on page 38“Information about our Executive Officers” in this Form 10-K.

C.   Code of Ethics and Other Corporate Governance Disclosures

C.Code of Ethics and Other Corporate Governance Disclosures

The information under the caption "Corporate“Corporate Governance Matters – Codes of Ethics"Ethics” in Cigna'sCigna’s definitive proxy statement related to the 20192021 annual meeting of shareholders is incorporated herein by reference.

We intend to promptly disclose on our website, in accordance with applicable rules, any required disclosure of changes to or waivers, if any, of our Code of Ethics or our Director Code of Business Conduct and Ethics.

D.   Section 16(a) Beneficial Ownership Reporting Compliance

D.Delinquent Section 16(a) Reports

The information under the caption "Ownership“Ownership of Cigna Common Stock – Delinquent Section 16(a) Beneficial Ownership Reporting Compliance"Reports”, if included in Cigna'sCigna’s definitive proxy statement related to the 20192021 annual meeting of shareholders, is incorporated herein by reference.

ITEM 11.    Executive Compensation

Item 11.EXECUTIVE COMPENSATION

The information under the captions "Corporate“Corporate Governance Matters – Non-Employee Director Compensation," "Compensation” “Certain Transactions – Compensation Committee Interlocks and Inside Participation,” “Compensation Matters – Compensation Discussion and Analysis," " –” “– Report of the People Resources Committee"Committee” and " –“– Executive Compensation Tables"Tables” in Cigna'sCigna’s definitive proxy statement related to the 20192021 annual meeting of shareholders is incorporated herein by reference.

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PART III
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

144

ITEM 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Item 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table presents information regarding Cigna'sCigna’s equity compensation plans as of December 31, 2018:

2020:
 
(a)(1)
(b)(2)
(c)(3)
Plan CategorySecurities To Be Issued
Upon Exercise Of
Outstanding Options,
Warrants And Rights		Weighted Average
Exercise Price Of
Outstanding Options,
Warrants And Rights		Securities Remaining
Available For Future
Issuance Under Equity
Compensation Plans
(Excluding Securities
Reflected In Column (a))
Equity Compensation Plans Approved by Security Holders11,725,097 $152.40 23,618,311 
Equity Compensation Plans Not Approved by Security Holders— — — 
Total11,725,097 $152.40 23,618,311 
Plan Category
 (a) (1)
Securities To Be Issued
Upon Exercise Of
Outstanding Options,
Warrants And Rights
 (b) (2)
Weighted Average
Exercise Price Per
Share Of
Outstanding Options,
Warrants And Rights
 (c) (3)
Securities Remaining
Available For Future
Issuance Under Equity
Compensation Plans
(Excluding Securities
Reflected In Column (a))
 
​ ​​ ​​​ ​ ​​ ​​

Equity Compensation Plans Approved by Security Holders

 ​15,099,184 $125.46 ​28,891,766 

Equity Compensation Plans Not Approved by Security Holders

  –  –  – 
​​​ ​ ​​ ​​​ ​ ​

Total

 ​15,099,184 $125.46 ​28,891,766 
​ ​​ ​ ​​ ​ ​​ ​ ​
(1)
Includes, in addition to outstanding stock options:

(i) 103,32282,426 restricted stock units, 111,315122,887 deferred shares and 1,401,0711,615,392 strategic performance shares that are reported at the maximum 200% payout rate granted under the Cigna Long-Term Incentive Plan, the Corporation Stock Plan and the Cigna Corporation Director Equity Plan;

and
(ii) 140,744 shares of common stock underlying stock option awards granted under the HealthSpring, Inc. Amended and Restated 2006 Equity Incentive Plan which was approved by HealthSpring, Inc.'s shareholders before Cigna's acquisition of HealthSpring, Inc. in January 2012; and

(iii) 897,338637,546 shares of common stock underlying stock option awards and 1,013,890153,959 restricted stock units granted under the Express Scripts Holding Company 2016 Long-Term Incentive Plan, 8,7585,728 deferred shares granted under the Express Scripts, Inc. Executive Deferred Compensation Plan of 2005, 2,877,9221,327,353 shares of common stock underlying stock option awards and 63,904 restricted stock units granted under the Express Scripts, Inc. 2011 Long-Term Incentive Plan, 2,249,7311,091,220 shares of common stock underlying stock option awards and 26,2383,300 restricted stock units granted under the Medco Health Solutions, Inc. 2002 Stock Incentive Plan, and 119,94843,737 shares of common stock underlying stock option awards granted under the Accredo Health, Incorporated 2002 Long-Term Incentive Plan whichthat were all approved by the applicable company'scompany’s shareholders before Cigna'sCigna’s acquisition of Express Scripts in December 2018.

(2)
The weighted-average exercise price is based only on outstanding stock options. The outstanding stock options assumed due to Cigna's acquisition of HealthSpring, Inc. have a weighted-average exercise price of $22.45. The outstanding stock options assumed due to Cigna's acquisition of Express Scripts, in aggregate, have a weighted-average exercise price of $135.57.$143.21. Excluding the assumed options from these acquisitionsthis acquisition results in a weighted-average exercise price of $117.64.

$156.69.
(3)
Includes 239,222213,471 shares of common stock available as of the close of business December 31, 20182020 for future issuance under the Cigna Corporation Director Equity Plan, 25,838,36020,591,667 shares of common stock available as of the close of business on December 31, 20182020 for future issuance under the Cigna Long-Term Incentive Plan whichthat includes 13,120,66610,728,281 shares of common stock available assumed from the Express Scripts, Inc. 2016 Long-Term Incentive Plan, and 2,814,1842,813,173 shares of common stock available as of the close of business December 31, 20182020 for future issuance under the Express Scripts, Inc. Executive Deferred Compensation Plan of 2005. Because no further grants may be made under the HealthSpring, Inc. Amended and Restated 2006 Equity Incentive Plan, the Express Scripts, Inc. 2016 Long-Term Incentive Plan, the Express Scripts, Inc. 2011 Long-Term Incentive Plan, the Medco Health Solutions, Inc. 2002 Stock Incentive Plan and the Accredo Health, Incorporated 2002 Long-Term Incentive Plan, shares available for issuance under these plans are not included.

The information under the captions "Ownership“Ownership of Cigna Common Stock – Stock Held by Directors, Nominees and Executive Officers"Officers” and "Ownership“Ownership of Cigna Common Stock – Stock Held by Certain Beneficial Owners"Owners” in Cigna'sCigna’s definitive proxy statement related to the 20192021 annual meeting of shareholders is incorporated herein by reference.

ITEM 13.    Certain Relationships and Related Transactions, and Director Independence

Item 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information under the captions "Corporate“Corporate Governance Matters – Director Independence"Independence” and " “– Certain Transactions"Transactions” in Cigna'sCigna’s definitive proxy statement related to the 20192021 annual meeting of shareholders is incorporated herein by reference.

ITEM 14.   Principal Accountant Fees and Services

Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information under the captions "Audit“Audit Matters – Policy for the Pre-Approval of Audit and Non-Audit Services"Services” and " –“– Fees to Independent Registered Public Accounting Firm"Firm” in Cigna'sCigna’s definitive proxy statement related to the 20192021 annual meeting of shareholders is incorporated herein by reference.

​132    CIGNA CORPORATION - 2018 Form10-K​​

145

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PART IV
ITEM 15. Exhibits and Financial Statement Schedules

PART IV

ITEM 15. Exhibits and Financial Statement Schedules

Item 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)
(1) The following Financial Statements appear on pages 65 through 129:

      can be found under Part II Item 8 of this Form 10-K:

Report of Independent Registered Public Accounting Firm.

Consolidated Statements of Income for the years ended December 31, 2018, 20172020, 2019 and 2016.

2018.

Consolidated Statements of Comprehensive Income for the years ended December 31, 2018, 20172020, 2019 and 2016.

2018.

Consolidated Balance Sheets as of December 31, 20182020 and 2017.

2019.

Consolidated Statements of Changes in Total Equity for the years ended December 31, 2018, 20172020, 2019 and 2016.

2018.

Consolidated Statements of Cash Flows for the years ended December 31, 2018, 20172020, 2019 and 2016.

2018.

Notes to the Consolidated Financial Statements.

(2)The financial statement schedules are listed in the Index to Financial Statement Schedules on page FS-1.

FS-1 which list is incorporated herein.
(3)Set forth in this Item 15 is a list of exhibits filed or incorporated by reference as part of this Annual Report on Form 10-K.
(b)
The exhibits listed in the accompanying "Index“Index to Exhibits"Exhibits” in this Item 15 are filed or incorporated by reference as part of this Annual Report on Form 10-K.
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PART IV
ITEM 15. Exhibits and

(c)The financial statement schedules listed in the Index to Financial Statement Schedules

on page FS-1 are filed as part of this Annual Report on Form 10-K.

146

Index to Exhibits


INDEX TO EXHIBITS
Number
Description
Method of Filing
​​​ ​​
2.1(a)Filed by Cigna Holding Company ("CHC"(“CHC”) as Exhibit 2.1 to the Current Report on Form 8-K on March 13, 2018 and incorporated herein by reference.
2.1(b)Filed by CHC as Exhibit 2.1 to the Current Report on Form 8-K on July 2, 2018 and incorporated herein by reference.
3.1Filed by the registrant as Exhibit 3.1 to the Current Report on Form 8-K on December 20, 2018 and incorporated herein by reference.
3.2Filed by the registrant as Exhibit 3.23.1 to the Current Report on Form 8-K on December 20, 2018February 27, 2020 and incorporated herein by reference.
4.1(a)Filed by CHC as Exhibit 4.1 to the Current Report on Form 8-K on September 21, 2018 and incorporated herein by reference.
4.1(b)Filed by CHC as Exhibit 4.2 to the Current Report on Form 8-K on September 21, 2018 and incorporated herein by reference.
4.1(c)Filed by the registrant as Exhibit 4.7 to the Current Report on Form 8-K on December 20, 2018 and incorporated herein by reference.
4.24.1(d)Filed by CHCthe registrant as Exhibit 4.34.1 to the Current Report on Form 8-K on September 21, 2018October 11, 2019 and incorporated herein by reference.
4.1(e)Filed by the registrant as Exhibit 4.1 to the Current Report on Form 8-K on March 16, 2020 and incorporated herein by reference.
4.3(a)4.2Filed by the registrant as Exhibit 4.2 to the Current Report on Form 8-K on October 11, 2019 and incorporated herein by reference.
4.3(a)Filed by CHC as Exhibit 4.1(a) to the Annual Report on Form 10-K for the year ended December 31, 2012 and incorporated herein by reference.
4.3(b)Filed by CHC as Exhibit 4.1(b) to the Annual Report on Form 10-K for the year ended December 31, 2012 and incorporated herein by reference.
4.3(c)
Filed by CHC as Exhibit 4.1(c) to the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2011 and incorporated herein by reference.
4.3(d)Filed by CHC as Exhibit 4.1 to the Current Report on Form 8-K on March 10, 2008 and incorporated herein by reference.
4.3(e)Filed by CHC as Exhibit 99.2 to the Current Report on Form 8-K on May 28, 2010 and incorporated herein by reference.
147

4.3(f)Filed by CHC as Exhibit 99.2 to the Current Report on Form 8-K on December 9, 2010 and incorporated herein by reference.
4.3(g)Filed by CHC as Exhibit 99.2 to the Current Report on Form 8-K on March 8, 2011 and incorporated herein by reference.
4.3(h)Filed by CHC as Exhibit 4.1 to the Current Report on Form 8-K on November 14, 2011 and incorporated herein by reference.
4.3(i)Filed by CHC as Exhibit 4.1 to the Current Report on Form 8-K on March 26, 2015 and incorporated herein by reference.
4.3(j)Filed by CHC as Exhibit 4.1 to the Current Report on Form 8-K filed September 14, 2017 and incorporated herein by reference.
4.3(k)Filed by the registrant as Exhibit 4.1 to the Current Report on Form 8-K on December 20, 2018 and incorporated herein by reference.
4.4(a)4.3(l)Filed by the registrant as Exhibit 4.3 to the Current Report on Form 8-K on October 11, 2019 and incorporated herein by reference.
4.4(a)Filed by CHC as Exhibit 4.2 to the Annual Report on Form 10-K for the year ended December 31, 2009 and incorporated herein by reference.
4.4(b)Filed by the registrant as Exhibit 4.2 to the Current Report on Form 8-K on December 20, 2018 and incorporated herein by reference.
4.5(a)4.4(c)Filed by the registrant as Exhibit 4.4 to the Current Report on Form 8-K on October 11, 2019 and incorporated herein by reference.
4.5(a)Filed by CHC as Exhibit 4.3 to the Annual Report on Form 10-K for the year ended December 31, 2009 and incorporated herein by reference.
4.5(b)Filed by the registrant as Exhibit 4.3 to the Current Report on Form 8-K on December 20, 2018 and incorporated herein by reference.
4.6(a)Filed by Express Scripts, Inc. ("ESI"(“ESI”) as Exhibit 4.1 to the Current Report on Form 8-K filed November 25, 2011 and incorporated herein by reference.
​ 4.6(b)​​​​
​134    CIGNA CORPORATION - 2018 Form10-K​​

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PART IV
ITEM 15. Exhibits and Financial Statement Schedules

Number
Description
Method of Filing
​​​ ​​
4.6(b)Third Supplemental Indenture, dated as of November 21, 2011, among Express Scripts, Inc., Express Scripts Holding Company, the other subsidiaries of Express Scripts Holding Company party thereto and Wells Fargo Bank, National Association, as TrusteeFiled by ESI as Exhibit 4.4 to the Current Report on Form 8-K on November 25, 2011 and incorporated herein by reference.
4.6(c)Filed by ESI as Exhibit 4.5 to the Current Report on Form 8-K on November 25, 2011 and incorporated herein by reference.
4.6(d)Filed by ESI as Exhibit 4.3 to the Current Report on Form 8-K filed February 10, 2012 and incorporated herein by reference.
148

4.6(e)Filed by Express Scripts Holding Company ("ESRX"(“ESRX”) as Exhibit 4.1 to the Current Report on Form 8-K on April 6, 2012 and incorporated herein by reference.
4.6(f)Filed by ESRX as Exhibit 4.1 to the Current Report on Form 8-K on June 5, 2014 and incorporated herein by reference.
4.6(g)Filed by ESRX as Exhibit 4.2 to the Current Report on Form 8-K on June 5, 2014 and incorporated herein by reference.
4.6(h)Filed by ESRX as Exhibit 4.3 to the Current Report on Form 8-K on June 5, 2014 and incorporated herein by reference.
4.6(i)Filed by ESRX as Exhibit 4.1 to the Current Report on Form 8-K on February 25, 2016 and incorporated herein by reference.
4.6(j)Filed by ESRX as Exhibit 4.2 to the Current Report on Form 8-K on February 25, 2016 and incorporated herein by reference.
4.6(k)Filed by ESRX as Exhibit 4.1 to the Current Report on Form 8-K on July 5, 2016 and incorporated herein by reference.
4.6(l)Filed by ESRX as Exhibit 4.2 to the Current Report on Form 8-K on July 5, 2016 and incorporated herein by reference.
4.6(m)Filed by ESRX as Exhibit 4.3 to the Current Report on Form 8-K on July 5, 2016 and incorporated herein by reference.
4.6(n)Filed by ESRX as Exhibit 4.1 to the Current Report on Form 8-K on November 30, 2017 and incorporated herein by reference.
4.6(o)Filed by ESRX as Exhibit 4.2 to the Current Report on Form 8-K on November 30, 2017 and incorporated herein by reference.
4.6(p)Filed by ESRX as Exhibit 4.3 to the Current Report on Form 8-K on November 30, 2017 and incorporated herein by reference.
4.6(q)Filed by the registrant as Exhibit 4.4 to the Current Report on Form 8-K on December 20, 2018 and incorporated herein by reference.
4.7(a)4.6(r)Filed by the registrant as Exhibit 4.5 to the Current Report on Form 8-K on October 11, 2019 and incorporated herein by reference.
4.7(a)Filed by ESI as Exhibit 4.1 to the Current Report on Form 8-K on June 10, 2009 and incorporated herein by reference.
4.7(b)Filed by ESI as Exhibit 4.4 to the Current Report on Form 8-K on June 10, 2009 and incorporated herein by reference.
149

4.7(c)Filed by ESI as Exhibit 4.6 to the Current Report on Form 8-K on November 25, 2011 and incorporated herein by reference.
4.7(d)Filed by ESRX as Exhibit 4.2 to the Current Report on Form 8-K on April 6, 2012 and incorporated herein by reference.
​ 4.7(e)​​ ​​
​​​CIGNA CORPORATION - 2018 Form10-K    135

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PART IV
ITEM 15. Exhibits and Financial Statement Schedules

Exhibits 10.1 through 10.37 are identified as compensatory plans, management contracts or arrangements pursuant to Item 15 of Form 10-K.
Filed by Medco Health Solutions, Inc. ("Medco") as Exhibit 4.1 to the Current Report on Form 8-K on March 18, 2008 and incorporated herein by reference.
4.8(b)10.1(a)Form of Medco Solutions, Inc. 4.125% Notes due 2020Filed by Medco as Exhibit 4.2 to the Current Report on Form 8-K on September 10, 2010 and incorporated herein by reference.
4.8(c)First Supplemental Indenture, dated as of April 2, 2012, among Medco Health Solutions, Inc., Express Scripts Holding Company, the other subsidiaries of Express Scripts Holding Company party thereto and U.S. Bank Trust National Association, as TrusteeFiled by ESRX as Exhibit 4.3 to the Current Report on Form 8-K on April 6, 2012 and incorporated herein by reference.
4.8(d)Second Supplemental Indenture dated as of December 20, 2018, by and among Cigna Corporation, Medco Health Solutions, Inc. and U.S. Bank Trust National Association, as TrusteeFiled by the registrant as Exhibit 4.6 to the Current Report on Form 8-K on December 20, 2018 and incorporated herein by reference.
Exhibits 10.1 through 10.40 are identified as compensatory plans, management contracts or arrangements pursuant to Item 15 of Form 10-K.
10.1(a)Filed by the registrant as Exhibit 10.1 to the Current Report on Form 8-K on May 1, 2017 and incorporated herein by reference.
10.1(b)Filed by CHC as Exhibit 10.3 to the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2018 and incorporated herein by reference.
10.1(c)Filed by CHC as Exhibit 10.21 to Form 10-K for the year ended December 31, 2011 and incorporated herein by reference.
10.1(d)Filed by CHC as Exhibit 10.2 to Form 10-Q for the period ended March 31, 2014 and incorporated herein by
10.1(e)Filed by CHC as Exhibit 10.3 to Form 10-Q for the period ended March 31, 2015 and incorporated herein by
10.1(f)Filed by CHC as Exhibit 10.3 to Form 10-Q for the period ended March 31, 2017 and incorporated herein by reference.
10.1(g)Filed by CHC as Exhibit 10.4 to Quarterly Report on Form 10-Q for the period ended March 31, 2018 and incorporated herein by reference.
10.1(d)10.1(h)Filed by CHC as Exhibit 10.6 to Quarterly Report on Form 10-Q for the period ended March 31, 2018 and incorporated herein by reference
10.1(i)Filed by CHC as Exhibit 10.5 to Quarterly Report on Form 10-Q for the period ended March 31, 2018 and incorporated herein by reference.
10.1(e)10.1(j)Filed by CHCthe registrant as Exhibit 10.610.1 to Quarterly Report on Form 10-Q for the period ended March 31, 20182019 and incorporated herein by reference.
10.1(f)10.1(k)
Filed by CHCthe registrant as Exhibit 10.710.2 to Quarterly Report on Form 10-Q for the period ended March 31, 20182019 and incorporated herein by reference.
150

10.2(a)10.1(l)HealthSpring, Inc. Amended and Restated 2006 Equity Incentive Plan (the "HealthSpring Equity Incentive Plan")Filed by the registrant as Exhibit 4.410.3 to the Registration Statement on Form S-8 (No. 333-228930) filed December 20, 2018 and incorporated herein by reference.
10.2(b)HealthSpring Equity Incentive Plan: Form of Restricted Share AwardFiled by CHC as Exhibit 10.4 to the Quarterly Report on Form 10-Q for the period ended March 31, 20132019 and incorporated herein by reference.
10.2(c)10.1(m)Filed by CHCthe registrant as Exhibit 10.510.1 to the Quarterly Report on Form 10-Q for the period ended March 31, 20132020 and incorporated herein by reference.
10.310.1(n)Filed by the registrant as Exhibit 10.2 to Quarterly Report on Form 10-Q for the period ended March 31, 2020 and incorporated herein by reference.
10.1(o)Filed by the registrant as Exhibit 10.3 to Quarterly Report on Form 10-Q for the period ended March 31, 2020 and incorporated herein by reference.
10.1(p)Filed by the registrant as Exhibit 10.5 to Quarterly Report on Form 10-Q for the period ended March 31, 2020 and incorporated herein by reference.
10.2Filed by CHC as Exhibit 10.7 to the Annual Report on Form 10-K for the year ended December 31, 2009 and incorporated herein by reference.
10.410.3Filed by CHC as Exhibit 10.5 to the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2017 and incorporated herein by reference.
10.5(a)10.4(a)
Filed by ESRX as Appendix A to ESRX'sESRX’s Definitive Proxy Statement on Schedule 14A for its 2016 Annual Meeting of Stockholders, filed March 21, 2016 and incorporated herein by reference.
10.5(b)10.4(b)Filed by ESRX as Exhibit 10.4 to the Current Report on Form 8-K on May 4, 2016 and incorporated herein by reference.
10.5(c)10.4(c)Filed by ESRX as Exhibit 10.5 to the Current Report on Form 8-K on May 4, 2016 and incorporated herein by reference.
10.5(d)10.4(d)Filed by ESRX as Exhibit 10.7 to Current Report on Form 8-K on May 4, 2016 and incorporated herein by reference.
10.6(a)10.5(a)Filed by the registrant as Exhibit 4.10 to the Registration Statement on Form S-8 (No. 333-228930)333- 228930) on December 20, 2018 and incorporated herein by reference.
10.6(b)10.5(b)Filed by ESRX as Exhibit 10.6 to Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 and incorporated herein by reference.
10.6(c)10.5(c)Filed by ESRX as Exhibit 10.14 to the Current Report on Form 8-K on April 2, 2012 and incorporated herein by reference.
10.6(d)10.5(d)Form of Restricted Stock Unit Grant Notice used with respect to grants of restricted stock units by Express Scripts Holding Company under the ESI LTIPFiled by ESRX as Exhibit 10.2 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 and incorporated herein by reference.
10.6(e)Filed by ESRX as Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 and incorporated herein by reference.
151

10.7(a)10.6(a)Filed by the registrant as Exhibit 4.11 to the Registration Statement on Form S-8 (No. 333-228930)333- 228930) on December 20, 2018 and incorporated herein by reference.
10.7(b)10.6(b)Filed by Medco as Exhibit 10.2 to the Current Report on Form 8-K on February 8, 2005 and incorporated herein by reference.
​10.7​​ ​​
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PART IV
ITEM 15. Exhibits and Financial Statement Schedules

Number
Description
Method of Filing
​​​ ​​
10.8Accredo Health, Incorporated 2002 Long-Term Incentive PlanFiled by the registrant as Exhibit 4.12 to the Registration Statement on Form S-8 (No. 333-228930)333- 228930) on December 20, 2018 and incorporated herein by reference.
10.910.8
Filed by CHC as Exhibit 10.1 the Annual Report on Form 10-K for the year ended December 31, 2011 and incorporated herein by reference.
10.1010.9
Filed by CHC as Exhibit 10.14 to the Annual Report on Form 10-K for the year ended December 31, 2011 and incorporated herein by reference.
10.1110.10Filed by the registrant as Exhibit 4.6 to the Registration Statement on Form S-8 (No. 333-228930)333- 228930) on December 20, 2018 and incorporated herein by reference.
10.1210.11Filed by ESI as Exhibit No. 10.1 to the Current Report on Form 8-K on May 25, 2007 and incorporated herein by reference.
10.1310.12(a)Filed by the registrant as Exhibit 4.13 to the Registration Statement on Form S-8 (No. 333-228930)333- 228930) on December 20, 2018 and incorporated herein by reference.
10.14(a)10.12(b)Filed by the registrant as Exhibit 10.12(b) to the Annual Report on Form 10-K for the year ended December 31, 2019 and incorporated herein by reference.
10.13(a)Filed by CHC as Exhibit 10.15(a) to the Annual Report on Form 10-K for the year ended December 31, 2009 and incorporated herein by reference.
10.14(b)10.13(b)Filed by CHC as Exhibit 10.15(b) to the Annual Report on Form 10-K for the year ended December 31, 2009 and incorporated herein by reference.
10.14(c)10.13(c)Filed by CHC as Exhibit 10.16(c) to the Annual Report on Form 10-K for the year ended December 31, 2011 and incorporated herein by reference.
10.15(a)10.14(a)Filed by CHC as Exhibit 10.15 to the Annual Report on Form 10-K for the year ended December 31, 2007 and incorporated herein by reference.
10.15(b)10.14(b)Filed by CHC as Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2009 and incorporated herein by reference.
10.1610.15(a)Filed by the registrant as Exhibit 4.7 to the Registration Statement on Form S-8 (No. 333-228930)333- 228930) on December 20, 2018 and incorporated herein by reference.
152

10.1710.15(b)Filed by the registrant as Exhibit 10.15(b) to the Annual Report on Form 10-K for the year ended December 31, 2019 and incorporated herein by reference.
10.15(c)Filed by the registrant as Exhibit 10.15(c) to the Annual Report on Form 10-K for the year ended December 31, 2019 and incorporated herein by reference.
10.15(d)Filed by the registrant as Exhibit 10.15(d) to the Annual Report on Form 10-K for the year ended December 31, 2019 and incorporated herein by reference.
10.16
Filed by CHC as Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2014 and incorporated herein by reference.
10.1810.17
Filed herewith.
10.19Cigna Corporation Director Equity PlanFiled by the registrant as Exhibit 4.510.18 to the Registration StatementAnnual Report on Form S-8 (No. 333-228930) on10-K for the year ended December 20,31, 2018 and incorporated herein by reference.
10.2010.18Filed herewith.
10.19Filed by CHC as Exhibit 10.4 to the Annual Report on Form 10-K for the year ended December 31, 2012 and incorporated herein by reference.
10.2110.20Filed by the registrant as Exhibit 4.8 to the Registration Statement on Form S-8 (No. 333-228930)333- 228930) on December 20, 2018 and incorporated herein by reference.
10.2210.21Filed by ESRX as Exhibit 10.1 to the Current Report on Form 8-K on March 5, 2014 and incorporated herein by reference.
10.2310.22Filed herewith.by the registrant as Exhibit 10.1 to the Current Report on Form 8-K on October 30, 2020 and incorporated herein by reference.
10.2410.23
Filed by CHC as Exhibit 10.10 to the Annual Report on Form 10-K for the year ended December 31, 2009 and incorporated herein by reference.
10.2510.24Filed by CHC as Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2012 and incorporated herein by reference.
10.2610.25Filed by CHC as Exhibit 10.18 to the Annual Report on Form 10-K for the year ended December 31, 2009 and incorporated herein by reference.
10.2710.26Filed by CHC as Exhibit 10.1 to the Current Report on Form 8-K on June 19, 2017 and incorporated herein by reference.
10.2810.27Filed by CHC as Exhibit 10.2 to the Quarterly Report on Form 10-Q for the period ended March 31, 2012 and incorporated herein by reference.
153

10.2910.28Filed by CHC as Exhibit 10.1(a) to the Quarterly Report on Form 10-Q for the period ended March 31, 2015 and incorporated herein by reference.
10.3010.29Filed by CHC as Exhibit 10.1(b) to the Quarterly Report on Form 10-Q for the period ended March 31, 2015 and incorporated herein by reference.
​ 10.30​​​​
​​​CIGNA CORPORATION - 2018 Form10-K    137

Back to Contents

PART IV
ITEM 15. Exhibits and Financial Statement Schedules

Number
Description
Method of Filing
​​​ ​​
10.31Retention Agreement by and between Cigna Corporation and Mr. Timothy Wentworth, dated as of May 12, 2018.
Filed by the registrant as Exhibit 10.1 to Amendment No. 1 to the Registration Statement on Form S-4 (No. 333-224960) on June 20, 2018 and incorporated herein by reference.
10.3210.31Filed by ESRX as Exhibit 10.1 to the Current Report on Form 8-K on May 4, 2016 and incorporated herein by reference.
10.3310.32Filed by CHC as Exhibit 10.20 to the Annual Report on Form 10-K for the year ended December 31, 2008 and incorporated herein by reference.
10.3410.33Filed herewith.by the registrant as Exhibit 10.34 to the Annual Report on Form 10-K for the year ended December 31, 2018 and incorporated herein by reference.
10.3510.34Filed by CHC as Exhibit 10.1 to the Current Report on Form 8-K on October 18, 2017 and incorporated herein by reference.
10.3610.35Agreement and Release between the Company and Thomas A. McCarthy dated June 16, 2017Filed by CHC as Exhibit 10.2 to the Current Report on Form 8-K on June 19, 2017 and incorporated herein by reference.herewith.
10.3710.36Advisory Services Agreement between the Company and Thomas A. McCarthy dated June 16, 2017Filed by CHC as Exhibit 10.3 to the Current Report on Form 8-K on June 19, 2017 and incorporated herein by reference.herewith.
10.3810.37Filed by CHC as Exhibit 10.8 to the Quarterly Report on Form 10-Q for the period ended March 31, 2018 and incorporated herein by reference.herewith.
10.3910.38Agreement and Release between the Company and Christopher J. Hocevar dated September 26, 2018Filed by CHC as Exhibit 10.1 to the Quarterly Report on Form 10-Q for the period ended September 30, 2018 and incorporated herein by reference.
10.40Agreement and Release between the Company and Alan Muney, M.D. effective December 21, 2018Filed herewith.
10.41(a)Filed by CHC as Exhibit 10.1 to Current Report on Form 8-K on April 12, 2018 and incorporated herein by reference.
10.41(b)10.39
 		Additional Guarantor Supplement dated as of December 20, 2018, by Express Scripts Holding Company and Cigna Holding Company to that certain Revolving Credit and Letter of Credit Agreement dated as of April 6, 2018, by and among Cigna Holding Company, Cigna Corporation, JPMorgan Chase Bank, N.A., as administrative agent, and the other parties thereto.Filed by the registrant as Exhibit 4.8 to the Current Report on Form 8-K filed December 20, 2018 and incorporated herein by reference.
10.42(a)Term Loan Credit Agreement, dated as of April 6, 2018Filed by CHC as Exhibit 10.2 to Current Report on Form 8-K on April 12, 2018 and incorporated herein by reference.
10.42(b)Additional Guarantor Supplement dated as of December 20, 2018, by Express Scripts Holding Company and Cigna Holding Company to that certain Term Loan Credit Agreement dated as of April 6, 2018, by and among Cigna Holding Company, Cigna Corporation, Morgan Stanley Senior Funding, Inc., as administrative agent, and the other parties thereto.Filed by the registrant as Exhibit 4.9 to the Current Report on Form 8-K filed December 20, 2018 and incorporated herein by reference.
10.43Filed by CHC as Exhibit 10.29 to the Annual Report on Form 10-K for the year ended December 31, 2012 and incorporated herein by reference.
21Filed herewith.
23Filed herewith.
31.1Filed herewith.
31.2Filed herewith.
32.1Furnished herewith.
32.2Furnished herewith.
154

101The following materials from Cigna Corporation'sCorporation’s Annual Report on Form 10-K for the year ended December 31, 2018,2020, formatted in inline XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Income; (iii) the Consolidated Statements of Comprehensive Income; (iv) the Consolidated Statements of Cash Flows; (v) the Consolidated Statements of Changes in Total Equity; (vi) the Notes to Consolidated Financial Statements; and (vii) Financial Statement Schedules I II, III, IV and V.II.Filed herewith.
​ 104​Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)​ ​​ Filed herewith.

The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by the Company in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs at the date they were made or at any other time.
Item 16.FORM10-K SUMMARY
None.
155

Item 16. 10-K SUMMARY

None.

​138    CIGNA CORPORATION - 2018 Form10-K​​

Table of Contents

PART IV
ITEM 15. Signatures


SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: February 25, 2021
CIGNA CORPORATION
​ ​​​​
Date:February 28, 2019​CIGNA CORPORATION
By:/s/ ERIC P. PALMER   
 
​​ By:​ /s/ Brian C. Evanko ​ ​
​Eric P. Palmer​Brian C. Evanko
Executive Vice President and
Chief Financial Officer (Principal
(Principal Financial Officer)
​ ​​ ​​

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated as of February 28, 2019.

25, 2021.
Signature
Title
​ ​​
SignatureTitle
/s/ DAVIDDavid M. CORDANI  Cordani 
David M. CordaniChief Executive Officer and Director (Principal
(Principal Executive Officer)
​ /s/ Brian C. Evanko ​​
David M. CordaniBrian C. Evanko
/s/ ERIC P. PALMER  Executive Vice President and Chief Financial Officer (Principal
(Principal Financial Officer)
​/s/ Mary T. Agoglia Hoeltzel ​​
Eric P. PalmerMary T. Agoglia Hoeltzel
/s/ MARY T. AGOGLIA HOELTZEL  Senior Vice President, Tax and Chief Accounting Officer (Principal
(Principal Accounting Officer)
​ ​​
Mary T. Agoglia Hoeltzel
/s/ WILLIAM J. DELANEY  Director
​ ​​
William J. DeLaney
/s/ ERICWilliam J. FOSS  DeLaneyDirector
 
​ ​​
/s/ Eric J. Foss
/s/ ELDER GRANGER, M.D.  Eric J. FossDirector
​ ​​
/s/ Elder Granger, M.D.
Elder Granger, M.D.Director
/s/ ISAIAH HARRIS, JR.  Isaiah Harris, Jr. 
Isaiah Harris, Jr.
 		Chairman of the Board
​ ​​
Isaiah Harris, Jr.
/s/ MARK MCCLELLAN, M.D.  Director
​ ​​
Mark McClellan, M.D.
/s/ ROMAN MARTINEZ IV  Director
​ ​​
Roman Martinez IV
/s/ KATHLEEN M. MAZZARELLA  Director
​ ​​
Kathleen M. Mazzarella
/s/ JOHN M. PARTRIDGE  Director
​ ​​
John M. Partridge
/s/ WILLIAM L. ROPER, M.D.  Director
​ ​​
William L. Roper, M.D.
/s/ ERIC C. WISEMAN  Director
​ ​​
Eric C. Wiseman
/s/ DONNA F. ZARCONE  Director
​ ​​
Donna F. Zarcone
/s/ WILLIAM D. ZOLLARS  Director
​ ​​
William D. Zollars
​ ​​
 
​​​CIGNA CORPORATION - 2018 Form10-K    139

Table of Contents

PART IV
ITEM 15. Exhibits and Financial Statement Schedules

Cigna Corporation and Subsidiaries

INDEX TO FINANCIAL STATEMENT
SCHEDULES


156


PAGE

/s/ Kathleen M. Mazzarella 

Kathleen M. MazzarellaDirector
 
 
/s/ Mark McClellan, M.D. 
Mark McClellan, M.D.Director
 
 
/s/ John M. Partridge 
John M. PartridgeDirector
 
 
/s/ William L. Roper, M.D. 
William L. Roper, M.D.Director
 
 
/s/ Kimberly A. Ross 
Kimberly A. RossDirector
 
 
/s/ Eric C. Wiseman 
Eric C. Wiseman
 		Director
 
 
/s/ Donna F. Zarcone 
Donna F. Zarcone
 		Director
 
 

157

CIGNA CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENT SCHEDULES
PAGE
Report of Independent Registered Public Accounting Firm on Financial Statement Schedules

FS-2

Schedules


Schedules

ICondensed Financial Information of Cigna Corporation (Registrant)


FS-3

Statements of Income for the Years Ended December 31, 2018, 20172020, 2019 and 2016

2018		FS-3

Balance Sheets as of December 31, 20182020 and 2017

2019		FS-4

Statements of Cash Flows for the Years Ended December 31, 2018, 20172020, 2019 and 2016

2018		FS-5

Notes to Condensed Financial Statements

FS-6

IIValuation and Qualifying Accounts.

Accounts for the Years Ended December 31, 2020, 2019 and 2018		FS-7FS-8

Schedules other than those listed above are omitted because they are not required or are not applicable, or the required information is shown in the financial statements or notes thereto.

​​​CIGNA CORPORATION - 2018 Form10-K    FS-1

FS-1

Table of Contents

PART IV
ITEM 15.


Report of Independent Registered Public Accounting Firm on
Financial Statement Schedules

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 financial statements referred to in our report dated February 28, 201925, 2021 (which report and consolidated financial statements are included under Item 8 in this Annual Report on Form 10-K) also included an audit of the financial statement schedules listed on page FS-1 in Item 15(a)(2)15 of this Form 10-K. In our opinion, these financial statement schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.






/s/ PricewaterhouseCoopers LLP
Hartford, Connecticut
February 28, 2019

​FS-2    CIGNA CORPORATION - 2018 Form10-K​​

Table of Contents

PART IV
ITEM 15. Exhibits and Financial Statement Schedules

25, 2021
FS-2

Cigna Corporation and Subsidiaries
Schedule I – Condensed Financial Information of Cigna Corporation (Registrant)

CIGNA CORPORATION AND SUBSIDIARIES

Statements of Income

SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF CIGNA CORPORATION
(REGISTRANT)

  For the years ended December 31,
​​​ ​ ​​ ​ ​​ ​

  Cigna*  Old Cigna*  Old Cigna*
​​​ ​​​ ​ ​​​

(in millions)

  2018  2017  2016
​ ​​ ​​​ ​ ​​​

Revenues

 ​  ​  ​ 

Net investment income

 $123 $— $—
​ ​ ​ ​​ ​ ​ ​ ​​

Total revenues

 ​123 ​— ​—
​​​ ​ ​​ ​ ​​ ​

Operating expenses

         

Selling, general and administrative expenses

 ​200 ​195 ​281
​​​ ​ ​​ ​ ​​ ​

Total operating expenses

  200  195  281
​ ​​ ​​​ ​ ​​​

Income (loss) from operations

 ​(77) ​(195) ​(281)
​​​ ​ ​​ ​ ​​ ​

Interest and other (expense)

  (244)  (246)  (244)

Intercompany interest (expense)

 ​(5) ​(18) ​(3)

Debt extinguishment costs

  —  (321)  —

Realized investment (loss)

 ​(1) ​— ​—
​​​ ​ ​​​ ​​ ​

Loss before taxes

  (327)  (780)  (528)
​​​ ​ ​​ ​ ​​ ​

Income tax (benefit)

 ​(74) ​(194) ​(146)
​​​ ​ ​​​ ​​ ​

Loss of Parent Company

  (253)  (586)  (382)
​​​ ​ ​​ ​ ​​ ​

Equity in income of subsidiaries

 ​2,890 ​2,823 ​2,249
​​​ ​ ​​​ ​​ ​

Shareholders' net income

  2,637  2,237  1,867
​​​ ​ ​​ ​ ​​ ​

Shareholders' other comprehensive income (loss)

 ​  ​  ​ 

Net unrealized (depreciation) on securities and derivatives

  (365)  (37)  (60)

Net translation gains (losses) of foreign currencies

 ​(152) ​304 ​(95)

Postretirement benefits liability adjustment

  127  33  23
​ ​​ ​​​ ​ ​​​

Shareholders' other comprehensive income (loss):

 ​(390) ​300 ​(132)
​​​ ​ ​​​ ​​ ​

Shareholders' comprehensive income

 $2,247 $2,537 $1,735
​​​ ​ ​​ ​ ​​ ​
STATEMENTS OF INCOME
*
As described in Note 3, on December 20, 2018, through the "Merger," Old Cigna merged into a wholly-owned subsidiary of Cigna, and Cigna became the Registrant. Refer
 For the years ended
 December 31,
 CignaCignaCigna
(in millions)202020192018
Revenues
Net investment income$1 $0 $123 
Intercompany interest income475 6 0 
Total revenues476 6 123 
Operating expenses
Selling, general and administrative expenses4 (85)200 
Total operating expenses4 (85)200 
Income (loss) from operations472 91 (77)
Interest and other (expense)(1,324)(1,032)(244)
Intercompany interest (expense)(48)(127)(5)
Debt extinguishment costs(171)0 0 
Realized investment (loss)0 0 (1)
Loss before taxes(1,071)(1,068)(327)
Income tax (benefit)(234)(251)(74)
Loss of Parent Company(837)(817)(253)
Equity in income of subsidiaries9,295 5,921 2,890 
Shareholders' net income8,458 5,104 2,637 
Shareholders' other comprehensive income (loss), net of tax
Net unrealized appreciation (depreciation) on securities and derivatives(75)957 (365)
Net translation (losses) gains of foreign currencies260 (54)(152)
Postretirement benefits liability adjustment(105)(133)127 
Shareholders' other comprehensive income (loss), net of tax80 770 (390)
Shareholders' comprehensive income$8,538 $5,874 $2,247 
 See Notes to Note 20 for Condensed Consolidated Financial Statements of Cigna and Old Cigna.on the following pages.
​​​CIGNA CORPORATION - 2018 Form10-K    FS-3

Table of Contents

PART IV
ITEM 15. Exhibits and Financial Statement Schedules








FS-3

Cigna Corporation and Subsidiaries
Schedule I – Condensed Financial Information of Cigna Corporation (Registrant)

CIGNA CORPORATION AND SUBSIDIARIES

Balance Sheets

SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF CIGNA CORPORATION
(REGISTRANT)

  As of December 31,
​​​ ​ ​​ ​

  Cigna*  Old Cigna*
​​​ ​ ​​ ​

(in millions)

  2018  2017
​ ​​ ​​​ ​

Assets

 ​  ​ 

Cash and cash equivalents

 $243 $9

Short-term investments

 ​— ​63

Other current assets

  14  31
​ ​​ ​​​ ​

Total current assets

 ​257 ​103
​ ​ ​​ ​ ​ ​

Intercompany receivable

  —  200

Investments in subsidiaries

 ​68,969 ​22,631

Other noncurrent assets

  48  221
​​​ ​ ​​​

TOTAL ASSETS

 $69,274 $23,155
​ ​ ​ ​​ ​ ​

Liabilities

      

Short-term debt

 $— $231

Other current liabilities

  418  270
​ ​​ ​ ​​ ​

Total current liabilities

 ​418 ​501
​ ​ ​ ​​ ​ ​

Intercompany payable

  4,965  2,980

Long-term debt

 ​22,863 ​5,112

Other noncurrent liabilities

  —  851
​ ​​ ​ ​​ ​

TOTAL LIABILITIES

 ​28,246 ​9,444
​ ​​ ​​​ ​

Shareholders' Equity

      

Common stock (shares issued, 381 and 296; authorized, 600)

 ​4 ​74

Additional paid-in capital

  27,751  2,940

Accumulated other comprehensive loss

 ​(1,711) ​(1,082)

Retained earnings

  15,088  15,800

Less treasury stock, at cost

 ​(104) ​(4,021)
​ ​​ ​​​ ​

TOTAL SHAREHOLDERS' EQUITY

  41,028  13,711
​ ​​ ​​​ ​

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

 $69,274 $23,155
​ ​​ ​ ​​ ​
BALANCE SHEETS
*
As described in Note 3, on December 20, 2018, through the "Merger," Old Cigna merged into a wholly-owned subsidiary of Cigna, and Cigna became the Registrant. Refer
 As of December 31,
(in millions)20202019
Assets  
Cash and cash equivalents$4,157 $0 
Short-term investments49 30 
Other current assets4 4 
Total current assets4,210 34 
Intercompany receivable1,666 4,111 
Investments in subsidiaries76,040 77,380 
Other noncurrent assets22 19 
TOTAL ASSETS$81,938 $81,544 
Liabilities
Short-term debt$3,278 $4,043 
Other current liabilities616 457 
Total current liabilities3,894 4,500 
Intercompany payable5 2,341 
Long-term debt27,718 29,365 
TOTAL LIABILITIES31,617 36,206 
Shareholders’ Equity
Common stock (shares issued, 390 and 386; authorized, 600)4 4 
Additional paid-in capital28,975 28,306 
Accumulated other comprehensive loss(861)(941)
Retained earnings28,575 20,162 
Less treasury stock, at cost(6,372)(2,193)
TOTAL SHAREHOLDERS’ EQUITY50,321 45,338 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY$81,938 $81,544 
See Notes to Note 20 for Condensed Consolidated Financial Statements of Cigna and Old Cigna.on the following pages.
​FS-4    CIGNA CORPORATION - 2018 Form10-K​​

Table of Contents

PART IV
ITEM 15. Exhibits and Financial Statement Schedules









FS-4

Cigna Corporation and Subsidiaries
Schedule I – Condensed Financial Information of Cigna Corporation (Registrant)

CIGNA CORPORATION AND SUBSIDIARIES

Statements of Cash Flows

SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF CIGNA CORPORATION
(REGISTRANT)
   For the years ended December 31,
​​​ ​ ​​ ​ ​​ ​
 
 Cigna*
 Old Cigna*
 Old Cigna*
​​​ ​ ​​ ​ ​​ ​
(in millions)
 2018
 2017
 2016
​ ​​ ​ ​​ ​​​ ​
Cash Flows from Operating Activities ​  ​  ​ 
Shareholders' net income $2,637 $2,237 $1,867
Adjustments to reconcile shareholders' net income to net cash provided by operating activities ​  ​  ​ 

Equity in income of subsidiaries

  (2,890)  (2,823)  (2,249)

Dividends received from subsidiaries

 ​— ​758 ​580

Other liabilities

  412  (224)  (9)

Debt extinguishment costs

 ​— ​321 ​—

Other, net

  (14)  333  187
​​​ ​ ​​​ ​​ ​
NET CASH PROVIDED BY OPERATING ACTIVITIES ​145 ​602 ​376
​ ​​ ​ ​​ ​ ​​ ​
Cash Flows from Investing Activities         
Short-term investment purchased, net ​— ​(6) ​(3)
Other, net  (27,115)  (11)  (8)
​​​ ​ ​​ ​​​ ​
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES ​(27,115) ​(17) ​(11)
​​​ ​ ​​ ​​​ ​
Cash Flows from Financing Activities         
Net change in amounts due to (from) affiliates ​4,437 ​1,955 ​(78)
Net change in short-term debt  —  100  (100)
Payments for debt extinguishment ​— ​(313) ​—
Repayment of long-term debt  —  (1,250)  —
Net proceeds on issuance of long-term debt ​22,856 ​1,581 ​—
Issuance of common stock  1  131  36
Common dividends paid ​— ​(10) ​(10)
Repurchase of common stock  (32)  (2,725)  (139)
Tax withholding on stock compensation and other ​(49) ​(63) ​(72)
​ ​​ ​ ​​ ​ ​​ ​
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES  27,213  (594)  (363)
​​​ ​ ​​​ ​​ ​
Net increase (decrease) in cash and cash equivalents ​243 ​(9) ​2
Cash and cash equivalents, beginning of year  —  18  16
​​​ ​ ​​ ​​​ ​
Cash and cash equivalents, end of year $243 $9 $18
​ ​​ ​ ​​ ​ ​​ ​
STATEMENTS OF CASH FLOWS
*
As described in Note 3, on December 20, 2018, through the "Merger," Old Cigna merged into a wholly-owned subsidiary of Cigna, and Cigna became the Registrant. Refer
 For the years ended
December 31,
 CignaCignaCigna
(in millions)202020192018
Cash Flows from Operating Activities   
Shareholders’ net income$8,458 $5,104 $2,637 
Adjustments to reconcile shareholders’ net income
to net cash provided by operating activities
Equity in income of subsidiaries(9,295)(5,921)(2,890)
Debt extinguishment costs171 0 0 
Dividends received from subsidiaries8,627 2,457 0 
Other liabilities112 43 412 
Other, net500 20 (14)
NET CASH PROVIDED BY OPERATING ACTIVITIES8,573 1,703 145 
Cash Flows from Investing Activities
Net change in loans due to (from) affiliates(265)0 0 
Short-term investment purchased, net(19)(30)0 
Other, net0 0 (27,115)
NET CASH (USED IN) INVESTING ACTIVITIES(284)(30)(27,115)
Cash Flows from Financing Activities
Net change in amounts due to affiliates2,262 2,015 4,437 
Proceeds on issuance of commercial paper86 944 0 
Payments for debt extinguishment(181)0 0 
Repayment of long-term debt(5,996)(3,002)0 
Net proceeds on issuance of long-term debt3,465 0 22,856 
Issuance of common stock376 224 1 
Common dividends paid(15)(15)0 
Repurchase of common stock(4,042)(1,987)(32)
Tax withholding on stock compensation and other(87)(82)(49)
Other0 (13)0 
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES(4,132)(1,916)27,213 
Net increase (decrease) in cash and cash equivalents4,157 (243)243 
Cash and cash equivalents, beginning of year0 243 0 
Cash and cash equivalents, end of year4,157 0 243 
See Notes to Note 20 for Condensed Consolidated Financial Statements of Cigna and Old Cigna.on the following pages.
​​​CIGNA CORPORATION - 2018 Form10-K    FS-5

Table of Contents

PART IV
ITEM 15. Exhibits and Financial Statement Schedules

FS-5

Cigna Corporation and Subsidiaries
Schedule I – Condensed Financial Information of Cigna Corporation (Registrant)

CIGNA CORPORATION AND SUBSIDIARIES

Notes to Condensed Financial Statements

SCHEDULE I

CONDENSED FINANCIAL INFORMATION OF CIGNA CORPORATION
(REGISTRANT)
NOTES TO CONDENSED FINANCIAL STATEMENTS
The accompanying condensed financial statements should be read in conjunction with the Consolidated Financial Statements and the accompanying notes thereto contained in this Annual Report on Form 10-K ("(“Form 10-K"10-K”).

Note 1 – — Cigna Holding Company (formerly Cigna Corporation) was incorporated in Delaware in 1981. Halfmoon Parent, Inc. was incorporated in Delaware in March 2018. Halfmoon Parent, Inc. was renamed Cigna Corporation and Cigna Holding Company became its subsidiary concurrent with the consummation of the combination with Express Scripts on December 20, 2018.
For purposes of these condensed financial statements, Cigna Corporation'sCorporation’s (the "Company"“Company”) wholly-owned and majority-owned subsidiaries are recorded using the equity basismethod of accounting.

Note 2 – — See Note 57 – Debt included in Part II, Item 8 of this Form 10-K for a description of the short-term and long-term debt obligations of Cigna Corporation and its subsidiaries.
Debt Issuance and Redemption. In order to decrease future interest expense and reduce future refinancing risk, the Company entered into the following transactions during 2020:
•Debt issuance: On March 16, 2020, the Company issued $3.5 billion of new senior notes. The proceeds of this issuance were mainly used to pay the consideration for the cash tender and redemption offer as described below. Interest on this debt is paid semi-annually.
PrincipalMaturity DateInterest RateNet Proceeds
$1,500 millionMarch 15, 20302.4%$1,491 million
$750 millionMarch 15, 20403.2%$743 million
$1,250 millionMarch 15, 20503.4%$1,237 million
•Debt tender and redemption: In March and April 2020, the Company completed a tender offer and an optional redemption totaling $2.9 billion of aggregate principal amount of certain of its outstanding debt securities. The principal amount repurchased in this tender offer was $1.3 billion. Additionally, $1.6 billion of notes were repurchased via optional redemption. The Company recorded a pre-tax loss of $171 million ($124 million after-tax), consisting primarily of premium payments on the tender and optional redemption.
Debt Exchange.In the fourth quarter of 2019, the Company settled an exchange of approximately $12.7 billion of Notes issued by Express Scripts Holding Company, Medco Health Solutions, Inc. and Cigna Holding Company for privately placed Notes issued by Cigna with the same interest rates and maturities and comparable other terms. We initiated an exchange offer to register such debt in the second quarter of 2020 and completed the exchange in July 2020.
Debt Repayment. In 2020, the Company repaid $6.0 billion of long-term debt, including the $2.9 billion debt tender and redemption described above. On December 31, 2020 Cigna issued a notice of full redemption to the holders of Cigna’s Senior Floating Rate Notes due 2021 (the “Notes”) pursuant to which Cigna redeemed the entire $1.0 billion aggregate principal amount of the Notes outstanding on January 15, 2021 at a redemption price calculated in accordance with the terms and conditions of the indenture governing the Notes.
Revolving Credit Agreements. Cigna has a revolving credit and letter of credit agreement that matures in April 2023 and is diversified among 23 banks. Cigna can borrow up to $3.25 billion for general corporate purposes, with up to $500 million available for issuance of letters of credit. This revolving credit agreement also includes an option to increase the facility amount up to $500 million and an option to extend the termination date for additional one-year periods, subject to consent of the banks.
Additionally, Cigna has a 364-day $1.0 billion revolving credit agreement that will mature in October 2021. The agreement replaces the $1.0 billion 364-day revolving credit agreement that expired in October 2020. The agreement is diversified among 23 banks. Pursuant to this revolving credit agreement, Cigna can borrow up to $1.0 billion for general corporate purposes. The agreement includes the option to “term out” any revolving loans that are outstanding at maturity by converting them into a term loan maturing on the one year anniversary of conversion.
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The revolving credit agreements contain customary covenants and restrictions including a financial covenant that the Company’s leverage ratio may not exceed 60%. As of December 31, 2020, there were 0 outstanding balances under the revolving credit agreements.
Term Loan Credit Agreement. On April 1, 2020, the Company borrowed an aggregate principal amount of $1.4 billion under a new 364-Day Term Loan Credit Agreement. In connection with the sale of the Group Life and Disability business, on December 31, 2020 we repaid the entire $1.4 billion balance outstanding.
Commercial Paper. Under our commercial paper program we may issue short-term, unsecured commercial paper notes privately placed on a discount basis through certain broker dealers at any time not to exceed $4.25 billion. Amounts available under the program may be borrowed, repaid and re-borrowed from time to time. The net proceeds of issuances have been and are expected to be used for general corporate purposes. The commercial paper program had approximately $1.0 billion outstanding at December 31, 2020 at an average interest rate of 0.2%.
The Company was in compliance with its debt covenants as of December 31, 2020.
Maturity of the Company'sCompany’s long-term debt is as follows:

(in millions) 
2021$2,250 
2022$1,378 
2023$3,754 
2024$714 
2025$2,957 
Maturities after 2025$19,182 
(In millions)
  
​ ​​ ​
2019 $—
2020 $2,750
2021 $5,250
2022 $—
2023 $3,800
Maturities after 2023 $11,200
​ ​​ ​

Note 3 – — Intercompany liabilitiesreceivables of the Company consist primarily of payables to Old Cignanet amounts due from Express Scripts Holdings of $4.3$1.4 billion (consisting of an $8.2 billion receivable offset by a $6.8 billion payable) as of December 31, 2018. Intercompany liabilities2020 and $3.9 billion (consisting of Old Cigna consisted primarily of payables to Cigna Holdings, Inc. of $2.8an $8.2 billion receivable offset by a $4.3 billion payable) as of December 31, 2017.2019. Interest income on the receivable was accrued at an annual fixed rate of 5.50%. Interest expense on the payable was accrued at an average monthly rate of 2.33% for 2018 and 1.47% for 2017.

0.97% in 2020.

Note 4 – — The Company had guarantees of approximately $19.6 billion$87 million as of December 31, 2018.2020. These guarantees are primarily related to outstanding debtletters of certain wholly-owned subsidiaries as described in Note 5 and Note 20.credit. In 2018, no2020, 0 payments have been made on these guarantees.

​FS-6    CIGNA CORPORATION - 2018 Form10-K​​

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Table


CIGNA CORPORATION AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(in millions)Balance at beginning of yearCharged (Credited) to costs and expensesCharged (Credited) to other accountsOther deductionsBalance at end of year
Description
2020     
Investment asset valuation reserves
Available-for-sale debt securities$0 $82 $0 $(56)$26 
Accounts receivable, net$252 $(50)$(12)$(34)$156 
Deferred tax asset valuation allowance$196 $10 $1 $0 $207 
Reinsurance recoverables (1)
$2 $(1)$31 $0 $32 
2019
Accounts receivable, net$217 $51 $0 $(16)$252 
Deferred tax asset valuation allowance$199 $(6)$3 $0 $196 
Reinsurance recoverables$2 $0 $0 $0 $2 
2018
Accounts receivable, net$207 $18 $(3)$(5)$217 
Deferred tax asset valuation allowance (2)
$72 $(5)$132 $0 $199 
Reinsurance recoverables$3 $(1)$0 $0 $2 
(1)The Company recorded an additional allowance of Contents

PART IV
ITEM 15. Exhibits and Financial Statement Schedules

$31 million on January 1, 2020 upon the adoption of ASU 2016-13

Cigna Corporation and Subsidiaries
Schedule II – Valuation and Qualifying Accounts and Reserves

(in millions)
Description
 Balance at
beginning of
year
 Charged
(Credited)
to costs and
expenses
 Charged
(Credited)
to other
accounts
 Other
deductions
 Balance at
end of year
​​​ ​ ​​​ ​​ ​ ​​ ​ ​​ ​
2018 ​  ​  ​  ​  ​ 
Allowance for doubtful accounts               

Premiums, accounts and notes receivable

 $207 $18 $(3) $(5) $217
Deferred tax asset valuation allowance $72 $(5) $132 $– $199
Reinsurance recoverables $3 $(1) $– $– $2
2017               
Investment asset valuation reserves ​  ​  ​  ​  ​ 

Commercial mortgage loans

 $5 $1 $– $(6) $–
Allowance for doubtful accounts ​  ​  ​  ​  ​ 

Premiums, accounts and notes receivable

 $200 $19 $(11) $(1) $207
Deferred tax asset valuation allowance(1) $87 $11 $(26) $– $72
Reinsurance recoverables $3 $– $– $– $3
2016 ​  ​  ​  ​  ​ 
Investment asset valuation reserves               

Commercial mortgage loans

 $15 $– $– $(10) $5
Allowance for doubtful accounts               

Premiums, accounts and notes receivable

 $75 $134 $(8) $(1) $200
Deferred tax asset valuation allowance $71 $21 $(5) $– $87
Reinsurance recoverables $3 $– $– $– $3
​ ​​ ​ ​​ ​ ​​ ​ ​​ ​ ​​ ​
(1)
(2)Deferred tax valuation allowance amount includes amount assumed from Express Scripts in 2018.
​​​CIGNA CORPORATION - 2018 Form10-K    FS-7


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