Delaware | 06-1059331 |
(State or other jurisdiction | (I.R.S. Employer |
of incorporation or organization) | Identification No.) |
Page No. | |||
CIGNA Corporation | |||||||||||||||||||||||
CIGNA Corporation | |||||||||||||||||||||||
Consolidated Statements of Income | Consolidated Statements of Income | ||||||||||||||||||||||
Three Months Ended | Three Months Ended | Six Months Ended | |||||||||||||||||||||
March 31, | June 30, | June 30, | |||||||||||||||||||||
(In millions, except per share amounts) | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 | |||||||||||||||||
Revenues | |||||||||||||||||||||||
Premiums and fees | $ | 3,708 | $ | 3,268 | $ | 3,757 | $ | 3,369 | $ | 7,465 | $ | 6,637 | |||||||||||
Net investment income | 280 | 329 | 279 | 299 | 559 | 628 | |||||||||||||||||
Other revenues | 365 | 366 | 356 | 424 | 721 | 790 | |||||||||||||||||
Realized investment gains | 21 | 144 | |||||||||||||||||||||
Realized investment gains (losses) | (11 | ) | 6 | 10 | 150 | ||||||||||||||||||
Total revenues | 4,374 | 4,107 | 4,381 | 4,098 | 8,755 | 8,205 | |||||||||||||||||
Benefits and Expenses | |||||||||||||||||||||||
Health Care medical claims expense | 1,719 | 1,448 | 1,729 | 1,493 | 3,448 | 2,941 | |||||||||||||||||
Other benefit expenses | 836 | 788 | 834 | 825 | 1,670 | 1,613 | |||||||||||||||||
Other operating expenses | 1,406 | 1,343 | 1,490 | 1,372 | 2,896 | 2,715 | |||||||||||||||||
Total benefits and expenses | 3,961 | 3,579 | 4,053 | 3,690 | 8,014 | 7,269 | |||||||||||||||||
Income from Continuing Operations before Income Taxes | 413 | 528 | |||||||||||||||||||||
Income from Continuing Operations | |||||||||||||||||||||||
before Income Taxes | 328 | 408 | 741 | 936 | |||||||||||||||||||
Income taxes (benefits): | |||||||||||||||||||||||
Current | 132 | 254 | 163 | 65 | 295 | 319 | |||||||||||||||||
Deferred | 4 | (78 | ) | (52 | ) | 70 | (48 | ) | (8 | ) | |||||||||||||
Total taxes | 136 | 176 | 111 | 135 | 247 | 311 | |||||||||||||||||
Income from Continuing Operations | 277 | 352 | 217 | 273 | 494 | 625 | |||||||||||||||||
Income from Discontinued Operations, Net of Taxes | 12 | - | |||||||||||||||||||||
Loss from Discontinued Operations, Net of Taxes | (19 | ) | - | (7 | ) | - | |||||||||||||||||
Net Income | $ | 289 | $ | 352 | $ | 198 | $ | 273 | $ | 487 | $ | 625 | |||||||||||
Earnings Per Share - Basic: | |||||||||||||||||||||||
Income from continuing operations | $ | 2.86 | $ | 2.93 | $ | 0.76 | $ | 0.79 | $ | 1.72 | $ | 1.77 | |||||||||||
Income from discontinued operations | 0.13 | - | |||||||||||||||||||||
Loss from discontinued operations | (0.06 | ) | - | (0.03 | ) | - | |||||||||||||||||
Net income | $ | 2.99 | $ | 2.93 | $ | 0.70 | $ | 0.79 | $ | 1.69 | $ | 1.77 | |||||||||||
Earnings Per Share - Diluted: | |||||||||||||||||||||||
Income from continuing operations | $ | 2.80 | $ | 2.87 | $ | 0.75 | $ | 0.78 | $ | 1.68 | $ | 1.74 | |||||||||||
Income from discontinued operations | 0.13 | - | |||||||||||||||||||||
Loss from discontinued operations | (0.07 | ) | - | (0.02 | ) | - | |||||||||||||||||
Net income | $ | 2.93 | $ | 2.87 | $ | 0.68 | $ | 0.78 | $ | 1.66 | $ | 1.74 | |||||||||||
Dividends Declared Per Share | $ | 0.025 | $ | 0.025 | $ | 0.010 | $ | 0.008 | $ | 0.018 | $ | 0.017 | |||||||||||
The accompanying Notes to the Financial Statements are an integral part of these statements. | The accompanying Notes to the Financial Statements are an integral part of these statements. | The accompanying Notes to the Financial Statements are an integral part of these statements. |
CIGNA Corporation | |||||||||||||||||||||||||||||
CIGNA Corporation | |||||||||||||||||||||||||||||
Consolidated Balance Sheets | Consolidated Balance Sheets | ||||||||||||||||||||||||||||
(In millions, except per share amounts) | As of March 31, | As of December 31, | As of June 30, | As of December 31, | |||||||||||||||||||||||||
2007 | 2006 | 2007 | 2006 | ||||||||||||||||||||||||||
Assets | |||||||||||||||||||||||||||||
Investments: | |||||||||||||||||||||||||||||
Fixed maturities, at fair value (amortized cost, $11,510; $11,373) | $ | 12,267 | $ | 12,155 | |||||||||||||||||||||||||
Equity securities, at fair value (cost, $111; $112) | 130 | 131 | |||||||||||||||||||||||||||
Fixed maturities, at fair value (amortized cost, $11,547; $11,202) | $ | 12,017 | $ | 11,955 | |||||||||||||||||||||||||
Equity securities, at fair value (cost, $113; $112) | 128 | 131 | |||||||||||||||||||||||||||
Mortgage loans | 3,968 | 3,988 | 3,656 | 3,988 | |||||||||||||||||||||||||
Policy loans | 1,419 | 1,405 | 1,451 | 1,405 | |||||||||||||||||||||||||
Real estate | 67 | 117 | 48 | 117 | |||||||||||||||||||||||||
Other long-term investments | 455 | 418 | 502 | 418 | |||||||||||||||||||||||||
Short-term investments | 74 | 89 | 20 | 89 | |||||||||||||||||||||||||
Total investments | 18,380 | 18,303 | 17,822 | 18,103 | |||||||||||||||||||||||||
Cash and cash equivalents | 1,589 | 1,392 | 1,104 | 1,392 | |||||||||||||||||||||||||
Accrued investment income | 271 | 255 | 206 | 223 | |||||||||||||||||||||||||
Premiums, accounts and notes receivable | 1,432 | 1,459 | 1,552 | 1,459 | |||||||||||||||||||||||||
Reinsurance recoverables | 7,832 | 8,045 | 7,633 | 8,045 | |||||||||||||||||||||||||
Deferred policy acquisition costs | 715 | 707 | 761 | 707 | |||||||||||||||||||||||||
Property and equipment | 603 | 632 | 568 | 632 | |||||||||||||||||||||||||
Deferred income taxes | 902 | 926 | |||||||||||||||||||||||||||
Deferred income taxes, net | 1,001 | 926 | |||||||||||||||||||||||||||
Goodwill | 1,739 | 1,736 | 1,741 | 1,736 | |||||||||||||||||||||||||
Other assets, including other intangibles | 423 | 379 | 744 | 611 | |||||||||||||||||||||||||
Separate account assets | 8,492 | 8,565 | 8,394 | 8,565 | |||||||||||||||||||||||||
Total assets | $ | 42,378 | $ | 42,399 | $ | 41,526 | $ | 42,399 | |||||||||||||||||||||
Liabilities | |||||||||||||||||||||||||||||
Contractholder deposit funds | $ | 9,042 | $ | 9,164 | $ | 8,929 | $ | 9,164 | |||||||||||||||||||||
Future policy benefits | 8,286 | 8,373 | 8,035 | 8,245 | |||||||||||||||||||||||||
Unpaid claims and claim expenses | 4,264 | 4,310 | 4,190 | 4,271 | |||||||||||||||||||||||||
Health Care medical claims payable | 989 | 960 | 1,028 | 960 | |||||||||||||||||||||||||
Unearned premiums and fees | 558 | 499 | 548 | 499 | |||||||||||||||||||||||||
Total insurance and contractholder liabilities | 23,139 | 23,306 | 22,730 | 23,139 | |||||||||||||||||||||||||
Accounts payable, accrued expenses and other liabilities | 4,461 | 4,435 | 4,586 | 4,602 | |||||||||||||||||||||||||
Short-term debt | 291 | 382 | - | 382 | |||||||||||||||||||||||||
Long-term debt | 1,792 | 1,294 | 1,792 | 1,294 | |||||||||||||||||||||||||
Nonrecourse obligations | 51 | 87 | 15 | 87 | |||||||||||||||||||||||||
Separate account liabilities | 8,492 | 8,565 | 8,394 | 8,565 | |||||||||||||||||||||||||
Total liabilities | 38,226 | 38,069 | 37,517 | 38,069 | |||||||||||||||||||||||||
Contingencies — Note 15 | |||||||||||||||||||||||||||||
Shareholders’ Equity | |||||||||||||||||||||||||||||
Common stock (par value per share, $0.25; shares issued, 160; 160) | 40 | 40 | |||||||||||||||||||||||||||
Common stock (par value per share, $0.25; shares issued, 351; 160) | 88 | 40 | |||||||||||||||||||||||||||
Additional paid-in capital | 2,485 | 2,451 | 2,460 | 2,451 | |||||||||||||||||||||||||
Net unrealized appreciation, fixed maturities | $ | 181 | $ | 187 | $ | 63 | $ | 187 | |||||||||||||||||||||
Net unrealized appreciation, equity securities | 10 | 22 | 10 | 22 | |||||||||||||||||||||||||
Net unrealized depreciation, derivatives | (16 | ) | (15 | ) | (25 | ) | (15 | ) | |||||||||||||||||||||
Net translation of foreign currencies | 33 | 33 | 38 | 33 | |||||||||||||||||||||||||
Postretirement benefits liability adjustment | (379 | ) | (396 | ) | (343 | ) | (396 | ) | |||||||||||||||||||||
Accumulated other comprehensive loss | (171 | ) | (169 | ) | (257 | ) | (169 | ) | |||||||||||||||||||||
Retained earnings | 6,375 | 6,177 | 6,513 | 6,177 | |||||||||||||||||||||||||
Less treasury stock, at cost | (4,577 | ) | (4,169 | ) | (4,795 | ) | (4,169 | ) | |||||||||||||||||||||
Total shareholders’ equity | 4,152 | 4,330 | 4,009 | 4,330 | |||||||||||||||||||||||||
Total liabilities and shareholders’ equity | $ | 42,378 | $ | 42,399 | $ | 41,526 | $ | 42,399 | |||||||||||||||||||||
Shareholders’ Equity Per Share | $ | 43.28 | $ | 43.89 | $ | 14.14 | $ | 14.63 | |||||||||||||||||||||
The accompanying Notes to the Financial Statements are an integral part of these statements. | The accompanying Notes to the Financial Statements are an integral part of these statements. | The accompanying Notes to the Financial Statements are an integral part of these statements. |
CIGNA Corporation | ||||||||||||||||
Consolidated Statements of Comprehensive Income and Changes in Shareholders’ Equity | ||||||||||||||||
(In millions, except per share amounts) | ||||||||||||||||
Three Months Ended June 30, | 2007 | 2006 | ||||||||||||||
Compre- | Share- | Compre- | Share- | |||||||||||||
hensive | holders’ | hensive | holders’ | |||||||||||||
Income | Equity | Income | Equity | |||||||||||||
Common Stock, April 1 | $ | 40 | $ | 40 | ||||||||||||
Effect of issuance of stock for stock split | 48 | - | ||||||||||||||
Common Stock, June 30 | 88 | 40 | ||||||||||||||
Additional Paid-In Capital, April 1 | 2,485 | 2,419 | ||||||||||||||
Effect of issuance of stock for employee benefit plans | 23 | 9 | ||||||||||||||
Effect of issuance of stock for stock split | (48 | ) | - | |||||||||||||
Additional Paid-In Capital, June 30 | 2,460 | 2,428 | ||||||||||||||
Accumulated Other Comprehensive Loss, April 1 | (171 | ) | (602 | ) | ||||||||||||
Net unrealized depreciation, fixed maturities | $ | (118 | ) | (118 | ) | $ | (67 | ) | (67 | ) | ||||||
Net unrealized depreciation, equity securities | - | - | (1 | ) | (1 | ) | ||||||||||
Net unrealized depreciation on securities | (118 | ) | (68 | ) | ||||||||||||
Net unrealized depreciation, derivatives | (9 | ) | (9 | ) | (8 | ) | (8 | ) | ||||||||
Net translation of foreign currencies | 5 | 5 | 5 | 5 | ||||||||||||
Postretirement benefits liability adjustment | 36 | 36 | - | - | ||||||||||||
Minimum pension liability | - | - | (9 | ) | (9 | ) | ||||||||||
Other comprehensive loss | (86 | ) | (80 | ) | ||||||||||||
Accumulated Other Comprehensive Loss, June 30 | (257 | ) | (682 | ) | ||||||||||||
Retained Earnings, April 1 | 6,375 | 5,425 | ||||||||||||||
Net income | 198 | 198 | 273 | 273 | ||||||||||||
Effects of issuance of stock for employee benefit plans | (57 | ) | (9 | ) | ||||||||||||
Common dividends declared | (3 | ) | (3 | ) | ||||||||||||
Retained Earnings, June 30 | 6,513 | 5,686 | ||||||||||||||
Treasury Stock, April 1 | (4,577 | ) | (1,930 | ) | ||||||||||||
Repurchase of common stock | (346 | ) | (876 | ) | ||||||||||||
Other, primarily issuance of treasury stock for employee | ||||||||||||||||
benefit plans | 128 | 28 | ||||||||||||||
Treasury Stock, June 30 | (4,795 | ) | (2,778 | ) | ||||||||||||
Total Comprehensive Income and Shareholders’ Equity | $ | 112 | $ | 4,009 | $ | 193 | $ | 4,694 | ||||||||
The accompanying Notes to the Financial Statements are an integral part of these statements. |
CIGNA Corporation | |||||||||||||
Consolidated Statements of Comprehensive Income and Changes in Shareholders’ Equity | |||||||||||||
(In millions, except per share amounts) | |||||||||||||
Three Months Ended March 31, | |||||||||||||
2007 | 2006 | ||||||||||||
Compre- hensive Income | Share- holders' Equity | Compre- hensive Income | Share- holders' Equity | ||||||||||
Common Stock | $ | 40 | $ | 40 | |||||||||
Additional Paid-In Capital, January 1 | 2,451 | 2,385 | |||||||||||
Effect of issuance of stock for employee benefit plans | 34 | 34 | |||||||||||
Additional Paid-In Capital, March 31 | 2,485 | 2,419 | |||||||||||
Accumulated Other Comprehensive Loss, January 1 | |||||||||||||
prior to implementation effect | (169 | ) | (509 | ) | |||||||||
Implementation effect of SFAS No.155 (see Note 2) | (12 | ) | - | ||||||||||
Accumulated Other Comprehensive Loss, | |||||||||||||
January 1 as adjusted | (181 | ) | (509 | ) | |||||||||
Net unrealized depreciation, fixed maturities | $ | (6 | ) | (6 | ) | $ | (95 | ) | (95 | ) | |||
Net unrealized depreciation, equity securities | - | - | (4 | ) | (4 | ) | |||||||
Net unrealized depreciation on securities | (6 | ) | (99 | ) | |||||||||
Net unrealized depreciation, derivatives | (1 | ) | (1 | ) | (1 | ) | (1 | ) | |||||
Net translation of foreign currencies | - | - | 7 | 7 | |||||||||
Postretirement benefits liability adjustment | 17 | 17 | - | - | |||||||||
Other comprehensive income (loss) | 10 | (93 | ) | ||||||||||
Accumulated Other Comprehensive Loss, March 31 | (171 | ) | (602 | ) | |||||||||
Retained Earnings, January 1 prior to | |||||||||||||
implementation effects | 6,177 | 5,162 | |||||||||||
Implementation effect of SFAS No. 155 (see Note 2) | 12 | - | |||||||||||
Implementation effect of FIN 48 (see Note 2) | (29 | ) | - | ||||||||||
Retained Earnings, January 1 as adjusted | 6,160 | 5,162 | |||||||||||
Net income | 289 | 289 | 352 | 352 | |||||||||
Effects of issuance of stock for employee benefit plans | (72 | ) | (86 | ) | |||||||||
Common dividends declared | (2 | ) | (3 | ) | |||||||||
Retained Earnings, March 31 | 6,375 | 5,425 | |||||||||||
Treasury Stock, January 1 | (4,169 | ) | (1,718 | ) | |||||||||
Repurchase of common stock | (576 | ) | (419 | ) | |||||||||
Other, primarily issuance of treasury stock for employee | |||||||||||||
benefit plans | 168 | 207 | |||||||||||
Treasury Stock, March 31 | (4,577 | ) | (1,930 | ) | |||||||||
Total Comprehensive Income and Shareholders’ | |||||||||||||
Equity | $ | 299 | $ | 4,152 | $ | 259 | $ | 5,352 | |||||
The accompanying Notes to the Financial Statements are an integral part of these statements. | |||||||||||||
Consolidated Statements of Cash Flows | |||||||
(In millions) | Three Months Ended March 31, | ||||||
2007 | 2006 | ||||||
Cash Flows from Operating Activities | |||||||
Net income | $ | 289 | $ | 352 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Income from discontinued operations | (12 | ) | - | ||||
Insurance liabilities | 74 | (132 | ) | ||||
Reinsurance recoverables | 12 | 31 | |||||
Deferred policy acquisition costs | (12 | ) | (21 | ) | |||
Premiums, accounts and notes receivable | 17 | 68 | |||||
Accounts payable, accrued expenses and other liabilities | (74 | ) | (165 | ) | |||
Current income taxes | 100 | 222 | |||||
Deferred income taxes | 4 | (78 | ) | ||||
Realized investment gains | (21 | ) | (144 | ) | |||
Depreciation and amortization | 54 | 54 | |||||
Gains on sales of businesses (excluding discontinued operations) | (11 | ) | (17 | ) | |||
Mortgage loans originated and held for sale | - | (240 | ) | ||||
Other, net | (42 | ) | (17 | ) | |||
Net cash provided by (used in) operating activities | 378 | (87 | ) | ||||
Cash Flows from Investing Activities | |||||||
Proceeds from investments sold: | |||||||
Fixed maturities | 188 | 535 | |||||
Equity securities | 11 | 5 | |||||
Mortgage loans | 28 | 136 | |||||
Other (primarily short-term investments) | 143 | 611 | |||||
Investment maturities and repayments: | |||||||
Fixed maturities | 107 | 518 | |||||
Mortgage loans | 62 | 69 | |||||
Investments purchased: | |||||||
Fixed maturities | (440 | ) | (755 | ) | |||
Equity securities | (2 | ) | (30 | ) | |||
Mortgage loans | (69 | ) | (252 | ) | |||
Other (primarily short-term investments) | (185 | ) | (150 | ) | |||
Property and equipment, net | (19 | ) | (30 | ) | |||
Cash provided by investing activities of discontinued operations | 31 | - | |||||
Other, net | (6 | ) | - | ||||
Net cash provided by (used in) investing activities | (151 | ) | 657 | ||||
Cash Flows from Financing Activities | |||||||
Deposits and interest credited to contractholder deposit funds | 141 | 141 | |||||
Withdrawals and benefit payments from contractholder deposit funds | (142 | ) | (179 | ) | |||
Change in cash overdraft position | 12 | 4 | |||||
Net proceeds on issuance of long-term debt | 498 | - | |||||
Repayment of long-term debt | (87 | ) | (100 | ) | |||
Repurchase of common stock | (583 | ) | (400 | ) | |||
Issuance of common stock | 133 | 162 | |||||
Common dividends paid | (2 | ) | (3 | ) | |||
Net cash used in financing activities | (30 | ) | (375 | ) | |||
Net increase in cash and cash equivalents | 197 | 195 | |||||
Cash and cash equivalents, beginning of period | 1,392 | 1,709 | |||||
Cash and cash equivalents, end of period | $ | 1,589 | $ | 1,904 | |||
Supplemental Disclosure of Cash Information: | |||||||
Income taxes paid, net of refunds | $ | 8 | $ | 8 | |||
Interest paid | $ | 20 | $ | 22 | |||
The accompanying Notes to the Financial Statements are an integral part of these statements. |
CIGNA Corporation | ||||||||||||||||
Consolidated Statements of Comprehensive Income and Changes in Shareholders’ Equity | ||||||||||||||||
Six Months Ended June 30, | 2007 | 2006 | ||||||||||||||
Compre- | Share- | Compre- | Share- | |||||||||||||
hensive | holders’ | hensive | holders’ | |||||||||||||
Income | Equity | Income | Equity | |||||||||||||
Common Stock, January 1 | $ | 40 | $ | 40 | ||||||||||||
Effect of issuance of stock for stock split | 48 | - | ||||||||||||||
Common Stock, June 30 | 88 | 40 | ||||||||||||||
Additional Paid-In Capital, January 1 | 2,451 | 2,385 | ||||||||||||||
Effect of issuance of stock for employee benefit plans | 57 | 43 | ||||||||||||||
Effect of issuance of stock for stock split | (48 | ) | - | |||||||||||||
Additional Paid-In Capital, June 30 | 2,460 | 2,428 | ||||||||||||||
Accumulated Other Comprehensive Loss, January 1 | ||||||||||||||||
prior to implementation effect | (169 | ) | (509 | ) | ||||||||||||
Implementation effect of SFAS No.155 (see Note 2) | (12 | ) | - | |||||||||||||
Accumulated Other Comprehensive Loss, | ||||||||||||||||
January 1 as adjusted | (181 | ) | (509 | ) | ||||||||||||
Net unrealized depreciation, fixed maturities | $ | (124 | ) | (124 | ) | $ | (162 | ) | (162 | ) | ||||||
Net unrealized depreciation, equity securities | - | - | (5 | ) | (5 | ) | ||||||||||
Net unrealized depreciation on securities | (124 | ) | (167 | ) | ||||||||||||
Net unrealized depreciation, derivatives | (10 | ) | (10 | ) | (9 | ) | (9 | ) | ||||||||
Net translation of foreign currencies | 5 | 5 | 12 | 12 | ||||||||||||
Postretirement benefits liability adjustment | 53 | 53 | - | - | ||||||||||||
Minimum pension liability | - | - | (9 | ) | (9 | ) | ||||||||||
Other comprehensive loss | (76 | ) | (173 | ) | ||||||||||||
Accumulated Other Comprehensive Loss, June 30 | (257 | ) | (682 | ) | ||||||||||||
Retained Earnings, January 1 prior to | ||||||||||||||||
implementation effects | 6,177 | 5,162 | ||||||||||||||
Implementation effect of SFAS No. 155 (see Note 2) | 12 | - | ||||||||||||||
Implementation effect of FIN 48 (see Note 2) | (29 | ) | - | |||||||||||||
Retained Earnings, January 1 as adjusted | 6,160 | 5,162 | ||||||||||||||
Net income | 487 | 487 | 625 | 625 | ||||||||||||
Effects of issuance of stock for employee benefit plans | (129 | ) | (95 | ) | ||||||||||||
Common dividends declared | (5 | ) | (6 | ) | ||||||||||||
Retained Earnings, June 30 | 6,513 | 5,686 | ||||||||||||||
Treasury Stock, January 1 | (4,169 | ) | (1,718 | ) | ||||||||||||
Repurchase of common stock | (922 | ) | (1,295 | ) | ||||||||||||
Other, primarily issuance of treasury stock for employee | ||||||||||||||||
benefit plans | 296 | 235 | ||||||||||||||
Treasury Stock, June 30 | (4,795 | ) | (2,778 | ) | ||||||||||||
Total Comprehensive Income and Shareholders’ Equity | $ | 411 | $ | 4,009 | $ | 452 | $ | 4,694 | ||||||||
The accompanying Notes to the Financial Statements are an integral part of these statements. |
CIGNA Corporation | ||||||||
Consolidated Statements of Cash Flows | ||||||||
(In millions) | Six Months Ended June 30, | |||||||
2007 | 2006 | |||||||
Cash Flows from Operating Activities | ||||||||
Net income | $ | 487 | $ | 625 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Loss from discontinued operations | 7 | - | ||||||
Insurance liabilities | 77 | (160 | ) | |||||
Reinsurance recoverables | 50 | 47 | ||||||
Deferred policy acquisition costs | (56 | ) | (38 | ) | ||||
Premiums, accounts and notes receivable | (73 | ) | 159 | |||||
Other assets | (154 | ) | (6 | ) | ||||
Accounts payable, accrued expenses and other liabilities | (31 | ) | (393 | ) | ||||
Current income taxes | 80 | 134 | ||||||
Deferred income taxes | (48 | ) | (8 | ) | ||||
Realized investment gains | (10 | ) | (150 | ) | ||||
Depreciation and amortization | 98 | 107 | ||||||
Gains on sales of businesses (excluding discontinued operations) | (22 | ) | (33 | ) | ||||
Mortgage loans originated and held for sale | (5 | ) | (312 | ) | ||||
Proceeds from sales of mortgage loans held for sale | - | 99 | ||||||
Other, net | 18 | 10 | ||||||
Net cash provided by operating activities | 418 | 81 | ||||||
Cash Flows from Investing Activities | ||||||||
Proceeds from investments sold: | ||||||||
Fixed maturities | 362 | 1,745 | ||||||
Equity securities | 23 | 17 | ||||||
Mortgage loans | 452 | 292 | ||||||
Other (primarily short-term investments) | 107 | 893 | ||||||
Investment maturities and repayments: | ||||||||
Fixed maturities | 432 | 505 | ||||||
Mortgage loans | 91 | 147 | ||||||
Investments purchased: | ||||||||
Fixed maturities | (1,092 | ) | (1,592 | ) | ||||
Equity securities | (11 | ) | (40 | ) | ||||
Mortgage loans | (206 | ) | (545 | ) | ||||
Other (primarily short-term investments) | (258 | ) | (485 | ) | ||||
Property and equipment sales | 70 | - | ||||||
Property and equipment purchases | (105 | ) | (67 | ) | ||||
Cash provided by investing activities of discontinued operations | 42 | - | ||||||
Other acquisitions/dispositions, net cash used | (5 | ) | - | |||||
Conversion of single premium annuity business | - | (45 | ) | |||||
Other, net | (6 | ) | - | |||||
Net cash provided by (used in) investing activities | (104 | ) | 825 | |||||
Cash Flows from Financing Activities | ||||||||
Deposits and interest credited to contractholder deposit funds | 274 | 293 | ||||||
Withdrawals and benefit payments from contractholder deposit funds | (277 | ) | (318 | ) | ||||
Change in cash overdraft position | 7 | (4 | ) | |||||
Net proceeds on issuance of long-term debt | 498 | - | ||||||
Repayment of long-term debt | (378 | ) | (100 | ) | ||||
Repurchase of common stock | (940 | ) | (1,273 | ) | ||||
Issuance of common stock | 218 | 180 | ||||||
Common dividends paid | (5 | ) | (6 | ) | ||||
Net cash used in financing activities | (603 | ) | (1,228 | ) | ||||
Effect of foreign currency rate changes on cash and cash equivalents | 1 | 1 | ||||||
Net decrease in cash and cash equivalents | (288 | ) | (321 | ) | ||||
Cash and cash equivalents, beginning of period | 1,392 | 1,709 | ||||||
Cash and cash equivalents, end of period | $ | 1,104 | $ | 1,388 | ||||
Supplemental Disclosure of Cash Information: | ||||||||
Income taxes paid, net of refunds | $ | 174 | $ | 164 | ||||
Interest paid | $ | 60 | $ | 52 | ||||
The accompanying Notes to the Financial Statements are an integral part of these statements. |
· | an impairment loss recorded in the second quarter of 2007 associated with the probable sale of the Chilean insurance operations as disclosed in Note 3; and |
· | realized gains on the disposition of certain directly-owned real estate investments during the second quarter and six months of 2007 as disclosed in Note 9. |
Three Months | Six Months | |||||||||||||||
Ended | Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
(In millions) | 2007 | 2006 | 2007 | 2006 | ||||||||||||
Income before income taxes | $ | 7 | $ | - | $ | 25 | $ | - | ||||||||
Income taxes | (3 | ) | - | (9 | ) | - | ||||||||||
Income from operations | 4 | - | 16 | - | ||||||||||||
Impairment loss, net of tax | (23 | ) | - | (23 | ) | - | ||||||||||
Loss from discontinued | ||||||||||||||||
operations, net of tax | $ | (19 | ) | $ | - | $ | (7 | ) | $ | - |
(Dollars in millions, except | Effect of | Effect of | ||||||||||||||||||||
per share amounts) | Basic | Dilution | Diluted | Basic | Dilution | Diluted | ||||||||||||||||
Three Months Ended March 31, | ||||||||||||||||||||||
Three Months Ended June 30, | ||||||||||||||||||||||
2007 | ||||||||||||||||||||||
Income from continuing | ||||||||||||||||||||||
operations | $ | 277 | - | $ | 277 | $ | 217 | - | $ | 217 | ||||||||||||
Shares (in thousands): | ||||||||||||||||||||||
Weighted average | 96,790 | - | 96,790 | 284,614 | - | 284,614 | ||||||||||||||||
Options and restricted stock grants | 1,994 | 1,994 | Options and restricted stock grants | 5,387 | 5,387 | |||||||||||||||||
Total shares | 96,790 | 1,994 | 98,784 | 284,614 | 5,387 | 290,001 | ||||||||||||||||
EPS | $ | 2.86 | $ | (0.06 | ) | $ | 2.80 | $ | 0.76 | $ | (0.01 | ) | $ | 0.75 | ||||||||
2006 | ||||||||||||||||||||||
Income from continuing | ||||||||||||||||||||||
operations | $ | 352 | - | $ | 352 | $ | 273 | - | $ | 273 | ||||||||||||
Shares (in thousands): | ||||||||||||||||||||||
Weighted average | 119,946 | - | 119,946 | 346,234 | - | 346,234 | ||||||||||||||||
Options and restricted stock grants | 2,567 | 2,567 | Options and restricted stock grants | 4,701 | 4,701 | |||||||||||||||||
Total shares | 119,946 | 2,567 | 122,513 | 346,234 | 4,701 | 350,935 | ||||||||||||||||
EPS | $ | 2.93 | $ | (0.06 | ) | $ | 2.87 | $ | 0.79 | $ | (0.01 | ) | $ | 0.78 | ||||||||
Six Months Ended June 30, | ||||||||||||||||||||||
2007 | ||||||||||||||||||||||
Income from continuing | ||||||||||||||||||||||
operations | $ | 494 | �� | - | $ | 494 | ||||||||||||||||
Shares (in thousands): | ||||||||||||||||||||||
Weighted average | 287,476 | - | 287,476 | |||||||||||||||||||
Options and restricted stock grants | Options and restricted stock grants | 5,685 | 5,685 | |||||||||||||||||||
Total shares | 287,476 | 5,685 | 293,161 | |||||||||||||||||||
EPS | $ | 1.72 | $ | (0.04 | ) | $ | 1.68 | |||||||||||||||
2006 | ||||||||||||||||||||||
Income from continuing | ||||||||||||||||||||||
operations | $ | 625 | - | $ | 625 | |||||||||||||||||
Shares (in thousands): | ||||||||||||||||||||||
Weighted average | 352,998 | - | 352,998 | |||||||||||||||||||
Options and restricted stock grants | Options and restricted stock grants | 6,201 | 6,201 | |||||||||||||||||||
Total shares | 352,998 | 6,201 | 359,199 | |||||||||||||||||||
EPS | $ | 1.77 | $ | (0.03 | ) | $ | 1.74 |
Three Months | Six Months | |||||||||||||||
Ended | Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
(In millions) | 2007 | 2006 | 2007 | 2006 | ||||||||||||
Antidilutive options | 1.6 | 5.9 | 1.6 | 4.0 |
Three Months | |||||||
Ended | |||||||
March 31, | |||||||
(In millions) | 2007 | 2006 | |||||
Antidilutive options | 0.5 | 0.7 | |||||
(Dollars in millions, except | Effect of | |||||||||
per share amounts) | Basic | Dilution | Diluted | |||||||
Three Months Ended March 31, | ||||||||||
2007 | ||||||||||
Income from continuing | ||||||||||
operations | $ | 277 | - | $ | 277 | |||||
Shares (in thousands): | ||||||||||
Weighted average | 290,370 | - | 290,370 | |||||||
Options and restricted stock grants | 5,982 | 5,982 | ||||||||
Total shares | 290,370 | 5,982 | 296,352 | |||||||
EPS | $ | 0.95 | $ | (0.02 | ) | $ | 0.93 | |||
2006 | ||||||||||
Income from continuing | ||||||||||
operations | $ | 352 | - | $ | 352 | |||||
Shares (in thousands): | ||||||||||
Weighted average | 359,838 | - | 359,838 | |||||||
Options and restricted stock grants | 7,701 | 7,701 | ||||||||
Total shares | 359,838 | 7,701 | 367,539 | |||||||
EPS | $ | 0.98 | $ | (0.02 | ) | $ | 0.96 |
June 30, | December 31, | |||||||
(In millions) | 2007 | 2006 | ||||||
Incurred but not yet reported | $ | 854 | $ | 820 | ||||
Reported claims in process | 118 | 95 | ||||||
Other medical expense payable | 56 | 45 | ||||||
Medical claims payable | $ | 1,028 | $ | 960 |
March 31, | December 31, | ||||||
(In millions) | 2007 | 2006 | |||||
Incurred but not yet reported | $ | 847 | $ | 820 | |||
Reported claims in process | 95 | 95 | |||||
Other medical expense payable | 47 | 45 | |||||
Medical claims payable | $ | 989 | $ | 960 | |||
As of | As of | For the period ended | |||||||||||||
(In millions) | March 31, 2007 | December 31, 2006 | June 30, 2007 | December 31, 2006 | |||||||||||
Balance at January 1, | $ | 960 | $ | 1,165 | $ | 960 | $ | 1,165 | |||||||
Less: Reinsurance and other | Less: Reinsurance and other | ||||||||||||||
amounts recoverable | 250 | 342 | 250 | 342 | |||||||||||
Balance at January 1, net | 710 | 823 | 710 | 823 | |||||||||||
Incurred claims related to: | |||||||||||||||
Current year | 1,785 | 6,284 | 3,527 | 6,284 | |||||||||||
Prior years | (66 | ) | (173 | ) | (79 | ) | (173 | ) | |||||||
Total incurred | 1,719 | 6,111 | 3,448 | 6,111 | |||||||||||
Paid claims related to: | |||||||||||||||
Current year | 1,163 | 5,615 | 2,807 | 5,615 | |||||||||||
Prior years | 511 | 609 | 563 | 609 | |||||||||||
Total paid | 1,674 | 6,224 | 3,370 | 6,224 | |||||||||||
Ending Balance, net | 755 | 710 | 788 | 710 | |||||||||||
Add: Reinsurance and other | |||||||||||||||
amounts recoverable | 234 | 250 | 240 | 250 | |||||||||||
Ending Balance | $ | 989 | $ | 960 | $ | 1,028 | $ | 960 | |||||||
· | The reserves represent estimates of the present value of net amounts expected to be paid, less the present value of net future premiums. Included in net amounts expected to be paid is the excess of the guaranteed death benefits over the values of the contractholders’ accounts (based on underlying equity and bond mutual fund investments). |
· | The reserves include an estimate for partial surrenders that essentially lock in the death benefit for a particular policy based on annual election rates that vary from |
· | The mean investment performance assumption is 5% considering CIGNA's program to reduce equity market exposures using futures contracts. |
In addition, the results of futures contracts are reflected in the liability calculation as a component of investment returns. |
· | The volatility assumption is 15-30%, varying by equity fund type; 3-8%, varying by bond fund type; and 1% for money market funds. |
· | The discount rate is 5.75%. |
· | The mortality assumption is 70-75% of the 1994 Group Annuity Mortality table, with 1% annual improvement beginning January 1, 2000. |
· | The lapse rate assumption is 0-15%, depending on contract type, policy duration and the ratio of the net amount at risk to account value. |
Three Months | |||||||
Ended | |||||||
March 31, | |||||||
(In millions) | 2007 | 2006 | |||||
Premiums and fees | |||||||
Individual life insurance | |||||||
and annuity business sold | $ | 57 | $ | 64 | |||
Other | 54 | 45 | |||||
Total | $ | 111 | $ | 109 | |||
Reinsurance recoveries | |||||||
Individual life insurance | |||||||
and annuity business sold | $ | 92 | $ | 75 | |||
Other | 34 | 35 | |||||
Total | $ | 126 | $ | 110 | |||
Three Months | Six Months | |||||||||||||||
Ended | Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
(In millions) | 2007 | 2006 | 2007 | 2006 | ||||||||||||
Premiums and fees | ||||||||||||||||
Individual life insurance | ||||||||||||||||
and annuity business sold | $ | 57 | $ | 64 | $ | 114 | $ | 128 | ||||||||
Other | 61 | 53 | 115 | 98 | ||||||||||||
Total | $ | 118 | $ | 117 | $ | 229 | $ | 226 | ||||||||
Reinsurance recoveries | ||||||||||||||||
Individual life insurance | ||||||||||||||||
and annuity business sold | $ | 66 | $ | 78 | $ | 158 | $ | 153 | ||||||||
Other | 22 | 10 | 56 | 45 | ||||||||||||
Total | $ | 88 | $ | 88 | $ | 214 | $ | 198 | ||||||||
Three Months | Three Months | Six Months | |||||||||||||||||||||
Ended | Ended | Ended | |||||||||||||||||||||
March 31, | June 30, | June 30, | |||||||||||||||||||||
(In millions) | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 | |||||||||||||||||
Service cost | $ | 19 | $ | 19 | $ | 18 | $ | 16 | $ | 37 | $ | 35 | |||||||||||
Interest cost | 58 | 55 | 57 | 56 | 115 | 111 | |||||||||||||||||
Expected return on plan assets | (52 | ) | (52 | ) | (52 | ) | (52 | ) | (104 | ) | (104 | ) | |||||||||||
Amortization of: | |||||||||||||||||||||||
Net loss from past experience | 31 | 41 | 28 | 35 | 59 | 76 | |||||||||||||||||
Prior service cost | (1 | ) | - | (1 | ) | - | |||||||||||||||||
Net pension cost | $ | 56 | $ | 63 | $ | 50 | $ | 55 | $ | 106 | $ | 118 | |||||||||||
Three Months | Three Months | Six Months | |||||||||||||||||||||
Ended | Ended | Ended | |||||||||||||||||||||
March 31, | June 30, | June 30, | |||||||||||||||||||||
(In millions) | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 | |||||||||||||||||
Service cost | $ | 1 | $ | 1 | $ | - | $ | - | $ | 1 | $ | 1 | |||||||||||
Interest cost | 6 | 6 | 6 | 6 | 12 | 12 | |||||||||||||||||
Expected return on plan assets | (1 | ) | (1 | ) | (1 | ) | (1 | ) | |||||||||||||||
Amortization of: | |||||||||||||||||||||||
Net gain from past experience | �� | (1 | ) | (1 | ) | (2 | ) | - | (3 | ) | (1 | ) | |||||||||||
Prior service cost | (4 | ) | (4 | ) | (4 | ) | (4 | ) | (8 | ) | (8 | ) | |||||||||||
Net other postretirement | |||||||||||||||||||||||
benefit cost | $ | 2 | $ | 2 | |||||||||||||||||||
benefit cost (benefit) | $ | (1 | ) | $ | 1 | $ | 1 | $ | 3 | ||||||||||||||
Three Months | Three Months | Six Months | |||||||||||||||||||||
Ended | Ended | Ended | |||||||||||||||||||||
March 31, | June 30, | June 30, | |||||||||||||||||||||
(In millions) | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 | |||||||||||||||||
Fixed maturities | $ | 4 | $ | 2 | $ | (12 | ) | $ | (18 | ) | $ | (8 | ) | $ | (14 | ) | |||||||
Equity securities | 10 | 3 | 1 | (8 | ) | 11 | (5 | ) | |||||||||||||||
Mortgage loans | - | (6 | ) | (1 | ) | - | (1 | ) | (6 | ) | |||||||||||||
Real estate | - | - | - | - | |||||||||||||||||||
Other investments, | |||||||||||||||||||||||
including derivatives | 7 | 145 | 1 | 32 | 8 | 175 | |||||||||||||||||
Realized investment gains (losses) | |||||||||||||||||||||||
from continuing operations, | |||||||||||||||||||||||
before income taxes (benefits) | (11 | ) | 6 | 10 | 150 | ||||||||||||||||||
Less income taxes (benefits) | (5 | ) | 3 | 3 | 53 | ||||||||||||||||||
Realized investment gains (losses) | |||||||||||||||||||||||
from continuing operations | (6 | ) | 3 | 7 | 97 | ||||||||||||||||||
Realized investment gains | |||||||||||||||||||||||
from continuing operations, | |||||||||||||||||||||||
before income taxes | 21 | 144 | |||||||||||||||||||||
Less income taxes | 8 | 50 | |||||||||||||||||||||
Realized investment gains | |||||||||||||||||||||||
from continuing operations | 13 | 94 | |||||||||||||||||||||
Realized investment gains from | |||||||||||||||||||||||
discontinued operations | |||||||||||||||||||||||
from discontinued operations | from discontinued operations | ||||||||||||||||||||||
before income taxes | 18 | - | 7 | - | 25 | - | |||||||||||||||||
Less income taxes | 6 | - | 3 | - | 9 | - | |||||||||||||||||
Realized investment gains | |||||||||||||||||||||||
from discontinued operations | 12 | - | 4 | - | 16 | - | |||||||||||||||||
Net realized investment gains | $ | 25 | $ | 94 | |||||||||||||||||||
Net realized investment | |||||||||||||||||||||||
gains (losses) | $ | (2 | ) | $ | 3 | $ | 23 | $ | 97 |
· | lower gains in other long-term investments from sales of equity interests in real estate limited liability entities; and |
· | lower impairments on fixed maturities. |
· | gains in other investments from sales of equity interests in real estate limited liability entities; and |
· | losses on fixed maturities largely due to the impact of rising interest rates on investments where CIGNA cannot demonstrate the intent and ability to hold until recovery. |
As of | As of | As of | As of | ||||||||||||
(In millions) | March 31, 2007 | December 31, 2006 | June 30, 2007 | December 31, 2006 | |||||||||||
Included in fixed maturities: | Included in fixed maturities: | ||||||||||||||
Trading securities | $ | 26 | $ | 27 | $ | 25 | $ | 27 | |||||||
Hybrid securities | 8 | 10 | 10 | 10 | |||||||||||
Total | $ | 34 | $ | 37 | $ | 35 | $ | 37 | |||||||
Included in equity securities: | Included in equity securities: | ||||||||||||||
Hybrid securities | $ | 104 | $ | 105 | $ | 100 | $ | 105 |
Three Months | Three Months | Six Months | |||||||||||||||||||||
Ended | Ended | Ended | |||||||||||||||||||||
March 31, | June 30, | June 30, | |||||||||||||||||||||
(In millions) | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 | |||||||||||||||||
Proceeds from sales | $ | 199 | $ | 540 | $ | 186 | $ | 1,222 | $ | 385 | $ | 1,762 | |||||||||||
Gross gains from sales | $ | 15 | $ | 16 | $ | 4 | $ | 11 | $ | 19 | $ | 27 | |||||||||||
Gross losses from sales | $ | (1 | ) | $ | (12 | ) | $ | (2 | ) | $ | (21 | ) | $ | (3 | ) | $ | (33 | ) | |||||
· | length of time and severity of decline; |
· | financial health and specific near term prospects of the issuer; |
· | changes in the regulatory, economic or general market environment of the issuer’s industry or geographic region; and |
· | ability and intent to hold until recovery. |
Fair | Amortized | Unrealized | Amortized | Unrealized | ||||||||||||||||||
(In millions) | Value | Cost | Depreciation | Fair Value | Cost | Depreciation | ||||||||||||||||
Fixed Maturities: | ||||||||||||||||||||||
One year or less: | ||||||||||||||||||||||
Investment grade | $ | 1,405 | $ | 1,420 | $ | (15 | ) | $ | 3,164 | $ | 3,236 | $ | (72 | ) | ||||||||
Below investment grade | $ | 88 | $ | 89 | $ | (1 | ) | $ | 197 | $ | 202 | $ | (5 | ) | ||||||||
More than one year: | ||||||||||||||||||||||
Investment grade | $ | 1,298 | $ | 1,331 | $ | (33 | ) | $ | 1,499 | $ | 1,559 | $ | (60 | ) | ||||||||
Below investment grade | $ | 104 | $ | 107 | $ | (3 | ) | $ | 70 | $ | 72 | $ | (2 | ) |
· | $ |
· | $ |
March 31, | December 31, | ||||||
(In millions) | 2007 | 2006 | |||||
Short-term: | |||||||
Current maturities of long-term debt | $ | 291 | $ | 376 | |||
Short-term note payable | - | 6 | |||||
Total short-term debt | $ | 291 | $ | 382 | |||
Long-term: | |||||||
Uncollateralized debt: | |||||||
7% Notes due 2011 | $ | 222 | $ | 222 | |||
6.375% Notes due 2011 | 226 | 226 | |||||
5.375% Notes due 2017 | 250 | - | |||||
6.37% Note due 2021 | 78 | 78 | |||||
7.65% Notes due 2023 | 100 | 100 | |||||
8.3% Notes due 2023 | 17 | 17 | |||||
7.875% Debentures due 2027 | 300 | 300 | |||||
8.3% Step Down Notes due 2033 | 83 | 83 | |||||
6.15% Notes due 2036 | 500 | 250 | |||||
Other | 16 | 18 | |||||
Total long-term debt | $ | 1,792 | $ | 1,294 |
June 30, | December 31, | |||||||
(In millions) | 2007 | 2006 | ||||||
Short-term: | ||||||||
Current maturities of long-term debt | $ | - | $ | 376 | ||||
Short-term note payable | - | 6 | ||||||
Total short-term debt | $ | - | $ | 382 | ||||
Long-term: | ||||||||
Uncollateralized debt: | ||||||||
7% Notes due 2011 | $ | 222 | $ | 222 | ||||
6.375% Notes due 2011 | 226 | 226 | ||||||
5.375% Notes due 2017 | 250 | - | ||||||
6.37% Note due 2021 | 78 | 78 | ||||||
7.65% Notes due 2023 | 100 | 100 | ||||||
8.3% Notes due 2023 | 17 | 17 | ||||||
7.875% Debentures due 2027 | 300 | 300 | ||||||
8.3% Step Down Notes due 2033 | 83 | 83 | ||||||
6.15% Notes due 2036 | 500 | 250 | ||||||
Other | 16 | 18 | ||||||
Total long-term debt | $ | 1,792 | $ | 1,294 | ||||
· | $250 million of |
· | $250 million of |
· | 100% of the principal amount of the Notes to be redeemed; or |
· | the present value of the remaining principal and interest payments on the Notes being redeemed discounted at the applicable Treasury Rate plus 15 basis points with respect to the 5.375% Notes and 25 basis points with respect to the 6.150% Notes. |
Tax | Tax | |||||||||||||||||||||
(Expense) | After- | (Expense) | After- | |||||||||||||||||||
(In millions) | Pre-tax | Benefit | tax | Pre-tax | Benefit | tax | ||||||||||||||||
Three Months Ended March 31, | ||||||||||||||||||||||
Three Months Ended June 30, | ||||||||||||||||||||||
2007 | ||||||||||||||||||||||
Net unrealized depreciation, securities: | ||||||||||||||||||||||
Implementation effect of | ||||||||||||||||||||||
SFAS No. 155 | $ | (18 | ) | $ | 6 | $ | (12 | ) | ||||||||||||||
Net unrealized appreciation on securities | ||||||||||||||||||||||
Net unrealized depreciation on securities | Net unrealized depreciation on securities | |||||||||||||||||||||
arising during the year | 4 | (1 | ) | 3 | $ | (193 | ) | $ | 68 | $ | (125 | ) | ||||||||||
Less: reclassification adjustment for gains | ||||||||||||||||||||||
Plus: reclassification adjustment for losses | Plus: reclassification adjustment for losses | |||||||||||||||||||||
included in net income | (14 | ) | 5 | (9 | ) | 11 | (4 | ) | 7 | |||||||||||||
Net unrealized depreciation, securities | $ | (28 | ) | $ | 10 | $ | (18 | ) | $ | (182 | ) | $ | 64 | $ | (118 | ) | ||||||
Net unrealized depreciation, | ||||||||||||||||||||||
derivatives | $ | (1 | ) | $ | - | $ | (1 | ) | $ | (14 | ) | $ | 5 | $ | (9 | ) | ||||||
Net translation of foreign | ||||||||||||||||||||||
currencies | $ | (1 | ) | $ | 1 | $ | - | $ | 8 | $ | (3 | ) | $ | 5 | ||||||||
Postretirement benefits liability | ||||||||||||||||||||||
adjustment: | ||||||||||||||||||||||
Reclassification adjustment for | ||||||||||||||||||||||
Net change due to valuation update | $ | 35 | $ | (12 | ) | $ | 23 | |||||||||||||||
Plus: reclassification adjustment for | ||||||||||||||||||||||
amortization of net losses from past | ||||||||||||||||||||||
experience and prior service costs | $ | 26 | $ | (9 | ) | $ | 17 | 21 | (8 | ) | 13 | |||||||||||
Net postretirement benefits liability | ||||||||||||||||||||||
adjustment | $ | 56 | $ | (20 | ) | $ | 36 | |||||||||||||||
2006 | ||||||||||||||||||||||
Net unrealized depreciation, securities: | ||||||||||||||||||||||
Net unrealized depreciation on securities | Net unrealized depreciation on securities | |||||||||||||||||||||
arising during the year | $ | (147 | ) | $ | 51 | $ | (96 | ) | $ | (130 | ) | $ | 45 | $ | (85 | ) | ||||||
Less: reclassification adjustment for gains | ||||||||||||||||||||||
Plus: reclassification adjustment for losses | Plus: reclassification adjustment for losses | |||||||||||||||||||||
included in net income | (5 | ) | 2 | (3 | ) | 26 | (9 | ) | 17 | |||||||||||||
Net unrealized depreciation, securities | $ | (152 | ) | $ | 53 | $ | (99 | ) | $ | (104 | ) | $ | 36 | $ | (68 | ) | ||||||
Net unrealized depreciation, | ||||||||||||||||||||||
derivatives | $ | (2 | ) | $ | 1 | $ | (1 | ) | $ | (13 | ) | $ | 5 | �� | $ | (8 | ) | |||||
Net translation of foreign | ||||||||||||||||||||||
currencies | $ | 11 | $ | (4 | ) | $ | 7 | $ | 7 | $ | (2 | ) | $ | 5 | ||||||||
Minimum pension liability | ||||||||||||||||||||||
adjustment | $ | (13 | ) | $ | 4 | $ | (9 | ) | ||||||||||||||
Tax | ||||||||||||
(Expense) | After- | |||||||||||
(In millions) | Pre-tax | Benefit | tax | |||||||||
Six Months Ended June 30, | ||||||||||||
2007 | ||||||||||||
Net unrealized depreciation, securities: | ||||||||||||
Implementation effect of | ||||||||||||
SFAS No. 155 | $ | (18 | ) | $ | 6 | $ | (12 | ) | ||||
Net unrealized depreciation on | ||||||||||||
securities arising during the year | (189 | ) | 67 | (122 | ) | |||||||
Less: reclassification adjustment for | ||||||||||||
gains included in net income | (3 | ) | 1 | (2 | ) | |||||||
Net unrealized depreciation, securities | $ | (210 | ) | $ | 74 | $ | (136 | ) | ||||
Net unrealized depreciation, | ||||||||||||
derivatives | $ | (15 | ) | $ | 5 | $ | (10 | ) | ||||
Net translation of foreign | ||||||||||||
currencies | $ | 7 | $ | (2 | ) | $ | 5 | |||||
Postretirement benefits liability | ||||||||||||
adjustment: | ||||||||||||
Net change due to valuation update | $ | 35 | $ | (12 | ) | $ | 23 | |||||
Plus: reclassification adjustment for | ||||||||||||
amortization of net losses from past | ||||||||||||
experience and prior service costs | 47 | (17 | ) | $ | 30 | |||||||
Net postretirement benefits liability | ||||||||||||
adjustment | $ | 82 | $ | (29 | ) | $ | 53 | |||||
2006 | ||||||||||||
Net unrealized depreciation, securities: | ||||||||||||
Net unrealized depreciation on | ||||||||||||
securities arising during the year | $ | (275 | ) | $ | 96 | $ | (179 | ) | ||||
Less: reclassification adjustment for | ||||||||||||
gains included in net income | 19 | (7 | ) | 12 | ||||||||
Net unrealized depreciation, securities | $ | (256 | ) | $ | 89 | $ | (167 | ) | ||||
Net unrealized depreciation, | ||||||||||||
derivatives | $ | (15 | ) | $ | 6 | $ | (9 | ) | ||||
Net translation of foreign | ||||||||||||
currencies | $ | 18 | $ | (6 | ) | $ | 12 | |||||
Minimum pension liability | ||||||||||||
adjustment | $ | (13 | ) | $ | 4 | $ | (9 | ) |
Three Months | Three Months | Six Months | |||||||||||||||||||||
Ended | Ended | Ended | |||||||||||||||||||||
March 31, | June 30, | June 30, | |||||||||||||||||||||
(In millions) | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 | |||||||||||||||||
Compensation cost | $ | 13 | $ | 12 | $ | 7 | $ | 11 | $ | 20 | $ | 23 | |||||||||||
Tax benefits | $ | 5 | $ | 4 | $ | 2 | $ | 4 | $ | 7 | $ | 8 | |||||||||||
Three Months | Three Months | Six Months | |||||||||||||||||||||
Ended | Ended | Ended | |||||||||||||||||||||
March 31, | June 30, | June 30, | |||||||||||||||||||||
(Options in thousands) | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 | |||||||||||||||||
Options granted | 541 | 524 | 10 | 21 | 1,632 | 1,593 | |||||||||||||||||
Weighted average fair | |||||||||||||||||||||||
value of options granted | $ | 48.04 | $ | 43.97 | $ | 18.36 | $ | 12.35 | $ | 16.03 | $ | 14.63 |
As of March 31, | As of June 30, | ||||||||
2007 | 2006 | 2007 | 2006 | ||||||
Dividend yield | 0.1% | 0.1% | 0.1% | ||||||
Expected volatility | 35.0% | 35.0% | 35.0% | ||||||
Risk-free interest rate | 4.7% | 4.6% | 4.7% | 4.6% | |||||
Expected option life | 4 years | 4.5 years | 4 years | 4.5 years |
Three Months | Three Months | Six Months | |||||||||||||||||||||
Ended | Ended | Ended | |||||||||||||||||||||
March 31, | June 30, | June 30, | |||||||||||||||||||||
(Grants in thousands) | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 | |||||||||||||||||
Restricted stock granted | 216 | 193 | 17 | 12 | 665 | 592 | |||||||||||||||||
Weighted average fair value | $ | 140.49 | $ | 122.50 | $ | 53.74 | $ | 37.30 | $ | 47.00 | $ | 40.76 | |||||||||||
Three Months | Three Months | Six Months | |||||||||||||||||||||
Ended | Ended | Ended | |||||||||||||||||||||
March 31, | June 30, | June 30, | |||||||||||||||||||||
(In millions) | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 | |||||||||||||||||
Premiums and fees and other revenues | Premiums and fees and other revenues | ||||||||||||||||||||||
Health Care | $ | 3,006 | $ | 2,698 | $ | 3,039 | $ | 2,775 | $ | 6,045 | $ | 5,473 | |||||||||||
Disability and Life | 610 | 556 | 615 | 569 | 1,225 | 1,125 | |||||||||||||||||
International | 415 | 357 | 437 | 373 | 852 | 730 | |||||||||||||||||
Run-off Reinsurance | 7 | (25 | ) | (14 | ) | 34 | (7 | ) | 9 | ||||||||||||||
Other Operations | 47 | 60 | 49 | 55 | 96 | 115 | |||||||||||||||||
Corporate | (12 | ) | (12 | ) | (13 | ) | (13 | ) | (25 | ) | (25 | ) | |||||||||||
Total | $ | 4,073 | $ | 3,634 | $ | 4,113 | $ | 3,793 | $ | 8,186 | $ | 7,427 | |||||||||||
Income (loss) from continuing operations | Income (loss) from continuing operations | ||||||||||||||||||||||
Health Care | $ | 168 | $ | 156 | $ | 168 | $ | 159 | $ | 336 | $ | 315 | |||||||||||
Disability and Life | 60 | 58 | 68 | 64 | 128 | 122 | |||||||||||||||||
International | 38 | 37 | 44 | 36 | 82 | 73 | |||||||||||||||||
Run-off Reinsurance | 1 | - | (61 | ) | (16 | ) | (60 | ) | (16 | ) | |||||||||||||
Other Operations | 23 | 25 | 27 | 26 | 50 | 51 | |||||||||||||||||
Corporate | (26 | ) | (18 | ) | (23 | ) | 1 | (49 | ) | (17 | ) | ||||||||||||
Segment earnings | 264 | 258 | 223 | 270 | 487 | 528 | |||||||||||||||||
Realized investment gains, | |||||||||||||||||||||||
net of taxes | 13 | 94 | |||||||||||||||||||||
Income from continuing | |||||||||||||||||||||||
operations | $ | 277 | $ | 352 | |||||||||||||||||||
Realized investment gains | |||||||||||||||||||||||
(losses), net of taxes | (6 | ) | 3 | 7 | 97 | ||||||||||||||||||
Income from | |||||||||||||||||||||||
continuing operations | $ | 217 | $ | 273 | $ | 494 | $ | 625 |
· | CIGNA guarantees that separate account assets will be sufficient to pay certain retiree or life 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. This percentage varies depending on the asset class within a sponsoring employer’s portfolio (for example, a bond fund would require a lower percentage than a riskier equity fund) and thus will vary as the composition of the portfolio changes. If employers do not maintain the required levels of separate account assets, CIGNA or an affiliate of the buyer has the right to redirect the management of the related assets to provide for benefit payments. As of |
· | CIGNA guarantees that separate account assets, primarily fixed income investments, will be sufficient to pay retiree benefits for participants under a certain group annuity contract. These guarantees are fully reinsured by an affiliate of the buyer of the retirement benefits business. These guaranteed benefit obligations were |
· | These liabilities represent estimates of the present value of net amounts expected to be paid, less the present value of net future premiums expected to be received. Included in net amounts expected to be paid is the excess of the expected value of the income benefits over the values of the annuitant’s accounts at the time of annuitization. The assets associated with these contracts represent receivables in connection with reinsurance that CIGNA has purchased from third parties (see below). |
· | The market return assumption is 8-11% varying by equity fund type; 6-7% varying by bond fund type; and 5-6% for money market funds. |
· | The volatility assumption is 14-23%, varying by equity fund type; 5-7%, varying by bond fund type; and 2-3% for money market funds. |
· | The discount rate is 5.75%. |
· | The projected interest rate used to calculate the reinsured income benefits at the time of annuitization varies by economic scenario, reflects interest rates as of the valuation date, and has a long-term mean rate of 5-6% and a standard deviation of 12-13%. |
· | The mortality assumption is 70% of the 1994 Group Annuity Mortality table, with 1% annual improvement beginning January 1, 2000. |
· | The lapse rate assumption |
· | The annuity election rate assumption |
· | No annuitants surrendered their accounts; and |
· | All annuitants lived to elect their benefit; and |
· | All annuitants elected to receive their benefit on the next available date (2007 through 2014); and |
· | All underlying mutual fund investment values remained at the |
· | additional mandated benefits or services that increase costs; |
· | legislation that would grant plan participants broader rights to sue their health plans; |
· | changes in public policy and in the political environment, which could affect state and federal law, including legislative and regulatory proposals related to health care issues, which could increase cost and affect the market for CIGNA's health care products and |
· | changes in ERISA regulations resulting in increased application of varying state laws to benefit plan administration, thus increasing administrative burdens and costs; |
· | additional restrictions on the use of prescription drug formularies and rulings from pending purported class action litigation, which could result in adjustments to or the elimination of the average wholesale price or “AWP” of pharmaceutical products as a benchmark in establishing certain rates, charges, discounts, guarantees and fees for various prescription drugs; |
· | additional privacy legislation and regulations that interfere with the proper use of medical information for research, coordination of medical care and disease and disability management; |
· | additional variations among state laws mandating the time periods and administrative processes for payment of health care provider claims; |
· | legislation that would exempt independent physicians from antitrust laws; and |
· | changes in federal laws, such as amendments that could affect the taxation of employer provided benefits. |
INDEX In this filing and in other marketplace communications, CIGNA makes certain forward-looking statements relating to its financial condition and results of operations, as well as to trends and assumptions that may affect CIGNA. Generally, forward-looking statements can be identified through the use of predictive words (e.g., “Outlook for 2007”). Actual results may differ from CIGNA’s predictions. Some factors that could cause results to differ are discussed throughout Management’s Discussion and Analysis, including in the Cautionary Statement on page The following discussion addresses the financial condition of CIGNA as of The preparation of interim financial statements necessarily relies heavily on estimates. This and certain other factors, such as the seasonal nature of portions of the insurance business as well as competitive and other market conditions, call for caution in estimating full year results based on interim results of operations. CIGNA Corporation and its subsidiaries constitute one of the largest investor-owned health care and related benefits organizations in the United States. Key product lines, offered through the workplace, include medical coverages and related specialty health care products and services such as pharmacy, behavioral health, dental benefits, and disease management; group disability, life and accident insurance; and disability and workers’ compensation case management and related services. In addition, CIGNA has an international operation that offers life, accident and supplemental health insurance products and international health care products and services to businesses and individuals in selected markets. CIGNA also has certain inactive businesses, including a run-off reinsurance operation. CIGNA’s results are influenced by a range of economic and other factors, including:
25
CIGNA generates revenues, net income and cash flow from operations by maintaining and growing its relationships with employers and consumers, charging prices that reflect emerging experience and investing available cash at attractive rates of return for appropriate durations. CIGNA's ability to increase operating results in terms of growth in revenues, net income and operating cash flow is directly related to its ability to execute plans that address broad economic factors as well as company-specific drivers. Key company-specific drivers affecting CIGNA’s results include:
CIGNA regularly monitors trends in the above mentioned economic and other factors and the company-specific drivers of operating results. CIGNA develops strategic and tactical plans designed to improve performance and maximize its competitive position in the markets it serves. CIGNA's ability to achieve its financial objectives is dependent upon its ability to effectively execute these plans and to appropriately respond to emerging economic and company-specific trends. CIGNA is focused on continuing to improve the performance of and profitably grow the health care operations; as well as continuing to profitably grow the disability and life insurance and international businesses; and managing the risks associated with the run-off reinsurance operations. In the health care operations, CIGNA has initiatives in place to: (1) offer products that meet emerging consumer and market trends; (2) strengthen underwriting and pricing effectiveness; (3) improve medical membership results; (4) improve medical cost trends; (5) deliver quality member service; (6) maintain and CIGNA believes that the health care business model is evolving to one that focuses more directly on the role of the health care consumer. The consumer-directed environment presents particular challenges by requiring a more complex service model and products specifically designed to meet the emerging market needs. In order to meet the emerging market challenges, CIGNA is investing in product development, service, technology, educational resources and customer support tools to assist consumers in making more informed choices regarding their health care and to achieve better health outcomes. This investment and any execution of related initiatives are critical to respond to increasing consumer demands. CIGNA believes that its investments in these areas will position it more effectively to meet this emerging market need. CIGNA's disability and life insurance operations continue to focus on profitable growth in the disability business in both In the run-off reinsurance operations, CIGNA maintains a program to reduce the equity market risk associated with its guaranteed minimum death benefit reinsurance exposures. CIGNA is also pursuing the resolution of disputes associated with workers’ compensation and other reinsurance contracts through audits of claims from assumed business and managing collections from retrocessionaires, including issues relating to contract terms and coverage (see page
Excluding this special item, income from continuing operations remained level for the second quarter of 2007, compared with the second quarter of 2006, and decreased for the six months of 2007, compared with the
Premiums and fees for the
Special Items In order to facilitate an understanding and comparison of results of operations and permit analysis of trends in underlying revenue, expenses and income from continuing operations, CIGNA identifies special items, which management believes are not representative of the underlying results of operations. For the second quarter and six months of 2007, there was one special item included in benefits and expenses for a charge of $86 million pre-tax ($56 million after-tax) associated with guaranteed minimum income benefit contracts. See page 28 for additional information. There were no special items identified for the second quarter or six months of 2006. Outlook for 2007 CIGNA expects full year 2007 income from continuing operations, excluding realized investment results and special items, to be 27 cited in the Cautionary Statement on page Management is not able to estimate 2007 income from continuing operations under generally accepted accounting principles because it includes realized investment gains (losses) and special items. Information is not available for management to reasonably estimate future realized investment gains (losses) due, in part, to interest rate and stock market volatility and other internal and external factors. Information is not available for management to identify or reasonably estimate 2007. Critical Accounting Estimates The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect reported amounts and related disclosures in the financial statements. Management considers an accounting estimate to be critical if:
Management has discussed the development and selection of its critical accounting estimates with the Audit Committee of CIGNA’s Board of Directors. CIGNA’s most critical accounting estimates, as well as the effects of hypothetical changes in material assumptions used to develop each estimate, are described in CIGNA’s 2006 Annual Report to Shareholders beginning on page 29 and are as follows:
CIGNA regularly evaluates items, which may impact critical accounting estimates. During the second quarter of 2007, CIGNA updated annuity election rate and lapse assumptions related to the guaranteed minimum income benefit product. Accordingly, the related sensitivities around these assumptions have been updated as discussed below. Accounts Payable, Accrued Expenses and Other Liabilities, and Other Assets – Guaranteed Minimum Income Benefits. CIGNA regularly evaluates each of the assumptions used in establishing the assets and liabilities related to guaranteed minimum income benefit contracts. Annuitants have only recently been able to elect to receive these minimum income benefits due to the expiration of a contractual waiting period. CIGNA has been monitoring annuity election rate experience and, during the second quarter of 2007, increased its assumption related to annuity election rates resulting in a charge (net of reinsurance) of $75 million pre-tax. Also during the second quarter of 2007, CIGNA completed a review of lapse experience for these contracts. As a result of the review, CIGNA decreased its lapse assumption resulting in a charge (net of reinsurance) of $11 million pre-tax; because fewer annuitants are expected to lapse coverage, CIGNA's expected claims increase. In combination, CIGNA recognized in the second quarter of 2007 a total charge of $56 million after-tax ($86 million pre-tax) for these changes in the long-term assumptions. This charge is reflected as a special item (see page 27). For additional information related to guaranteed minimum income benefit contracts, see Note 15 to the Financial Statements. As a result of these changes in assumptions, CIGNA has updated the “Effect if Different Assumptions Used” section of Critical Accounting Estimates as described on page 33 of CIGNA's 2006 Annual Report to Shareholders as follows: If a 10% unfavorable change were to occur for the following assumptions for guaranteed minimum income benefits, the approximate after-tax decrease in CIGNA's net income would be:
28
Health Care Medical Claims Payable. For each reporting period, CIGNA evaluates key assumptions by comparing the assumptions used in establishing the medical claims payable to actual experience. When actual experience differs from the assumptions used in establishing the liability, medical claims payable are increased or decreased through current period net income. Additionally, CIGNA evaluates expected future developments and emerging trends which may impact key assumptions. The estimation process involves considerable judgment, reflecting the variability inherent in forecasting future claim payments. The adequacy of these estimates is highly sensitive to changes in CIGNA's key assumptions, specifically completion factors, which are impacted by actual or expected changes in the submission and payment of medical claims, and medical cost trends, which are impacted by actual or expected changes in the utilization of medical services and unit costs. For the For the year ended December 31, 2006, actual experience differed from CIGNA's key assumptions, resulting in favorable incurred claims related to prior years’ medical claims payable of $173 million, or 2.6% of the current year incurred claims as reported for the year ended December 31, 2005. The favorable impact in 2006 is due to faster than expected completion factors and lower than expected medical cost trends, both of which included an assumption for moderately adverse experience. For the year ended December 31, 2006, actual completion factors resulted in a reduction of the medical claims payable of $99 million, or 1.5% of the current year incurred claims as reported for the year ended December 31, 2005 for the insured book of business. Completion factors in 2006 reflected better than expected time to process claims, driven by higher auto-adjudication rates, the impact of claim recoveries and more timely submissions of provider claims. For the year ended December 31, 2006, actual medical cost trend resulted in a reduction of the medical claims payable of $74 million or 1.1% of the current year incurred claims as reported for the year ended December 31, 2005 for the insured book of business. The better than expected medical cost trend in 2006 was driven by lower inpatient, outpatient and pharmacy service utilization and lower than expected unit cost trends. The lower than expected unit cost trends reflected provider contracting initiatives and the mix of services provided. The corresponding impact of favorable prior year development on net income was See Note 5 to the Financial Statements for additional information. Summary. In addition, there are other accounting estimates used in the preparation of CIGNA’s consolidated financial statements, including estimates of liabilities for future policy benefits other than those identified above, as well as estimates with respect to unpaid claims and claim 29 expenses, Management believes the current assumptions used to estimate amounts reflected in CIGNA’s consolidated financial statements are appropriate. However, if actual experience differs from the assumptions used in estimating amounts reflected in CIGNA’s consolidated financial statements, the resulting changes could have a material adverse effect on CIGNA’s consolidated results of operations, and in certain situations, could have a material adverse effect on liquidity and CIGNA’s financial condition. CIGNA may from time to time acquire or dispose of assets, subsidiaries or lines of business. Significant transactions are described below. Sale of the Chilean Insurance Operations. During the second quarter of 2007, CIGNA initiated actions to sell its Chilean insurance operations. Since a sale is probable within one year, CIGNA has classified this business as a discontinued operation. CIGNA recognized an impairment loss for this business of $23 million after-tax, primarily related to the write-off of unrecoverable tax assets and foreign currency translation losses. Amounts as of December 31, 2006 have been reclassified to conform to this presentation. Sale of the Brazilian Life Insurance Operations. During 2006, CIGNA entered into negotiations to sell its Brazilian life insurance business. The sale is expected to close in 2007 and as a result, CIGNA has classified this business as a discontinued operation. Star-HRG Acquisition. On July 11, 2006, CIGNA acquired the operating assets of Star-HRG, a leading provider of low cost health plans and other employee benefits coverage for hourly and part-time workers and their families, for $156 million, including assumed liabilities. The acquisition was financed through the issuance of a note payable to the seller for $151 million of which $73 million was paid in 2006. The results of Star-HRG are included in the accompanying consolidated financial statements from the date of the acquisition. For the six months ended June 30, 2007, CIGNA's postretirement benefits liability adjustment decreased by $82 million pre-tax ($53 million after-tax) resulting in an increase to shareholders’ equity. The decrease in the liability was primarily due to net amortization of actuarial losses, the annual update of census data, and favorable medical claim experience, and lower than expected election rates in CIGNA's postretirement medical plan. During the second quarter of 2006, CIGNA's minimum pension liability increased primarily due to an update of plan census data. This resulted in a decrease to shareholder’s equity of $9 million after-tax. Initiatives to Lower Operating Expenses CIGNA has undertaken several initiatives to realign its organization and consolidate support functions in an effort to increase efficiency and responsiveness to customers. See page In the fourth quarter of 2006, CIGNA completed a review of staffing levels in the health care operations and in supporting areas. As a result, CIGNA recognized in other operating expenses a charge for severance costs of $37 million pre-tax (Health Care - $24 million; Corporate - $13 million) and $23 million after-tax (Health Care - $15 million; Corporate - $8 million). CIGNA expects to achieve $45 million after-tax in estimated savings in 2007 and $68 million after-tax in annualized estimated savings from this specific program. A portion of these savings will be reinvested in resources to further enhance CIGNA's capabilities in the areas of consumerism and health advocacy. Regulatory and Industry Developments 30 of insurance and the federal Departments of Labor and Justice, as well as the courts. Regulation and judicial decisions have resulted in changes to industry and CIGNA’s business practices and will continue to do so in the future. In addition, CIGNA's subsidiaries are routinely involved with various claims, lawsuits and regulatory and IRS audits and investigations that could result in financial liability, changes in business practices, or both. Health care regulation in its various forms could have an adverse effect on CIGNA's health care operations if it inhibits CIGNA's ability to respond to market demands or results in increased medical or administrative costs without improving the quality of care or services. Other possible regulatory changes or judicial decisions that could have an adverse effect on CIGNA’s employee benefits businesses include:
The employee benefits industry remains under scrutiny by various state and federal government agencies and could be subject to government efforts to bring criminal actions in circumstances that could previously have given rise only to civil or administrative proceedings. Litigation and other legal matters Managed care litigation.In 2004, a Florida federal court handling multi-district health care litigation against CIGNA and several health care industry competitors approved a settlement agreement between the physician class and CIGNA. A dispute over disallowed claims under the settlement submitted by a representative of certain class member physicians is proceeding to arbitration. Separately, in April 2005, the court approved a settlement between CIGNA and the remaining plaintiffs, a class of non-physician health care professionals. In the fourth quarter of 2006, CIGNA received a $22 million pre-tax ($14 million after-tax) insurance recovery related to this litigation. In the first quarter of 2007, CIGNA received an additional $5 million pre-tax ($3 million after-tax) insurance recovery related to this litigation. CIGNA Broker compensation. Various regulators, including the New York and Connecticut Attorneys General and the Florida Office of Insurance Regulation, have been investigating insurance broker compensation. Some regulators have brought suit against certain insurance brokers, including Universal Life Resources (ULR), alleging, among other things, that these brokers sought rigged bids from, and steered business to, insurers with whom they had contingent compensation arrangements. Some of CIGNA's subsidiaries 31 providing information about ULR in connection with investigations by the U.S. Attorney’s Office for the Southern District of California and the San Diego District Attorney. On June 6, 2007, CIGNA received a letter from the San Diego District Attorney, detailing its potential claims and penalties against CIGNA's subsidiaries, and outlining potential civil litigation.CIGNA denies the allegations and will vigorously defend itself in the event of litigation. In addition, CIGNA provided information about another broker to the U.S. Department of Labor. CIGNA is cooperating with the inquiries and investigations. Separately, several purported class action lawsuits have been filed against brokers and insurance companies, including certain of CIGNA Corporation securities litigation. During the fourth quarter of 2006, CIGNA reached an agreement to resolve claims filed in federal court in 2002 against former and current officers and members of the Board of Directors on behalf of a class of CIGNA shareholders. The settlement, which specifies $93 million to be paid to the plaintiffs, was preliminarily approved by the U.S. District Court for the Eastern District of Pennsylvania on January 25, 2007. In addition, CIGNA and certain of its current and former Directors have reached a separate settlement with the Plaintiffs in the related derivative action. Under that settlement, CIGNA's insurers will deposit and apportion, on behalf of the individual defendants, $6 million of the aforementioned $93 million class action settlement, and have agreed to make a payment of not more than $720,000 for Plaintiff’s Amara cash balance pension plan litigation. Plaintiffs representing CIGNA Pension Plan participants affected by the 1998 conversion to a cash balance formula filed a class action lawsuit against CIGNA and the CIGNA Pension Plan in December 2001. The plaintiffs allege various ERISA violations including, among other things, that the Plan’s cash balance formula discriminates against older employees; the conversion resulted in a wear away period (during which the pre-conversion accrued benefit exceeded the post-conversion benefit); and these conditions are not adequately disclosed in the Plan. A non-jury trial began on September 11-15, 2006. Due to the court’s schedule, the proceedings were adjourned and then the trial was completed on January 25, 2007. The judge has ordered the parties to submit post-trial briefs in advance of closing arguments to be held on August Run-off reinsurance litigation. In connection with CIGNA's run-off reinsurance operations described in Note 7 to the Financial Statements, CIGNA purchased extensive retrocessional reinsurance for its Unicover contracts and also for some other segments of its non-Unicover business. CIGNA is appealing in court an adverse award in a retrocessional enforcement arbitration. The hearing on that appeal previously scheduled for March 13-14 has been postponed. In addition, CIGNA recently commenced another retrocessional enforcement arbitration. Other disputes concerning retrocessional contracts have been substantially resolved or settled. CIGNA is routinely involved in numerous claims, lawsuits, regulatory and IRS audits, investigations and other legal matters arising, for the most part, in the ordinary course of the business of administering and insuring employee benefit programs. An increasing number of claims are being made for substantial non-economic, extra-contractual or punitive damages. The outcome of litigation and other legal matters is always uncertain, and outcomes that are not justified by the evidence can 32 occur. CIGNA believes that it has valid defenses to the legal matters pending against it and is defending itself vigorously. Nevertheless, it is possible that resolution of one or more of the legal matters currently pending or threatened could result in losses material to CIGNA’s consolidated results of operations, liquidity or financial condition. Summary. The eventual effect on CIGNA of the changing environment in which it operates remains uncertain. For additional information on contingencies that could affect CIGNA’s results, see Note 15 to the Financial Statements. Accounting Pronouncements For information on recent accounting pronouncements, see Note 2to the Financial Statements. Segment Reporting Operating segments generally reflect groups of related products, but the International segment is generally based on geography. CIGNA measures the financial results of its segments using “segment earnings (loss),” which is defined as income (loss) from continuing operations excluding after-tax realized investment gains and losses. Beginning in 2007, CIGNA reports the results of the run-off retirement business in Other Operations. Prior periods have been restated to conform to this presentation.
The Health Care segment includes insured and self-funded medical, dental, behavioral health, prescription drug and other products and services that may be integrated to support consumer-focused health care programs. This segment also includes group disability and life insurance products that were historically sold in connection with certain experience-rated medical products that continue to be managed within the health care business. These products and services are offered through guaranteed cost, retrospectively experience-rated and service only funding arrangements. For a description of funding arrangements, see page 10 of CIGNA's 2006 Form 10-K. Results Segment earnings include favorable after-tax prior year claim development of Favorable prior year claim development for the 33 Favorable prior year claim development for the
Excluding prior year claim development, segment earnings for the second quarter and six months of 2007 were higher than the prior year reflecting:
These factors were partially offset by lower earnings in the experience-rated business. The six months of 2007 also includes the favorable impact of a $3 million after-tax insurance recovery related to the managed care litigation (see page 31). Premiums and Fees Premiums and fees increased by
1 Includes premiums of 2 Includes premiums associated with other risk-related products, primarily open access products. Benefits and Expenses Health Care segment benefits and expenses consist of the
Medical claims expense for the Other operating expenses for the Medical Membership CIGNA's medical membership includes any individual for whom CIGNA retains medical underwriting risk, who uses a CIGNA network for services covered under their medical coverage or for whom CIGNA administers medical claims. As of
1Includes membership associated with other risk-related products, primarily open access products. 3Includes approximately 28 thousand members obtained through the acquisition of Mid-South Administrative Group, LLC, which was effective January1, 2007. In 2006, approximately 54,000 health care members in Tucson, Arizona were transitioned to CIGNA as the result of a Department of Justice requirement to divest certain contracts in connection with the merger of two health care industry competitors. Initially, CIGNA serves as a reinsurer and then works toward underwriting these customers directly on CIGNA contracts at the time each contract is scheduled for renewal (most of which are scheduled to renew on July 1, 2007). Given the unique nature of this transaction, CIGNA will not include these members in its reported medical membership until such customers renew on CIGNA contracts. CIGNA has renewed 13,000 members as of 35 CIGNA continues to focus on improving operational effectiveness and the financial results of its health care operations. Operational effectiveness is often dependent upon execution of systems and information technology initiatives as well as having an appropriate infrastructure in place. Executing on the following areas of focus is critical to achieving success in a marketplace that is concentrated on the existing employer based offerings and one that is evolving towards consumer-directed healthcare, both of which present unique challenges. CIGNA believes that continued focus on the following key areas will result in improved operational effectiveness and position us better to meet the challenges of the current healthcare environment:
Offering products that meet emerging trends. The In July 2006, CIGNA acquired Star-HRG, a leading provider of low cost health plans and other employee benefits coverage for hourly and part-time workers and their families. This acquisition complements CIGNA's existing product portfolio by giving CIGNA the capability to offer voluntary health insurance coverage. Also in 2006, CIGNA acquired vielife, a U.K. based leading provider of integrated online health management and coaching programs and entered into a long-term agreement with the University of Michigan to access certain intellectual property related to identification of health risks and employer worksite health and wellness programs. Strengthening underwriting and pricing effectiveness. One of CIGNA's key priorities is to achieve strong profitability in a competitive health care market. CIGNA is focused on effectively managing pricing and underwriting decisions at the case level and for the overall book of business, particularly for the guaranteed cost business. Improving medical membership results. CIGNA is continuing to improve medical membership by:
CIGNA continues to evaluate opportunities with regional health care companies. CIGNA formed strategic alliances with New York-based MVP Health Care/Preferred Care in September 2006 and with Minnesota-based HealthPartners in April 2006. In addition, CIGNA acquired Memphis-based Mid-South Administrative Group, LLC in January 2007 to give the Company an expanded local presence in Memphis and western Tennessee. 36 These strategic actions are designed to:
CIGNA believes that its medical management model, focus on clinical quality and ability to integrate health and related benefit solutions position the company to continue to improve membership results. Improving medical cost trend. CIGNA operates under a centralized medical management model, which helps facilitate consistent levels of care for its members and reduces infrastructure expenses. CIGNA is focused on improving its medical cost trend by managing unit medical costs more effectively. To help achieve this end, CIGNA continues to focus on renegotiating contracts with certain facilities to limit increases in medical reimbursement costs. In addition, CIGNA seeks to strengthen its network position in selected markets and, on August 1, 2007, acquired Sagamore Health Network, Inc. Sagamore provides access to an extensive preferred provider network and offers access to a broad range of utilization review and case management services to health claim payer organizations, self-insured employers and third-party administrators. In the future, CIGNA may pursue additional acquisitions and strategic alliances. Continuing to deliver quality member and provider service.CIGNA is focused on delivering competitive service to members, providers and customers. CIGNA believes that quality service can improve member retention and, when combined with useful health information and tools, help motivate members to become more engaged in their personal health, which will promote healthy outcomes and remove cost from the system. CIGNA is also focused on the development and implementation of a new service model that is capable of meeting the challenges brought on by the increasing product and service complexity and the heightened expectations of health care consumers. CIGNA continues to invest in the development and implementation of systems and technology to improve the member and provider service experience, enhance its capabilities and improve its competitive position. Lowering administrative expenses. From 2004 through 2006, CIGNA has undertaken several initiatives to increase its operating efficiency and responsiveness to customers. CIGNA operates in an intensely competitive marketplace and its ability to establish a meaningful cost advantage is a key to achieving its strategic imperatives. CIGNA must remain competitive with the other major players in the industry, all of whom essentially are competing in the same markets for the same customers and prospects. CIGNA's strengths and capabilities as a consumer-focused health advocate provide it with a competitive advantage, but CIGNA must be able to deliver those capabilities efficiently and cost-effectively. The savings generated by these initiatives provide CIGNA with the ability to make investments in and enhance its capabilities in the areas of consumerism, particularly product development, the delivery of member service and health advocacy and related technology initiatives. CIGNA continues to perform operational reviews in order to identify additional cost savings. See page 37
The Disability and Life segment includes group:
Results Disability and Life results for the second quarter and six months of 2007 include the net favorable impact of $10 million after-tax related to reserve studies for life and accident insurance products. Results for the second quarter and six months of 2006 include a net favorable adjustment of $6 million after-tax related to a reserve study on a run-off life insurance business, partially offset by severance charges. Excluding these items, Disability and Life segment earnings Premiums and Fees Premiums and fees
The International segment includes:
Results International segment earnings for the second quarter and six months of 2007 reflect competitively strong Premiums and Fees The increase in premiums and fees for the 38 Other Matters South Korea represents the single largest geographic market for CIGNA's international businesses. RUN-OFF REINSURANCE
CIGNA's reinsurance businesses are in run-off. No new reinsurance business has been underwritten since the sale of the U.S. individual life, group life and accidental death reinsurance business in 2000. Results Excluding the special item noted in the table above, segment loss for the Run-off Reinsurance segment for the six months of 2007,
These factors were partially offset by lower results in the guaranteed minimum income Other Revenues CIGNA maintains a program to substantially reduce the equity market exposures relating to guaranteed minimum death benefit contracts by entering into exchange-traded futures contracts. Other revenues included pre-tax losses of Other Matters Guaranteed minimum death benefit contracts. CIGNA’s reinsurance operations, which were discontinued in 2000 and are now an inactive business in run-off mode, reinsured a guaranteed minimum death benefit under certain variable annuities issued by other insurance companies. These variable annuities are essentially investments in mutual funds combined with a death benefit. 39 CIGNA has equity and other market exposures as a result of this product. The determination of liabilities for guaranteed minimum death benefits requires CIGNA to make critical accounting estimates. CIGNA describes the assumptions used to develop the reserves for these death benefits, and provides the effects of hypothetical changes in those assumptions on page 30 of CIGNA’s 2006 Annual Report to Shareholders. CIGNA regularly evaluates the assumptions used in establishing reserves and changes its estimates if actual experience or other evidence suggests that earlier assumptions should be revised. If actual experience differs from the assumptions (including lapse, partial surrender, mortality, interest rates and volatility) used in estimating these reserves, the resulting change could have a material adverse effect on CIGNA’s consolidated results of operations, and in certain situations, could have a material adverse effect on CIGNA’s financial condition. See Note 6to the Financial Statements for additional information about the assumptions used to calculate reserves for these contracts. CIGNA had future policy benefit reserves for guaranteed minimum death benefit contracts of As of For further information and details on these contracts and the program adopted to reduce related equity market risk, refer to Note 7 of CIGNA's 2006 Annual Report to Shareholders. Guaranteed minimum income benefit contracts. CIGNA has also written reinsurance contracts with issuers of variable annuity contracts that provide annuitants with certain guarantees related to minimum income benefits. See CIGNA purchased extensive retrocessional reinsurance for the Unicover contracts (through the pool) and also purchased retrocessional coverage for its other CIGNA's payment obligations under these contracts are based on ceding companies’ claim payments relating to accidents and injuries. These claim payments can in some cases extend many years into the future, and the amount of the ceding companies’ ultimate claims, and therefore the amount of CIGNA's ultimate payment obligations and ultimate collection from retrocessionaires may not be known with certainty for some time. Summary. CIGNA’s reserves for underlying reinsurance exposures assumed by CIGNA, as well as for amounts recoverable from retrocessionaires, are considered appropriate as of 40
Other Operations consist of:
Results Segment earnings for Other Operations Other Matters Tax benefits for corporate life insurance. Federal legislation in 1996 eliminated on a prospective basis the tax deductibility of policy loan interest for most leveraged corporate life insurance products, and an Internal Revenue Service initiative in 2001 encouraged policyholders to settle tax disputes regarding these products. As a result, some customers have surrendered their policies and management expects earnings associated with these products to continue to decline.
Corporate reflects amounts not allocated to segments, such as interest expense on corporate debt, interest expense on uncertain tax positions, net investment income on unallocated investments, intersegment eliminations, compensation cost for stock options and certain corporate overhead expenses. Corporate results for the DISCONTINUED OPERATIONS Summarized financial data for discontinued operations primarily represents:
41 Liquidity CIGNA normally meets its operating requirements by:
Cash flows from operations for the
Cash flows from operating activities consist of cash receipts and disbursements for premiums and fees, gains (losses) recognized in connection with CIGNA's program to manage equity market risk related to reinsured guaranteed minimum death benefit contracts, investment income, taxes, and benefits and expenses. 2007:
Excluding these items, cash flow from operating activities in 2007 increased significantly compared with the same period in 2006. The increase was primarily due to higher cash revenues resulting from business growth in all of CIGNA's ongoing operating segments, partially offset by higher paid losses, higher paid expenses and lower investment income due to the effect of the share repurchase program.
2006:
Interest Expense Interest expense
Capital Resources CIGNA’s capital resources (primarily retained earnings and the proceeds from the issuance of 42 long-term debt and equity securities) provide protection for policyholders, furnish the financial strength to underwrite insurance risks and facilitate continued business growth. Senior management, guided by regulatory requirements and rating agency capital guidelines, determines the amount of capital resources that CIGNA maintains. 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. CIGNA has sufficient capital resources to:
CIGNA maintains a share repurchase program. From January 1, 2007 through Under a universal shelf registration statement filed in 2006, CIGNA issued the following securities in March 2007:
CIGNA may redeem
In addition, CIGNA has $500 million remaining under an effective shelf registration statement filed with the Securities and Exchange Commission (SEC), which may be issued as debt securities, equity securities or both. Management and the Board of Directors will consider market conditions and internal capital requirements when deciding whether CIGNA should issue new securities. In Liquidity and Capital Resources Outlook The availability of resources at the parent/holding company level is partially dependent on dividends from CIGNA’s subsidiaries, most of which are subject to regulatory restrictions and rating agency capital guidelines. CIGNA expects, based on current projections for cash activity (including projections for dividends from subsidiaries), to have sufficient liquidity to meet its obligations, including:
However, if CIGNA's projections are not realized, the demand for funds could exceed available cash if:
In those cases, CIGNA has the flexibility to satisfy liquidity needs through short-term borrowings, such as revolving credit and line of credit agreements of up to $1.75 billion. Ratings CIGNA and certain of its insurance subsidiaries are rated by nationally recognized rating agencies. Ratings are always subject to change and there can be no assurance that CIGNA’s current ratings will continue for any given period of time. As of
The above table reflects upgrades to financial strength and debt ratings issued during the first CIGNA is committed to maintaining appropriate levels of capital in its subsidiaries to support ratings that meet customers’ expectations, and to improving the earnings of the health care business. Ratings downgrades of CG Life could adversely affect new sales and retention of current business. Lower ratings at the parent company level would increase the cost to borrow funds. Guarantees and Contractual Obligations CIGNA, through its subsidiaries, is contingently liable for various financial guarantees provided and contractual obligations entered into in the ordinary course of business. Financial guarantees primarily associated with the sold retirement benefits business. Separate account assets are contractholder funds maintained in accounts with specific investment objectives. CIGNA records separate account liabilities equal to separate account assets. In certain cases, CIGNA guarantees a minimum level of benefits for retirement and insurance contracts, primarily associated with the sold retirement benefits business (which was sold in April 2004), written in separate accounts. CIGNA establishes an additional liability if management believes that CIGNA will be required to make a payment under 44 these guarantees. Except as noted below, these guarantees are fully reinsured by an affiliate of the buyer of the retirement benefits business:
Guaranteed minimum income benefit contracts. CIGNA's reinsurance operations, which were discontinued in 2000 and are now an inactive business in run-off mode, reinsured minimum income benefits under certain variable annuity contracts issued by other insurance companies. When annuitants elect to receive these minimum income benefits, CIGNA may be required to make payments based on changes in underlying mutual fund values and interest rates. CIGNA estimates the fair value of the assets and liabilities associated with these contracts using assumptions as to market returns and volatility of the underlying equity and bond mutual fund investments, interest rates, mortality, lapse, credit risk and annuity election rates. Annuitants have only recently been able to elect to receive these minimum income benefits due to the expiration of a contractual waiting period. CIGNA has been monitoring annuity election rate experience, and during the second quarter increased its assumption related to annuity election rates. Also during the second quarter, CIGNA completed a review of lapse experience for these contracts. As a result of the review, CIGNA decreased its lapse assumption. See page 28 for the effects of these assumption updates. CIGNA regularly evaluates each of the assumptions used in establishing these assets and liabilities by monitoring actual experience as it emerges over time and may change its estimates if actual experience or other evidence suggests that earlier assumptions should be revised. As of 45 million related to these contracts and net amounts recoverable from reinsurers of CIGNA is required to disclose the maximum potential undiscounted future payments for guarantees related to minimum income benefits using hypothetical adverse assumptions, defined as follows:
The maximum potential undiscounted payments that CIGNA would make under those assumptions would aggregate Certain other guarantees. CIGNA had indemnification obligations to lenders of up to As of CIGNA had indemnification obligations as of CIGNA does not expect that these guarantees will have a material adverse effect on CIGNA’s consolidated results of operations, liquidity or financial condition. 46 Contractual obligations. As a result of the changes in assumptions for guaranteed minimum income benefit contracts noted above, CIGNA has updated its contractual obligations related to these contracts (reported in other long-term liabilities) that were provided on page 50 of CIGNA's 2006 Annual Report to Shareholders. The updated estimates for CIGNA's principal contractual cash obligations for other long-term liabilities are as follows:
As a result of the debt issuance in March 2007, CIGNA's contractual obligations increased by $1.1 billion, which includes scheduled interest payments. See page 43 for additional information. CIGNA's contractual obligations included commitments to purchase the following investments:
For additional information on CIGNA's contractual obligations, see page 50 of CIGNA's 2006 Annual Report to Shareholders. INVESTMENT ASSETS CIGNA’s investment assets do not include separate account assets. Additional information regarding CIGNA’s investment assets and related accounting policies is included in Notes 2, 10, 11 and 14 to the Financial Statements in CIGNA’s 2006 Annual Report to Shareholders and Form 10-K. Investments in fixed maturities (bonds) include publicly traded and privately placed debt securities, mortgage and other asset-backed securities, CIGNA’s mortgage loans are diversified by property type, location and borrower to reduce exposure to potential losses. Problem and Potential Problem Investments “Problem” bonds and mortgage loans are either delinquent by 60 days or more or have been restructured as to terms (interest rate or maturity date). “Potential problem” bonds and mortgage loans are fully current, but management believes they have certain characteristics that increase the likelihood that they will become “problems.” For example, CIGNA considers mortgage loans to be potential problems if the borrower has requested restructuring or principal or interest payments are past due by more than 30 but fewer than 60 days. CIGNA recognizes interest income on “problem” bonds and mortgage loans only when payment is actually received because of the risk profile of the underlying investment. The additional amount that would have been reflected in net income if interest on non-accrual investments had been recognized in accordance with the original terms was insignificant for the 47 The following table shows problem and potential problem investments at amortized cost, net of valuation reserves and write-downs:
Summary CIGNA recorded The weakness in certain sectors of the economy and rising interest rates may cause additional investment losses. These investment losses could materially affect future results of operations, although CIGNA does not currently expect them to have a material effect on its liquidity or financial condition, or to result in a significant decline in the aggregate carrying value of its assets. Market Risk of Financial Instruments CIGNA’s assets and liabilities include financial instruments subject to the risk of potential losses from adverse changes in market rates and prices. The primary market risk exposures are interest-rate risk, foreign currency exchange rate risk and equity price risk. CIGNA uses futures contracts as part of a program to substantially reduce the effect of equity market changes on certain reinsurance contracts that guarantee minimum death benefits based on unfavorable changes in variable annuity account values. The hypothetical effect of a 10% increase in the S&P 500, S&P 400, Russell 2000, NASDAQ, TOPIX (Japanese), EUROSTOXX and FTSE (British) equity indices and a 10% weakening in the U.S. dollar to the Japanese yen, British pound and euro would have been a decrease of approximately As discussed on page 28, CIGNA changed its assumptions for annuity election and lapse rates used in establishing the assets and liabilities related to guaranteed minimum income benefit contracts and increased recorded assets and liabilities during the second quarter of 2007. As a result, the effect of a hypothetical 10% decrease in the market prices of CIGNA's equity exposures increased from $30 million as of December 31, 2006 to approximately $60 million as of June 30, 2007. Stock Market Performance The performance of equity markets can have a significant effect on CIGNA’s businesses including on:
CIGNA and its representatives may from time to time make written and oral forward-looking statements, including statements contained in press releases, in CIGNA’s filings with the Securities and Exchange Commission, in its reports to shareholders and in meetings with analysts and investors. Forward-looking statements may contain information about financial prospects, economic conditions, trends and other uncertainties. These forward-looking statements are based on management’s beliefs and assumptions and on information available to management at the time the statements are or were made. Forward-looking statements include but are not limited to the information concerning possible or assumed future business strategies, financing plans, competitive position, potential growth opportunities, potential operating performance improvements, trends and, in particular, CIGNA's productivity initiatives, litigation and other legal matters, operational improvement in the health care operations, and the outlook for CIGNA's full year 2007 results. Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as the words “believe”, “expect”, “plan”, “intend”, “anticipate”, “estimate”, “predict”, “potential”, “may”, “should”, or similar expressions. You should not place undue reliance on these forward-looking statements. CIGNA cautions that actual results could differ materially from those that management expects, depending on the outcome of certain factors. Some factors that could cause actual results to differ materially from the forward-looking statements include:
This list of important factors is not intended to be exhaustive. Other sections of the most recent Annual Report on Form 10-K, including the “Risk Factors” section and the Cautionary Statement in Management’s Discussion and Analysis of Financial Condition and Results of Operations, and other documents filed with the Securities and Exchange Commission include both expanded discussion of these factors and additional risk factors and uncertainties that could preclude CIGNA from realizing the forward-looking statements. CIGNA does not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Information responsive to this Item 3 is included in Item 2 above, Management's Discussion and Analysis of Financial Condition and Results of Operations. Item 4.Controls and Procedures Based on an evaluation of the effectiveness of CIGNA's disclosure controls and procedures conducted under the supervision and with the participation of CIGNA's management, CIGNA's Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, CIGNA'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’s rules and forms. During the period covered by this report, there have been no changes in CIGNA's internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, CIGNA's internal control over financial reporting. Item 1. Legal Proceedings. In its Form 10-K for the year ended December 31, 2006 and its Form 10-Q for the period ended March 31, 2007, CIGNA described the Broker Compensation litigation. With respect to the multi-district litigation proceeding in federal court in New Jersey, With respect to the lawsuit brought by The Insurance Commissioner of the State of California that sought injunctive relief involving contingent compensation practices against Universal Life Resources and certain insurance companies, on July 9, 2007, the parties to this lawsuit entered into a non-monetary settlement; in which, some of CIGNA subsidiaries agreed to maintain certain disclosure practices regarding contingent compensation. This settlement does not resolve the regulator’s claim for recovery of attorneys’ fees and costs. In its Form 10-K for the year ended December 31, 2006, CIGNA described CIGNA is routinely involved in numerous claims, lawsuits, regulatory and IRS audits, investigations and other legal matters arising, for the most part, in the ordinary course of the business of administering and insuring employee benefit programs. An increasing number of claims are being made for substantial non-economic, extra-contractual or punitive damages. The outcome of litigation and other legal matters is always uncertain, and outcomes that are not justified by the evidence can occur. CIGNA believes that it has valid defenses to the legal matters pending against it and is defending itself vigorously. Nevertheless, it is possible that resolution of one or more of the legal matters currently pending or threatened could result in losses material to CIGNA’s consolidated results of operations, liquidity or financial condition. Item 1A. CIGNA's Annual Report on Form 10-K for the year ended December 31, 2006 includes a detailed description of its risk factors. (c) Purchases of Equity Securities by the Issuer and Affiliated Purchasers The following table provides information about CIGNA's share repurchase activity for the quarter ended
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Item 4. Submission of Matters to a Vote of Security Holder CIGNA held its annual meeting of shareholders on April 25, 2007. As of February 27, 2007, the record date for the meeting, 97,088,142 shares of CIGNA common stock were outstanding and entitled to vote at the meeting. At the meeting, 82,898,000 shares of CIGNA common stock were represented in person or by proxy. CIGNA shareholders elected all four nominees to the Board of Directors, ratified the appointment of PricewaterhouseCoopers LLP as the independent registered public accounting firm for 2007, and approved the amended and restated CIGNA Executive Incentive Plan.
The shares and related votes presented here have not been adjusted to reflect the stock split. 56
Pursuant to the requirements 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: August 1, 2007
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