CIGNA CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

TABLE OF CONTENTS

Note Number	Footnote	Page	Footnote	Page

BUSINESS AND CAPITAL STRUCTURE	BUSINESS AND CAPITAL STRUCTURE		BUSINESS AND CAPITAL STRUCTURE
1	Description of Business	8	Description of Business	7
2	Significant Accounting Policies	9	Significant Accounting Policies	8
3	Mergers and Acquisitions	11	Mergers and Acquisitions	12
4	Earnings Per Share	12	Earnings Per Share	13
5	Debt	13	Debt	14
INSURANCE INFORMATION	INSURANCE INFORMATION		INSURANCE INFORMATION
6	Global Health Care Medical Costs Payable	14	Global Health Care Medical Costs Payable	16
7	Liabilities for Unpaid Claims and Claim Expenses	16	Liabilities for Unpaid Claims and Claim Expenses	17
8	Reinsurance	17	Reinsurance	18
INVESTMENTS	INVESTMENTS		INVESTMENTS
9	Fair Value Measurements	20	Fair Value Measurements	21
10	Investments	29	Investments	27
11	Derivative Financial Instruments	34	Derivative Financial Instruments	31
12	Variable Interest Entities	36	Variable Interest Entities	34
13	Accumulated Other Comprehensive Income (Loss)	37	Accumulated Other Comprehensive Income (Loss)	34
WORKFORCE MANAGEMENT AND COMPENSATION	WORKFORCE MANAGEMENT AND COMPENSATION		WORKFORCE MANAGEMENT AND COMPENSATION
14	Pension and Other Postretirement Benefit Plans	39	Pension and Other Postretirement Benefit Plans	36
COMPLIANCE, REGULATION AND CONTINGENCIES	COMPLIANCE, REGULATION AND CONTINGENCIES		COMPLIANCE, REGULATION AND CONTINGENCIES
15	Income Taxes	39	Income Taxes	36
16	Contingencies and Other Matters	40	Contingencies and Other Matters	37
RESULTS DETAILS	RESULTS DETAILS		RESULTS DETAILS
17	Segment Information	44	Segment Information	40

Note 1 – Description of Business

Cigna Corporation, together with its subsidiaries (either individually or collectively referred to as “Cigna,” the “Company,” “we,” “our” or “us”) is a global health services organization dedicated to a mission of helping individuals improve their health, well-being and sense of security. To execute on our mission, Cigna’s ~~newly~~ evolved strategy is to “Go Deeper”, “Go Local” and “Go Beyond” with a differentiated set of medical, dental, disability, life and accident insurance and related products and services offered by our insurance and other subsidiaries. The majority of these products are offered through employers and other groups ~~(e.g.~~such as governmental and non-governmental organizations, unions and ~~associations).~~associations. Cigna also offers commercial health and dental insurance, Medicare and Medicaid products and health, life and accident insurance coverages to individuals in the ~~U.S.~~United States and selected international markets. In addition to its ongoing operations described above, Cigna also has certain run-off operations.

The financial results of the Company’s businesses are reported in the following segments:

Global Health Care aggregates the Commercial and Government operating segments due to their similar economic characteristics, products and services and regulatory environment:

·	The Commercial operating segment (“Commercial segment”) encompasses both the U.S. commercial and certain international health care businesses serving employers and their employees, other groups and individuals. Products and services include medical, dental, behavioral health, vision, and prescription drug benefit plans, health advocacy programs and other products and services to insured and self-insured customers.

·	The Government operating segment (“Government segment”) offers Medicare Advantage and Medicare Part D plans to seniors. This segment also offers Medicaid plans in selected markets.

Global Supplemental Benefits includes supplemental health, life and accident insurance products offered primarily in selected international markets and in the ~~U.S.~~United States.

Group Disability and Life provides group long-term and short-term disability, group life, accident and specialty insurance products and related services.

Other Operations consist of:

·~~corporate-owned life insurance (“COLI”);~~

corporate-owned life insurance (“COLI”);

run-off reinsurance business that is predominantly comprised of guaranteed minimum death benefit (“GMDB”) and guaranteed minimum income benefit (“GMIB”) business effectively exited through reinsurance with Berkshire Hathaway Life Insurance Company of Nebraska (“Berkshire”) in 2013;

·	deferred gains recognized from the 1998 sale of the individual life insurance and annuity business and the 2004 sale of the retirement benefits business; and

·	run-off settlement annuity business.

Corporate reflects amounts not allocated to operating segments, such as net interest expense (defined as interest on corporate debt less net investment income on investments not supporting segment operations), interest on uncertain tax positions, ~~certain litigation matters,~~ intersegment eliminations, compensation cost for stock options and related excess tax benefits, expense associated with frozen pension plans and certain litigation matters and costs for corporate projects, including overhead.

Note 2 – Significant Accounting Policies

Basis of Presentation

The Consolidated Financial Statements include the accounts of Cigna Corporation and its subsidiaries. Intercompany transactions and accounts have been eliminated in consolidation. These Consolidated Financial Statements were prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Amounts recorded in the Consolidated Financial Statements necessarily reflect management’s estimates and assumptions about medical costs, investment valuation, interest rates and other factors. Significant estimates are discussed throughout these Notes; however, actual results could differ from those estimates. The impact of a change in estimate is generally included in earnings in the period of adjustment. Certain reclassifications ~~may be~~have been made to prior year amounts to conform to the current presentation.

These interim Consolidated Financial Statements are unaudited but include all adjustments (including normal recurring adjustments) necessary, in the opinion of management, for a fair statement of financial position and results of operations for the periods reported. The interim Consolidated Financial Statements and Notes should be read in conjunction with the Consolidated Financial Statements and Notes included in the Company’s ~~2016~~2017 Annual Report on Form 10-K (“~~2016~~2017 Form 10-K”). The preparation of interim Consolidated Financial Statements necessarily relies heavily on estimates. This and certain other factors, including the seasonal nature of portions of the health care and related benefits business, as well as competitive and other market conditions, call for caution in estimating full-year results based on interim results of operations.

Recent Accounting Pronouncements

The Company’s ~~2016~~2017 Form 10-K includes discussion of significant recent accounting pronouncements that either have impacted or may impact our financial statements in the future.

The following tables provide information about recently adopted and recently issued or changed accounting guidance (applicable to Cigna) that have occurred since the Company filed its ~~2016~~2017 Form 10-K.

Recently Adopted Accounting Guidance

Accounting Standard and
Adoption Date

Requirements and Effects of Adopting New Guidance

~~Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force)~~Revenue from Contracts with Customers (Accounting Standards Update (“ASU”) ~~2016-15)~~2014-09 and related amendments)

Adopted as of January 1, 2018

Requires:

· Revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services

· Additional revenue-related disclosures

Effects of adoption:

· Applies only to the Company’s service and mail order pharmacy contracts with customers

· Adopted through full retrospective restatement

· Cumulative effect adjustment of $24 million after-tax was recorded, reducing the December 31, 2016 balance of retained earnings. Adjustment established a contract liability for service fee revenue billed that must be deferred and allocated to services performed after a customer contract terminates. Subsequent changes in the contract liability and the related impact to net income and per share amounts since adoption were immaterial.

· Immaterial reclassifications were made to prior periods in the Consolidated Statements of Income to conform to the current presentation. The ASU and related interpretive guidance provide clarification on topics including whether all or a part of a contract is within its scope, and the definition of a customer. Companies are required to identify and evaluate distinct performance obligations within their contracts. These clarifications resulted in reclassifications within the Global Health Care Segment affecting premiums, fees and other revenues, Global Health Care medical costs, and other operating expenses and had no impact on recognition patterns or net income.

· Prior period balances in the Company’s footnote disclosures have been updated to reflect adjustments resulting from the adoption of this ASU.

Recognition and Measurement of Financial Assets and Financial Liabilities (ASU 2016-01 and related amendments)

Adopted as of January 1, 2018

Requires entities to measure equity investments at fair value in net income if they are neither consolidated nor accounted for under the equity method

Effects of adoption:

· Certain limited partnership interests previously carried at cost of approximately $200 million were increased to fair value of approximately $275 million on January 1, 2018. Subsequent changes in fair value are reported in net investment income.

· Changes in fair value for equity securities that have a readily determinable fair value that were previously reported in accumulated other comprehensive income are now reported in net realized investment gains.

· Cumulative effect adjustment of $62 million after-tax was recorded, increasing the opening balance of retained earnings in 2018.

· See Notes 9 and 10 for updated disclosures about equity securities.

Targeted Improvements to Accounting for Hedging Activities (ASU 2017-12)

Early adopted as of ~~December 31, 2016~~January 1, 2018

Guidance:

~~Specifies~~

· Relaxes requirements for financial and nonfinancial hedging strategies to be eligible for hedge accounting and changes how ~~certain transactions should be classified~~companies assess effectiveness

· Amends presentation and disclosure requirements to improve transparency about the uses and results of hedging programs

Effects of adoption:

· An immaterial amount of retained earnings related to the portion of the hedging instruments that was excluded from the assessment of hedge effectiveness for fair value hedges was reclassified to accumulated other comprehensive income, decreasing the opening balance in 2018.

· See Note 11 for the Company’s disclosures about derivatives.

Recently Adopted Accounting Guidance

Accounting Standard and
Adoption Date

Requirements and Effects of Adopting New Guidance

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (ASU 2018-02)

Early adopted as of January 1, 2018

Guidance:

· Allows companies to reclassify to retained earnings the tax effects stranded in accumulated other comprehensive income as a result of H.R.1, An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018 (referred to throughout this Form 10-Q as “U.S. tax reform” or “U.S. tax reform legislation”)

· Requires additional disclosures of the Company’s accounting policy for releasing income tax effects from accumulated other comprehensive income

· Allows companies to apply the guidance retrospectively or in the ~~statement~~period of ~~cash flows. While the standard addresses multiple types of transactions, only a change in the treatment of distributions from equity method investments impacted the Company.~~adoption

Effects of adoption: ~~using~~Accumulated other comprehensive income of $229 million was reclassified to retained earnings, increasing the ~~nature of distribution approach, the Company reported $114 million of cash receipts related to distributions from partnership earnings~~opening balance in ~~operating activities~~2018. See Note 13 for the nine months ended September 30, 2017. The Company reclassified $105 million of cash receipts for the nine months ended September 30, 2016 from investing to operating activities in the Consolidated Statements of Cash Flows.additional information including accounting policy disclosures.

In addition to the standards listed above, the Company adopted the following guidance in first quarter 2018 with no material impact to our financial statements: Intra-Entity Transfers of Assets Other than Inventory (ASU 2016-16), Clarifying the Definition of a Business (ASU 2017-01), Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (ASU 2017-07), Statement of Cash Flows: Restricted Cash (ASU 2016-18), Gains and Losses from the Derecognition of Nonfinancial Assets (ASU 2017-05) and Stock Compensation Scope of Modification Accounting (ASU 2017-09).

~~Recently Issued~~ Accounting Guidance Not Yet Adopted

Accounting Standard and
Effective Date Applicable
for Cigna

Requirements and Expected Effects of ~~New~~ Guidance Not Yet Adopted

~~Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost~~Leases (ASU ~~2017-07)~~2016-02)

Required as of January 1, ~~2018~~

Requires employers to separate the service cost component from the other components of net benefit cost. Under the new guidance, only service cost is eligible for capitalization (as either deferred policy acquisition costs or capitalized software). This change in the capitalization rule is to be applied prospectively upon adoption. In addition, income statement captions used for each component of net benefit cost must be disclosed.

~~Expected effects: the Company expects the effect of this new guidance to be immaterial to its results of operations.~~

~~Accounting Standard and~~
~~Effective Date Applicable~~
~~for Cigna~~

~~Requirements and Expected Effects of New Guidance Not Yet Adopted~~

~~Recognition and Measurement of Financial Assets and Financial Liabilities (ASU 2016-01)~~

~~Required as of January 1, 2018~~

2019

Requires:

· ~~Entities to measure equity investments at fair value~~Balance sheet recognition of assets and liabilities arising from leases, including leases embedded in ~~net income if they are neither consolidated nor accounted for under the equity method~~other contracts

· ~~Cumulative effect adjustment to~~Additional disclosures of the ~~beginning balance~~amount, timing and uncertainty of ~~retained earnings at adoption~~

~~Expected effects:~~

· ~~Certain limited partnership interests carried at cost of $220 million as of September 30, 2017 will be reported at fair value at adoption.~~cash flows from leases

· ~~An increase to retained earnings of approximately $50 million, after-tax, if implemented~~Modified retrospective approach for leases in effect as of ~~September 30, 2017. Actual cumulative effect adjustment will depend on investments held~~ and ~~market conditions at adoption.~~

~~Revenue from Contracts with Customers (ASU 2014-09 and related amendments)~~

~~Required as~~after the date of ~~January 1, 2018~~

~~Requires:~~

· ~~Companies to estimate and allocate the expected customer contract revenues among distinct goods or services based on relative standalone selling prices~~

· ~~Revenues to be recognized as goods or services are delivered~~

· ~~New disclosures including the presentation of relevant categories of revenues and information about related contract assets and liabilities~~

· ~~Adoption through retrospective restatement with or without using certain practical expedients or~~ adoption with a ~~cumulative effect~~cumulative-effect adjustment recorded in retained earnings

Expected effects:

· ~~Guidance applies~~The Company is continuing to evaluate the ~~Company’s non-insurance, administrative service~~impact this standard will have on its financial statements.

· While not yet quantified, the Company expects a material impact to its Consolidated Balance Sheets from recognizing additional assets and ~~mail order pharmacy contracts but does not apply to certain contracts within~~liabilities of operating leases upon adoption. The actual increase in assets and liabilities will depend on the ~~scope~~volume and terms of ~~other GAAP, such as~~leases in place at the ~~Company’s insurance and investment contracts accounted for under ASC 944.~~time of adoption.

· The Company ~~has largely completed its evaluation~~plans to elect the optional practical expedient to retain the current classification of ~~the new requirements~~leases, and therefore, does not ~~expect the adoption of the new guidance to have~~anticipate a material impact to ~~its pattern~~the Consolidated Statements of ~~revenue recognition~~Income or ~~net income.~~Cash Flows.

· The Company is implementing a new lease system and also expects ~~to adopt~~that adoption of the new guidance through retrospective restatement and is currently working to develop required disclosures and restate historical periods in line with its chosen method of adoption. The Company does not anticipate significantstandard will require changes to ~~its systems, processes or controls.~~

· The Company expects the cumulative effect of implementing this guidance to result in an immaterial decrease to January 1, 2017 shareholders’ equity due to the establishment of a contract liability for service fee revenue that must be deferred and allocated to services provided after the termination of certain administrative service contracts.

· Adoption of this new guidance is expected to result in reclassifications within the Consolidated Statements of Income due to changes in the Company’s accounting policy as a result of clarifications in the new guidance and its related interpretations.

~~Targeted improvements to accounting for hedging activities (ASU 2017-12)~~

~~Required as of January 1, 2019, early adoption permitted~~

~~Relaxes requirements for~~internal controls over financial and nonfinancial hedging strategies to be eligible for hedge accounting and changes how companies assess effectiveness. It also amends presentation and disclosure requirements to improve transparency about uses and results of hedging programs.

~~Expected effects: the Company is evaluating the effects of and implementation timing for this new guidance.~~reporting.

Updates to Significant Accounting Policies

The Company’s 2017 Form 10-K includes discussion of significant accounting policies in Note 2 or the applicable Notes to the Consolidated Financial Statements. Updates to these policies resulting from the adoption of new accounting guidance in 2018 are provided as follows:

	·	ASU 2016-1 (Recognition and Measurement of Financial Assets and Liabilities): see Notes 9 and 10
	·	ASU 2017-12 (Targeted Improvements to Accounting for Hedging Activities): see Note 11
	·	ASU 2014-09 (Revenue from Contracts with Customers), also referred to as Financial Accounting Standards Board’s Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers and related guidance (“ASC 606”): see below.

The majority of the Company’s revenues are not subject to the guidance in ASC 606, including premiums from insurance contracts and fees for investment-related products accounted for under insurance guidance (ASC 944). ASC 606 applies only to the Company’s service and mail order pharmacy contracts with clients. See Note 17 for disaggregated revenue from external customers by segment and by major product or service identified with applicable accounting guidance (ASC 944 or ASC 606).

~~Note 3~~Accounting for Contracts with Customers – Service and Mail Order Pharmacy Arrangements~~Mergers and Acquisitions~~

~~Termination of Proposed Merger with Anthem, Inc. (“Anthem”)~~Service Fees and Expenses

~~On May 12, 2017, Cigna announced~~The majority of the Company’s service fees are derived from administrative services only (“ASO”) arrangements that allow corporate clients to self-fund claims and assume the ~~merger agreement between~~risk of medical or other benefit costs. Most of the Company’s ASO arrangements are for Global Health Care medical and specialty services, including pharmacy benefits and, to a lesser extent, ASO services in its Group Disability and Life and Global Supplemental Benefits segments. Generally, the Company’s ASO arrangements are short-term. Contract modifications typically occur on renewal and are prospective in nature.

In return for fees from these clients, the Company provides or makes available various services supporting benefit management and ~~Anthem had been terminated. See Note 16(E) for discussion of ongoing litigation related~~claims administration. In addition, Global Health Care’s services include access to the ~~termination~~Company’s participating provider networks, disease management, utilization management, and cost containment services.

In general, the Company considers these services to be a combined performance obligation to provide cost effective administration of plan benefits over the contract period. Fees are billed, due and recognized monthly at contracted rates based on current membership or utilization. This recognition pattern aligns with the benefits from services provided to clients. These revenues are reported in fees and other revenues in the Consolidated Statements of Income.

For most ASO arrangements, the Company is required to perform services for a limited period after a client cancels. If these services will not be separately billed to the client as they are performed, the Company estimates and defers a portion of compensation attributable to this service obligation received in advance. Deferred revenue is recorded as a contract liability in accounts payable, accrued expenses and other liabilities and recognized when the related services are performed.

The Company may also provide performance guarantees that provide potential refunds to clients if certain service standards, clinical outcomes or financial metrics are not met. If these standards, outcomes and metrics are not met, the Company may be financially at risk up to a stated percentage of the ~~merger agreement.~~contracted fee or a stated dollar amount. The Company defers revenue and records a liability for estimated payouts associated with these guarantees within accounts payable, accrued expenses and other liabilities. The amount of revenue deferred is estimated for each type of guarantee, using either a most likely amount or expected value method depending upon the nature of the guarantee and the information available to estimate refunds. Estimates are refined each reporting period as additional information on the Company’s performance becomes available, and upon final reconciliation and settlement at the end of the guarantee period. Amounts accrued and paid for performance guarantees during the reporting periods were not material.

Service fees are recognized net of estimated pharmaceutical manufacturer rebates payable to ASO clients using our network of retail pharmacies. Net rebates retained by the Company from pharmaceutical manufacturers resulting from ASO client utilization at retail pharmacies represent compensation for pharmacy services and are reflected as fee revenue. Rebates generally represent a per script amount from the manufacturer and are determined based on scripts filled during the reporting period.

Expenses associated with administrative programs and services are recognized in other operating expenses as incurred.

Mail Order Pharmacy Revenues and Costs

Mail order pharmacy revenues are due and recognized as each prescription is shipped. Mail order pharmacy revenues are presented net of estimated pharmaceutical manufacturer rebates payable to ASO clients that use our mail order business. Rebates are generally determined based on actual prescriptions filled during the reporting period.

Mail order pharmacy costs are recognized as each prescription is shipped and include the cost of prescriptions sold and other costs to operate this business (including supplies, shipping and handling), net of estimated pharmaceutical rebates from manufacturers for prescriptions filled through our mail order business.

Contract Balances

The following table ~~presents merger-related costs incurred by~~provides information about receivables and contract liabilities from service and mail order pharmacy contracts with clients. The allowance for doubtful accounts for receivables and the ~~Company~~Company’s contract assets were not material as of the dates presented.

(In millions)	March 31, 2018		December 31, 2017
Receivables, net	$	1,019	$	885
Contract liabilities	$	57	$	54

Revenue recognized for the three months ended March 31, 2018 and ~~nine~~March 31, 2017 that was included in the contract liability balance at the beginning of the reporting period was not material.

The amount of revenue recognized for the three months ended ~~September 30,~~March 31, 2018 and March 31, 2017 from performance obligations satisfied in prior periods was not material.

The incremental costs of obtaining ASO and ~~2016. Merger-related~~mail order pharmacy contracts (such as sales commissions) are expensed as incurred and the Company does not disclose information about remaining performance obligations for these contracts in accordance with elections made by the Company as they are generally short-term with original expected durations of one year or less.

Note 3 – Mergers and Acquisitions

Proposed Acquisition of Express Scripts

On March 8, 2018, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Express Scripts Holding Company (“Express Scripts”), Halfmoon Parent, Inc., a direct wholly owned subsidiary of the Company (“New Cigna”), Halfmoon I, Inc., a direct wholly owned subsidiary of New Cigna (“Cigna Merger Sub”), and Halfmoon II, Inc., a direct wholly owned subsidiary of New Cigna (“Express Scripts Merger Sub”). Subject to the terms and conditions of the Merger Agreement, the Company will acquire Express Scripts in a cash and stock transaction through (1) the merger of Cigna Merger Sub with and into the Company, with the Company surviving as a direct wholly owned subsidiary of New Cigna and (2) the merger of Express Scripts Merger Sub with and into Express Scripts, with Express Scripts surviving as a direct wholly owned subsidiary of New Cigna (collectively, the “Merger”). New Cigna will be renamed “Cigna Corporation” immediately after the Merger.

Upon completion of the Merger, Cigna stockholders will receive one share of New Cigna common stock in exchange for each share of Cigna common stock held immediately prior to the Merger, and Express Scripts stockholders will receive (1) 0.2434 of a share of New Cigna common stock and (2) the right to receive $48.75 in cash, without interest, subject to applicable withholding taxes (the “Merger Consideration”) , in exchange for each share of Express Scripts common stock held immediately prior to the Merger. After completion of the Merger, shares of New Cigna common stock are expected to be listed for trading on the New York Stock Exchange.

The Merger is subject to adoption of the Merger Agreement by the stockholders of the Company and Express Scripts and the satisfaction of customary closing conditions, including receipt of applicable regulatory approvals. The Merger is not subject to a financing condition. The Company intends to fund the cash portion of the Merger Consideration through a combination of cash on hand, assumed Express Scripts debt and new debt issuance. See Note 5 for additional information about the financing of the Merger. The Merger is expected to be completed by December 31, 2018.

The Merger Agreement provides for certain termination rights and fees for both the Company and Express Scripts. If the Merger Agreement is terminated (1) by Express Scripts because the board of directors of the Company has changed its recommendation prior to obtaining the required approval of the stockholders of the Company, (2) by Express Scripts or the Company if the board of directors of the Company has changed its recommendation and the stockholders of the Company have voted against adopting the Merger Agreement or (3) by the Company in order to enter into an alternative acquisition agreement with respect to a Parent Superior Proposal that did not result from a breach of the Company’s non-solicitation obligations, then the Company will be required to pay Express Scripts a fee equal to $1.6 billion (the “Parent Termination Fee”). Further, if the Merger Agreement is terminated under certain circumstances and within 12 months after the date of such termination the Company enters into an agreement regarding a sale of a majority of the Company’s assets or equity or consummates such a sale, then the Company will be required to pay the Parent Termination Fee prior to or contemporaneously with such entry or consummation. Express Scripts has reciprocal obligations under specified circumstances to pay a $1.6 billion termination fee to the Company.

Additionally, in the event that the Merger Agreement is terminated by either the Company or Express Scripts due to (1) a legal restraint relating to a regulatory law prohibiting consummation of the Merger having become final and non-appealable or (2) the Merger not having been consummated on or prior to December 8, 2018 (subject to an extension to June 8, 2019 if extended by the Company or Express Scripts under certain circumstances); and, in the case of clause (2), at the time of such termination, all of the conditions to the Company’s obligation to consummate the Merger have been satisfied other than those that relate to the absence of a legal restraint relating to a regulatory law or the receipt of a regulatory approval, the Company may be required to pay Express Scripts a reverse termination fee of $2.1 billion.

Transaction-related costs

In connection with the proposed acquisition of Express Scripts, as well as other transactions including the terminated merger with Anthem, Inc. (“Anthem”), the Company has incurred costs of $60 million pre-tax ($50 million after-tax) for the three months ended March 31, 2018. Transaction-related costs for the three months ended March 31, 2017 were $63 million pre-tax ($49 million after-tax). These costs consisted primarily ~~consist~~ of fees for legal, advisory and other professional ~~services. In addition, because~~services as well as amortization of the ~~merger was~~Bridge Facility fees. If the Express Scripts acquisition is consummated, a significant portion of the costs related to that acquisition will not ~~consummated, certain merger-related costs that were previously not~~be deductible for federal income tax ~~purposes became deductible. The Company recognized an incremental tax benefit for these newly deductible costs in the second quarter of 2017 as presented below.~~purposes.

Three Months Ended

September 30, 2017

September 30, 2016

(In millions)

Before-tax

After-tax

Before-tax

After-tax

Merger-related transaction costs

$
9

$
6

$
49

$
46

Tax (benefit) - previously non-deductible costs

-

-

-

-

Merger-related transaction costs (benefits), net

$
9

$
6

$
49

$
46

Nine Months Ended

September 30, 2017

September 30, 2016

(In millions)

Before-tax

After-tax

Before-tax

After-tax

Merger-related transaction costs

$
88

$
67

$
123

$
108

Tax (benefit) - previously non-deductible costs

-

(59)

-

-

Merger-related transaction costs, net

$
88

$
8

$
123

$
108

~~Acquisitions~~

~~The Company completed certain acquisitions during 2017 that were not material to its results of operations, liquidity or financial condition.~~

Note 4 – Earnings Per Share

Basic and diluted earnings per share (“EPS”) were computed as follows:

	Three Months Ended												Three Months Ended
	September 30, 2017						September 30, 2016						March 31, 2018						March 31, 2017
(Shares in thousands, dollars in millions, except per share amounts)	Basic		Effect of Dilution		Diluted		Basic		Effect of Dilution		Diluted		Basic		Effect of Dilution		Diluted		Basic		Effect of Dilution		Diluted
Shareholders’ net income	$	560			$	560	$	456			$	456	$	915			$	915	$	598			$	598
Shares:
Weighted average	249,242				249,242		255,519				255,519		242,179				242,179		255,680				255,680
Common stock equivalents			4,168		4,168				4,235		4,235				3,609		3,609				4,094		4,094
Total shares	249,242		4,168		253,410		255,519		4,235		259,754		242,179		3,609		245,788		255,680		4,094		259,774
EPS	$	2.25	$	(0.04)	$	2.21	$	1.78	$	(0.02)	$	1.76	$	3.78	$	(0.06)	$	3.72	$	2.34	$	(0.04)	$	2.30

	Nine Months Ended
	September 30, 2017						September 30, 2016
(Shares in thousands, dollars in millions, except per share amounts)	Basic		Effect of Dilution		Diluted		Basic		Effect of Dilution		Diluted
Shareholders’ net income	$	1,971			$	1,971	$	1,485			$	1,485
Shares:
Weighted average	252,980				252,980		255,242				255,242
Common stock equivalents			4,078		4,078				4,326		4,326
Total shares	252,980		4,078		257,058		255,242		4,326		259,568
EPS	$	7.79	$	(0.12)	$	7.67	$	5.82	$	(0.10)	$	5.72

The following outstanding employee stock options were not included in the computation of diluted earnings per share for the three months ended March 31, 2018 and ~~nine months ended September 30,~~ 2017 ~~and 2016~~ because their effect was anti-dilutive.

Three Months Ended
September 30,

Nine Months Ended
September 30,

(In millions)

2017

2016

2017

2016

Anti-dilutive options

-

2.6

1.2

2.2

	Three Months Ended March 31,
(In millions)	2018	2017
Anti-dilutive options	0.9	2.5

The Company held ~~48,572,794~~approximately 52.9 million shares of common stock in Treasury as of ~~September 30, 2017,~~March 31, 2018, and ~~39,425,208~~39.9 million shares as of ~~September 30, 2016.~~March 31, 2017.

Note 5—Debt

The outstanding amounts of debt and capital leases were as follows:

	September 30,		December 31,		March 31,		December 31,
(In millions)	2017		2016		2018		2017
Short-term:
Short-term
Commercial paper					$	100	$	100
Current maturities of long-term debt	$	131	$	250		-		131
Other, including capital leases	10		26		10		9
Total short-term debt	$	141	$	276	$	110	$	240
Long-term:
$131 million, 6.35% Notes due 2018	$	-	$	131
Long-term
$250 million, 4.375% Notes due 2020 ~~(1)~~	252		252		$	247	$	249
$300 million, 5.125% Notes due 2020 ~~(1)~~	301		301		297		299
$78 million, 6.37% Notes due 2021	78		78		78		78
$300 million, 4.5% Notes due 2021 ~~(1)~~	301		302		296		299
$750 million, 4% Notes due 2022	745		744		745		745
$100 million, 7.65% Notes due 2023	100		100		100		100
$17 million, 8.3% Notes due 2023	17		17		17		17
$900 million, 3.25% Notes due 2025	894		893		894		894
$600 million, 3.05% Notes due 2027	594		-		594		594
$259 million, 7.875% Debentures due 2027 ~~(2)~~	258		299		258		258
$45 million, 8.3% Step Down Notes due 2033 ~~(2)~~	45		82		45		45
$191 million, 6.15% Notes due 2036 ~~(2)~~	190		498		190		190
$121 million, 5.875% Notes due 2041 ~~(2)~~	119		296		119		119
$317 million, 5.375% Notes due 2042 ~~(2)~~	314		743		315		315
$1,000 million, 3.875% Notes due 2047	987		-		988		988
Other, including capital leases	12		20		8		9
Total long-term debt	$	5,207	$	4,756	$	5,191	$	5,199

~~(1) The~~Bridge Facility. In March 2018, in connection with the proposed Merger, the Company ~~has~~and New Cigna entered into ~~interest rate swap contracts hedging~~ a ~~portion~~commitment letter (the “Commitment Letter”) with Morgan Stanley Senior Funding, Inc., The Bank of ~~these fixed-rate debt instruments. See Note 11 for further information about the Company’s interest rate risk management~~Tokyo-Mitsubishi UFJ, Ltd and ~~these derivative instruments.~~21 additional banks, to provide a $26.7 billion 364-day senior unsecured bridge facility (the “Bridge Facility”)

. ~~(2)~~ The ~~Company redeemed a portion of these debt issues through a cash tender offer in September 2017, the aggregate amount of which was $1.0 billion.~~

~~In the third quarter of 2017,~~Bridge Facility commitment will be reduced if the Company, ~~entered~~New Cigna or, in some instances, any of their domestic subsidiaries obtains certain other debt financing, completes certain asset sales or certain equity issuances. Concurrently with entry into ~~two significant debt transactions:~~ the ~~issuance~~Term Loan Credit Agreement described below, the Bridge Facility commitment under the Commitment Letter was reduced to $23.7 billion.The proceeds of ~~new~~the Bridge Facility may be used to finance the Merger, repay certain existing Express Scripts debt and pay related fees and expenses.

The definitive documentation related to the Bridge Facility, if drawn upon at closing of the proposed Merger, will contain customary covenants and restrictions, including a ~~cash tender offer to retire a portion of outstanding debt. These transactions are described in more detail below.~~

~~On September 14, 2017,~~financial covenant that the Company ~~issued new long-term~~or New Cigna may not permit its leverage ratio – which is the ratio of total consolidated debt ~~as follows:~~to total consolidated capitalization on the last day of each fiscal quarter for which financial statements are delivered (or required to be delivered) – to be greater than 60%.

(In millions)

Debt Instrument
Principal
Term
Maturity
Stated Interest
Rate
Effective
Interest Rate
Amount net of
discount and
fees
Interest payment
dates

10-Year Notes
$           600
10-Year
October 15, 2027
3.05%
3.183%
$
594
April 15 and
October 15
30-Year Notes
$        1,000
30-Year
October 15, 2047
3.875%
3.951%
$
987
April 15 and
October 15

The ~~proceeds~~Company incurred approximately $140 million in fees upon entering into the Commitment Letter. The Company paid $70 million during the first quarter of ~~this debt were mainly used~~2018 and expects to pay the ~~consideration for~~remainder of the ~~cash tender offer as described below.~~fees over the balance of 2018. The fees were capitalized in other assets and will be amortized over the period the Bridge Facility is outstanding. The Company ~~intends~~recorded $20 million of amortization of the Bridge Facility fees during the three months ended March 31, 2018.

Revolving Credit Agreement. On April 6, 2018, in connection with the proposed Merger, the Company and New Cigna entered into the Revolving Credit and Letter of Credit Agreement (the “Revolving Credit Agreement”), which matures on April 6, 2023 and is diversified among 23 banks.

Prior to ~~use~~ the ~~remaining proceeds~~Merger, the Company can borrow up to $1.5 billion for general corporate purposes, ~~including the maturity~~ of ~~its Notes due in 2018.~~

At any time prior to July 15, 2027 (three months prior to the maturity date of the 10-Year Notes) or April 15, 2047 (six months prior to the maturity date of the 30-Year Notes), the Company may redeem the 10-Year Notes or the 30-Year Notes, in whole or in part, with accrued and unpaid interest, at a redemption price equal to the greater of:

·~~100% of the principal amount of the applicable Notes; or~~

·the sum of the present values of the remaining scheduled payments of principal and interest (excluding interest accrued at the redemption date) from the redemption date to the maturity date discounted to the redemption date at the applicable Treasury Rate plus 15 basis points for the 10-Year Notes and 20 basis points for the 30-Year Notes,

In the third quarter of 2017, the Company completed a cash tender offer to purchase $1.0 billion of aggregate principal amount of certain of its outstanding debt securities. The Company recorded a pre-tax loss of $321 million ($209 million after-tax), consisting primarily of premium payments on the tender.

~~During the first quarter of 2017, the Company repaid $250 million of long-term notes that had matured.~~

~~The Company has a five-year revolving credit and letter of credit agreement for $1.5 billion that permits~~which up to $500 million to be used for letters of credit. This agreement extends through December 12, 2019 and is diversified among 16 banks, with 3 banks each having 12% of the commitment and the remainder spread among 13 banks in varying amounts. The credit agreement includes options subject to consent by the administrative agent and the committing banks to increase the commitment amount to $2 billion and to extend the term past December 12, 2019. The credit agreement is available ~~for general corporate purposes, including~~ for the issuance of letters of credit. On and after the Merger, New Cigna can borrow up to $3.25 billion for general corporate purposes, of which up to $500 million is available for the issuance of letters of credit. The ~~credit agreement~~Revolving Credit Agreement also includes an option to increase the facility amount by up to $500 million and an option to extend the termination date for additional one year periods, subject to the consent of the banks.

The Revolving Credit Agreement contains customary covenants and restrictions, including a financial covenant that the Company or New Cigna may not permit its leverage ratio ~~– total consolidated debt to total consolidated capitalization (each as defined in the credit agreement) –~~ to be greater than ~~0.50.~~50% prior to the Merger or 60% after the Merger.

Term Loan Credit Agreement. On April 6, 2018, the Company and New Cigna entered into a Term Loan Credit Agreement (the “Term Loan Credit Agreement”), which is diversified among 26 banks. The ~~leverage ratio calculation excludes~~Term Loan Credit Agreement provides for a three-year unsecured term loan facility in aggregate principal amount of $3.0 billion, which will be available to finance the ~~following items that are included~~Merger, repay certain existing indebtedness of Express Scripts, and pay fees and expenses in ~~accumulated other comprehensive loss on~~connection with the ~~Company’s consolidated balance sheets: net unrealized appreciation on fixed maturities and the portion of the post-retirement benefits liability adjustment attributable to pension.~~Merger.

~~In addition~~The Term Loan Credit Agreement contains customary covenants and restrictions, including a financial covenant that the Company, or after the Merger, New Cigna may not permit its leverage ratio to be greater than 60%.

Prior to the ~~$5.3 billion of debt outstanding as of September 30, 2017,~~Merger, the Company ~~had $9.8 billion of borrowing capacity within~~is the ~~maximum debt coverage covenant in the credit agreement. This additional borrowing capacity includes the $1.5 billion available~~borrower under the ~~credit agreement. Letters~~Bridge Facility, the Revolving Credit Agreement and the Term Loan Credit Agreement. On and after the Merger, New Cigna will be the borrower under each of ~~credit outstanding~~these agreements. In certain circumstances, certain subsidiaries of the Company, or after the Merger, New Cigna will be required to guarantee the obligations of the Company or New Cigna, as ~~of September 30, 2017 totaled $11 million.~~applicable, under the Bridge Facility, Term Loan Credit Agreement and the Revolving Credit Agreement.

The Company was in compliance with its debt covenants as of ~~September 30, 2017.~~March 31, 2018.

Note 6—Global Health Care Medical Costs Payable

Medical costs payable for the Global Health Care segment reflects estimates of the ultimate cost of claims that have been incurred but not reported, including expected development on reported claims, those that have been reported but not yet paid (reported claims in process), and other medical care expenses and services payable that are primarily comprised of accruals for incentives and other amounts payable to health care professionals and facilities. See Note 7 to the Consolidated Financial Statements in the Company’s ~~2016~~2017 Form 10-K for further information about the assumptions and estimates used to establish this liability.

Activity in medical costs payable was as follows:

Three Months Ended

Nine Months Ended

September 30,

September 30,

September 30,

September 30,

(In millions)

2017

2016

2017

2016

Beginning balance

$
2,848

$
2,577

$
2,532

$
2,355

Less: Reinsurance and other amounts recoverable

259

208

275

243

Beginning balance, net

2,589

2,369

2,257

2,112

Incurred costs related to:

Current year

4,910

4,697

15,057

14,318

Prior years

(30)

(5)

(268)

(88)

Total incurred

4,880

4,692

14,789

14,230

Paid costs related to:

Current year

4,901

4,705

12,794

12,285

Prior years

46

82

1,730

1,783

Total paid

4,947

4,787

14,524

14,068

Ending balance, net

2,522

2,274

2,522

2,274

Add: Reinsurance and other amounts recoverable

261

276

261

276

Ending balance

$
2,783

$
2,550

$
2,783

$
2,550

	Three Months Ended
	March 31,		March 31,
(In millions)	2018		2017
Beginning balance	$	2,719	$	2,532
Less: Reinsurance and other amounts recoverable	265		275
Beginning balance, net	2,454		2,257
Incurred costs related to:
Current year	5,447		5,125
Prior years	(130)		(176)
Total incurred	5,317		4,949
Paid costs related to:
Current year	3,423		3,183
Prior years	1,665		1,509
Total paid	5,088		4,692
Ending balance, net	2,683		2,514
Add: Reinsurance and other amounts recoverable	242		256
Ending balance	$	2,925	$	2,770

Reinsurance and other amounts recoverable in the above table includes amounts due from reinsurers and policyholders to cover incurred but not reported and pending claims for certain business where the Company administers the plan benefits but the right of offset does not exist. See Note 8 for additional information on reinsurance.

The total of incurred but not reported liabilities plus expected development on reported claims, including reported claims in process, was $2.8 billion at March 31, 2018 and $2.6 billion at ~~September 30, 2017 and $2.4 billion at September 30, 2016.~~March 31, 2017. The remaining balance in both periods reflects amounts due for physician incentives and other medical care expenses and services payable.

For the ~~periods~~period ended ~~September 30,~~March 31, incurred costs related to prior years were attributable to the following factors:

Three Months Ended

(Dollars in millions)

September 30, 2017

September 30, 2016

$

%(1)

$

%(2)

Actual completion factors

$
20

0.1
  %
$
2

-
  %
Medical cost trend

10

0.1

3

-

Total favorable (unfavorable) variance

$
30

0.2
  %
$
5

-
  %

	Nine Months Ended								Three Months Ended
(Dollars in millions)	September 30, 2017				September 30, 2016				March 31, 2018				March 31, 2017
	$		%(1)		$		%(2)		$		%(1)		$		%(2)
Actual completion factors	$	128	0.7	%	$	65	0.3	%	$	71	0.4	%	$	78	0.4	%
Medical cost trend	131		0.7		31		0.2		50		0.2		98		0.5
Other ~~(3)~~	9		-		(8)		-		9		-		-		-
Total favorable (unfavorable) variance	$	268	1.4	%	$	88	0.5	%	$	130	0.6	%	$	176	0.9	%

(1) Percentage of current year incurred costs as reported for the year ended December 31, ~~2016.~~2017.

(2) Percentage of current year incurred costs as reported for the year ended December 31, ~~2015.~~

(3) Other amounts in 2017 primarily related to an increase in the 2016 reinsurance reimbursement rate from the Centers for Medicare and Medicaid Services (“CMS”) under the Patient Protection and Affordable Care Act (the “Health Care Reform Act”). Other amounts in 2016 primarily related to increased medical costs in the Government segment resulting from sharing of additional risk adjustment revenue with providers.2016.

Incurred costs related to prior years in the table above, although adjusted through shareholders’ net income, do not directly correspond to an increase or decrease to shareholders’ net income. The primary reason for this difference is that decreases to prior year incurred costs pertaining to the portion of the liability established for moderately adverse conditions are not considered as impacting shareholders’ net income if they are offset by increases in the current year provision for moderately adverse conditions.

Favorable prior year development increased shareholders’ net income by ~~$19~~$43 million for the three months ~~and $116~~ended March 31, 2018 compared with $61 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2017. AT~~ttribution of this~~his development was ~~divided almost equally between~~attributed to both medical cost trend and completion factors resulting from lower than expected utilization of medical services. ~~For the three months and nine months ended September 30, 2016 prior year development was not significant.~~

Note 7 — Liabilities for Unpaid Claims and Claim Expenses

The following information relates to unpaid claims and claim expense liabilities for short-duration insurance contracts other than those sold by the Global Health Care segment. See Note 8 to the Consolidated Financial Statements in the Company’s ~~2016~~2017 Form 10-K for further information about the assumptions and estimates used to establish this liability.

The liability for unpaid claims and claim expenses by segment as of ~~September 30~~March 31 is as follows:

(In millions)	September 30, 2017		September 30, 2016		March 31, 2018		March 31, 2017
Group Disability and Life	$	4,442	$	4,288	$	4,549	$	4,384
Global Supplemental Benefits	453		392		492		425
Other Operations	182		209		174		197
Unpaid claims and claim expenses	$	5,077	$	4,889	$	5,215	$	5,006

Activity in the Group Disability and Life and the Global Supplemental Benefits segments’ liabilities for unpaid claims and claim expenses is presented in the following table. Liabilities associated with Other Operations are excluded because they pertain to obligations for long-duration insurance contracts or, if short-duration, the liabilities have been fully reinsured.

	Three Months Ended				Nine Months Ended				Three Months Ended
(In millions)	September 30, 2017		September 30, 2016		September 30, 2017		September 30, 2016		March 31, 2018		March 31, 2017
Beginning balance	$	4,852	$	4,618	$	4,726	$	4,359	$	4,975	$	4,726
Less: Reinsurance	130		120		121		115		137		121
Beginning balance, net	4,722		4,498		4,605		4,244		4,838		4,605
Incurred claims related to:
Current year	1,066		1,046		3,290		3,158		1,230		1,148
Prior years:
Interest accretion	36		40		119		125		38		43
All other incurred	12		4		(59)		90		(46)		(64)
Total incurred	1,114		1,090		3,350		3,373		1,222		1,127
Paid claims related to:
Current year	806		761		1,880		1,771		430		371
Prior years	269		275		1,327		1,295		728		691
Total paid	1,075		1,036		3,207		3,066		1,158		1,062
Foreign currency	—		7		13		8		2		16
Ending balance, net	4,761		4,559		4,761		4,559		4,904		4,686
Add: Reinsurance	134		121		134		121		137		123
Ending balance	$	4,895	$	4,680	$	4,895	$	4,680	$	5,041	$	4,809

Reinsurance in the table above reflects amounts due from reinsurers related to unpaid claims liabilities. The Company’s insurance subsidiaries enter into agreements with other companies primarily to limit losses from large exposures and to permit recovery of a portion of incurred losses. See Note 8 for additional information on reinsurance.

The majority of the liability for unpaid claims and claim expenses is related to disability claims with long-tailed payouts. Interest earned on assets backing these liabilities is an integral part of pricing and ~~reserving, and is therefore the basis for determining the rate used to discount these liabilities. Accordingly,~~reserving. Therefore, interest accreted on prior year balances is shown as a separate component of prior year incurred claims. This interest is calculated by applying the average discount rate used in determining the liability balance to the average liability balance over the period. The remaining prior year incurred claims amount primarily reflects updates to the Company’s liability estimates and variances between actual experience during the period relative to the assumptions and expectations reflected in determining the liability. Assumptions reflect the Company’s expectations over the life of the book of business and ~~can~~will vary from actual experience in any period, both favorably and unfavorably, with variation in resolution rates being the most significant driver for the long-term disability business and variations in mortality and morbidity being the most significant factors for other business. Favorable prior year incurred claims reported for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 largely reflect ~~improved claim resolution rates. Unfavorable~~favorable life loss ratio experience relative to expectations for claims incurred in 2017. Favorable prior year incurred claims reported for the ~~nine~~three months ended ~~September 30, 2016 included the impact of modifications made~~March 31, 2017 largely reflect favorable long-term disability resolution rate experience relative to ~~our disability claims management process and a period of elevated life claims.~~expectations.

Note 8 — Reinsurance

The Company’s insurance subsidiaries enter into agreements with other insurance companies to assume and cede reinsurance. Reinsurance is ceded primarily to limit losses from large exposures and to permit recovery of a portion of direct or assumed losses. Reinsurance is also used in acquisition and disposition transactions when the underwriting company is not being acquired. ~~Reinsurance~~Because reinsurance does not relieve the originating insurer of ~~liability.~~liability, such liabilities must continue to be reported along with the related reinsurance recoverables. The Company regularly evaluates the financial condition of its reinsurers and monitors concentrations of its credit risk.

Reinsurance Recoverables

The majority of the Company’s reinsurance recoverables resulted from acquisition and disposition transactions in which the underwriting company was not acquired. Components of the Company’s reinsurance recoverables are presented below:

(In millions)

Line of Business

Reinsurer(s)

September 30,
2017

December 31,
2016

Collateral and Other Terms
at September 30, 2017

Reinsurer(s)

March 31,
2018

December 31,
2017

Collateral and Other Terms
at March 31, 2018

Ongoing operations:

Ongoing operations

Global Health Care, Global Supplemental Benefits, Group Disability and Life, COLI

Various

450

478

Recoverables from approximately 80 reinsurers, used in the ordinary course of business. Current balances range from less than $1 million up to $84 million. Over 70% of the balance is from companies rated as investment grade by Standard & Poor’s, and 12% is secured by assets in trusts or letters of credit.

Various

446

454

Recoverables from approximately 85 reinsurers, used in the ordinary course of business. Current balances range from less than $1 million up to $76 million. Over 70% of the balance is from companies rated as investment grade by Standard & Poor’s, and 12% is secured by assets in trusts or letters of credit.

Total recoverables related to ongoing operations

450

478

446

454

Acquisition, disposition or runoff activities:

Acquisition, disposition or runoff activities

Individual Life and Annuity (sold in 1998)

Lincoln National Life and Lincoln Life & Annuity of New York

3,463

3,586

Both companies’ ratings are sufficient to avoid triggering a contractual obligation to fully secure the outstanding balance.

Lincoln National Life and Lincoln Life & Annuity of New York

3,382

3,436

Both companies’ ratings are sufficient to avoid triggering a contractual obligation to fully secure the outstanding balance.

GMDB

Berkshire

989

1,085

100% secured by assets in a trust.

Berkshire

915

928

100% secured by assets in a trust.

Other

100% secured by assets in a trust or letters of credit.

Other

100% secured by assets in a trust or letters of credit.

Retirement Benefits Business (sold in 2004)

Prudential Retirement Insurance and Annuity

870

921

100% secured by assets in a trust.

Prudential Retirement Insurance and Annuity

832

850

100% secured by assets in a trust.

Supplemental Benefits Business (2012 acquisition)

Great American Life

286

297

100% secured by assets in a trust.

Great American Life

277

283

100% secured by assets in a trust.

Other run-off reinsurance

Various

100% secured by assets in trusts.

Various

100% secured by assets in trusts.

Total recoverables related to acquisition, disposition or runoff activities

5,711

6,000

5,499

5,592

Total reinsurance recoverables

6,161

6,478

5,945

6,046

The Company bears the risk of loss if its reinsurers and retrocessionaires do not meet or are unable to meet their reinsurance obligations to the Company. The Company reviews its reinsurance arrangements and establishes reserves against the recoverables if recovery is not considered probable.

Effects of Reinsurance

In the Company’s Consolidated Statements of Income, premiums were reported net of amounts ceded to reinsurers and Global Health Care medical costs and other benefit expenses were reported net of reinsurance recoveries in the following amounts:

Three Months Ended

Nine Months Ended

(In millions)

September 30,
2017

September 30,
2016

September 30,
2017

September 30,
2016

Ceded premiums:

Individual life insurance and annuity business sold

$
33

$
37

$
105

$
118

Other

70

94

205

262

Total ceded premiums

$
103

$
131

$
310

$
380

Reinsurance recoveries:

Individual life insurance and annuity business sold

$
62

$
77

$
198

$
211

Other

33

8

79

209

Total reinsurance recoveries

$
95

$
85

$
277

$
420

The decrease in reinsurance recoveries for the nine months ended September 30, 2017 compared to the same period in 2016 is primarily due to the ceded GMDB business. The ceded reserves decreased during 2017 primarily due to favorable equity market conditions, while in 2016 the ceded reserves increased due to changes in the capital market and other assumptions that are used to calculate the reserves.

	Three Months Ended
(In millions)	March 31, 2018		March 31, 2017
Ceded premiums
Individual life insurance and annuity business sold	$	37	$	39
Other	98		81
Total ceded premiums	$	135	$	120
Reinsurance recoveries
Individual life insurance and annuity business sold	$	57	$	70
Other	47		29
Total reinsurance recoveries	$	104	$	99

Effective Exit of GMDB and GMIB Business

In 2013, the Company entered into an agreement with Berkshire to effectively exit the GMDB and GMIB business via a reinsurance transaction. Berkshire reinsured 100% of the Company’s future claim payments inof this business, net of other reinsurance arrangements existing at that time. The Berkshire reinsurance agreement is subject to an overall limit with approximately ~~$3.5~~$3.4 billion remaining as of ~~September 30, 2017.~~March 31, 2018.

GMDB is accounted for as reinsurance and GMIB assets and liabilities are reported as derivatives at fair value as discussed below. GMIB assets are reported in other assets, including intangibles, and GMIB liabilities are reported in accounts payable, accrued expenses and other liabilities.

GMDB

The Company estimates the gross liability and reinsurance recoverable with an internal model based on the Company’s experience and future expectations over an extended period, consistent with the long-term nature of this product. As a result of the reinsurance transaction, reserve increases have a corresponding increase in the recorded reinsurance recoverable, provided the increased recoverable remains within the overall Berkshire limit (including the GMIB asset presented below). The ending net retained reserve covers ongoing administrative expenses, as well as minor claim exposure retained by the Company.

~~Activity in future policy benefit reserves for the GMDB business was as follows:~~

For the period ended

September 30,

December 31,

(In millions)

2017

2016

Balance at January 1

$
1,224

$
1,252

Add: Unpaid claims

16

18

Less: Reinsurance and other amounts recoverable

1,129

1,164

Balance at January 1, net

111

106

Add: Incurred benefits

-

4

Less: Paid benefits (recoveries)

(1)

(1)

Ending balance, net

112

111

Less: Unpaid claims

17

16

Add: Reinsurance and other amounts recoverable

1,027

1,129

Ending balance

$
1,122

$
1,224

~~Incurred and paid benefits are net of ceded amounts. Unpaid claims are presented before deducting ceded amounts.~~

The following table ~~below~~ presents the account value, net amount at risk and number of underlying contractholders for guarantees assumed by the Company in the event of death. The net amount at risk is the amount that the Company would have to pay if all contractholders died as of the specified date. ~~The~~Unless the Berkshire reinsurance limit is exceeded, the Company ~~will~~should be reimbursed in full for these ~~payments unless the Berkshire reinsurance limit is exceeded.~~payments.

(Dollars in millions, excludes impact of reinsurance ceded)	September 30, 2017		December 31, 2016		March 31, 2018		December 31, 2017
Account value	$	10,797	$	10,650	$	9,762	$	10,109
Net amount at risk	$	2,187	$	2,458	$	2,120	$	2,112
Number of contractholders	265,000		285,000		240,000		245,000

GMIB

In this business, the Company reinsured contracts with issuers of GMIB products. The Company’s exposure represents the excess of a contractually guaranteed amount over the level of variable annuity account values. Payment by the Company depends on the actual account value in the underlying mutual funds and the level of interest rates when the contractholders elect to receive minimum income payments that must occur within 30 days of a policy anniversary after the appropriate waiting period. The Company has purchased retrocessional coverage (“GMIB assets”) for these contracts.

The Company reports GMIB liabilities and assets as derivatives at fair value because the cash flows of these liabilities and assets are affected by equity markets and interest rates, but are without significant life insurance risk and are settled in lump sum payments.

As of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, there were three reinsurers for GMIB as follows:

(In millions)

Line of Business

Reinsurer

September 30,
2017

December 31,
2016

Collateral and Other Terms
at September 30, 2017

Reinsurer

March 31,
2018

December 31,
2017

Collateral and Other Terms
at March 31, 2018

GMIB

Berkshire

369

370

100% secured by assets in a trust.

Berkshire

337

359

100% secured by assets in a trust.

Sun Life Assurance Company of Canada

227

227

Sun Life Assurance Company of Canada

199

221

Liberty Re (Bermuda) Ltd.

202

202

92% secured by assets in a trust.

Liberty Re (Bermuda) Ltd.

181

197

100% secured by assets in a trust.

Total GMIB recoverables reported in other assets

798

799

Total GMIB recoverables reported in other assets

717

777

Assumptions used in fair value measurement. ~~The Company estimates the fair value of the assets and liabilities for GMIB contracts utilizing various assumptions. Assumptions that affect~~ GMIB assets and liabilities ~~include~~are established using capital market assumptions (including market returns, interest rates and market volatilities of the underlying equity and bond mutual fund investments) and assumptions related to future annuitant behavior (including mortality, lapse, and annuity election rates). As ~~certain~~ assumptions ~~used to estimate fair values for these contracts are largely unobservable (primarily~~ related to future annuitant ~~behavior)~~behavior are largely unobservable, the Company classifies GMIB assets and liabilities in Level 3 in the fair value hierarchy presented in Note 9.

The only assumption expected to impact future shareholders’ net income is non-performance risk. The non-performance risk adjustment reflects a market participant’s view of nonpayment risk by adding an additional spread to the discount rate in the fair value calculation of both (a) the GMIB liabilities to be paid by the Company, and (b) the GMIB assets to be paid by the reinsurers, after considering collateral.

The Company regularly evaluates each of the assumptions used in establishing these assets and liabilities. Significant decreases in assumed lapse rates or spreads used to calculate non-performance risk of the Company, or significant increases in assumed annuity election rates or spreads used to calculate the non-performance risk of the reinsurers, would result in higher fair value measurements. A change in one of these assumptions is not necessarily accompanied by a change in another assumption.

GMIB guarantees. Future payments are not fixed and determinable under the terms of these contracts. Accordingly, the Company calculated the exposure, without considering any reinsurance coverage, using the following hypothetical assumptions:

· no annuitants surrendered their accounts;

· all annuitants lived to elect their benefit;

· all annuitants elected to receive their benefit on the next available date ~~(2017~~(2018 through ~~2021)~~2022); and

· all underlying mutual fund investment values remained at the ~~September 30, 2017~~March 31, 2018 value of $~~815~~798 million with no future returns.

The Company has reinsurance coverage in place that covers the exposures on these contracts. Using these hypothetical assumptions, the GMIB exposure ~~is $615~~of $568 million ~~that~~ is lower than the recorded liability for GMIB calculated using fair value assumptions.

Note 9 — Fair Value Measurements

The Company carries certain financial instruments at fair value in the financial statements including fixed maturities, certain equity securities, short-term investments and derivatives. Other financial instruments are measured at fair value only under certain conditions, such as when impaired.

Fair value is defined as the price at which an asset could be exchanged in an orderly transaction between market participants at the balance sheet date. A liability’s fair value is defined as the amount that would be paid to transfer the liability to a market participant, not the amount that would be paid to settle the liability with the creditor.

The Company’s financial assets and liabilities carried at fair value have been classified based upon a hierarchy defined by GAAP. The hierarchy gives the highest ranking to fair values determined using unadjusted quoted prices in active markets for identical assets and liabilities (Level 1) and the lowest ranking to fair values determined using methodologies and models with unobservable inputs (Level 3). An asset’s or a liability’s classification is based on the lowest level of input that is significant to its measurement. For example, a financial asset or liability carried at fair value would be classified in Level 3 if unobservable inputs were significant to the instrument’s fair value, even though the measurement may be derived using inputs that are both observable (Levels 1 and 2) and unobservable (Level 3).

The Company estimates fair values using prices from third parties or internal pricing methods. Fair value estimates received from third-party pricing services are based on reported trade activity and quoted market prices when available, and other market information that a market participant may use to estimate fair value. The internal pricing methods are performed by the Company’s investment professionals and generally involve using discounted cash flow analyses, incorporating current market inputs for similar financial instruments with comparable terms and credit quality, as well as other qualitative factors. In instances where there is little or no market activity for the same or similar instruments, fair value is estimated using methods, models and assumptions that the Company believes a hypothetical market participant would use to determine a current transaction price. These valuation techniques involve some level of estimation and judgment that becomes significant with increasingly complex instruments or pricing models.

The Company is responsible for determining fair value, as well as for assigning the appropriate level within the fair value hierarchy, based on the significance of unobservable inputs. The Company reviews methodologies, processes and controls of third-party pricing services and compares prices on a test basis to those obtained from other external pricing sources or internal estimates. The Company performs ongoing analyses of both prices received from third-party pricing services and those developed internally to determine that they represent appropriate estimates of fair value. The controls executed by the Company include evaluating changes in prices and monitoring for potentially stale valuations. The Company also performs sample testing of sales values to confirm the accuracy of prior fair value estimates. The minimal exceptions identified during these processes indicate that adjustments to prices are infrequent and do not significantly impact valuations. Annually, we conduct an on-site visit of the most significant pricing service to review their processes, methodologies and controls. This on-site review includes a walk-through of inputs for a sample of securities held across various asset types to validate the documented pricing process.

Financial Assets and Financial Liabilities Carried at Fair Value

The following ~~tables provide~~table provides information as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017 about the Company’s financial assets and liabilities carried at fair value. Separate account assets that are also recorded at fair value on the Company’s Consolidated Balance Sheets are reported separately ~~under~~in the ~~heading “separate account assets”~~Separate Accounts section as gains and losses related to these assets generally accrue directly to policyholders.

Quoted Prices in
Active Markets for
Identical Assets

Significant Other
Observable Inputs

Significant
Unobservable Inputs

(In millions)

(Level 1)

(Level 2)

(Level 3)

Total

September 30, 2017

Financial assets at fair value:

Fixed maturities:

Federal government and agency

$
376

$
526

$
-

$
902

State and local government

-

1,323

-

1,323

Foreign government

-

2,268

39

2,307

Corporate

-

17,423

510

17,933

Mortgage and other asset-backed

-

333

146

479

Total fixed maturities (1)

376

21,873

695

22,944

Equity securities

411

121

109

641

Subtotal

787

21,994

804

23,585

Short-term investments

-

175

-

175

GMIB assets

-

-

798

798

Other derivative assets

-

1

-

1

Total financial assets at fair value, excluding separate accounts

$
787

$
22,170

$
1,602

$
24,559

Financial liabilities at fair value:

GMIB liabilities

$
-

$
-

$
780

$
780

Other derivative liabilities

-

19

-

19

Total financial liabilities at fair value, excluding separate accounts

$
-

$
19

$
780

$
799

December 31, 2016
Financial assets at fair value:
Fixed maturities:
									Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)				Total
(In millions)									As of March 31, 2018		As of December 31, 2017		As of March 31, 2018		As of December 31, 2017		As of March 31, 2018		As of December 31, 2017		As of March 31, 2018		As of December 31, 2017
Financial assets at fair value
Fixed maturities
Federal government and agency	$	374	$	503	$	-	$	877	$	356	$	253	$	512	$	526	$	-	$	-	$	868	$	779
State and local government	-		1,435		-		1,435		-		-		1,129		1,287		-		-		1,129		1,287
Foreign government	-		2,066		47		2,113		-		-		2,454		2,442		45		45		2,499		2,487
Corporate	-		15,552		498		16,050		-		-		18,802		17,658		371		430		19,173		18,088
Mortgage and other asset-backed	-		329		157		486		-		-		362		343		147		154		509		497
Total fixed maturities (1)	374		19,885		702		20,961
Equity securities	396		113		74		583
Total fixed maturities									356		253		23,259		22,256		563		629		24,178		23,138
Equity securities (1)									399		412		69		73		33		103		501		588
Subtotal	770		19,998		776		21,544		755		665		23,328		22,329		596		732		24,679		23,726
Short-term investments	-		691		-		691		-		-		245		199		-		-		245		199
GMIB assets	-		-		799		799		-		-		-		-		717		777		717		777
Other derivative assets	-		10		-		10		-		-		2		2		-		-		2		2
Total financial assets at fair value, excluding separate accounts	$	770	$	20,699	$	1,575	$	23,044
Financial liabilities at fair value:
Total financial assets at fair value, excluding separate accounts and real estate funds									$	755	$	665	$	23,575	$	22,530	$	1,313	$	1,509	$	25,643	$	24,704
Real estate funds priced at NAV as a practical expedient (2)																					273		N/A
Financial liabilities at fair value
GMIB liabilities	$	-	$	-	$	780	$	780	$	-	$	-	$	-	$	-	$	682	$	762	$	682	$	762
Other derivative liabilities	-		5		-		5		-		-		44		25		-		-		44		25
Total financial liabilities at fair value, excluding separate accounts	$	-	$	5	$	780	$	785	$	-	$	-	$	44	$	25	$	682	$	762	$	726	$	787

(1) ~~At September 30, 2017, fixed maturities includes $627 million~~Beginning in 2018, certain private equity securities are no longer carried at fair value under the policy election of ~~net appreciation required to adjust future policy benefits for run-off settlement annuity business including $16 million~~ASU 2016-01 (Recognition and Measurement of ~~appreciation for securities classified in Level 3. At~~Financial Assets and Financial Liabilities). As of December 31, ~~2016, fixed maturities includes $524~~2017, private equity securities of $70 million ~~of net appreciation required to adjust future policy benefits for run-off settlement annuity business including $14 million of appreciation for securities classified~~were included in the Level 3.3 amount. See Note 10 for additional ~~information.~~information on this accounting policy change.

(2) Beginning in 2018 upon adopting ASU 2016-01, certain real estate funds are carried at fair value (previously carried at cost) based on the Company’s ownership share of the equity of the investee (Net Asset Value (“NAV”) as a practical expedient) including changes in the fair value of its underlying investments. The funds have a quarterly redemption frequency, 45-90 day redemption notice period and $67 million in unfunded commitments. See Note 10 for additional information on this accounting policy change. Prior periods are designated as not applicable (“N/A”) in this table.

Level 1 Financial Assets

Inputs for instruments classified in Level 1 include unadjusted quoted prices for identical assets in active markets accessible at the measurement date. Active markets provide pricing data for trades occurring at least weekly and include exchanges and dealer markets.

Assets in Level 1 include actively-traded U.S. government bonds and exchange-listed equity securities. Given the narrow definition of Level 1 and the Company’s investment asset strategy to maximize investment returns, a relatively small portion of the Company’s investment assets are classified in this category.

Level 2 Financial Assets and Financial Liabilities

Inputs for instruments classified in Level 2 include quoted prices for similar assets or liabilities in active markets, quoted prices from those willing to trade in markets that are not active, or other inputs that are market observable or can be corroborated by market data for the term of the instrument. Such other inputs include market interest rates and volatilities, spreads and yield curves. An instrument is classified in Level 2 if the Company determines that unobservable inputs are insignificant.

Fixed maturities and equity securities. Approximately ~~93%~~94% of the Company’s investments in fixed maturities and equity securities are classified in Level 2 including most public and private corporate debt and hybrid equity securities, federal agency and municipal bonds, non-government mortgage-backed securities and preferred stocks. Because many fixed maturities do not trade daily, third-party pricing services and internal valuation methods often use recent trades of securities with similar features and characteristics. When recent trades are not available, pricing models are used to determine these prices. These models calculate fair values by discounting future cash flows at estimated market interest rates. Such market rates are derived by calculating the appropriate spreads over comparable U.S. Treasury securities, based on the credit quality, industry and structure of the asset. Typical inputs and assumptions to pricing models include, but are not limited to, a combination of benchmark yields, reported trades, issuer spreads, liquidity, benchmark securities, bids, offers, reference data, and industry and economic events. For mortgage-backed securities, inputs and assumptions may also include characteristics of the issuer, collateral attributes, prepayment speeds and credit rating.

Nearly all of these instruments are valued using recent trades or pricing models. Less than 1% of the fair value of investments classified in Level 2 represents foreign bonds that are valued using a single unadjusted market-observable input derived by averaging multiple broker-dealer quotes, consistent with local market practice.

Short-term investments are carried at fair value which approximates cost. On a regular basis, the Company compares market prices for these securities to recorded amounts to validate that current carrying amounts approximate exit prices. The short-term nature of the investments and corroboration of the reported amounts over the holding period support their classification in Level 2.

Other derivatives classified in Level 2 represent over-the-counter instruments such as interest rate and foreign currency swap contracts. Fair values for these instruments are determined using market observable inputs including forward currency and interest rate curves and widely published market observable indices. Credit risk related to the counterparty and the Company is considered when estimating the fair values of these derivatives. However, the Company is largely protected by collateral arrangements with counterparties and determined that no adjustment for credit risk was required as of ~~September 30, 2017~~March 31, 2018 or December 31, 2016. Level 2 also includes exchange-traded interest rate swap contracts. Credit risk related to the clearinghouse counterparty and the Company is considered minimal when estimating the fair values of these derivatives because of upfront margin deposits and daily settlement requirements.2017. The nature and use of these other derivatives are described in Note 11.

Level 3 Financial Assets and Financial Liabilities

Certain inputs for instruments classified in Level 3 are unobservable (supported by little or no market activity) and significant to their resulting fair value measurement. Unobservable inputs reflect the Company’s best estimate of what hypothetical market participants would use to determine a transaction price for the asset or liability at the reporting date.

The Company classifies certain newly issued, privately-placed, complex or illiquid securities, as well as assets and liabilities relating to GMIB, in Level 3. Approximately 3% of fixed maturities and equity securities are priced using significant unobservable inputs and classified in this category.

Fair values of mortgage and other asset-backed securities, corporate and government fixed maturities are primarily determined using pricing models that incorporate the specific characteristics of each asset and related assumptions including the investment type and structure, credit quality, industry and maturity date in comparison to current market indices, spreads and liquidity of assets with similar characteristics. For mortgage and other asset-backed securities, inputs and assumptions for pricing may also include collateral attributes and prepayment speeds. Recent trades in the subject security or similar securities are assessed when available, and the Company may also review published research in its evaluation, as well as the issuer’s financial statements.

Quantitative Information about Unobservable Inputs

The following ~~tables summarize~~table summarizes the fair value and significant unobservable inputs used in pricing the following securities that were developed directly by the Company as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016.~~2017. The range and weighted average basis point amounts (“bps”) for ~~fixed maturity~~liquidity and credit spreads (adjustment to discount rates) and price-to-earnings multiples for equity investments reflect the Company’s best estimates of the unobservable adjustments a market participant would make to calculate these fair values.

Mortgage and other asset-backed securities. The significant unobservable inputs used to value the following mortgage and other asset-backed securities are liquidity and weighting of credit spreads. When there is limited trading activity for the security, an adjustment for liquidity is made as of the measurement date that considers current market conditions, issuer circumstances and complexity of the security structure. An adjustment to weight credit spreads is needed to value a more complex bond structure with multiple underlying collateral and no standard market valuation technique. The weighting of credit spreads is primarily based on the underlying collateral’s characteristics and their proportional cash flows supporting the bond obligations. ~~The resulting wide range of unobservable adjustments in the table below is due to the varying liquidity and quality of the underlying collateral.~~

Corporate and government fixed maturities. The significant unobservable input used to value the following corporate and government fixed maturities is an adjustment for liquidity. When there is limited trading activity for the security, an adjustment is needed to reflect current market conditions and issuer circumstances.

Private equity securities.The significant unobservable input used to value the following private equity securities is a multiple of earnings before interest, taxes, depreciation and amortization (“EBITDA”). These securities are comprised of private equity investments with limited trading activity and therefore a ratio of EBITDA is used to estimate value based on company circumstances and relative risk characteristics.

Hybrid equity securities. The significant unobservable input used to value the following hybrid equity securities is an adjustment for liquidity due to limited trading activity. These cumulative preferred shares are deemed likely to exercise certain call options and the Company estimates an adjustment used to discount cash flows based on current market conditions and issuer circumstances.

(Fair value in millions)

Fair Value

Unobservable
Input

Unobservable Adjustment
Range (Weighted Average)

As of September 30, 2017

Fixed maturities:

Fair Value as of

Unobservable

Unobservable Adjustment
Range (Weighted Average) as of

(Fair value in millions )

March 31, 2018

December 31, 2017

Input

March 31, 2018

December 31, 2017

Fixed maturities

Mortgage and other asset-backed securities

146

Liquidity

60 - 350 (90) bps

147

154

Liquidity

60 - 350 (80) bps

60 - 370 (90) bps

Weighting of credit spreads

180 - 280 (220) bps

Mortgage and other asset-backed securities

Weighting of credit spreads

180 - 290 (230) bps

180 - 290 (230) bps

523

Liquidity

70 - 930 (260) bps

389

446

Liquidity

70 - 930 (240) bps

70 - 1,650 (300) bps

Total fixed maturities

669

536

600

Equity securities:

Equity securities

Private equity securities(1)

Price-to-EBITDA multiples

5.0 - 12.0 (8.5)

N/A

Price-to-EBITDA multiples

N/A

5.0 - 12.0 (8.9)

Hybrid equity securities

Liquidity

270 (270) bps

Liquidity

205 - 205 (205) bps

270 - 270 (270) bps

Total equity securities

109

103

Subtotal

778

569

703

Securities not priced by the Company~~(1)~~(2)

Total Level 3 securities

804

596

732

(1) ~~The~~Beginning in 2018, private equity securities are no longer carried at fair ~~values for these securities use single, unadjusted non-binding broker quotes not developed directly by~~value under the ~~Company.~~policy election of ASU 2016-01 (Recognition and Measurement of Financial Assets and Financial Liabilities). Current periods are designated as N/A in this table.

(Fair value in millions)

Fair Value

Unobservable
Input

Unobservable Adjustment
Range (Weighted Average)

As of December 31, 2016

Fixed maturities:

Mortgage and other asset-backed securities

$
157

Liquidity

60 - 330 (90) bps

Weighting of credit spreads

160 - 470 (230) bps

Corporate and government fixed maturities

490

Liquidity

80 - 1,300 (340) bps

Total fixed maturities

647

Private equity securities

74

Price-to-EBITDA multiples

4.2 - 11.6 (8.5)

Subtotal

721

Securities not priced by the Company(1)

55

Total Level 3 securities

$
776

~~(1)~~(2) The fair values for these securities use single, unadjusted non-binding broker quotes not developed directly by the Company.

Significant increases in ~~fixed maturity~~liquidity or credit spreads would result in lower fair value measurements while decreases in these inputs would result in higher fair value measurements. Significant decreases in equity price-to-EBITDA multiples would result in lower fair value measurements while increases in these inputs would result in higher fair value measurements. Generally, the unobservable inputs are not interrelated and a change in the assumption used for one unobservable input is not accompanied by a change in the other unobservable input.

GMIB contracts. See discussion in Note 8.

Changes in Level 3 Financial Assets and Financial Liabilities Carried at Fair Value

The following ~~tables summarize~~table summarizes the changes in financial assets and financial liabilities classified in Level 3 for the three months ended March 31, 2018 and ~~nine months ended September 30, 2017 and 2016.~~2017. Separate account asset changes are reported separately ~~under~~in the ~~heading “separate account assets”~~Separate Accounts section as the changes in fair values of these assets generally accrue directly to the policyholders. Gains and losses reported in these tables may include net changes in fair value that are attributable to both observable and unobservable inputs.

	Fixed Maturities & Equity Securities				GMIB Assets				GMIB Liabilities
(In millions)	2018		2017		2018		2017		2018		2017
Balance at January 1,	$	732	$	776	$	777	$	799	$	(762)	$	(780)
Gains (losses) included in shareholders’ net income
GMIB fair value gain (loss)	-		-		(40)		(11)		42		11
Other	(20)		23		(3)		1		16		(4)
Total gains (losses) included in shareholders’ net income	(20)		23		(43)		(10)		58		7
Losses included in other comprehensive income	(5)		(8)		-		-		-		-
Losses required to adjust future policy benefits for settlement annuities (1)	(4)		-		-		-		-		-
Purchases, sales, settlements
Purchases	10		25		-		-		-		-
Sales	(11)		(47)		-		-		-		-
Settlements	(2)		(27)		(17)		(12)		22		12
Total purchases, sales and settlements	(3)		(49)		(17)		(12)		22		12
Transfers into (out of) Level 3
Transfers into Level 3	20		40		-		-		-		-
Transfers out of Level 3 (2)	(124)		(55)		-		-		-		-
Total transfers into/(out of) Level 3	(104)		(15)		-		-		-		-
Balance at March 31,	$	596	$	727	$	717	$	777	$	(682)	$	(761)
Total gains (losses) included in shareholders’ net income attributable to instruments held at the reporting date	$	(7)	$	(6)	$	(43)	$	(10)	$	(58)	$	7

For the Three Months Ended September 30, 2017

Changes in Level 3 financial assets and financial liabilities
(In millions)

Fixed Maturities &
Equity Securities

GMIB Assets

GMIB Liabilities

GMIB Net

Balance at July 1, 2017

    $
751

$
777

$
(764)

$
13

Gains (losses) included in shareholders’ net income:

GMIB fair value gain/(loss)

-

40

(40)

-

Other

(2)

(1)

6

5

Total gains (losses) included in shareholders’ net income

(2)

39

(34)

5

Losses included in other comprehensive income

(9)

-

-

-

Losses required to adjust future policy benefits for settlement annuities (1)

(2)

-

-

-

Purchases, sales and settlements:

Purchases

37

-

-

-

Sales

(3)

-

-

-

Settlements

(30)

(18)

18

-

Total purchases, sales and settlements

4

(18)

18

-

Transfers into/(out of) Level 3:

Transfers into Level 3

178

-

-

-

Transfers out of Level 3

(116)

-

-

-

Total transfers into/(out of) Level 3

62

-

-

-

Balance at September 30, 2017

    $
804

$
798

$
(780)

$
18

Total gains (losses) included in shareholders’ net income attributable to instruments held at the reporting date

    $
1

$
39

$
(34)

$
5

(1) Amounts do not accrue to shareholders.

For the Three Months Ended September 30, 2016
(In millions)

Fixed Maturities &
Equity Securities

GMIB Assets

GMIB Liabilities

GMIB Net

Balance at July 1, 2016

    $
743

$
975

$
(947)

$
28

Gains (losses) included in shareholders’ net income:

GMIB fair value gain/(loss)

-

(22)

22

-

Other

-

1

(6)

(5)

Total gains (losses) included in shareholders’ net income

-

(21)

16

(5)

Gains included in other comprehensive income

12

-

-

-

Gains required to adjust future policy benefits for settlement annuities (1)

-

-

-

-

Purchases, sales and settlements:

Purchases

20

-

-

-

Sales

(1)

-

-

-

Settlements

(55)

(23)

23

-

Total purchases, sales and settlements

(36)

(23)

23

-

Transfers into/(out of) Level 3:

Transfers into Level 3

44

-

-

-

Transfers out of Level 3

(30)

-

-

-

Total transfers into/(out of) Level 3

14

-

-

-

Balance at September 30, 2016

    $
733

$
931

$
(908)

$
23

Total gains (losses) included in shareholders’ net income attributable to instruments held at the reporting date

    $
-

$
(21)

$
16

$
(5)

For the Nine Months Ended September 30, 2017

Balance at January 1, 2017

    $
776

$
799

$
(780)

$
19

Gains (losses) included in shareholders’ net income:

GMIB fair value gain/(loss)

-

44

(44)

-

Other

22

-

(1)

(1)

Total gains (losses) included in shareholders’ net income

22

44

(45)

(1)

Losses included in other comprehensive income

(12)

-

-

-

Gains required to adjust future policy benefits for settlement annuities (1)

7

-

-

-

Purchases, sales and settlements:

Purchases

127

-

-

-

Sales

(73)

-

-

-

Settlements

(69)

(45)

45

-

Total purchases, sales and settlements

(15)

(45)

45

-

Transfers into/(out of) Level 3:

Transfers into Level 3

254

-

-

-

Transfers out of Level 3

(228)

-

-

-

Total transfers into/(out of) Level 3

26

-

-

-

Balance at September 30, 2017

    $
804

$
798

$
(780)

$
18

Total gains (losses) included in shareholders’ net income attributable to instruments held at the reporting date

    $
-

$
44

$
(45)

$
(1)

~~(1) Amounts do not accrue to shareholders.~~

For the Nine Months Ended September 30, 2016
(In millions)

Fixed Maturities &
Equity Securities

GMIB Assets

GMIB Liabilities

GMIB Net

Balance at January 1, 2016

    $
726

$
907

$
(885)

$
22

Gains (losses) included in shareholders’ net income:

GMIB fair value gain/(loss)

-

71

(71)

-

Other

(16)

-

1

1

Total gains (losses) included in shareholders’ net income

(16)

71

(70)

1

Gains included in other comprehensive income

11

-

-

-

Gains required to adjust future policy benefits for settlement annuities (1)

35

-

-

-

Purchases, sales and settlements:

Purchases

67

-

-

-

Sales

(126)

-

-

-

Settlements

(71)

(47)

47

-

Total purchases, sales and settlements

(130)

(47)

47

-

Transfers into/(out of) Level 3:

Transfers into Level 3

235

-

-

-

Transfers out of Level 3

(128)

-

-

-

Total transfers into/(out of) Level 3

107

-

-

-

Balance at September 30, 2016

    $
733

$
931

$
(908)

$
23

Total gains (losses) included in shareholders’ net income attributable to instruments held at the reporting date

    $
(11)

$
71

$
(70)

$
1

~~(1) Amounts do not accrue to shareholders.~~(2) Beginning in 2018, certain private equity securities are no longer carried at fair value under the policy election of ASU 2016-01 (Recognition and Measurement of Financial Assets and Financial Liabilities). $70 million in private equity securities as of December 31, 2017 are included in the March 31, 2018 Transfers out of Level 3 amount.

As noted in the preceding tables, total gains and losses included in shareholders’ net income are reflected in the following captions in the Consolidated Statements of Income:

· Realized investment gains (losses) and net investment income for amounts related to fixed maturities and equity securities and realized investment gains (losses) for the impact of changes in non-performance risk related to GMIB assets and ~~liabilities, similar to hedge ineffectiveness;~~liabilities; and

· Other operating expenses for amounts related to GMIB assets and liabilities (GMIB fair value gain/loss), except for the impact of changes in non-performance risk.

In the tables above, gains and losses included in other comprehensive income are reflected in net unrealized appreciation (depreciation) on securities in the Consolidated Statements of Comprehensive Income.

Reclassifications impacting Level 3 financial instruments are reported as transfers into or out of the Level 3 category as of the beginning of the quarter in which the transfer occurs. Therefore gains and losses in income only reflect activity for the period the instrument was classified in Level 3.

Transfers into or out of the Level 3 category occur when unobservable inputs, such as the Company’s best estimate of what a market participant would use to determine a current transaction price, become more or less significant to the fair value measurement. During ~~2017~~2018 and ~~2016,~~2017, transfers between Level 2 and Level 3 primarily reflected changes in liquidity and credit risk estimates for certain private placement issuers across several sectors including metals, mining, energy, electric and capital ~~goods, consumer products and transportation services.~~goods. As noted above, transfers out of Level 3 during 2018 also include $70 million of private equity securities that are no longer carried at fair value.

Separate ~~account assets~~Accounts

Fair values and changes in the fair values of separate account assets generally accrue directly to the policyholders and are excluded from the Company’s revenues and expenses.�� See Note 10 to the Consolidated Financial Statements contained in the Company’s ~~2016~~2017 Form 10-K for additional policy information related to separate accounts.

As of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, separate account assets were as follows:

September 30, 2017
(In millions)

Quoted Prices in Active
Markets for Identical Assets
(Level 1)

Significant Other
Observable Inputs
(Level 2)

Significant Unobservable
Inputs
(Level 3)

Total

Guaranteed separate accounts - see Note 16(A)

$
216

$
313

$
-

$
529

Non-guaranteed separate accounts (1)

1,511

5,240

300

7,051

Subtotal

$
1,727

$
5,553

$
300

7,580

Non-guaranteed separate accounts priced at NAV as a practical expedient (1)

852

Total separate account assets

$
8,432

December 31, 2016

Guaranteed separate accounts - see Note 16(A)

$
238

$
262

$
-

$
500

Non-guaranteed separate accounts (1)

1,368

4,885

331

6,584

Subtotal

$
1,606

$
5,147

$
331

7,084

Non-guaranteed separate accounts priced at NAV as a practical expedient (1)

856

Total separate account assets

$
7,940

Quoted Prices in Active
Markets for Identical
Assets
(Level 1)

Significant Other
Observable Inputs
(Level 2)

Significant Unobservable
Inputs
(Level 3)

Total

March

December

March

December

March

December

March

December

31,

(In millions)

2018

2017

2018

2017

2018

2017

2018

2017

Guaranteed separate accounts (see Note 16)

206

215

300

308

506

523

Non-guaranteed separate accounts (1)

1,506

1,536

5,197

5,298

262

292

6,965

7,126

Subtotal

1,712

1,751

5,497

5,606

262

292

7,471

7,649

Non-guaranteed separate accounts priced at NAV as a practical expedient (1)

782

774

Total separate account assets

8,253

8,423

(1) Non-guaranteed separate accounts included ~~$3.9~~$3.8 billion as of ~~September 30, 2017~~March 31, 2018 and ~~$3.7~~$3.9 billion as of December 31, ~~2016~~2017 in assets supporting the Company’s pension plans, including $0.2 billion classified in Level 3 as of March 31, 2018 and $0.3 billion classified in Level 3 ~~for both periods and $0.8 billion as of September 30, 2017 and $0.9 billion~~ as of December 31, ~~2016 priced at net asset value (“NAV”) as a practical expedient.~~2017.

Separate account assets in Level 1 primarily include exchange-listed equity securities. Level 2 assets primarily include:

· corporate and structured bonds valued using recent trades of similar securities or pricing models that discount future cash flows at estimated market interest rates as described above; and

· actively-traded institutional and retail mutual fund ~~investments and separate accounts priced using the daily net asset value that is the exit price.~~investments.

Separate account assets classified in Level 3 primarily support Cigna’s pension plans, and include certain newly issued, privately-placed, complex, or illiquid securities that are priced using methods discussed above, as well as commercial mortgage ~~loans that are valued according to the methodologies discussed below.~~loans. The following tables summarize the changes in separate account assets reported in Level 3 for the periods ending ~~September 30.~~March 31.

	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30,				September 30,				March 31,
(In millions)	2017		2016		2017		2016		2018		2017
Balance, beginning of period	$	316	$	333	$	331	$	297	$	292	$	331
Policyholder gains (losses)	(1)		2		36		3
Purchases, sales and settlements:
Policyholder gains									45		27
Purchases, sales and settlements
Purchases	9		7		26		12		8		10
Sales	-		-		(52)		(1)		(72)		(35)
Settlements	(12)		(3)		(13)		(5)		(4)		(1)
Total purchases, sales and settlements	(3)		4		(39)		6		(68)		(26)
Transfers into/(out of) Level 3:
Transfers into (out of) Level 3
Transfers into Level 3	4		7		5		46		-		-
Transfers out of Level 3	(16)		-		(33)		(6)		(7)		(2)
Total transfers into/(out of) Level 3	(12)		7		(28)		40
Total transfers into (out of) Level 3									(7)		(2)
Balance, end of period	$	300	$	346	$	300	$	346	$	262	$	330

Separate account investments in securities partnerships, real estate, and hedge funds are generally valued based on the separate account’s ownership share of the equity of the investee (NAV as a practical expedient), including changes in the fair values of its underlying investments. Substantially all of these assets support the Cigna Pension Plans. The table below provides additional information on these investments.

Fair Value as of

Unfunded

Redemption Frequency

Redemption Notice

(In millions)

September 30, 2017

December 31, 2016

Commitments

(if currently eligible) (1)

Period (1)

Securities Partnerships

$
437

$
424

$
374

Not applicable

Not applicable

Real Estate Funds

237

231

-

Quarterly

45-90 days

Hedge Funds

178

201

-

Up to Annually, varying by fund

30-90 days

Total

$
852

$
856

$
374

~~(1) The attributes noted are effective as of September 30, 2017 and December 31, 2016.~~

Fair Value as of

Unfunded

Data as of March 31, 2018 and December 31, 2017

Commitments as

Redemption Frequency

Redemption Notice

(In millions)

March 31, 2018

December 31, 2017

of March 31, 2018

(if currently eligible)

Period

Securities Partnerships

487

458

315

Not applicable

Real Estate Funds

244

239

Quarterly

45-90 days

Hedge Funds

Up to Annually, varying by fund

30-90 days

Total

782

774

315

Assets and Liabilities Measured at Fair Value under Certain Conditions

Some financial assets and liabilities are not carried at fair value each reporting period, but may be measured using fair value only under certain conditions, such as investments in real estate, partnership entities, ~~and~~ commercial mortgage loans, and certain equity securities with no readily determinable fair value when they become impaired. There were no impaired investments in real estate, partnership entities, commercial mortgage loans, or certain equity securities with no readily determinable fair value written down to fair value for the three months ended March 31, 2018. Impaired values for these asset types ~~classified as Level 3~~ representing less than 1% of total investments, were written down to their fair values, resulting in immaterial realized ~~investment~~ losses ~~of $2 million after-tax~~ for the ~~nine~~three months ended ~~September 30, 2017 and $3 million after-tax for the nine months ended 2016.~~March 31, 2017.

Fair Value Disclosures for Financial Instruments Not Carried at Fair Value

The following table includes the Company’s financial instruments not recorded at fair value that are subject to fair value disclosure requirements at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016.~~2017. In addition to universal life products and capital leases, financial instruments that are carried in the Company’s Consolidated Financial Statements at amounts that approximate fair value are excluded from the following table.

Classification in

September 30, 2017

December 31, 2016

(In millions)

the Fair Value
Hierarchy

Fair Value

Carrying
Value

Fair Value

Carrying
Value

Commercial mortgage loans

Level 3

$
1,700

$
1,684

$
1,682

$
1,666

Contractholder deposit funds, excluding universal life products

Level 3

$
1,145

$
1,141

$
1,215

$
1,212

Long-term debt, including current maturities, excluding capital leases

Level 2

$
5,800

$
5,326

$
5,460

$
4,991

The fair values for all financial instruments presented in the table above have been estimated using market information when available. The following valuation methodologies and inputs are used by the Company to determine fair value.

~~Commercial mortgage loans~~. The Company estimates the fair value of commercial mortgage loans generally by discounting the contractual cash flows at estimated market interest rates that reflect the Company’s assessment of the credit quality of the loans. Market interest rates are derived by calculating the appropriate spread over comparable U.S. Treasury rates based on the property type, quality rating and average life of the loan. The quality ratings reflect the relative risk of the loan considering debt service coverage, the loan-to-value ratio and other factors. Fair values of impaired mortgage loans are based on the estimated fair value of the underlying collateral generally determined using an internal discounted cash flow model. ~~The fair value measurements were classified in Level 3 because the cash flow models incorporate significant unobservable inputs.~~

~~Contractholder deposit funds, excluding universal life products~~. G~~enerally, these funds do not have~~ stated maturities. Approximately 70% of these balances can be withdrawn by the customer at any time without prior notice or penalty. The fair value for these contracts is the amount estimated to be payable to the customer as of the reporting date, which is generally the carrying value. Most of the remaining contractholder deposit funds are reinsured by the buyers of the individual life and annuity and retirement benefits businesses. The fair value for these contracts is determined using the fair value of these buyers’ assets supporting these reinsured contracts. The Company had reinsurance recoverables equal to the carrying value of these reinsured contracts~~. These~~ ~~instruments were classified in Level 3 because certain inputs are unobservable (supported by little or no market activity) and significant to their resulting fair value measurement.~~

~~Long-term debt, including current maturities, excluding capital leases~~. The fair value of long-term debt is based on quoted market prices for recent trades. When quoted market prices are not available, fair value is estimated using a discounted cash flow analysis and the Company’s estimated current borrowing rate for debt of similar terms and remaining maturities. These measurements were classified in Level 2 because the fair values are based on quoted market prices or other inputs that are market observable or can be corroborated by market data.

	Classification in	March 31, 2018				December 31, 2017
(In millions)	the Fair Value Hierarchy	Fair Value		Carrying Value		Fair Value		Carrying Value
Commercial mortgage loans	Level 3	$	1,781	$	1,801	$	1,766	$	1,761
Long-term debt, including current maturities, excluding capital leases	Level 2	$	5,289	$	5,182	$	5,730	$	5,321

Fair values of off-balance sheet financial instruments were not material as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016.~~2017.

Note 10 — Investments

Cigna’s investment portfolio consists of a broad range of investments including fixed maturities and equity securities, commercial mortgage loans, other long-term investments and short-term investments. The sections below provide more detail regarding our investment balances, net investment income and realized investment gains and losses. See Note 9 for information about the valuation of the Company’s investment portfolio. See Note 11 to the Consolidated Financial Statements contained in the Company’s ~~2016~~2017 Form 10-K for accounting policies for each investment type. Updates to these policies resulting from the adoption of new accounting guidance in 2018 are provided below.

A. Investment Portfolio

Fixed Maturities

The amortized cost and fair value by contractual maturity periods for fixed maturities were as follows at ~~September 30, 2017:~~March 31, 2018:

Amortized

Fair

Amortized

Fair

(In millions)

Cost

Value

Cost

Value

Due in one year or less

1,365

1,377

1,604

1,614

Due after one year through five years

6,894

7,135

6,798

6,923

Due after five years through ten years

9,260

9,528

10,455

10,416

Due after ten years

3,705

4,425

4,068

4,716

Mortgage and other asset-backed securities

446

479

491

509

Total fixed maturities

21,670

22,944

23,416

24,178

Actual maturities of these securities could differ from their contractual maturities used in the table above. This could occur because issuers may have the right to call or prepay obligations, with or without penalties.

Gross unrealized appreciation (depreciation) on fixed maturities by type of issuer is shown below.

Gross

Gross

Amortized

Unrealized

Unrealized

Fair

(In millions)

Cost

Appreciation

Depreciation

Value

As of September 30, 2017

Federal government and agency

     $
666

     $
238

     $
(2)

     $
902

State and local government

1,223

102

(2)

1,323

Foreign government

2,205

119

(17)

2,307

Corporate

17,130

876

(73)

17,933

Mortgage and other asset-backed

446

34

(1)

479

Total fixed maturities

     $
21,670

     $
1,369

     $
(95)

     $
22,944

Investments supporting liabilities of the Company’s run-off settlement annuity business (included in above total) (1)

     $
2,172

     $
630

     $
(3)

     $
2,799

~~(1) Net unrealized appreciation for these investments is excluded from accumulated other comprehensive income.~~

			Gross		Gross						Gross		Gross
	Amortized		Unrealized		Unrealized		Fair		Amortized		Unrealized		Unrealized		Fair
	Cost		Appreciation		Depreciation		Value
As of December 31, 2016
(In millions)									Cost		Appreciation		Depreciation		Value
As of March 31, 2018
Federal government and agency	$	658	$	223	$	(4)	$	877	$	653	$	219	$	(4)	$	868
State and local government	1,342		99		(6)		1,435		1,058		72		(1)		1,129
Foreign government	1,998		129		(14)		2,113		2,402		119		(22)		2,499
Corporate	15,483		716		(149)		16,050		18,812		610		(249)		19,173
Mortgage and other asset-backed	461		29		(4)		486		491		23		(5)		509
Total fixed maturities	$	19,942	$	1,196	$	(177)	$	20,961	$	23,416	$	1,043	$	(281)	$	24,178
Investments supporting liabilities of the Company’s run-off settlement annuity business (included in above total) (1)	$	2,196	$	539	$	(15)	$	2,720	$	2,241	$	576	$	(9)	$	2,808
As of December 31, 2017
Federal government and agency									$	541	$	239	$	(1)	$	779
State and local government									1,196		93		(2)		1,287
Foreign government									2,360		142		(15)		2,487
Corporate									17,301		868		(81)		18,088
Mortgage and other asset-backed									469		29		(1)		497
Total fixed maturities									$	21,867	$	1,371	$	(100)	$	23,138
Investments supporting liabilities of the Company’s run-off settlement annuity business (included in above total) (1)									$	2,200	$	681	$	(2)	$	2,879

(1) Net unrealized appreciation for these investments is excluded from accumulated other comprehensive income.

Review of declines in fair value. Management reviews fixed maturities with a decline in fair value from cost for impairment based on criteria that include:

· 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

· the Company’s intent to sell or the likelihood of a required sale prior to expected recovery.

The table below summarizes fixed maturities in an unrealized loss position at ~~September 30, 2017~~March 31, 2018 by the length of time these securities have been in an unrealized loss position. These fixed maturities were primarily corporate securities with a decline in fair value that reflects an increase in market yields since purchase.

September 30, 2017

Fair

Amortized

Unrealized

Number
(Dollars in millions)

Value

Cost

Depreciation

of Issues
One year or less:

Investment grade

     $
3,559

     $
3,617

     $
(58)

761
Below investment grade

     $
504

     $
517

     $
(13)

436
More than one year:

Investment grade

     $
533

     $
551

     $
(18)

170
Below investment grade

     $
112

     $
118

     $
(6)

22

	March 31, 2018							December 31, 2017
	Fair		Amortized		Unrealized		Number	Fair		Amortized		Unrealized		Number
(Dollars in millions)	Value		Cost		Depreciation		of Issues	Value		Cost		Depreciation		of Issues
One year or less
Investment grade	$	7,891	$	8,062	$	(171)	1,596	$	3,272	$	3,309	$	(37)	797
Below investment grade	$	1,058	$	1,080	$	(22)	1,096	$	543	$	553	$	(10)	643
More than one year
Investment grade	$	1,467	$	1,545	$	(78)	398	$	1,503	$	1,549	$	(46)	373
Below investment grade	$	148	$	158	$	(10)	47	$	155	$	162	$	(7)	42

Equity Securities

~~There are no available for sale~~Accounting policy. Beginning in 2018 upon adopting ASU 2016-01, changes in fair value of equity securities ~~with~~that have a ~~significant unrealized loss reflected~~readily determinable fair value (primarily exchange-traded funds) are reported in ~~accumulated~~ other ~~comprehensive income~~realized investment gains (losses). As of March 31, 2018, the fair values of these securities were $454 million and amortized cost was $456 million. In addition, beginning in 2018, private equity securities of $66 million as of March 31, 2018, that do not have a readily determinable fair value are carried at ~~September 30, 2017.~~cost minus impairment, if any, plus or minus changes resulting from observable price changes. The amount of impairments or value changes resulting from observable price changes was not material.

Equity securities also include hybrid investments consisting of preferred stock with call features that are carried at fair value with changes in fair value reported in other realized investment gains (losses) and dividends reported in net investment income. As of ~~September 30, 2017,~~March 31, 2018, fair values of these securities were ~~$60~~$47 million and amortized cost was ~~$73~~$62 million, compared with fair value of ~~$36~~$49 million and amortized cost of ~~$49~~$61 million as of December 31, ~~2016.~~2017.

Commercial Mortgage Loans

Mortgage loans held by the Company are made exclusively to commercial borrowers and are diversified by property type, location and borrower. Loans are generally issued at a fixed rate of interest and are secured by high quality, primarily completed and substantially leased operating properties.

Credit quality. The Company regularly evaluates and monitors credit risk, beginning with the initial underwriting of a mortgage loan and continuing throughout the investment holding period. Mortgage origination professionals employ an internal credit quality rating system designed to evaluate the relative risk of the transaction at origination that is then updated each year as part of the annual portfolio loan review. The Company evaluates and monitors credit quality on an ongoing basis, classifying each loan as a loan in good standing, potential problem loan or problem loan.

~~The quality rating is~~Quality ratings are based on our evaluation of a number of key inputs related to the loan including real estate market-related factors such as rental rates and vacancies, and property-specific inputs such as growth rate assumptions and lease rollover statistics. However, the two most significant contributors to the credit quality rating are the debt service coverage and loan-to-value ratios. The debt service coverage ratio measures the amount of property cash flow available to meet annual interest and principal payments on the debt, with a ratio below 1.0 indicating that there is not enough cash flow to cover the required loan payments. The loan-to-value ratio, commonly expressed as a percentage, compares the amount of the loan to the fair value of the underlying property collateralizing the loan.

The following ~~tables summarize~~table summarizes the credit risk profile of the Company’s commercial mortgage loan portfolio based on loan-to-value and debt service coverage ratios, as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016:~~2017:

(In millions)

Debt Service Coverage Ratio

1.30x or

1.20x to

1.10x to

1.00x to

Less than

Loan-to-Value Ratios

Greater

1.29x

1.19x

1.09x

1.00x

Total

As of September 30, 2017

Below 50%

    $
304

    $
14

    $
-

    $
-

    $
45

    $
363

50% to 59%

651

27

-

-

-

678

60% to 69%

524

-

-

-

-

524

70% to 79%

84

-

-

-

35

119

80% to 89%

-

-

-

-

-

-

90% to 100%

-

-

-

-

-

-

Total

    $
1,563

    $
41

    $
-

    $
-

    $
80

    $
1,684

As of December 31, 2016

Below 50%

    $
335

    $
15

    $
-

    $
-

    $
-

    $
350

50% to 59%

517

46

-

30

-

593

60% to 69%

624

14

-

-

-

638

70% to 79%

-

-

29

-

35

64

80% to 89%

-

-

-

-

-

-

90% to 100%

-

-

-

-

21

21

Total

    $
1,476

    $
75

    $
29

    $
30

    $
56

    $
1,666

(Dollars in millions)

As of March 31, 2018

As of December 31, 2017

Average Debt

Average

Average Debt

Average

Carrying

Service Coverage

Loan-to-

Carrying

Service Coverage

Loan-to-

Loan-to-Value Ratios

Value

Ratio

Value Ratio

Value

Ratio

Value Ratio

Below 60%

1,182

2.04

1,109

2.03

60% to 79%

619

2.22

652

2.24

Total

1,801

2.10

57%

1,761

2.11

57%

The Company’s annual in-depth review of its commercial mortgage loan investments is the primary mechanism for identifying emerging risks in the portfolio. The most recent review was completed by the Company’s investment professionals in the second quarter of 2017 and included an analysis of each underlying property’s December 31, 2016 annual financial statements, rent rolls, operating plans and budgets for 2017, a physical inspection of the property and other pertinent factors. Based on historical results, current leases, lease expirations and rental conditions in each market, the Company estimates the current year and future stabilized property income and fair value ~~and categorizes the investments as loans in good standing, potential problem loans or problem loans. Based on property values and cash flows estimated as part of this review, and considering updates~~ for loans where material changes were subsequently identified, the portfolio’s average loan-to-value ratio remained at 57% at September 30, 2017 compared with December 31, 2016, primarily due to stable collateral values in the majority of underlying properties. The portfolio’s average debt service coverage ratio improved to 2.10 at September 30, 2017 compared with 1.95 at December 31, 2016, driven by loans paid off with lower debt service coverage ratios and new loans with higher debt service coverage ratios.each loan.

The Company will reevaluate a loan’s credit quality between annual reviews if new property information is received or an event such as delinquency or a borrower’s request for restructure causes management to believe that the Company’s estimate of financial performance, fair value or the risk profile of the underlying property has been impacted.

Potential problem mortgage loans are considered current (no payment is more than 59 days past due), but they exhibit certain characteristics that increase the likelihood of future default. The characteristics management considers include, but are not limited to, the deterioration of debt service coverage below 1.0, estimated loan-to-value ratios increasing to 100% or more, downgrade in quality rating and requests from the borrower for restructuring. In addition, loans are considered potential problems if principal or interest payments are past due by more than 30 but less than 60 days. Problem mortgage loans are either in default by 60 days or more or have been restructured as to terms that could include concessions on interest rate, principal payment or maturity date. The Company monitors each problem and potential problem mortgage loan on an ongoing basis, and updates the loan categorization and quality rating when warranted.

~~There are no problem or potential problem mortgage loans at September 30, 2017. Problem and potential problem mortgage loans, net of valuation reserves, totaled $21 million at December 31, 2016.~~

Impaired commercial mortgage loans. A commercial mortgage loan is considered impaired when it is probable that the Company will not collect all amounts due according to the terms of the original loan agreement. These loans are included in either problem or potential problem loans. The Company monitors credit risk and assesses the impairment of loans individually and on a consistent basis for all loans in the portfolio. Impaired loans are carried at the lower of unpaid principal balance or the fair value of the underlying real estate. Certain commercial mortgage loans without valuation reserves are considered impaired because the Company will not collect all interest due according to the terms of the original agreements; however, the Company expects to recover the unpaid principal because it is less than the fair value of the underlying real estate. The Company recognizes interest income on impaired mortgage loans only when payment is actually received.

~~There are~~As of March 31, 2018 and December 31, 2017, there were no impaired commercial mortgage ~~loans at September 30, 2017. There was one impaired loan with a carrying value of $21 million, net of a $5 million valuation reserve, at December 31, 2016.~~

~~For the nine months ended September 30, 2017,~~loans; the average recorded investment in impaired loans ~~decreased to $10 million in 2017 compared with $83 million for the nine months ended September 30, 2016, primarily due to the foreclosure of one~~and interest income on impaired ~~loan and the full payoff of another.~~

~~Changes in valuation reserves for commercial mortgage~~ loans were not ~~material for~~material.

Other Long-Term Investments

Accounting policy. Other long-term investments include investments in unconsolidated entities. These entities include certain limited partnerships and limited liability companies holding real estate, securities or loans. These investments are carried at cost plus the ~~nine months ended September 30, 2017 and 2016.~~Company’s ownership percentage of reported income or loss in cases where the Company has significant influence. Beginning in 2018 upon adopting ASU 2016-01, in cases when the Company does not have significant influence, the investments are carried at fair value using NAV as a practical expedient.

Short-Term Investments and Cash Equivalents

Short-term investments and cash equivalents included the following types of issuers:

	September 30,		December 31,			March 31,		December 31,
(In millions)	2017		2016			2018		2017
Corporate securities	$	1,442	$	2,234	��	$	774	$	1,143
Federal government securities	$	953	$	378		$	226	$	604
Foreign government securities	$	145	$	94		$	191	$	159
Money market funds	$	14	$	11		$	12	$	12

B. Realized Investment Gains and Losses

Realized investment gains and losses are based on specifically identified assets and result from sales, investment asset write-downs, changes in the fair values of certain derivatives and equity securities and changes in valuation reserves on commercial mortgage loans. The following realized gains and (losses) on investments exclude amounts required to adjust future policy benefits for the run-off settlement annuity business.

Three Months Ended

Nine Months Ended

September 30,

September 30,
(In millions)

2017

2016

2017

2016
Fixed maturities

    $
20

    $
7

    $
36

    $
(5)
Equity securities

6

(1)

40

-
Commercial mortgage loans

-

-

(1)

4
Other investments, including derivatives

91

69

139

111
Realized investment gains before income taxes

117

75

214

110
Less income taxes

42

27

74

39
Net realized investment gains

    $
75

    $
48

    $
140

    $
71

	Three Months Ended
	March 31,
(In millions)	2018		2017
Fixed maturities	$	(20)	$	2
Equity securities	(19)		33
Other investments, including derivatives	6		11
Realized investment (losses) gains before income taxes	(33)		46
Less income tax (benefit) expense	(10)		15
Net realized investment (losses) gains	$	(23)	$	31

Included in ~~these~~the realized investment gains and losses in the above table were pre-tax ~~other-than-temporary impairments~~asset write-downs on debt securities and other asset write-downs of ~~$19~~$17 million ~~for the nine months ended September 30, 2017 and $44 million for the nine months ended September 30, 2016.~~

~~Realized gains reported in the above table in other investments, including derivatives~~ for the three months ended March 31, 2018 and ~~nine~~$10 million for the three months ended ~~September 30, 2017~~March 31, 2017. Losses of $19 million for equity securities still held at March 31, 2018 were included in realized gains and ~~2016, primarily reflected sales of real estate investments.~~losses on equity securities for the three months ended March 31, 2018.

The following table presents sales information for available-for-sale securities (fixed maturities in 2018, and fixed maturities and equity ~~securities.~~securities in 2017). Gross gains on sales and gross losses on sales exclude amounts required to adjust future policy benefits for the run-off settlement annuity business.

Three Months Ended

Nine Months Ended

September 30,

September 30,
(In millions)

2017

2016

2017

2016
Proceeds from sales

    $
446

    $
300

    $
1,376

    $
1,012
Gross gains on sales

    $
26

    $
9

    $
85

    $
43
Gross losses on sales

    $
3

    $
-

    $
7

    $
6

	Three Months Ended
	March 31,
(In millions)	2018		2017
Proceeds from sales	$	499	$	414
Gross gains on sales	$	5	$	47
Gross losses on sales	$	22	$	2

Note 11 — Derivative Financial Instruments

The Company uses derivative financial instruments to manage the characteristics of investment assets (such as duration, yield, currency and liquidity) to meet the varying demands of the related insurance and contractholder liabilities (such as paying claims, investment returns and withdrawals). The Company also uses derivative financial instruments to hedge the risk of changes in the net assets of certain of its foreign subsidiaries due to changes in foreign currency exchange rates, and to hedge the interest rate risk of its long-term debt. The Company has written and purchased GMIB reinsurance contracts in its run-off reinsurance business that are accounted for as freestanding derivatives and discussed further in Note 8. Derivatives in the Company’s separate accounts are excluded from the following discussion because associated gains and losses generally accrue directly to separate account policyholders.

Accounting policy. During the first quarter of 2018 the Company early adopted ASU 2017-12 (Targeted Improvements to Accounting for Hedging Activities) with no material impact to its financial statements. The Company applies hedge accounting when derivatives are designated, qualified and highly effective as hedges. Effectiveness is formally assessed and documented at inception and each period throughout the life of a hedge using various qualitative or quantitative methods appropriate for each ~~hedge, including regression analysis and dollar offset.~~hedge. Under hedge accounting, the changes in fair value of the derivative and the hedged risk are generally recognized together and offset each other when reported in shareholders’ net income. Changes in the fair value of a derivative instrument may not always equal changes in the fair value of the hedged item. This is referred to as “hedge ineffectiveness” and, with the adoption of ASU 2017-12, is ~~generally recorded in realized investment gains~~no longer measured and ~~losses. In~~reported separately from the ~~event~~effective portion of ~~an early hedge termination,~~ the hedge. The Company excludes certain components of derivative instruments’ changes in fair value from the assessment of ~~derivatives that qualified for~~ hedge ~~accounting~~effectiveness. With the adoption of ASU 2017-12, those excluded components are ~~reported~~initially recorded in other comprehensive income and recognized in shareholders’ net income ~~generally~~over the life of the derivative instrument as ~~a part of realized investment gains and losses.~~further discussed below. See Note 9 for further information on our policies for determining fair value. Derivative cash flows are generally reported in operating activities.

During the first quarter of 2018, the Company terminated its Fair Value Hedge of Long-Term Corporate Debt (notional value of $750 million as of December 31, 2017) with no material impact to the Company’s financial statements. The following tables provide information on the Company’s other specific applications of derivative financial instruments during the periods ended ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016.~~2017.

Net Investment Hedge of Certain International Subsidiaries	Notional Value (in millions)
Type of instrument. Foreign currency swap contracts	March 31, 2018		December 31, 2017
	$	439	$	-

Purpose. During the first quarter of 2018, the Company entered into fixed-for-fixed currency swaps to reduce the risk of changes in net assets due to changes in foreign currency spot exchange rates for hedged foreign subsidiaries that conduct their business principally in Euros.

Terms of derivative instruments. The Company receives fixed rate U.S. dollar coupon and principal payments, and pays fixed rate coupon and principal payments denominated in the functional currency of the hedged foreign subsidiary. The notional value of hedging instruments matches the amount of subsidiary net assets being hedged. Foreign currency swaps are denominated in Euros.

Accounting. As a net investment hedge, the fair values of the swap contracts are reported in other assets, including other intangibles, or in accounts payable, accrued expenses, and other liabilities. The changes in fair value of these instruments are reported in other comprehensive income, specifically in translation of foreign currencies. The portion of the change in swap fair value relating to foreign exchange spot rates will be recognized in earnings upon deconsolidation of the hedged foreign subsidiaries. The remaining changes in swap fair value are excluded from the effectiveness assessment and recognized in other operating expenses as coupon payments are accrued.

Fair Value Hedges of Fixed Maturity Bonds	Notional Value (in millions)
Type of instrument. Foreign currency swap contracts	March 31, 2018		December 31, 2017
	$	400	$	318

Purpose. To hedge the foreign exchange related changes in fair values of certain fixed maturity foreign-denominated bonds.

Terms of derivative instruments. The Company periodically exchanges cash flows between two currencies for both principal and interest. Foreign currency swaps are Euros, British pounds and Australian dollars, and have terms for periods of up to thirty years. The notional value of these derivatives matches the amortized cost of the hedged bonds.

Accounting. Using fair value hedge accounting, swap fair values are reported in other long-term investments or in accounts payable, accrued expenses and other liabilities. Changes in fair values attributable to foreign exchange risk of the swap contracts and the hedged bonds are reported in other realized investment gains and losses. The portion of the swap contracts’ changes in fair value excluded from the assessment of hedge effectiveness is recorded in accumulated other comprehensive income and recognized in net investment income as coupon payments are accrued, offsetting the foreign exchange coupons received on the designated bonds. Prior to adopting ASU 2017-12, changes in fair value of excluded components of the swap contracts were recognized immediately in realized investment gains and losses.

Table of Contents

Fair Value Hedge of Long-Term Corporate Debt
Notional Value (in millions)
Type of instrument. Interest rate swap contracts
September 30, 2017
December 31, 2016
$
750

$
750

Purpose. To convert a portion of the interest rate exposure on the Company’s long-term debt from fixed to variable rates. This more closely aligns the Company’s interest expense with the interest income received on its cash equivalent and short-term investment balances. The variable rates are benchmarked to LIBOR.

Terms of derivative instruments. The Company provides upfront margin and settles fair value changes and net interest between variable and fixed rates daily with a central clearinghouse.

Accounting. Using fair value hedge accounting, the fair values of the swap contracts are reported in other assets, including other intangibles, or accounts payable, accrued expenses, and other liabilities. The critical terms of these swaps match those of the long-term debt being hedged. As a result, the carrying value of the hedged debt is adjusted to reflect changes in its fair value driven by LIBOR. The effects of those adjustments on other operating expenses are offset by the effects of corresponding changes in the swaps’ fair value. The net impact from the hedge reported in other operating expenses reflects interest expense on the hedged debt at the variable interest rate.

Economic Hedges of a Fixed Maturity Bond Portfolio
Notional Value (in millions)
Type of instrument. Foreign currency forward contracts
September 30, 2017
December 31, 2016
$
255

$
149

Purpose. To hedge the foreign exchange related changes in fair values of a U.S. dollar-denominated fixed maturity bond portfolio to reflect the local currency for the Company’s foreign subsidiary in South Korea.

Terms of derivative instruments. The Company agrees to purchase South Korean won in exchange for U.S. dollars at a future date, generally within three months from the contracts’ trade dates.

Accounting. As these arrangements were not designated as accounting hedges, fair values are reported in short-term investments or accounts payable, accrued expenses, and other liabilities, and changes in fair values are reported in other realized investment gains and losses.

Fair Value Hedges of Fixed Maturity Bonds
Notional Value (in millions)
Type of instrument. Foreign currency swap contracts
September 30, 2017
December 31, 2016
$
250

$
78

Purpose. To hedge the foreign exchange related changes in fair values of the Company’s fixed maturity bonds.

Terms of derivative instruments. The Company periodically exchanges cash flows between two currencies for both principal and interest. Foreign currency swaps are Euros and British pounds and have terms for periods of up to twelve years.

Accounting. Using fair value hedge accounting, swap fair values are reported in other long-term investments or accounts payable, accrued expenses and other liabilities. Changes in fair values of the swap contracts, as well as changes in the fair value of the hedged bonds attributable to the hedged risk, are reported in other realized investment gains and losses.

Economic Hedges of a Fixed Maturity Bond Portfolio	Notional Value (in millions)
Type of instrument. Foreign currency forward contracts	March 31, 2018		December 31, 2017
	$	309	$	255

Purpose. To hedge the foreign exchange related changes in fair values of a U.S. dollar-denominated fixed maturity bond portfolio to reflect the local currency for the Company’s foreign subsidiary in South Korea.

Terms of derivative instruments. The Company agrees to purchase South Korean won in exchange for U.S. dollars at a future date, generally within three months from the contracts’ trade dates. The notional value of hedging instruments generally aligns with the fair value of the hedged bond portfolio.

Accounting. As these arrangements were not designated as accounting hedges, fair values are reported in short-term investments or accounts payable, accrued expenses, and other liabilities, and changes in fair values are reported in other realized investment gains and losses.

As of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, and for the three months ended March 31, 2018 and ~~nine months ended September 30,~~ 2017, ~~and 2016,~~ the effects of these derivative instruments on the Consolidated Financial Statements were not material, including the amounts excluded from the assessment of hedge effectiveness, as well as the associated gains or losses reclassified from accumulated other comprehensive income into shareholders’ net income. ~~No material amounts were excluded from the assessment of hedge effectiveness and no significant gains or losses were recognized due to hedge ineffectiveness.~~

Collateral and termination features. The Company routinely monitors exposure to credit risk associated with derivatives and diversifies the portfolio among approved dealers of high credit quality to minimize this risk. ~~As of September 30, 2017, the Company had $10 million in cash on deposit representing the upfront margin required for the Company’s centrally-cleared derivative instruments.~~ Certain of the Company’s over-the-counter derivative instruments contain provisions requiring either the Company or the counterparty to post collateral or demand immediate payment depending on the amount of the net liability position and predefined financial strength or credit rating thresholds. Collateral posting requirements vary by counterparty. The net asset or liability positions of these derivatives were not material as of ~~September 30, 2017~~March 31, 2018 or December 31, ~~2016.~~2017.

Note 12 — Variable Interest Entities

When the Company becomes involved with a variable interest entity, as well as when there is a change in the Company’s involvement with an entity, the Company ~~evaluates the following to~~must determine if it is the primary beneficiary and must consolidate the ~~entity:~~entity. The Company would be considered the primary beneficiary if it has the power to direct the entity’s most significant economic activities or has the right to receive benefits or obligation to absorb losses that could be significant to the entity. The Company evaluates the following criteria:

·	the structure and purpose of the entity;
·	the risks and rewards created by and shared through the entity; and
·	the Company’s ability to direct its activities, receive its benefits and absorb its losses relative to the other parties involved with the entity including its sponsors, equity holders, guarantors, creditors and servicers.

The Company determined it was not a primary beneficiary in any material variable interest entities as of March 31, 2018 or December 31, 2017. The Company’s involvement in variable interest entities where it is not the primary beneficiary is described below.

Securities limited partnerships and real estate limited partnerships. The Company owns interests in securities limited partnerships and real estate limited partnerships defined as variable interest entities that invest in the equity or mezzanine debt of privately held companies and real estate properties. General partners unaffiliated with the Company control decisions that most significantly impact these partnerships’ operations and the limited partners do not have substantive kick-out or participating rights. The Company’s maximum exposure to these entities of ~~$2.4~~$2.5 billion across approximately ~~115~~120 limited partnerships as of ~~September 30, 2017~~March 31, 2018 includes ~~$1.1~~$1.3 billion reported in other long-term investments and commitments to contribute an additional ~~$1.3~~$1.2 billion. The Company’s non-controlling interest in each of these limited partnerships is generally less than 10% of the partnership ownership interests.

Other asset-backed and corporate securities.In the normal course of its investing activities, the Company also makes passive investments in certain asset-backed and corporate securities that are issued by variable interest entities whose sponsors or issuers are unaffiliated with the Company. The Company receives fixed-rate cash flows from these investments and the maximum potential exposure to loss is limited to its carrying amount of $0.6 billion as of ~~September 30, 2017,~~March 31, 2018, that is reported in fixed maturities. The Company’s combined ownership interests are insignificant relative to the total principal amounts issued by these entities.

The Company is also involved in real estate joint ventures, for which all decisions significantly affecting the entities’ economic performance are subject to unanimous approval by the equity holders. As a result, the Company determined that the power over these entities is shared equally, and there is no primary beneficiary. The Company’s maximum exposure to loss was approximately equal to its carrying value of $0.1 billion as of September 30, 2017, that is reported in other long-term investments.

~~To provide certain services to its Medicare Advantage customers, the Company contracts with~~ independent physician associations (“IPAs”) and a joint venture in India that are variable interest entities. ~~Physicians provide health care services to Medicare Advantage customers~~The carrying values and ~~the Company provides medical management and administrative services to the IPAs. The Company’s~~ maximum ~~exposure to loss related to the IPA~~exposures associated with these arrangements ~~is limited to their liability for incurred but not reported medical costs for the Company’s Medicare Advantage customers. These liabilities~~ are ~~not material and are generally secured by deposits maintained by the IPAs.~~

In 2017, Cigna modified the agreement governing its joint venture in India, Cigna TTK Health Insurance Company Ltd due to changes in the local regulatory environment that require control by a local partner. As a result of the changes in the joint venture agreement, the Company determined that it is no longer the primary beneficiary of the joint venture and will no longer consolidate its results. The Company’s maximum exposure to loss related to this entity is equal to its investment in and advances to the joint venture. The Company’s carrying value is reported in other assets, including other intangibles and the maximum exposure to loss is not material to our results of operations or financial position.

~~The Company is not the primary beneficiary of any of the variable interest entities described above and does not consolidate these entities because either:~~

· ~~it has no power to direct the activities that most significantly impact the entities’ economic performance; or~~

· ~~it has neither the right to receive benefits nor the obligation to absorb losses that could be significant to these variable interest entities.~~immaterial.

The Company has not provided, and does not intend to provide, financial support to ~~these~~any of the above entities that it is not contractually required to provide. The Company performs ongoing qualitative analyses of its involvement with these variable interest entities to determine if consolidation is required.

Note 13 — Accumulated Other Comprehensive Income (Loss) (“AOCI”)

~~Accumulated other comprehensive income (loss)~~AOCI includes the Company’s share from entities accounted for using the equity method. AOCI excludes amounts required to adjust future policy benefits for the run-off settlement annuity business and a portion of deferred acquisition costs associated with the corporate-owned life insurance business. Generally, tax effects in AOCI are established at the currently enacted tax rate and reclassified to net income in the same period that the related pre-tax AOCI reclassifications are recognized. As discussed in Note 2, effective January 1, 2018, the Company early adopted ASU 2018-02 and $229 million of stranded tax effects resulting from U.S. tax reform legislation enacted in 2017 were reclassified from AOCI to retained earnings. Changes in the components of ~~accumulated other comprehensive income (loss)~~AOCI, including the reclassification of the stranded tax effects, were as follows:

Tax

(Expense)

After-
(In millions)

Pre-Tax

Benefit

Tax
Three Months Ended September 30, 2017

Net unrealized appreciation, securities, July 1,

$
660

$
(224)

$
436
Unrealized (depreciation) on securities arising during the period

(5)

-

(5)
Reclassification adjustment for (gains) included in shareholders’ net income (realized investment gains)

(26)

9

(17)
Net unrealized (depreciation) on securities arising during the period

(31)

9

(22)
Net unrealized appreciation, securities, September 30,

$
629

$
(215)

$
414
Net translation of foreign currencies, July 1,

$
(249)

$
19

$
(230)
Net translation of foreign currencies arising during the period

38

(4)

34
Net translation of foreign currencies, September 30,

$
(211)

$
15

$
(196)
Postretirement benefits liability adjustment, July 1,

$
(2,080)

$
728

$
(1,352)
Reclassification adjustment for amortization of net losses from past experience and prior service costs (other operating expenses)

16

(6)

10
Postretirement benefits liability adjustment, September 30,

$
(2,064)

$
722

$
(1,342)

Three Months Ended September 30, 2016

Net unrealized appreciation, securities, July 1,

$
1,135

$
(367)

$
768
Unrealized appreciation on securities arising during the period

94

(24)

70
Reclassification adjustment for (gains) included in shareholders’ net income (realized investment gains)

(6)

2

(4)
Net unrealized appreciation on securities arising during the period

88

(22)

66
Net unrealized appreciation, securities, September 30,

$
1,223

$
(389)

$
834
Net unrealized appreciation, derivatives, July 1,

$
5

$
(2)

$
3
Unrealized appreciation on derivatives arising during the period

2

-

2
Reclassification adjustment for (gains) included in shareholders’ net income (other operating expenses)

(4)

1

(3)
Net unrealized (depreciation) on derivatives arising during the period

(2)

1

(1)
Net unrealized appreciation, derivatives, September 30,

$
3

$
(1)

$
2
Net translation of foreign currencies, July 1,

$
(251)

$
18

$
(233)
Net translation of foreign currencies arising during the period

55

-

55
Net translation of foreign currencies, September 30,

$
(196)

$
18

$
(178)
Postretirement benefits liability adjustment, July 1,

$
(2,127)

$
745

$
(1,382)
Reclassification adjustment for amortization of net losses from past experience and prior service costs (other operating expenses)

16

(4)

12
Net change due to valuation update

(3)

-

(3)
Net postretirement benefits liability adjustment arising during the period

13

(4)

9
Postretirement benefits liability adjustment, September 30,

$
(2,114)

$
741

$
(1,373)

Tax

(Expense)

After-
(In millions)

Pre-Tax

Benefit

Tax
Nine Months Ended September 30, 2017

Net unrealized appreciation, securities, January 1,

$
542

$
(180)

$
362
Unrealized appreciation on securities arising during the period

163

(62)

101
Reclassification adjustment for (gains) included in shareholders’ net income (realized investment gains)

(76)

27

(49)
Net unrealized appreciation on securities arising during the period

87

(35)

52
Net unrealized appreciation, securities, September 30,

$
629

$
(215)

$
414
Net unrealized appreciation, derivatives, January 1,

$
4

$
(1)

$
3
Unrealized (depreciation) on derivatives arising during the period

(1)

-

(1)
Reclassification adjustment for (gains) included in shareholders’ net income (net realized investment gains)

(3)

1

(2)
Net unrealized (depreciation) on derivatives arising during the period

(4)

1

(3)
Net unrealized appreciation, derivatives, September 30,

$
-

$
-

$
-
Net translation of foreign currencies, January 1,

$
(390)

$
21

$
(369)
Net translation of foreign currencies arising during the period

179

(6)

173
Net translation of foreign currencies, September 30,

$
(211)

$
15

$
(196)
Postretirement benefits liability adjustment, January 1,

$
(2,120)

$
742

$
(1,378)
Reclassification adjustment for amortization of net losses from past experience and prior service costs (other operating expenses)

48

(18)

30
Reclassification adjustment for settlement loss (other operating expenses)

6

(2)

4
Net change due to valuation update

2

-

2
Net postretirement benefits liability adjustment arising during the period

56

(20)

36
Postretirement benefits liability adjustment, September 30,

$
(2,064)

$
722

$
(1,342)

Nine Months Ended September 30, 2016

Net unrealized appreciation, securities, January 1,

$
612

$
(194)

$
418
Unrealized appreciation on securities arising during the period

606

(193)

413
Reclassification adjustment for losses included in shareholders’ net income (realized investment gains)

5

(2)

3
Net unrealized appreciation on securities arising during the period

611

(195)

416
Net unrealized appreciation, securities, September 30,

$
1,223

$
(389)

$
834
Net unrealized appreciation, derivatives, January 1,

$
10

$
(3)

$
7
Unrealized (depreciation) on derivatives arising during the period

(3)

1

(2)
Reclassification adjustment for (gains) included in shareholders’ net income (other operating expenses)

(4)

1

(3)
Net unrealized (depreciation) on derivatives arising during the period

(7)

2

(5)
Net unrealized appreciation, derivatives, September 30,

$
3

$
(1)

$
2
Net translation of foreign currencies, January 1,

$
(295)

$
21

$
(274)
Net translation of foreign currencies arising during the period

99

(3)

96
Net translation of foreign currencies, September 30,

$
(196)

$
18

$
(178)
Postretirement benefits liability adjustment, January 1,

$
(2,155)

$
754

$
(1,401)
Reclassification adjustment for amortization of net losses from past experience and prior service costs (other operating expenses)

48

(15)

33
Net change due to valuation update

(7)

2

(5)
Net postretirement benefits liability adjustment arising during the period

41

(13)

28
Postretirement benefits liability adjustment, September 30,

$
(2,114)

$
741

$
(1,373)

	Three Months Ended
	March 31,
(in millions)	2018		2017
Securities
Beginning balance	$	328	$	362
Reclassification adjustment to retained earnings related to U.S. tax reform legislation(1)	65		-
Reclassification adjustment to retained earnings related to new financial instruments guidance(1)	(4)		-
Adjusted beginning balance	389		362
(Depreciation) appreciation on securities	(379)		53
Tax benefit (expense)	76		(24)
Net (depreciation) appreciation on securities	(303)		29
Reclassification adjustment for losses (gains) included in shareholders’ net income (net realized investment gains)	30		(35)
Tax (expense) benefit	(6)		13
Net losses (gains) reclassified from AOCI to net income	24		(22)
Other comprehensive (loss) income, net of tax	(279)		7
Ending balance	$	110	$	369

Derivatives
Beginning balance	$	-	$	3
Reclassification adjustment from retained earnings related to new hedging guidance(1)	(6)		-
Adjusted beginning balance	(6)		3
(Depreciation) on derivatives	(6)		-
Tax benefit	1		-
Net (depreciation) on derivatives	(5)		-
Reclassification adjustment for (gains) included in shareholders’ net income (net realized investment gains)	-		(4)
Tax benefit	-		1
Net (gains) reclassified from AOCI to net income	-		(3)
Other comprehensive (loss), net of tax	(5)		(3)
Ending balance	$	(11)	$	-

Translation of foreign currencies
Beginning balance	$	(65)	$	(369)
Reclassification adjustment to retained earnings related to U.S. tax reform legislation(1)	(4)		-
Adjusted beginning balance	(69)		(369)
Translation of foreign currencies	46		111
Tax (expense) benefit	(1)		1
Net translation of foreign currencies	45		112
Ending balance	$	(24)	$	(257)

Postretirement benefits liability
Beginning balance	$	(1,345)	$	(1,378)
Reclassification adjustment to retained earnings related to U.S. tax reform legislation(1)	(290)		-
Adjusted beginning balance	(1,635)		(1,378)
Reclassification adjustment for amortization of net losses from past experience and prior service costs (other operating expenses)	17		15
Reclassification adjustment for settlement (other operating expenses)	-		6
Tax (expense)	(4)		(7)
Other comprehensive income, net of tax	13		14
Ending balance	$	(1,622)	$	(1,364)

(1) See Note 2 for further information about adjustments resulting from the Company’s adoption of new accounting standards in 2018.

Note 14 — Pension and Other Postretirement Benefit Plans

The Company and certain of its subsidiaries provide pension, health care and life insurance defined benefits to eligible retired employees, spouses and other eligible dependents through various domestic and foreign plans. The effect of its foreign pension and other postretirement benefit plans is immaterial to the Company’s results of operations, liquidity and financial position. The Company froze its defined benefit postretirement medical plan in 2013 and its primary domestic pension plans in 2009.

As further discussed in Note 16, ~~the Company~~Cigna Corporation and the Cigna Pension Plan are defendants in a class action lawsuit ~~that has yet~~related to ~~be resolved.~~the Plan’s conversion of certain employees from an annuity to a cash balance benefit in 1997. When the ~~parties agree on a final~~required plan amendment related to this litigation is adopted, the pension benefit obligation will be updated to reflect ~~additional~~ benefits resulting from this litigation.

For the nine months ended September 30, 2017, the Company’s unrecognized actuarial losses and prior service costs (reported in accumulated other comprehensive income) decreased by $56 million pre-tax in the aggregate ($36 million after-tax) resulting in an increase in shareholders’ equity. This change was primarily ~~the result of amortization.~~

Pension and Other Postretirement Benefits. Components of net pension and net other postretirement benefit costs were as follows:

	Pension Benefits								Other Postretirement Benefits								Pension Benefits				Other Postretirement Benefits
	Three Months Ended				Nine Months Ended				Three Months Ended				Nine Months Ended				Three Months Ended				Three Months Ended
	September 30,				September 30,				September 30,				September 30,				March 31,				March 31,
(In millions)	2017		2016		2017		2016		2017		2016		2017		2016		2018		2017		2018		2017
Service cost	$	-	$	-	$	1	$	1	$	-	$	-	$	-	$	-	$	1	$	-	$	-	$	-
Interest cost	47		50		140		149		2		3		7		8		42		48		2		3
Expected long-term return on plan assets	(66)		(62)		(195)		(186)		-		-		-		-		(64)		(65)		-		-
Amortization of:
Net loss from past experience	16		17		49		50		-		-		-		-		17		16		-		-
Prior service cost	-		-		-		-		-		(1)		(1)		(2)		-		-		-		(1)
Settlement loss	-		-		6		-		-		-		-		-		-		6		-		-
Net cost	$	(3)	$	5	$	1	$	14	$	2	$	2	$	6	$	6	$	(4)	$	5	$	2	$	2

All components of pension and other postretirement benefit costs are reported in operating expenses. The Company funds its domestic qualified pension plans at least at the minimum amount required by the Employee Retirement Income Security Act of 1974 and the Pension Protection Act of 2006. ~~During~~The Company did not make any pension contributions during the ~~nine~~three months ended ~~September 30, 2017, the Company made a voluntary~~March 31, 2018, and does not expect to make any pension ~~contribution of $150 million. No additional~~ contributions ~~are required~~ for the remainder of ~~2017.~~2018.

Note 15— Income Taxes

A. Income Tax Expense

The consolidated effective tax rate decreased to ~~31.0%~~24.7% for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 compared with ~~38.1%~~33.4% for the ~~nine~~three months ended ~~2016.~~March 31, 2017. The significantly lower effective tax rate for ~~2017~~2018 was attributable to the ~~one year moratorium on~~lower U.S. tax rate effective January 1, 2018 resulting from the recently enacted U.S. tax reform legislation. This favorable effect was partially offset by the reinstatement of the non-deductible health insurance industry tax in 2018. For the three months ended March 31, 2018, there were no adjustments to the provisional amounts first recognized in 2017 as a result of U.S. tax reform legislation. In accordance with guidance of the staff of the Securities and ~~recognizing an incremental~~Exchange Commission, the Company’s accounting for these amounts will be evaluated and adjusted, if needed, until we file our 2017 U.S. tax ~~benefit associated with merger-related costs. See Note 3 for additional details regarding merger-related costs.~~

return later in 2018. In addition, the Company has evaluated the global intangible low-taxed income (“GILTI”) provisions of U.S. tax reform that became effective January 1, 2018. For the three months ended March 31, 2018, the GILTI tax impact was immaterial. The Company ~~maintains a capital management strategy~~will continue to ~~retain overseas~~evaluate these provisions in future periods as further guidance emerges. It is the Company’s policy to recognize any GILTI taxes as period costs when incurred.

The Company’s foreign operations continue to maintain a significant portion of ~~the~~their earnings ~~from its foreign operations. As of September 30, 2017, undistributed earnings were approximately~~ ~~$3.0~~ ~~billion.~~ overseas. These undistributed earnings are deployed outside of the ~~U.S.~~United States predominantly in support of the liquidity and regulatory capital requirements of our foreign ~~operations.~~operations as well as to support growth initiatives overseas. The Company does not intend to repatriate these earnings to the ~~U.S. and as a result, income taxes are provided using the respective foreign jurisdictions’ tax rate.~~United States. If the Company had intended to repatriate these foreign earnings to the ~~U.S.,~~United States, the ~~Company’s Consolidated Balance Sheets~~Company would have ~~included an~~recorded additional ~~$414 million of~~ deferred tax liabilities of approximately $150 million for foreign withholding taxes as of ~~September 30, 2017.~~March 31, 2018. A portion of these taxes may be eligible for credit against the Company’s U.S. tax liability.

B. Unrecognized Tax Benefits

Changes in unrecognized tax benefits were immaterial for the ~~nine~~three months ended ~~September 30, 2017.~~March 31, 2018.

Note 16 — Contingencies and Other Matters

The Company, through its subsidiaries, is contingently liable for various guarantees provided in the ordinary course of business.

A. Financial Guarantees: Retiree and Life Insurance Benefits

Separate account assets are contractholder funds maintained in accounts with specific investment objectives. The Company records separate account liabilities equal to separate account assets. In certain cases, the Company guarantees a minimum level of benefits for retirement and insurance contracts written in separate ~~accounts. The Company~~accounts and establishes an additional liability if management believes that the Company will be required to make a payment under these guarantees.

The Company guarantees that separate account assets will be sufficient to pay certain life insurance or retiree 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 fail to do ~~not maintain the required levels of separate account assets,~~so, the Company or an affiliate of the buyer of the retirement benefits business (Prudential Retirement Insurance and Annuity ~~Company)~~Company or “Prudential”) has the right to redirect the management of the related assets to provide for benefit payments. As of ~~September 30, 2017,~~March 31, 2018 employers maintained assets that exceeded the benefit ~~obligations. Benefit~~ obligations under these arrangements ~~were $472 million as~~ of ~~September 30, 2017 and~~ approximately ~~13%~~$460 million. Approximately 12% of these are reinsured by ~~an affiliate of the buyer of the retirement benefits business.~~Prudential. The remaining guarantees are provided by the Company with minimal reinsurance from third parties. There were no additional liabilities required for these guarantees as of ~~September 30, 2017.~~March 31, 2018. Separate account assets supporting these guarantees are classified in Levels 1 and 2 of the GAAP fair value ~~hierarchy. See~~hierarchy (see Note 9 ~~for further information on the fair value hierarchy.~~9).

The Company does not expect that these financial guarantees will have a material effect on the Company’s consolidated results of operations, liquidity or financial condition.

B. GMIB Contracts

See Note 8 for discussion.

C. Certain Other Guarantees

The Company had ~~financial guarantees and~~ indemnification obligations to ~~lenders~~a lender of approximately ~~$105~~$90 million as of ~~September 30, 2017,~~March 31, 2018, related to ~~borrowings~~a borrowing by a certain real estate joint ~~ventures~~venture that the Company ~~either~~ records as an ~~investment or consolidates. These borrowings, most~~investment. This borrowing (a nonrecourse obligation of ~~which are nonrecourse to~~ the ~~Company, are~~Company) matures in 2021 and is secured by the joint ~~ventures’~~venture’s real estate ~~properties~~property with a fair ~~values~~value in excess of the loan ~~amounts and mature at various dates beginning in 2018 through 2021.~~amount. The Company’s indemnification ~~obligations~~obligation would require payment to ~~lenders~~the lender for any actual damages resulting from certain acts such as unauthorized ownership transfers, misappropriation of rental payments by others or environmental damages. Based on initial and ongoing reviews of property management and operations, the Company does not expect that payments will be required under ~~these financial guarantees or~~this indemnification ~~obligations.~~obligation. Any ~~payments~~payment that might be required could be recovered through a refinancing or sale of the assets. ~~In some cases, the~~The Company also has recourse to ~~partners~~the partner for their proportionate share of amounts paid. There were no liabilities required for ~~these financial guarantees and~~this indemnification ~~obligations~~obligation as of ~~September 30, 2017.~~March 31, 2018.

The Company had indemnification obligations as of ~~September 30, 2017~~March 31, 2018 in connection with acquisition and disposition transactions. These indemnification obligations are triggered by the breach of representations or covenants provided by the Company, such as representations for the presentation of financial statements, the filing of tax returns, compliance with law or the identification of outstanding litigation. These obligations are typically subject to various time limitations, defined by the contract or by operation of law, such as statutes of limitation. In some cases, the maximum potential amount due is subject to contractual limitations based on a percentage of the transaction purchase price, while in other cases limitations are not specified or applicable. The Company does not believe that it is possible to determine the maximum potential amount due under these obligations, because not all amounts due under these indemnification obligations are subject to limitation. There were no liabilities required for these indemnification obligations as of ~~September 30, 2017.~~March 31, 2018.

D. Guaranty Fund Assessments

The Company operates in a regulatory environment that may require its participation in assessments under state insurance guaranty association laws. The Company’s exposure to assessments for certain obligations of insolvent insurance companies to policyholders and claimants is based on its share of business written in the relevant jurisdictions.

~~On March 1,~~In first quarter 2017, the Commonwealth Court of Pennsylvania entered an order of liquidation of Penn Treaty Network America Insurance Company, together with its subsidiary American Network Insurance Company (collectively “Penn Treaty”, a long-term care insurance carrier), triggering guaranty fund coverage and ~~accrual~~a charge of ~~a liability. For~~ ~~the nine months ended September 30, 2017,~~ ~~the Company recorded in operating expenses~~ approximately $130 million ~~pre-tax (approximately $85~~before-tax ($85 million after-tax), representing its estimate of the total assessments, net of premium tax offsets for insurance contracts currently written. Some of the assessments were recorded on a discounted basis, using a weighted average discount rate of 3.5%. As of ~~September 30, 2017,~~March 31, 2018, the recorded liability for this assessment was approximately ~~$100 million and total future cash outflows as of September 30, 2017 are expected~~$43 million. Updates to ~~approximate $130 million. This assessment is expected to be updated in future periods for changes in~~ the ~~estimate~~amount of the ~~insolvency. In addition, a~~Penn Treaty assessment were not material in 2018. A portion of this assessment is expected to be offset in the future by premium tax credits that will be recognized in the period received.

E. Legal and Regulatory Matters

The Company is routinely involved in numerous claims, lawsuits, regulatory audits, investigations and other legal matters arising, for the most part, in the ordinary course of managing a global health services business. These actions may include benefit disputes, breach of contract claims, tort claims, provider disputes, disputes regarding reinsurance arrangements, employment and employment discrimination-related suits, employee benefit claims, wage and hour claims, privacy, claims arising from consumer protection laws, intellectual property claims and real estate-related disputes. There are currently, and may be inExcept for the future, attempts to bring class action lawsuits against the industry. The Company also is regularly engaged in Internal Revenue Service (“IRS”) audits and may be subject to examinations by various state and foreign taxing authorities. Disputed income taxspecific matters arising from these examinations, including those resulting in litigation, are accounted for under GAAP guidance for uncertain tax positions. Further information on income tax matters can be found in Note 15.

The business of administering and insuring health services programs, particularly health care and group insurance programs, is heavily regulated by federal and state laws and administrative agencies, such as state departments of insurance and the U.S. Departments of Health and Human Services, Treasury, Labor and Justice, as well as the courts. Health care regulation and legislation in its various forms, including the Health Care Reform Act, other regulatory reform initiatives, such as those relating to Medicare programs, or additional changes in existing laws or regulations or their interpretations, could have a material adverse effect on the Company’s business, results of operations and financial condition.

In addition, there is heightened review by federal and state regulators of the health care, disability and life insurance industry business and related reporting practices. Cigna is frequently the subject of regulatory market conduct reviews and other examinations of its business and reporting practices, audits and investigations by state insurance and health and welfare departments, state attorneys general, CMS and the Office of Inspector General (“OIG”). With respect to Cigna’s Medicare Advantage business, CMS and OIG perform audits to determine a health plan’s compliance with federal regulations and contractual obligations, including compliance with proper coding practices (sometimes referred to as Risk Adjustment Data Validation audits or RADV audits), that may result in retrospective adjustments to payments made to health plans. Regulatory actions can result in assessments, civil or criminal fines or penalties or other sanctions, including loss of licensing or exclusion from participating in government programs.

The Department of Justice (“DOJ”) is currently conducting an industry review of the risk adjustment data submission practices and business processes, including review of medical charts, of Medicare Advantage organizations under Medicare Parts C and D. In connection with this industry review, in December 2016, the Company received a Civil Investigative Demand from the Civil Division of the DOJ. We are in the process of voluntarily cooperating with the DOJ’s request and responding to the information request.

As a global company, Cigna is also subject to the laws, regulations and rules of the foreign jurisdictions in which it conducts business. Foreign laws and rules, and regulatory audit and investigation practices, may differ from or be more stringent than, similar requirements in the U.S.

Regulation, legislation and judicial decisions have resulted in changes to industry and the Company’s business practices, financial liability or other sanctions and will continue to do so in the future.

When the Company (in the course of its regular review of pending litigation and legal or regulatory matters) has determined that a material loss is reasonably possible, the matter is disclosed. Such matters are described below. In accordance with GAAP, when litigation and regulatory matters present loss contingencies that are both probable and estimable, the Company accrues the estimated loss by a charge to shareholders’ net income. The amount accrued represents the Company’s best estimate of the probable loss at the time. If only a range of estimated losses can be determined, the Company accrues an amount within the range that, in the Company’s judgment, reflects the most likely outcome; if none of the estimates within that range is a better estimate than any other amount, the Company accrues the minimum amount of the range. In cases when the Company has accrued an estimated loss, the accrued amount may differ materially from the ultimate amount of the loss. In many proceedings, it is inherently difficult to determine whether any loss is probable or even possible to estimate the amount or range of any loss. The Company provides disclosure in the aggregate for material pending litigation and legal or regulatory matters, including accruals, range of loss, or a statement that such information cannot be estimated. As a litigation or regulatory matter develops, the Company monitors the matter for further developments that could affect the amount previously accrued, if any, and updates such amount accrued or disclosures previously provided as appropriate.

The outcome of litigation and other legal or regulatory matters is always uncertain, and unfavorable outcomes that are not justified by the evidence or existing law can occur. The Company believes that it has valid defenses to the matters pending against it and is defending itself vigorously. Except as otherwise noted below, the Company believes that the legal actions, regulatory matters, proceedings and investigations currently pending against it should not have a material adverse effect on the Company’s results of operations, financial condition or liquidity based upon our current knowledge and taking into consideration current accruals. Disputed tax matters arising from audits by the Internal Revenue Service (“IRS”) or other state and foreign jurisdictions, including those resulting in litigation, are accounted for under GAAP guidance for uncertain tax positions. Further information on income tax matters can be found in Note 15.

Pending litigation and legal or regulatory matters that the Company has identified with a reasonably possible material loss are described below. When litigation and regulatory matters present loss contingencies that are both probable and estimable, the Company accrues the estimated loss by a charge to shareholders’ net income. The estimated loss is the Company’s best estimate of the probable loss at the time or an amount within a range of estimated losses reflecting the most likely outcome or the minimum amount of the range (if no amount is better than any other estimated amount in the range.) The Company had pre-tax reserves as of September 30, 2017 of approximately $190 million ($125 million after-tax) for the matters discussed below under “Litigation Matters.” As of September 30, 2016, the Company had a pre-tax reserve of $40 million ($25 million after-tax) for litigation related to the Company’s claim handling practices for a commercial client. This matter was settledprovides disclosure in the ~~fourth quarter~~aggregate for material pending litigation and legal or regulatory matters, including accruals, range of ~~2016.~~ loss, or a statement that such information cannot be estimated. Due to numerous uncertain factors presented in these cases, it is not possible to estimate an aggregate range of loss (if any) for these matters at this time. In light of the uncertainties involved in these matters, there is no assurance that their ultimate resolution will not exceed the amounts currently accrued by the Company. An adverse outcome in one or more of these matters could be material to the Company’s results of operations, financial condition or liquidity for any particular period. The Company had pre-tax reserves as of March 31, 2018 of $195 million ($155 million after-tax) for the matters discussed below under “Litigation Matters.”

Litigation Matters

Amara cash balance pension plan litigation. In December 2001, Janice Amara filed a class action lawsuit in the U.S. District Court for the District of Connecticut against Cigna Corporation and the Cigna Pension Plan (the “Plan”) on behalf of herself and other similarly situated Plan participants affected by the 1998 conversion to a cash balance formula. The plaintiffs allege various violations of the Employee Retirement Income Security Act of 1974 (“ERISA”), including that the Plan’s cash balance formula discriminates against older employees; that the conversion resulted in a wear-away period (when the pre-conversion accrued benefit exceeded the post-conversion benefit); and that the Plan communications contained inaccurate or inadequate disclosures about these conditions.

In 2008, the District Court (1) affirmed the Company’s right to convert to a cash balance plan prospectively beginning in 1998; (2) found for plaintiffs on the disclosure claim only; and (3) required the Company to pay pre-1998 benefits under the pre-conversion traditional annuity formula and post-1997 benefits under the post-conversion cash balance formula. ~~The Second Circuit upheld this decision.~~ From 2008 through ~~the present,~~2015, this case has undergone a series of court proceedings that resulted in the original District Court order being largely upheld. In 2015, the Company submitted to the District Court its proposed method for calculating the additional pension benefits due to class members and plaintiffs responded in August 2015.

In January 2016, the District Court ordered the method of calculating the additional pension benefits due to class members. The court order left several aspects of the calculation of additional plan benefits open to interpretation. ~~During 2016,~~From that time through the ~~Company submitted its interpretation of the Court Order and the plaintiffs filed~~present, both parties have disputed various ~~objections. On January 10, 2017, the District Court issued an additional ruling regarding certain~~ aspects of the ~~calculation of additional plan benefits.~~Court’s interpretation and the Court has attempted to clarify. On July 14, 2017, the ~~District~~ Court ~~ruled on~~issued a ~~motion for clarification and reconsideration,~~ruling clarifying ~~and modifying~~certain aspects of the January ~~10,~~2016 order. The Plaintiffs filed a motion for reconsideration of the July 14, 2017 ~~Order.~~ruling that was denied by the Court on November 7, 2017. The Company’s reserve for this litigation ~~remains reasonable~~is adequate at ~~September 30, 2017,~~March 31, 2018, based on calculations consistent with the Company’s interpretation of the ~~updated~~latest guidance from the Court. ~~The Plaintiffs have filed a motion for reconsideration~~Due to the continuing inability of the ~~July 14, 2017 Order. The~~parties to agree on the details of calculating the pension benefits, the final timing of the resolution of this matter ~~therefore~~ remains uncertain. Once these issues are resolved, the Plan will be amended to comply with the ~~final interpretation of the~~ District Court’s ~~order~~orders and the benefits will begin to be paid.

Ingenix. In April 2004, the Company was sued in a number of putative nationwide class actions alleging that the Company improperly underpaid claims for out-of-network providers through the use of data provided by Ingenix, Inc., a subsidiary of one of the Company’s competitors. These actions were consolidated into Franco v. Connecticut General Life Insurance Company, et al., pending in the U.S. District Court for the District of New Jersey. The consolidated amended complaint, filed in 2009 on behalf of subscribers, health care providers and various medical associations, asserted claims related to benefits and disclosure under ERISA, the Racketeer Influenced and Corrupt Organizations (“RICO”) Act, the Sherman Antitrust Act and New Jersey state law and seeks recovery for alleged underpayments from 1998 through the present. Other major health insurers have been the subject of, or have settled, similar litigation.

In September 2011, the District Court (1) dismissed all claims by the health care provider and medical association plaintiffs for lack of standing; and (2) dismissed the antitrust claims, the New Jersey state law claims and the ERISA disclosure claim. In January 2013 and again in April 2014, the District Court denied separate motions by the plaintiffs to certify a nationwide class of subscriber plaintiffs. The Third Circuit denied plaintiffs’ request for an immediate appeal of the January 2013 ruling. As a result, the case is proceeding on behalf of the named plaintiffs only. In June 2014, the District Court granted the Company’s motion for summary judgment to terminate all claims, and denied the plaintiffs’ partial motion for summary judgment. In July 2014, the plaintiffs appealed all of the District Court’s decisions in favor of the Company, including the class certification decision, to the Third Circuit. On May 2, 2016, the Third Circuit affirmed the District Court’s decisions denying class certification for the claims asserted by members, the granting of summary judgment on the individual plaintiffs’ claims, as well as the dismissal of the antitrust claims. However, the Third Circuit also reversed the earlier dismissal of the providers’ ERISA claims. The Company will continue to vigorously defend its position.

Regulatory Matters

Civil Investigative Demand. The U.S. Department of Justice (“DOJ”) is conducting an industry review of Medicare Advantage organizations’ risk adjustment practices under Medicare Parts C and D, including medical chart reviews and health exams. The Company is currently responding to information requests (civil investigative demands) received from the DOJ (U.S. Attorney’s Offices for the Eastern District of Pennsylvania and the Southern District of New York). We will continue to cooperate with the DOJ’s investigation.

Disability claims regulatory matter. During the second quarter of 2013, the Company finalized an agreement with the Departments of Insurance for Maine, Massachusetts, Pennsylvania, Connecticut and California (together, the “monitoring states”) related to the Company’s long-term disability claims handling practices. The agreement requires primarily: (1) enhanced procedures related to documentation and disposition and (2) a two-year monitoring period followed by a re-examination that began in the second quarter of 2016. Management believes the Company has addressed the requirements of the agreement. If the monitoring states find material non-compliance with the agreement upon re-examination, the Company may be subject to additional costs and penalties or requests to change its business practices that could negatively impact future earnings for this business.

Other Legal Matters

Litigation with Anthem. In February 2017, the Company delivered a notice to Anthem terminating the 2015 merger agreement, and notifying Anthem that it must pay the Company the $1.85 billion reverse termination fee pursuant to the terms of the merger agreement. Also in February 2017, the Company filed suit against Anthem in the Delaware Court of Chancery (the “Chancery Court”) seeking declaratory judgments that the Company’s termination of the merger agreement was valid and that Anthem was not permitted to extend the termination date. The complaint also sought payment of the reverse termination fee and additional damages in an amount exceeding $13 billion, including the lost premium value to the Company’s shareholders caused by Anthem’s willful breaches of the merger agreement.

Also in February 2017, Anthem filed a lawsuit in the Chancery Court against the Company seeking (i) a temporary restraining order to enjoin Cigna from terminating and taking any action contrary to the terms of the merger agreement, (ii) specific performance compelling Cigna to comply with the merger agreement and (iii) damages.

On February 15, 2017, the Chancery Court granted Anthem’s motion for a temporary restraining order and temporarily enjoined the Company from terminating the merger agreement. In May 2017, the Chancery Court denied Anthem’s motion for a preliminary injunction to enjoin Cigna from terminating the merger agreement but stayed its ruling pending Anthem’s determination as to whether to seek an appeal. Anthem subsequently notified Cigna and the Chancery Court that it did not intend to appeal the Chancery Court’s decision. As a result, the merger agreement was terminated.

The litigation between the parties remains pending. Trial is scheduled for 2019. We believe in the merits of our claims and dispute Anthem’s claims, and we intend to vigorously defend ourselves and pursue our claims. The outcomes of lawsuits are inherently unpredictable, and we may be unsuccessful in the ongoing litigation or any future claims or litigation.

~~Shareholder Litigation.~~ Following announcement of the Company’s merger agreement with Anthem in 2015, putative class action complaints (collectively the “complaints” or “Cigna Merger Litigation”) were filed by purported Cigna shareholders on behalf of a purported class of Cigna shareholders. The plaintiffs generally asserted that members of the Cigna Board of Directors breached their fiduciary duties to the Cigna shareholders during merger negotiations and by entering into the merger agreement and approving the merger, and that Cigna, Anthem and Anthem Merger Sub Corp (“Merger Sub”) aided and abetted such breaches of fiduciary duties.

Solely to avoid the costs, risks and uncertainties inherent in litigation, and without admitting any liability or wrongdoing, the Company, the Company’s directors, Anthem and Merger Sub previously entered into a Memorandum of Understanding (“MOU”) to settle the Cigna Merger Litigation. The termination of the proposed merger as announced on May 12, 2017, has rendered moot both the MOU and the Cigna Merger Litigation. On July 26, 2017, the Court issued an order granting the motion to dismiss, resolving the Cigna Merger Litigation.

Note 17 — Segment Information

See Note 1 for a description of the Company’s reporting segments.

In the Company’s segment disclosures, we present “operating revenues,” defined as total revenues excluding realized investment results. Beginning in 2018, realized investment results from the Company’s equity method joint ventures in the Global Supplemental Benefits segment are also excluded due to the potential increased volatility in investment results after adopting ASU 2016-01. The Company excludes realized investment results from this measure because its portfolio managers may sell investments based on factors largely unrelated to the underlying business purposes of each segment. As a result, gains or losses created in this process may not be indicative of the past or future underlying performance of the business.

The Company uses “adjusted income (loss) from operations” as its principal financial measure of segment operating performance because management believes it best reflects the underlying results of business operations and permits analysis of trends in underlying revenue, expenses and profitability. Adjusted income from operations is defined as shareholders’ net income (loss) excluding after-tax realized investment gains and losses, ~~net~~ amortization of other acquired intangible assets and special items. Income or expense amounts are excluded from adjusted income from operations for the following reasons:

· Realized investment results are excluded because, as noted above, the Company’s portfolio managers may sell investments based on factors largely unrelated to the underlying business purposes of each segment. As discussed above, beginning in 2018, realized investment results from the Company’s equity method joint ventures in the Global Supplemental Benefits segment are also excluded.

· ~~Net amortization~~Amortization of other intangible assets is excluded because it relates to costs incurred for acquisitions and, as a result, it does not relate to the core performance of the Company’s business operations.

· Special items, if any, are excluded because management believes they are not representative of the underlying results of operations. This is generally because the nature and size of these matters are not indicative of our ongoing business operations. Further context about these items is provided in the footnotes listed in the table below.

Three Months Ended

September 30, 2017

September 30, 2016

(In millions)

Before-tax

After-tax

Before-tax

After-tax

Debt extinguishment costs - see Note 5

$
321

$
209

$
-

$
-

Merger-related transaction costs - see Note 3

9

6

49

46

Charges associated with litigation matters - see Note 16(E)

-

-

40

25

Total impact from special items

$
330

$
215

$
89

$
71

Nine Months Ended

September 30, 2017

September 30, 2016

Before-tax

After-tax

Before-tax

After-tax

Debt extinguishment costs - see Note 5

$
321

$
209

$
-

$
-

Merger-related transaction costs - see Note 3

88

8

123

108

Long-term care guaranty fund assessment - see Note 16(D)

129

83

-

-

Charges associated with litigation matters - see Note 16(E)

-

-

40

25

Total impact from special items

$
538

$
300

$
163

$
133

	Three Months Ended
	March 31, 2018				March 31, 2017
	Before-tax		After-tax		Before-tax		After-tax
Transaction-related costs - see Note 3	$	60	$	50	$	63	$	49
Long-term care guaranty fund assessment - see Note 16(D)		-		-		129		83
Total impact from special items	$	60	$	50	$	192	$	132

Summarized segment financial information was as follows:

(In millions)

Global Health
Care

Global
Supplemental
Benefits

Group
Disability and
Life

Other
Operations

Corporate

Total

Three Months Ended September 30, 2017

Premiums, fees and other revenues and mail order pharmacy revenues

$
7,980

$
954

$
1,015

$
29

$
(11)

$
9,967

Net investment income

89

31

84

86

8

298

Operating revenues

$
8,069

$
985

$
1,099

$
115

$
(3)

$
10,265

Total revenues

$
8,144

$
985

$
1,136

$
120

$
(3)

$
10,382

Shareholders’ net income (loss)

$
610

$
105

$
97

$
18

$
(270)

$
560

After-tax adjustments to reconcile to adjusted income from operations:

Net realized investment (gains)

(47)

-

(24)

(4)

-

(75)

Amortization of other acquired intangible assets, net

12

4

-

-

-

16

Special items:

Debt extinguishment costs

-

-

-

-

209

209

Merger-related transaction costs

-

-

-

-

6

6

Total special items

-

-

-

-

215

215

Adjusted income (loss) from operations

$
575

$
109

$
73

$
14

$
(55)

$
716

(In millions)	Global Health Care		Global Supplemental Benefits		Group Disability and Life		Other Operations		Corporate		Total
Three Months Ended March 31, 2018
Premiums, fees and other revenues and mail order pharmacy revenues(1)	$	8,974	$	1,066	$	1,026	$	31	$	(13)	$	11,084
Net investment income	115		34		90		85		5		329
Less net realized investment (losses) on equity method subsidiaries	-		(2)		-		-		-		(2)
Operating revenues	$	9,089	$	1,102	$	1,116	$	116	$	(8)	$	11,415
Total revenues	$	9,069	$	1,100	$	1,100	$	120	$	(9)	$	11,380
Shareholders’ net income (loss)	$	842	$	105	$	54	$	29	$	(115)	$	915
After-tax adjustments to reconcile to adjusted income from operations
Net realized investment (gains) losses(2)	15		1		13		(5)		1		25
Amortization of other acquired intangible assets	14		6		-		-		-		20
Special items
Transaction-related costs	-		-		-		-		50		50
Adjusted income (loss) from operations	$	871	$	112	$	67	$	24	$	(64)	$	1,010

(1) Includes the Company’s share of the earnings of its joint ventures in China and India in the Global Supplemental Benefits segment.

(2) Beginning in 2018, includes net realized investment results from the Company’s equity method joint ventures in the Global Supplemental Benefits segment.

(In millions)	Global Health Care		Global Supplemental Benefits		Group Disability and Life		Other Operations		Corporate		Total
Three Months Ended March 31, 2017
Premiums, fees and other revenues and mail order pharmacy revenues (1)	$	8,195	$	881	$	1,032	$	30	$	(13)	$	10,125
Net investment income	92		28		89		86		8		303
Operating revenues	$	8,287	$	909	$	1,121	$	116	$	(5)	$	10,428
Total revenues	$	8,313	$	922	$	1,129	$	115	$	(5)	$	10,474
Shareholders’ net income (loss)	$	544	$	77	$	59	$	20	$	(102)	$	598
After-tax adjustments to reconcile to adjusted income from operations
Net realized investment (gains)	(16)		(9)		(6)		—		—		(31)
Amortization of other acquired intangible assets	14		6		—		—		—		20
Special items
Transaction-related costs	—		—		—		—		49		49
Long-term care guaranty fund assessment	68		—		15		—		—		83
Total special items	68		—		15		—		49		132
Adjusted income (loss) from operations	$	610	$	74	$	68	$	20	$	(53)	$	719

(1) Includes the Company’s share of the earnings of its joint ventures in China and India in the Global Supplemental Benefits segment.

Revenue from external customers includes premiums, fees and other revenues and mail order pharmacy revenues. The following table presents these revenues by product type for the periods ended March 31:

(In millions)

Global Health
Care

Global
Supplemental
Benefits

Group
Disability and
Life

Other
Operations

Corporate

Total

Three Months Ended September 30, 2016

Premiums, fees and other revenues and mail order pharmacy revenues

$
7,636

$
837

$
1,026

$
28

$
(4)

$
9,523

Net investment income

77

29

85

87

4

282

Operating revenues

$
7,713

$
866

$
1,111

$
115

$
-

$
9,805

Total revenues

$
7,775

$
868

$
1,128

$
109

$
-

$
9,880

Shareholders’ net income (loss)

$
413

$
77

$
65

$
9

$
(108)

$
456

After-tax adjustments to reconcile to adjusted income from operations:

Net realized investment (gains) losses

(42)

-

(12)

5

1

(48)

Amortization of other acquired intangible assets, net

20

4

-

-

-

24

Special items:

Merger-related transaction costs

-

-

-

-

46

46

Charges associated with litigation matters

25

-

-

-

-

25

Total special items

25

-

-

-

46

71

Adjusted income (loss) from operations

$
416

$
81

$
53

$
14

$
(61)

$
503

Nine Months Ended September 30, 2017

Premiums, fees and other revenues and mail order pharmacy revenues

$
24,079

$
2,759

$
3,070

$
89

$
(35)

$
29,962

Net investment income

273

90

262

260

24

909

Operating revenues

$
24,352

$
2,849

$
3,332

$
349

$
(11)

$
30,871

Total revenues

$
24,485

$
2,861

$
3,399

$
351

$
(11)

$
31,085

Shareholders’ net income (loss)

$
1,753

$
283

$
253

$
55

$
(373)

$
1,971

After-tax adjustments to reconcile to adjusted income from operations:

Net realized investment (gains)

(85)

(9)

(44)

(2)

-

(140)

Amortization of other acquired intangible assets, net

40

14

-

-

-

54

Special items:

Debt extinguishment costs

-

-

-

-

209

209

Merger-related transaction costs

-

-

-

-

8

8

Long-term care guaranty fund assessment

68

-

15

-

-

83

Total special items

68

-

15

-

217

300

Adjusted income (loss) from operations

$
1,776

$
288

$
224

$
53

$
(156)

$
2,185

(In millions)

Global Health
Care

Global
Supplemental
Benefits

Group
Disability and
Life

Other
Operations

Corporate

Total

Nine Months Ended September 30, 2016

Premiums, fees and other revenues and mail order pharmacy revenues

$
23,207

$
2,425

$
3,065

$
83

$
(14)

$
28,766

Net investment income

230

82

253

270

13

848

Operating revenues

$
23,437

$
2,507

$
3,318

$
353

$
(1)

$
29,614

Total revenues

$
23,510

$
2,507

$
3,356

$
352

$
(1)

$
29,724

Shareholders’ net income (loss)

$
1,414

$
214

$
81

$
53

$
(277)

$
1,485

After-tax adjustments to reconcile to adjusted income from operations:

Net realized investment (gains) losses

(49)

1

(25)

1

1

(71)

Amortization of other acquired intangible assets, net

56

16

-

-

-

72

Special items:

Merger-related transaction costs

-

-

-

-

108

108

Charges associated with litigation matters

25

-

-

-

-

25

Total special items

25

-

-

-

108

133

Adjusted income (loss) from operations

$
1,446

$
231

$
56

$
54

$
(168)

$
1,619

	Three Months Ended
	March 31,
(In millions)	2018		2017
Premiums by product (ASC 944 - insurance activities)
Global Health Care
Commercial
Guaranteed cost	$	1,999	$	1,543
Experience-rated	739		727
Stop loss	980		852
International health care	513		475
Dental	479		441
Other	258		246
Government
Medicare	1,498		1,461
Medicaid	235		280
Medicare Part D	228		234
Total Global Health Care	6,929		6,259
Disability	505		501
Life, Accident and Supplemental Health	1,539		1,367
Total premiums from ongoing operations	8,973		8,127
Fees (ASC 606 - service activities)
Global Health Care	1,326		1,220
Global Supplemental Benefits	7		5
Group Disability and Life	25		27
Total fees from ongoing operations	1,358		1,252
Mail order pharmacy (ASC 606 - service activities)	717		710
Other	36		36
Total revenues from external customers	$	11,084	$	10,125

The Company had net receivables from ~~CMS~~the Centers for Medicare and Medicaid Services (“CMS”) of ~~$0.4~~$0.3 billion as of ~~September 30, 2017~~March 31, 2018 and ~~$0.6~~$0.5 billion as of December 31, ~~2016.~~2017. These amounts were included in the Consolidated Balance Sheets in premiums, accounts and notes receivable and reinsurance recoverables. Premiums from CMS were ~~17%~~18% of consolidated revenues for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 and ~~20% for the nine months ended September 30, 2016.~~2017. These amounts were reported in the Global Health Care segment.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

INDEX

Cautionary Statement	4944
Executive Overview	5045
Liquidity and Capital Resources	5550
Critical Accounting Estimates	5853
Segment Reporting	5853
Global Health Care	5954
Global Supplemental Benefits	6056
Group Disability and Life	6257
Other Operations	6357
Corporate	6358
Investment Assets	6458
Market Risk	6761

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide information to assist you in better understanding and evaluating our financial condition as of ~~September 30, 2017~~March 31, 2018 compared with December 31, ~~2016~~ 2017 and our results of operations for the three months ~~and nine months~~ ended ~~September 30, 2017~~March 31, 2018 compared with the same ~~periods~~period last year. We encourage you to read this MD&A in conjunction with our Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2017 (“~~2016~~2017 Form 10-K”), in particular the “Risk Factors” contained in Part I, Item 1A of that form.

Unless otherwise indicated, financial information in the MD&A is presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”). See Note 2 to the Consolidated Financial Statements in our ~~2016~~2017 Form 10-K for additional information regarding our significant accounting ~~policies.~~policies and Note 2 to these Consolidated Financial Statements in this Form 10-Q for updates to those accounting policies resulting from adopting new accounting guidance. The preparation of interim consolidated financial statements necessarily relies heavily on estimates. This and certain other factors, such as the seasonal nature of portions of the health care and related benefits business, as well as competitive and other market conditions, call for caution in estimating full-year results based on interim results of operations. In some of our financial tables in this MD&A, we present percentage changes or “N/M” when those changes are so large as to become not meaningful. Changes in percentages are expressed in basis points (“bps”).

In this MD&A, our consolidated measures “operating revenues” and “adjusted income from operations” are not determined in accordance with GAAP and should not be viewed as substitutes for the most directly comparable GAAP measures “total revenues” and “shareholders’ net income.”

We define operating revenues as total revenues excluding realized investment results. Beginning in 2018, realized investment results from our equity method joint ventures in the Global Supplemental Benefits segment are also excluded due to the potential increased volatility in investment results after adopting Accounting Standards Update (“ASU”) 2016-01. We exclude realized investment results from this measure because our portfolio managers may sell investments based on factors largely unrelated to the underlying business purposes of each segment. As a result, gains or losses created in this process may not be indicative of the past or future underlying performance of the business.

We use adjusted income (loss) from operations as our principal financial measure of operating performance because management believes it best reflects the underlying results of our business operations and permits analysis of trends in underlying revenue, expenses and profitability. We define adjusted income from operations as shareholders’ net income (loss) excluding after-tax realized investment gains and losses, ~~net~~ amortization of other acquired intangible assets and special items. Income or expense amounts are excluded from adjusted income from operations for the following reasons:

· Realized investment results are excluded because, as noted above, our portfolio managers may sell investments based on factors largely unrelated to the underlying business purposes of each segment. As discussed above, beginning in 2018, realized investment results from our equity method joint ventures in the Global Supplemental Benefits segment are also excluded.

· Special items, if any, are excluded because management believes they are not representative of the underlying results of operations. See Note 17 to the Consolidated Financial Statements for descriptions of special items.

Cautionary Note Regarding Forward-Looking Statements

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

Forward-looking statements are subject to risks and uncertainties, both known and unknown, that could cause actual results to differ materially from those expressed or implied in forward-looking statements. Such risks and uncertainties include, but are not limited to: our ability to achieve our financial, strategic and operational plans or initiatives; our ability to predict and manage medical costs and price effectively and develop and maintain good relationships with physicians, hospitals and other health care providers; the impact of modifications to our operations and ~~processes, including those in our disability business;~~processes; our ability to identify potential strategic acquisitions or transactions and realize the expected benefits of such ~~transactions;~~transactions, including with respect to the Merger; the substantial level of government regulation over our business and the potential effects of new laws or regulations or changes in existing laws or regulations; the outcome of litigation, regulatory audits, investigations, actions and/or guaranty fund assessments; uncertainties surrounding participation in government-sponsored programs such as Medicare; the effectiveness and security of our information technology and other business systems; unfavorable industry, economic or political conditions, including foreign currency movements; acts of war, terrorism, natural disasters or pandemics; ~~uncertainty~~ our ability to obtain shareholder or regulatory approvals required for the Merger or the requirement to accept conditions that could reduce the anticipated benefits of the Merger as a condition to obtaining regulatory approvals; a longer time than anticipated to consummate the proposed Merger; problems regarding the successful integration of the businesses of Express Scripts and Cigna; unexpected costs regarding the proposed Merger; diversion of management’s attention from ongoing business operations and opportunities during the pendency of the Merger; potential litigation associated with the proposed Merger; the ability to retain key personnel; the availability of financing, including relating to the ~~outcome~~proposed Merger; effects on the businesses as a result of uncertainty surrounding the litigation between Cigna and Anthem, Inc. with respect to the termination of the merger agreement, the reverse termination fee and/or contract and non-contract damages for claims each party has filed against the other, including the risk that a court finds that Cigna has not complied with its obligations under the merger agreement, is not entitled to receive the reverse termination fee or is liable for breach of the merger agreement;proposed Merger; as well as more specific risks and uncertainties discussed in Part I, Item 1A – Risk Factors and Part II, Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations of our ~~2016~~2017 Form 10-K, Part II, Item 1A of this Quarterly Report on Form 10-Q and as described from time to time in our future reports filed with the Securities and Exchange Commission ~~(“SEC”~~(the “SEC”) as well as the risks and uncertainties described in ~~Anthem’s~~Express Scripts’ most recent report on Form 10-K and subsequent reports filed with the SEC.

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

EXECUTIVE OVERVIEW

·~~“Go~~to “Go Deeper” ~~by expanding~~, “Go Local” and ~~deepening our customer, client and partner relationships as well as our relationships in targeted sub-segments and geographies;~~

·~~“Go Local”~~ ~~by ensuring our products, solutions and services are both personalized and highly localized for the benefit of our customers, clients and partners; and~~

·~~“Go~~“Go Beyond” ~~by innovating and further differentiating our businesses, the experiences we deliver, and overall social impact.~~

~~We execute this strategy~~ with a differentiated set of medical, dental, disability, life and accident insurance and related products and services offered by our subsidiaries. In addition to our ongoing operations, we also have certain run-off operations.

For further information on our business and strategy, please see Part 1, Item 1, “Business” in our ~~2016~~ 2017 Form 10-K.

Summarized below are key measures of our performance by reporting segment for the three months ended March 31, 2018 and ~~nine months ended September 30, 2017 and 2016:~~2017:

Financial highlights by segment

	Three Months Ended						Nine Months Ended						Three Months Ended
	September 30,						September 30,						March 31,
(Dollars in millions, except per share amounts)	2017		2016		% Change		2017		2016		% Change		2018		2017		% Change
Total revenues(1)	$	10,382	$	9,880	5	%	$	31,085	$	29,724	5	%	$	11,380	$	10,474	9	%
Operating revenues(1)
Global Health Care	$	8,069	$	7,713	5	%	$	24,352	$	23,437	4	%	$	9,089	$	8,287	10	%
Global Supplemental Benefits	985		866		14		2,849		2,507		14		1,102		909		21
Group Disability and Life	1,099		1,111		(1)		3,332		3,318		-		1,116		1,121		-
Other Operations	115		115		-		349		353		(1)		116		116		-
Corporate	(3)		-		N/M		(11)		(1)		N/M		(8)		(5)		(60)
Consolidated operating revenues	$	10,265	$	9,805	5	%	$	30,871	$	29,614	4	%	$	11,415	$	10,428	9	%
Shareholders’ net income (1)	$	560	$	456	23	%	$	1,971	$	1,485	33	%	$	915	$	598	53	%
Adjusted income (loss) from operations (1)
Global Health Care	$	575	$	416	38	%	$	1,776	$	1,446	23	%	$	871	$	610	43	%
Global Supplemental Benefits	109		81		35		288		231		25		112		74		51
Group Disability and Life	73		53		38		224		56		300		67		68		(1)
Other Operations	14		14		-		53		54		(2)		24		20		20
Corporate	(55)		(61)		10		(156)		(168)		7		(64)		(53)		(21)
Total adjusted income from operations	$	716	$	503	42	%	$	2,185	$	1,619	35	%	$	1,010	$	719	40	%
Earnings per share (diluted):
Earnings per share (diluted)
Shareholders’ net income (1)	$	2.21	$	1.76	26	%	$	7.67	$	5.72	34	%	$	3.72	$	2.30	62	%
Adjusted income from operations (1)	$	2.83	$	1.94	46	%	$	8.50	$	6.24	36	%	$	4.11	$	2.77	48	%

							As of September 30,						As of March 31,
							2017		2016				2018		2017
Global medical customers (in thousands)							15,816		15,177		4	%	16,234		15,734		3	%

(1) See page 5146 for reconciliations of consolidated operating revenues to consolidated total revenues and adjusted income from operations to shareholders’ net income.

See Note 1 to the Consolidated Financial Statements for a description of our reporting segments. For further analysis and explanation of individual segment results, see the “Segment Reporting” section of this MD&A beginning on page ~~58.~~53.

Consolidated results of operations (GAAP basis)

	Three Months Ended								Nine Months Ended									Three Months Ended
	September 30,								September 30,									March 31,
(In millions)	2017			2016			% Change		2017				2016			% Change		2018			2017			% Change
Premiums	$	8,030		$	7,605		6	%	$	24,143			$	23,005		5	%	$	8,999		$	8,151		10	%
Fees and other revenues	1,204			1,156			4		3,619				3,554			2		1,368			1,264			8
Net investment income	298			282			6		909				848			7		329			303			9
Mail order pharmacy revenues	733			762			(4)		2,200				2,207			-		717			710			1
Net realized investment (losses) gains																		(33)			46			(172)
Total revenues																		11,380			10,474			9
Less: net realized investment (losses) gains																		(33)			46			(172)
Less: net realized investment (losses) from equity method subsidiaries (1)																		(2)			-			N/M
Consolidated operating revenues	10,265			9,805			5		30,871				29,614			4		11,415			10,428			9
Net realized investment gains	117			75			56		214				110			95
Total revenues	10,382			9,880			5		31,085				29,724			5
Global Health Care medical costs	4,880			4,692			4		14,789				14,230			4		5,317			4,949			7
Other benefit expenses	1,342			1,343			-		4,044				4,125			(2)		1,455			1,367			6
Mail order pharmacy costs	612			638			(4)		1,819				1,842			(1)		561			581			(3)
Operating expenses	2,696			2,428			11		7,497				7,038			7		2,802			2,655			6
Amortization of other acquired intangible assets, net	28			37			(24)		88				115			(23)
Amortization of other acquired intangible assets																		27			32			(16)
Total benefits and expenses	9,558			9,138			5		28,237				27,350			3		10,162			9,584			6
Income before income taxes	824			742			11		2,848				2,374			20		1,218			890			37
Income taxes	262			290			(10)		883				905			(2)		301			297			1
Net income	562			452			24		1,965				1,469			34		917			593			55
Less: net income (loss) attributable to noncontrolling interests	2			(4)			150		(6)				(16)			63		2			(5)			140
Shareholders’ net income	$	560		$	456		23	%	$	1 ,971			$	1,485		33	%	$	915		$	598		53	%

Reconciliation of shareholders’ net income to adjusted income from operations

	Three Months Ended						Change		Nine Months Ended							Change		Three Months Ended						Change
	September 30,						Favorable		September 30,							Favorable		March 31,						Favorable
(In millions)	2017			2016			(Unfavorable)		2017				2016			(Unfavorable)		2018			2017			(Unfavorable)
Shareholders’ net income	$	560		$	456		23	%	$		1,971		$	1,485		33	%	$	915		$	598		53	%
After-tax adjustments required to reconcile to adjusted income from operations:
Net realized investment (gains)	(75)			(48)					(140)				(71)
Amortization of other acquired intangible assets, net	16			24					54				72
Special items:
Debt extinguishment costs	209			-					209				-
Merger-related transaction costs	6			46					8				108
After-tax adjustments required to reconcile to adjusted income from operations
Net realized investment losses (gains) (1)																		25			(31)
Amortization of other acquired intangible assets																		20			20
Special items
Transaction-related costs																		50			49
Long-term care guaranty fund assessment	-			-					83				-					-			83
Charges associated with litigation matters	-			25					-				25
Total special items	215			71					300				133					50			132
Adjusted income from operations	$	716		$	503		42	%	$		2,185		$	1,619		35	%	$	1,010		$	719		40	%

Other key consolidated financial data

	Three Months Ended						Change		Nine Months Ended							Change		Three Months Ended						Change
	September 30,						Favorable		September 30,							Favorable		March 31,						Favorable
(In millions)	2017			2016			(Unfavorable)		2017				2016			(Unfavorable)		2018			2017			(Unfavorable)
Earnings per share (diluted):
Earnings per share (diluted)
Shareholders’ net income	$	2.21		$	1.76		26	%	$		7.67		$	5.72		34	%	$	3.72		$	2.30		62	%
After-tax adjustments required to reconcile to adjusted income from operations:
Net realized investment (gains)	(0.29)			(0.19)					(0.54)				(0.27)
Amortization of other acquired intangible assets, net	0.06			0.09					0.21				0.28
Special items:
Debt extinguishment costs	0.82			-					0.81				-
Merger-related transaction costs	0.03			0.18					0.03				0.41
After-tax adjustments required to reconcile to adjusted income from operations
Net realized investment losses (gains) (1)																		0.10			(0.12)
Amortization of other acquired intangible assets																		0.08			0.08
Special items
Transaction-related costs																		0.21			0.19
Long-term care guaranty fund assessment	-			-					0.32				-					-			0.32
Charges associated with litigation matters	-			0.10					-				0.10
Adjusted income from operations	$	2.83		$	1.94		46	%	$		8.50		$	6.24		36	%	$	4.11		$	2.77		48	%
Effective tax rate	31.8		%	39.1		%	730	bps	31.0			%	38.1		%	710	bps	24.7		%	33.4		%	870	bps

(1) Beginning in 2018, the Company’s share of the realized investment results of our equity method joint ventures in the Global Supplemental Benefits segment that is reported in other revenues is excluded from operating revenues and adjusted income from operations.

Earnings, Revenue and Medical Customer Commentary

Shareholders’ net income increased for the three months ~~and nine months~~ ended ~~September 30, 2017~~March 31, 2018 compared with the same ~~periods~~period in ~~2016~~2017 primarily due to higher adjusted income from operations and realized investment results. These favorable effects were partially offset by debt extinguishment costs recognized in the third quarter of 2017. See Note 5 to the Consolidated Financial Statements.operations.

Adjusted income from operationsincreased for the three months ~~and the nine months~~ ended ~~September 30, 2017~~March 31, 2018 compared with the same ~~periods~~period in ~~2016 reflecting higher earnings~~2017, driven in ~~each~~part by the impact of ~~our ongoing reportable segments: Global Health Care, Global Supplemental Benefits~~the lower U.S. tax rate effective January 1, 2018 resulting from the recently enacted U.S. tax reform legislation. Margin improvement and ~~Group Disability and Life. These increases were primarily driven by overall~~ customer growth in our Global Health Care and Global Supplemental Benefits ~~and~~segments, together with increased contributions from specialty ~~businesses~~products in ~~Global Health Care. Significantly improved claim experience in Group Disability and Life~~our Commercial segment also contributed to ~~these increases.~~the increase.

Revenues for the three months ~~and nine months~~ ended ~~September 30, 2017~~March 31, 2018 increased compared with the same ~~periods~~period in ~~2016~~2017 primarily resulting from business growth in our Global Health Care and Global Supplemental ~~Benefits.~~Benefits segments. Components of the revenue increases were as follows:

· Premiums increased, primarily reflecting customer growth in the Commercial segment and in Global Supplemental Benefits. ~~Expected decreases~~Rate increases in ~~Government~~our Commercial segment ~~premiums due~~ to ~~Medicare disenrollment partially offset these increases. See Health Care Industry Developments starting on page 53 for additional discussion~~recover underlying medical cost trend, the government’s suspension of ~~our Medicare business.~~cost share reduction subsidies and the resumption of the health insurance industry tax also contributed to the increase.

· Fees and other revenues also increased, ~~in each period,~~ primarily due to growth in our specialty businesses and an increased customer base for our administrative services only business.

· Net investment income was higher, ~~in each period,~~ reflecting growth in average ~~invested~~ assets ~~partially offset by lower yields.~~resulting from strong operating cash flows.

· ~~Mail order pharmacy revenues~~ ~~decreased for the three months reflecting lower volume due to targeted~~ ~~fulfillment~~ and affordability initiatives partially offset by manufacturers’ price increases primarily for injectable medications. For the nine months, revenues were flat reflecting increased injectable medication prices and utilization offset by lower oral medication prices and volumes.

·Realized investment results ~~increased~~ for the three months ended ~~September 30,~~March 31, 2018 reflected losses on sales, credit impairments on fixed maturities and mark-to-market adjustments on equity securities reported in net income as required by ASU 2016-01 beginning in 2018. Compared with the same period in 2017, ~~primarily due to higher gains on real estate investment sales. For~~ the ~~nine months ended~~ ~~September 30, 2017, realized~~decline in realized investment results ~~increased primarily due to higher~~also reflected the absence of gains on sales of alternative ~~and real estate~~ investments ~~as well as lower impairment losses.~~reported in the first quarter of 2017.

Global medical customers. Our medical customer base increased as of ~~September 30, 2017~~March 31, 2018 compared with ~~September 30, 2016,~~March 31, 2017, reflecting growth ~~across~~primarily in our ~~Commercial~~select and middle market ~~segments, partially offset by the expected Medicare Advantage disenrollment in the Government segment.~~segments.

Commentary on Other Components of Consolidated Results of Operations

· Global Health Care medical costs. The ~~increases~~increase for the three months ~~and~~ ~~nine months~~ ended ~~September 30, 2017~~March 31, 2018 compared with the same ~~periods~~period in ~~2016~~ ~~were~~2017 was primarily due to customer growth in the Commercial segment and medical cost ~~trend, partially offset by expected decreases in Government segment customers due to disenrollment. Favorable prior year reserve development in 2017 also partially offset the increases.~~trend.

· Other benefit expenses ~~were flat~~increased for the three months ~~and decreased for the~~ ~~nine months~~ ended ~~September 30, 2017~~March 31, 2018 compared with the same ~~periods~~period in ~~2016. These results were~~2017, driven ~~by improvements in our disability and life claims experience partially offset~~ by customer growth in Global Supplemental Benefits. ~~The flat results in~~

·Mail order pharmacy costs decreased, primarily reflecting lower oral medication volumes.

·Operating expenses increased for the ~~third quarter also reflect improved disability and life claim experience in the third quarter of 2016,~~three months ended March 31, 2018 compared with the ~~unfavorable claim experience~~same period in 2017 driven by the resumption of the health insurance industry tax in 2018, volume-based expenses reflecting business growth and spending on business initiatives. The absence of the long-term care guaranty fund assessment recorded in the first ~~half~~quarter of ~~2016.~~2017 partially offset the increase.

·Effective tax rate. The decrease in our effective tax rate for the three months ended March 31, 2018 compared with the same period in 2017 was primarily due to the lower U.S. tax rate effective January 1, 2018 resulting from the recently enacted U.S. tax reform legislation. This favorable effect was partially offset by the resumption of the non-deductible health insurance industry tax in 2018.

Key Transactions and Developments

~~Operating expenses~~ increased for the three months and nine months ended September 30, 2017 compared with the same periods in 2016 resulting from debt extinguishment costs and volume-based expenses reflecting business growth. These increases were partially offset by the moratorium on the health insurance industry tax in 2017 and a reduction in costs related to our Centers for Medicare and Medicaid Services (“CMS”) audit response.

~~Effective tax rate.~~ The decreases in our effective tax rates for the three months and nine months ended September 30, 2017 compared with the same periods in 2016 were primarily due to the moratorium on the health insurance industry tax in 2017 and lower merger-related costs, most of which were previously non-deductible. For the nine months ended September 30, 2017, the incremental tax benefit associated with previously non-deductible merger-related costs also contributed to the decline. See Note 3 to the Consolidated Financial Statements for additional information.

~~Termination~~Proposed Acquisition of ~~Proposed Merger with Anthem, Inc.~~Express Scripts

On ~~May 12, 2017, we announced that~~March 8, 2018, the ~~merger agreement between~~Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Express Scripts Holding Company (“Express Scripts”), Halfmoon Parent, Inc., a direct wholly owned subsidiary of the Company (“New Cigna”), Halfmoon I, Inc., a direct wholly owned subsidiary of New Cigna (“Cigna Merger Sub”), and ~~Anthem,~~Halfmoon II, Inc. ~~has been terminated.~~ , a direct wholly owned subsidiary of New Cigna (“Express Scripts Merger Sub”). See Note 3 ~~and Note 16(E)~~ to the Consolidated Financial Statements for additional ~~details.~~details of our proposed acquisition of Express Scripts (the “Merger”). We expect to incur material costs related to this proposed acquisition in 2018. These costs are being reported in “transaction-related costs” as a special item and excluded from adjusted income from operations. See the “Liquidity and Capital Resources” section of the MD&A for further discussion of the financing for the proposed acquisition.

U.S. Tax Reform Legislation

Major U.S. tax reform legislation was enacted in December 2017. The legislation is highlighted by a reduction in the corporate income tax rate to 21% effective January 1, 2018. As further discussed in Note 15 to the Consolidated Financial Statements, our effective tax rate declined significantly for the three months ended March 31, 2018 compared with the same period in 2017, contributing to a material increase in shareholders’ net income. We would expect that trend to continue in 2018. For the three months ended March 31, 2018, there were no adjustments to the provisional amounts first recognized in 2017 as a result of U.S. tax reform legislation. In accordance with guidance of the staff of the SEC, our accounting for these amounts is not complete and is expected to be evaluated and adjusted, as needed, until we file our 2017 U.S. tax return later in 2018. In addition, we have evaluated the global intangible low-taxed income (“GILTI”) provisions of U.S. tax reform that became effective January 1, 2018. For the three months ended March 31, 2018, the GILTI tax impact was immaterial. We will continue to evaluate these provisions in future periods as further guidance emerges. It is our policy to recognize any GILTI taxes as period costs when incurred.

Health Care Industry Developments and Other Matters Affecting Our Global Health Care Segment

Our ~~2016~~2017 Form 10-K provides a detailed description of The Patient Protection and Affordable Care Act (the ~~“Health Care Reform Act” or~~ “ACA”) provisions and other legislative initiatives that impact our health care business, including regulations issued by ~~CMS~~the Centers for Medicare & Medicaid Services (“CMS”) and the Departments of the Treasury and Health and Human Services (“HHS”). In October 2017, the President issued an executive order that could result in a variety of changes to the individual and group health insurance markets when implemented. At this time, we are unable to determine the effect, if any, of these changes on our business or results of operations. In addition, the President ordered the immediate cessation of cost sharing reduction subsidy payments to insurers. Discussions on the ACA continue in the U.S. Congress. The table presented below provides an update of the impact of these items and other matters affecting our Global Health Care segment as of ~~September 30, 2017.~~March 31, 2018.


Item			Description

Medicare Advantage (“MA”)			~~CMS sanctions:~~ On June 16, 2017, the Company received notification from CMS that the marketing and enrollment sanctions imposed by CMS on January 21, 2016 have been lifted. Cigna has resumed marketing of its Medicare Advantage-Prescription Drug and Medicare Part D Plans and began enrolling beneficiaries with effective dates beginning July 1, 2017. For the three months and nine months ended September 30, 2017, Medicare enrollment and consolidated revenues were materially impacted due to our inability to participate in 2017 annual enrollment and management expects that trend to continue for the remainder of 2017. However, 2017 shareholders’ net income is not materially affected because the margin impact of the revenue loss has been offset by 2017 remediation costs that are significantly lower than the $100 million after-tax amount reported in 2016 and other operational efficiencies that improved 2017 results. The impact of disenrollment was not material to 2016 consolidated revenues and earnings. Medicare Star Quality Ratings (“Star Ratings”): Medicare Advantage plans must have a Star Rating of four Stars or higher to qualify for bonus payments. W~~e expect that approximately~~Approximately 60% of our Medicare Advantage customers ~~will be~~are in a four Star or greater plan for bonus payments to be received in 2018. In October 2017, CMS announced Star Ratings for plans for the 2019 payment ~~year. We expect~~year, indicating that approximately 40% of our Medicare Advantage customers will be in a four Star or greater plan for bonus payments to be received in 2019. Management continues to evaluate various actions to improve the Company’s Star ~~Ratings.~~Ratings for the 2019 payment year. ~~2018~~2019 MA Rates: Final MA reimbursement rates for ~~2018~~2019 were published by CMS in April ~~2017.~~2018. We do not expect the new rates to have a material impact on our consolidated results of operations in ~~2018.~~2019.


Item			Description

Health Care Reform Act Taxes and Fees ~~Industry Tax~~			Health Insurance Industry Tax: Federal legislation imposed a moratorium on the health insurance industry tax for 2017 and 2019. The industry tax is being assessed in 2018 and, under current law, will return again in 2020. The industry tax for Cigna in 2018 is expected to approximate $390 million ($260 million for Commercial and $130 million for Government) ~~and~~. For the three months ended March 31, 2018, we recorded $97 million. For our Commercial business, the tax is reflected in our 2018 premium rates, ~~(primarily~~and did not have a material effect on shareholders’ net income for the three months ended March 31, 2018. For our Medicare business, the earnings impact was more significant than in our Commercial ~~business). In 2017, our premium rates reflected~~business; however, the ~~moratorium on the health insurance industry tax that was imposed by federal legislation. The amount of the~~earnings impact in 2018 resulting from this renewed tax was ~~approximately $310 million in 2016,~~somewhat offset with benefit and ~~we recognized approximately $230 million in operating expenses for the nine months ended September 30, 2016.~~ pricing changes. Because this tax is not deductible for federal income tax purposes, it ~~will~~ negatively ~~impact~~impacted our effective tax rate ~~in 2018.~~
~~Reinsurance Fee~~			~~Reinsurance Fee:~~ ~~This fee was applicable only from 2014 through 2016. For our insured business,~~for the ~~amount of the fee was approximately $45 million in 2016,~~three months ended March 31, 2018, and we ~~recognized approximately $30 million for~~expect this negative effect to continue throughout 2018. In 2017, premium rates in our Commercial business reflected the ~~nine months ended September 30, 2016.~~moratorium on the health insurance industry tax and we expect our rates to reflect the moratorium in 2019.
Public Health Exchanges			Market Participation: For ~~2017,~~2018, we offer individual coverage on ~~seven~~six public health insurance exchanges in the following states: Colorado, Illinois, ~~Maryland,~~ Missouri, North Carolina, Tennessee and Virginia. ~~For 2018, we plan to continue offering individual coverage on the same exchanges with the exception of Maryland.~~ Cost Sharing Reduction Subsidies: The ~~Health Care Reform Act~~ACA provides for cost sharing reductions that lower the amount that qualifying customers pay for deductibles, copayments and coinsurance. The federal government ~~has~~had provided funding for the cost sharing reduction subsidies to the qualifying customer’s insurer. In October 2017, ~~President Trump announced that~~ the ~~administration will stop~~federal government stopped payment of these subsidies to insurers effective immediately. The attorneys general of 18 states and the District of Columbia have sued the Trump administration, seeking to require the administration to continue paying these subsidies. ~~While the litigation is at a preliminary stage, on~~On October 25, 2017, the court denied the attorney generals’ request for an injunction, allowing the government to cease providing the cost sharing reduction payments to insurers during the pendency of the matter. Discussions in the U.S. Congress are ongoing regarding the potential funding of these subsidies. We will continue to monitor ~~developments as the case proceeds. The impact of suspending future cost sharing reduction subsidies is immaterial to 2017 consolidated earnings.~~developments. Our ~~pricing actions~~premium rates for the 2018 plan year ~~have anticipated that~~reflect the ~~government would no longer pay for~~government’s decision to stop paying these subsidies.

Risk Mitigation Programs

See Note 2(K) to the Consolidated Financial Statements in our ~~2016~~2017 Form 10-K for a description of these programs ~~that commenced in 2014~~ and our related accounting policy. The risk corridor and reinsurance programs ended as of December 31, 2016. The amounts due to us net of allowances as of ~~September 30, 2017~~March 31, 2018 and the after-tax impact on shareholders’ net income for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 were not material.

See the MD&A in our ~~2016~~2017 Form 10-K for ~~discussion of~~an update on our ~~decision to record an~~ allowance for the balance of our risk corridor receivable. As of ~~September 30, 2017,~~March 31, 2018, this allowance ~~for our risk corridor receivable~~ remains based on the current status of court decisions. However, we continue to believe that the government has a binding obligation to satisfy the risk corridor receivable.

The following table presents our balances associated with the risk adjustment program as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016.~~2017.

	Receivable (Payable) Balance				Receivable (Payable) Balance
	September 30,		December 31,		March 31,		December 31,
(In millions)	2017		2016		2018		2017
Risk Adjustment
Receivables (1)	$	80	$	52	$	78	$	69
Payables (2)	(184)		(51)		(335)		(250)
Net risk adjustment	$	(104)	$	1	$	(257)	$	(181)

(1) Receivables, net of allowances, are reported in premiums, accounts and notes receivable in the Consolidated Balance Sheets.

(2) Payables are reported in accounts payable, accrued expenses and other liabilities in the Consolidated Balance Sheets.

For the three months ~~and nine months~~ ended ~~September 30, 2017,~~March 31, 2018, after-tax charges for the risk adjustment program were ~~$21 million and $72~~$60 million compared with ~~after-tax benefits of $1 million and $23~~$18 million for the same ~~periods~~period in ~~2016.~~2017.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

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

Liquidity requirements at the subsidiary level generally consist of:

· medical costs and benefit payments to policyholders; and

· ~~operating~~ expense requirements, primarily for employee compensation and benefits, information technology and facilities ~~costs.~~costs; and

· income taxes.

Our subsidiaries normally meet their operating requirements by:

· maintaining appropriate levels of cash, cash equivalents and short-term investments;

· using cash flows from operating activities;

· selling investments;

· matching investment durations to those estimated for the related insurance and contractholder liabilities; and

· borrowing from affiliates, subject to applicable regulatory limits.

Liquidity requirements at the parent company level generally consist of:

· debt service and dividend payments to shareholders;

· pension plan funding; and

· repurchases of common stock.

The parent company normally meets its liquidity requirements by:

· maintaining appropriate levels of cash and various types of marketable investments;

· collecting dividends from its subsidiaries;

· using proceeds from issuance of debt and equity securities; and

· borrowing from its ~~subsidiaries.~~subsidiaries, subject to applicable regulatory limits.

Cash flows for the ~~nine~~three months ended ~~September 30,~~March 31, were as follows:

(In millions)	2017			2016			2018			2017
Operating activities ~~(1)~~	$	3,511		$	3,179		$	2,025		$	1,579
Investing activities ~~(1)~~	$	(1,100	)	$	(1,694	)	$	(1,700	)	$	(117	)
Financing activities	$	(1,968	)	$	(255	)	$	(530	)	$	(515	)

~~(1) As required in adopting Accounting Standards Update (“ASU”) 2016-15, we retrospectively reclassified $105 million of cash distributions from partnership earnings from investing to operating~~Operating activities for the nine months ended September 30, 2016. The comparable amount reported in operating activities in 2017 was $114 million. See Note 2 to the Consolidated Financial Statements for further discussion.

Cash flows from operating activities consist of cash receipts and disbursements for premiums, fees and other revenues, mail order pharmacy, investment income, taxes and benefits and expenses. Because certain income and expense transactions do not generate cash, and because cash transactions related to revenues and expenses may occur in periods different from when those revenues and expenses are recognized in shareholders’ net income, cash flows from operating activities can significantly differ from shareholders’ net income.

Cash provided by operating activities increased for the three months ended March 31, 2018 compared with the same period in 2017, primarily driven by higher net income. Both periods included early receipt of April payments from CMS of approximately $730 million.

Investing activities

Cash flows from investing activities generally consist of net investment purchases or sales and net purchases of property and equipment including capitalized internal-use software, as well as cash used to acquire businesses.

Cash used in investing activities increased for the three months ended March 31, 2018 compared with the same period in 2017, primarily due to higher fixed maturity investment purchases.

Financing activities

Cash flows from financing activities are generally comprised of issuances and re-payment of debt, proceeds on the issuance of common stock resulting from stock option exercises, and stock repurchases. In addition, the subsidiaries report net deposits and withdrawals to and from contractholder deposit fund liabilities (that include universal life insurance liabilities) because such liabilities are considered financing activities with policyholders.

~~Operating activities~~

Cash ~~provided by operating~~used in financing activities increased slightly for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 compared with the same period in ~~2016, primarily driven by higher net income, partially offset by a voluntary pension contribution of $150 million. Both periods included early receipt of October payments from CMS.~~

~~Investing activities~~

~~Cash used in investing activities~~ ~~decreased~~ ~~for the nine months ended September 30,~~ 2017, ~~compared with the same period in~~ ~~2016, primarily due to lower net investment purchases.~~

~~Financing activities~~

~~Cash used in financing activities increased for the nine months ended September 30, 2017 compared with the same period in 2016,~~ primarily due to higher ~~share repurchases. The proceeds from the Company’s $1.6 billion new debt issuance were largely~~stock repurchases and bridge financing fees, offset by ~~$1.3 billion paid to extinguish $1.0 billion~~lower repayments of ~~aggregate debt principal amounts, as well as the repayment of maturing debt in the first quarter of 2017.~~long-term debt.

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

Year to date through ~~November 1, 2017,~~May 2, 2018, we ~~had~~ repurchased 131.3 million shares for approximately ~~$2.3 billion. The total remaining~~$275 million. We do not expect to conduct additional share ~~repurchase authorization as~~repurchases prior to closing of ~~November 1, 2017 was $1.5 billion.~~the Express Scripts combination.

Interest Expense

Interest expense on long-term debt, short-term debt and capital leases was as follows:

Three Months Ended

Nine Months Ended

September 30,

September 30,

(In millions)

2017

2016

2017

2016

Interest expense

   $
61

   $
63

   $
183

   $
188

~~Interest expense reported above for the three months and nine months ended September 30, 2017 excludes losses on the early extinguishment of debt.~~

	Three Months Ended
	March 31,
(In millions)	2018		2017
Interest expense	$	59	$	62

Capital Resources

Our capital resources (primarily retained earnings and the proceeds from ~~the issuance of~~issuing debt and equity securities) provide protection for policyholders, furnish the financial strength to underwrite insurance risks and facilitate continued business growth.

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

We prioritize our use of capital resources to:

· provide the capital necessary to support growth and maintain or improve the financial strength ratings of subsidiaries;

· consider acquisitions that are strategically and economically advantageous; and

· return capital to investors through share repurchase.

The availability of capital resources will be impacted by equity and credit market conditions. Extreme volatility in credit or equity market conditions may reduce our ability to issue debt or equity securities.

Liquidity and Capital Resources Outlook

TheThe availability of resources at the parent company level is partially dependent on dividends from our subsidiaries, most of which are subject to regulatory restrictions and rating agency capital guidelines, and partially dependent on the availability of liquidity from the issuance of debt or equity securities.

At ~~September 30, 2017,~~March 31, 2018, there was ~~$1.7~~$1.0 billion in cash and marketable investments available at the parent company level. For the remainder of ~~2017,~~2018, the parent company’s cash obligations are approximately ~~$45~~$375 million, primarily for interest ~~payments. In the third quarter of 2017, we issued new long-term debt of $1.6 billion~~payments and ~~extinguished $1.0 billion aggregate principal amount of outstanding debt for $1.3 billion as part of a cash tender offer.~~incurred but unpaid bridge financing fees. In the first quarter of ~~2017,~~2018, we repaid ~~$250~~$131 million of ~~maturing~~ long-term ~~debt and made a voluntary pension contribution of $150 million.~~debt.

We expect to have sufficient liquidity to meet the obligations discussed above, based on the parent company’s current cash position and current projections for subsidiary dividends. In addition, we actively monitor our debt obligations and engage in issuance or redemption activities as needed in accordance with our capital management strategy.

Our cash projections may not be realized and the demand for funds could exceed available cash if our ongoing businesses experience unexpected shortfalls in earnings, or we experience material adverse effects from one or more risks or uncertainties described more fully in the Risk Factors section of the ~~2016~~2017 Form ~~10-K.~~10-K and in Part II, Item 1 of this Form 10-Q. In those cases, we expect to have the flexibility to satisfy liquidity needs through a variety of measures including intercompany ~~borrowings and sales of liquid investments.~~borrowings. The parent company may borrow up to $1.3 billion from its insurance subsidiaries without additional state approval. ~~As of September 30, 2017, the parent company had no outstanding intercompany loans payable to its insurance subsidiaries. Alternatively, to satisfy parent company~~We have additional liquidity ~~requirements we may use~~available through short-term ~~borrowings, such as the~~ commercial paper program and the committed revolving credit and letter of credit agreement of up to $1.5 billion, subject to the maximum debt leverage covenant in the credit agreement. As of September 30, 2017, short-term borrowing capacity of $~~1.5~~ ~~billion under the credit agreement was available to us. Including this $1.5~~ ~~billion, we have borrowing capacity of $9.8~~ ~~billion within the maximum debt leverage covenant in the credit agreement described in Note 5 to the Consolidated Financial Statements, in addition to the $5.3~~ ~~billion of debt outstanding.~~borrowings.

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

~~Despite passing a budget for fiscal year~~In March 2018, ~~the state of Illinois continues~~we announced we had entered into an agreement to acquire Express Scripts. This transaction is expected to be ~~delinquent~~financed as follows:

·Stock. Express Scripts shareholders will receive 0.2434 of a share of common stock of New Cigna for every one share of Express Scripts. Based on the number of Express Scripts shares outstanding at the date of the Merger Agreement, we expect to issue approximately 140 million additional shares to Express Scripts shareholders. Cigna shareholders will receive one share of New Cigna for each Cigna common share.

·Debt. In March 2018, we entered into a $26.7 billion Bridge Facility commitment letter to finance a portion of the acquisition. On April 6, 2018, we entered into a $3.0 billion 3-year Term Loan Credit Agreement. Concurrent with entry into the Term Loan Credit Agreement, the Bridge Facility commitment was reduced to $23.7 billion. The available commitment under the Bridge Facility will be further reduced to the extent we obtain certain other debt financing, complete certain asset sales or certain equity issuance. See Note 5 to the Consolidated Financial Statements for further information.

·Assumption of Express Scripts debt. This debt will be paid upon its scheduled maturities in ~~processing~~the normal course of business.

Upon closing of the transaction, we expect that our pro forma debt-to-capitalization ratio will be approximately 49%. We expect to deleverage to a range of 35-40% within 18 to 24 months after the closing. Based on current interest rates, the additional debt financing is expected to increase annual interest payments by approximately $900 million.

On April 6, 2018, in connection with the proposed Merger, the Company and New Cigna entered into the Revolving Credit and Letter of Credit Agreement (the “Revolving Credit Agreement”), which extends through April 5, 2023 and is diversified among 23 banks. Prior to the Merger, the Company will be the borrower under the Revolving Credit Agreement. On and after the Merger, New Cigna will be the borrower under the Revolving Credit Agreement.

Prior to the Merger, the Company can borrow up to $1.5 billion for ~~premiums~~general corporate purposes, of which up to $500 million is available for the issuance of letters of credit. On and ~~fees due~~after the Merger, New Cigna can borrow up to $3.25 billion for general corporate purposes, of which up to $500 million can be used for letters of credit. The Revolving Credit Agreement also includes an option to increase the facility amount by up to $500 million and an option to extend the termination date for additional one year periods, subject to consent by the banks.

The Revolving Credit Agreement contains customary covenants and restrictions, including a financial covenant that the Company or New Cigna may not permit its ~~ongoing financial difficulties.~~ leverage ratio – which is the ratio of total consolidated debt to total consolidated capitalization (each as defined in the Revolving Credit Agreement) – to be greater than 50% prior to the Merger or 60% after the Merger.

In certain circumstances, certain subsidiaries of the Company or New Cigna will be required to guarantee the obligations of Cigna or New Cigna under the Revolving Credit Agreement and the Term Loan Credit Agreement. See Note 5 to the Consolidated Financial Statements for further information.

The ~~total amount due to us from the state under our commercial and Medicaid contracts was approximately $100~~Company had $10 million of letters of credit outstanding as of ~~September 30, 2017. We continue to monitor our receivable balances and work with the state on the timing of payments. By December~~March 31, ~~2017, all of our contracts with the state of Illinois will be terminated.~~2018.

Overseas earnings. We continue to maintain a capital management strategy to retain overseas a significant portion of the earnings from our foreign operations. ~~As of September 30, 2017, undistributed earnings were approximately $3.0 billion.~~ These undistributed earnings are deployed outside of the ~~U.S.~~United States predominantly in support of the liquidity and regulatory capital requirements of our foreign ~~operations. Approximately $330 million of cash and cash equivalents held overseas~~operations as of September 30, 2017 would be subject to additional tax expense representing the difference between the U.S. and foreign tax rates, if repatriated. We continue to expect most of the undistributed earnings and future earnings to be reinvestedwell as to support growth initiatives overseas. This strategy does not materially limit our ability to meet our liquidity and capital needs in the ~~U.S.~~United States.

Guarantees and Contractual Obligations

We are contingently liable for various contractual obligations entered into during the ordinary course of business. See Note 16 to the Consolidated Financial Statements for additional information.

Contractual obligations. ~~We have updated certain~~There are no material updates to the contractual obligations previously provided in our ~~2016~~2017 Form ~~10-K for the following items:~~10-K.

·~~Long-term debt: we issued new debt and redeemed existing debt in September 2017. See Note 5 to the Consolidated Financial Statements for additional information.~~

·Investment commitments: we have entered into new commitments to invest in securities limited partnerships and real estate limited partnerships and to purchase investments. See Note 12 to the Consolidated Financial Statements for additional information.

~~The maturities of these contractual cash obligations as of September 30, 2017 are estimated to be as follows:~~

Less than 1

1-3

4-5

After 5

(In millions, on an undiscounted basis)

Total

year

years

years

years

On-Balance Sheet

Long-term debt

   $
8,358

   $
416

   $
1,003

   $
1,493

   $
5,446

Off-Balance Sheet

Purchase obligations

   $
1,830

   $
1,070

   $
595

   $
81

   $
84

CRITICAL ACCOUNTING ESTIMATES

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

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

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

We have discussed the development and selection of our critical accounting estimates and reviewed the disclosures presented in our ~~2016~~ 2017 Form 10-K with the Audit Committee of our Board of Directors. We regularly evaluate items that may impact critical accounting estimates. Our most critical accounting estimates, as well as the effects of hypothetical changes in material assumptions used to develop each estimate, are described in the ~~2016~~2017 Form 10-K. As of ~~September 30, 2017,~~March 31, 2018, there were no significant changes to the critical accounting estimates from what was reported in our ~~2016~~2017 Form 10-K.

~~Goodwill~~

Our annual evaluations of goodwill for impairments were completed during the third quarter of 2017. These evaluations were performed at the reporting unit level, based on discounted cash flow analyses or market data. The estimated fair value of each of our reporting units exceeded their carrying values by adequate margins.

Management believes the current assumptions used to estimate amounts reflected in our Consolidated Financial Statements are appropriate. However, if actual experience differs from the assumptions used in estimating amounts reflected in our Consolidated Financial Statements, the resulting changes could have a material adverse effect on our consolidated results of operations, and in certain situations, could have a material adverse effect on liquidity and our financial condition.

SEGMENT REPORTING

The following section of this MD&A discusses the results of each of our reporting segments. In these segment discussions, we present “operating revenues,” defined as total revenues excluding realized investment results and “adjusted income from operations,” defined as shareholders’ net income (loss) excluding after-tax realized investment results, ~~net~~ amortization of other acquired intangible assets and special items. Ratios presented in this segment discussion exclude the same items as adjusted income from operations. See Note 17 to the Consolidated Financial Statements for additional discussion of these metrics.

In these segment discussions, we also present “adjusted margin,” defined as adjusted income from operations divided by operating revenues.

See the MD&A Executive Overview beginning on page 5045 for summarized financial results of each of our reporting segments.

Global Health Care Segment

As described in the Segment Reporting introduction ~~on page 58,~~above, the performance of the Global Health Care segment is measured using adjusted income from operations as presented in the table below. The key factors affecting adjusted income from operations for this segment are:

·customer growth;

·sales of specialty products;

·~~operating expenses as a percentage of operating revenues (operating expense ratio); and~~

·medical costs as a percentage of premiums (medical care ratio or “MCR”) for our ~~commercial~~Commercial and ~~government businesses.~~Government businesses; and

·operating expenses as a percentage of operating revenues (operating expense ratio)

Effective January 1, 2018, we adopted amended accounting guidance for revenue recognition. For the Global Health Care segment, prior year operating revenues along with adjusted margin and both the medical care and operating expense ratios have been retrospectively adjusted to conform to this new basis of accounting. See Note 2 to the Consolidated Financial Statements for additional information.

Results of Operations

Global Health Care segment financial summary	Three Months Ended								Nine Months Ended
																			Three Months Ended
Global Health Care segment financial summary	September 30,						Change		September 30,								Change		March 31,						Change
	2017			2016			Favorable (Unfavorable)		2017				2016				Favorable (Unfavorable)		2018			2017			Favorable (Unfavorable)
Operating revenues	$	8,069		$	7,713		5	%	$		24,352		$		23,437		4	%	$	9,089		$	8,287		10	%
Adjusted income from operations	$	575		$	416		38	%	$		1,776		$		1,446		23	%	$	871		$	610		43	%
Adjusted margin	7.1		%	5.4		%	170bps		7.3			%	6.2			%	110bps		9.6		%	7.4		%	220bps
Medical Care Ratios:
Medical Care Ratios
Commercial	78.6		%	79.4		%	80bps		78.3			%	78.0			%	(30)bps		73.7		%	76.0		%	230bps
Government	84.0		%	85.3		%	130bps		85.4			%	85.9			%	50bps		84.5		%	85.9		%	140bps
Consolidated Global Health Care	80.2		%	81.6		%	140bps		80.5			%	81.1			%	60bps		76.7		%	79.1		%	240bps
Operating expense ratio	21.1		%	22.1		%	100bps		20.5			%	21.3			%	80bps		22.7		%	21.8		%	(90)bps

									As of September 30,
(In thousands)									2017				2016				% Change
Customers:
Total commercial risk									2,940				2,541				16	%
Total government									484				583				(17	)
Total risk									3,424				3,124				10
Service									12,392				12,053				3
Total medical customers									15,816				15,177				4	%

									As of
(In millions)									September 30, 2017				December 31, 2016				% Change
Global Health Care medical costs payable									$	2,783			$	2,532			10	%

	As of March 31,
(In thousands)	2018	2017	% Change
Customers
Total Commercial risk	3,153	2,927	8	%
Total Government	484	502	(4	)
Total risk	3,637	3,429	6
Service	12,597	12,305	2
Total medical customers	16,234	15,734	3	%

~~Adjusted income from operations~~ ~~increased~~ for the three months and nine months ended September 30, 2017 compared with the same periods in 2016 reflecting higher earnings in both our Commercial and Government operating segments. The increase in the Commercial segment reflects customer growth including increased contributions from our specialty products and favorable claim experience in our U.S. Individual business. The Government segment’s earnings growth reflects lower operating expenses related to the moratorium on the health insurance industry tax in 2017 and our 2016 CMS audit response, partially offset by lower customer volumes. Adjusted income from operations included favorable after-tax prior year reserve development of $19 million for the ~~three months and $116 million for the~~ ~~nine months ended September 30, 2017. For the comparable periods in 2016, prior year reserve development was not material.~~

	As of
(In millions)	March 31, 2018		December 31, 2017		% Change
Global Health Care medical costs payable	$	2,925	$	2,719	8	%

Operating revenues. The ~~increases~~increase for the three months ~~and nine months~~ ended ~~September 30, 2017~~March 31, 2018 compared with the same ~~periods~~period in ~~2016 were~~2017 was primarily due to customer growth in our Commercial risk ~~business, partially offset by lower volume~~business. Rate increases in our ~~Government segment.~~Commercial segment to recover underlying medical cost trend, the government’s suspension of cost share reduction subsidies, and the resumption of the health insurance industry tax also contributed to the increase.

Adjusted income from operations increased for the three months ended March 31, 2018 compared with the same period in 2017 reflecting the favorable effect of the lower U.S. tax rate in 2018 resulting from U.S. tax reform and strong ongoing performance in our Commercial business, including improved margins in our U.S. individual business and increased contributions from specialty products.

Medical care ratios. The Commercial medical care ratio decreased for the three months ended ~~September 30, 2017~~March 31, 2018 compared with the same period in ~~2016,~~2017, reflecting ~~improved~~strong ongoing medical cost performance in our Commercial business, including favorable claim experience in the U.S. ~~Commercial businesses, partially offset by~~individual business. The pricing impact of the ~~moratorium on~~resumption of the health insurance industry tax ~~in 2017. For the nine months ended September 30, 2017 compared~~also contributed to the same period in 2016, the Commercial medical care ratio increased slightly, reflecting the 2017 moratorium on the health insurance industry tax offset by favorable prior year reserve development and improved performance in our U.S. Individual business.decline.

The Government medical care ratio decreased for the three months ended ~~September 30, 2017~~March 31, 2018 compared with the same period in ~~2016,~~2017, primarily reflecting increased premium rates and lower medical costs in our Medicare business, partially offset by less favorable prior year reserve ~~development and lower Medicare Part D claim costs. For the~~ nine months ended September 30, 2017 compared with the same period in 2016, the Government medical care ratio decreased, reflecting favorable prior year reserve development partially offset by unfavorable 2017 claim experience.development.

Operating expense ratio. The operating expense ratio ~~decreased~~increased for the three months ~~and nine months~~ ended ~~September 30, 2017,~~March 31, 2018, compared to the same ~~periods~~period in ~~2016,~~2017, primarily reflecting the ~~moratorium on~~resumption of the health insurance industry tax in ~~2017 and lower costs related to our 2016 CMS audit response.~~2018. Excluding the impact of this tax, the operating expense ratio was flat, reflecting business initiative investments offset by higher revenues.

Other Items Affecting Health Care Results

Medical Customers

A medical customer is defined as a person meeting any one of the following criteria:

·is covered under an insurance policy, managed care arrangement, or service agreement issued by us;

·has access to our provider network for covered services under their medical plan; or

·has medical claims and services that are administered by us.

Our medical customer base was higher at ~~September 30, 2017~~March 31, 2018 compared to the same period in ~~2016,~~2017, primarily reflecting growth ~~across our Commercial market segments, partially offset by declines~~ in our ~~Medicare Advantage business.~~middle market and select market segments.

Global Health Care Medical Costs Payable

Medical costs payable was higher at ~~September 30, 2017~~March 31, 2018 compared to December 31, ~~2016,~~2017, primarily due to seasonality in our stop loss ~~products and customer growth in our commercial risk businesses.~~products. See Note 6 to the Consolidated Financial Statements for additional information.

Global Supplemental Benefits Segment

As described in the Segment Reporting introduction on page ~~58,~~53, the performance of the Global Supplemental Benefits segment is measured using adjusted income from operations. The key factors affecting adjusted income from operations for this segment are:

·premium growth, including new business and customer retention;

·benefit expenses as a percentage of premiums (loss ratio);

·operating expenses and acquisition expenses as a percentage of operating revenues (expense ratio and acquisition cost ratio); and

·the impact of foreign currency movements.

Throughout this discussion and in the table presented below, prior period currency adjusted income from operations ~~revenues,~~ and ~~benefits and expenses~~operating revenues are calculated by applying the current period’s exchange rates to reported results in the prior period. A strengthening U.S. ~~Dollar~~dollar against foreign currencies decreases these measures, while a weakening U.S. ~~Dollar~~dollar produces the opposite effect.

Results of Operations

Global Supplemental Benefits segment financial summary	Three Months Ended								Nine Months Ended
Global Supplemental Benefits segment financial summary																	Three Months Ended
Global Supplemental Benefits segment financial summary	September 30,						Change		September 30,						Change		March 31,						Change
Global Supplemental Benefits segment financial summary	2017			2016			Favorable (Unfavorable)		2017			2016			Favorable (Unfavorable)		2018			2017			Favorable (Unfavorable)
Operating revenues	$	985		$	866		14	%	$	2,849		$	2,507		14	%	$	1,102		$	909		21	%
Adjusted income from operations	$	109		$	81		35	%	$	288		$	231		25	%	$	112		$	74		51	%
Operating revenues, using 2017 currency exchange rates	$	985		$	860		15	%	$	2,849		$	2,521		13	%
Adjusted income from operations, using 2017 currency exchange rates	$	109		$	81		35	%	$	288		$	234		23	%
Operating revenues, using 2018 currency exchange rates																	$	1,102		$	955		15	%
Adjusted income from operations, using 2018 currency exchange rates																	$	112		$	81		38	%
Adjusted margin	11.1		%	9.4		%	170bps		10.1		%	9.2		%	90bps		10.2		%	8.1		%	210bps
Loss ratio	54.4		%	54.7		%	30bps		55.6		%	55.4		%	(20)bps		56.2		%	58.4		%	220bps
Acquisition cost ratio	16.9		%	18.2		%	130bps		17.0		%	18.3		%	130bps		16.9		%	17.2		%	30bps
Expense ratio (excluding acquisition costs)	16.8		%	17.3		%	50bps		17.0		%	17.6		%	60bps		14.8		%	17.2		%	240bps

Operating revenues increased for the three months ended March 31, 2018 compared with the same period in 2017, primarily due to business growth, particularly in the United States and South Korea.

Adjusted income from ~~operations.~~ operations~~Results~~ increased for the three months ended ~~September 30, 2017~~March 31, 2018 compared with the same period in ~~2016,~~ 2017, reflecting business growth, primarily in South Korea and ~~China. Lower acquisition cost ratios also contributed to~~ the favorable results. For the nine months ended September 30, 2017, adjusted income from operations increased compared with the same period in 2016 reflecting business growth, primarily in South Korea and China,United States, and lower acquisition cost and operating expense ratios, partially offset by higher ~~taxes.~~

~~Operating revenues~~ ~~increased for the three months and nine months ended September 30, 2017 compared with the same periods~~taxes, primarily in ~~2016 primarily due to business growth, particularly in the U.S. and~~ South Korea.

The segment’s loss ratio decreased for the three months ended ~~September 30, 2017~~March 31, 2018 compared with the same period in ~~2016,~~2017, primarily due to favorable claims experience, partially offset by a shift in business mix. For the nine months ended September 30, 2017 the loss ratio increased compared with the same period in 2016, primarily due to a shift in business mix, largely offset by favorable claims experience.

The acquisition cost ratio decreased for the three months ~~and nine months~~ ended ~~September 30, 2017~~March 31, 2018 compared with the same ~~periods~~period in ~~2016~~2017 due to ~~lower spending in certain markets and~~ a shift toward higher premium markets with lower acquisition costs, primarily in ~~South Korea and~~ the ~~U.S.~~United States.

Operating expense ratio. The operating expense ratio (excluding acquisition costs) decreased for the three months ~~and nine months~~ ended ~~September 30, 2017~~March 31, 2018 compared with the same ~~periods~~period in ~~2016~~2017 reflecting strong ~~operating~~ expense management.

Results of Operations

	Three Months Ended
Global Health Care segment financial summary	March 31,						Change
(In millions)	2018			2017			Favorable (Unfavorable)
Operating revenues	$	9,089		$	8,287		10	%
Adjusted income from operations	$	871		$	610		43	%
Adjusted margin	9.6		%	7.4		%	220bps
Medical Care Ratios
Commercial	73.7		%	76.0		%	230bps
Government	84.5		%	85.9		%	140bps
Consolidated Global Health Care	76.7		%	79.1		%	240bps
Operating expense ratio	22.7		%	21.8		%	(90)bps

	As of March 31,
(In thousands)	2018	2017	% Change
Customers
Total Commercial risk	3,153	2,927	8	%
Total Government	484	502	(4	)
Total risk	3,637	3,429	6
Service	12,597	12,305	2
Total medical customers	16,234	15,734	3	%

	As of
(In millions)	March 31, 2018		December 31, 2017		% Change
Global Health Care medical costs payable	$	2,925	$	2,719	8	%

Operating revenues. The increase for the three months ended March 31, 2018 compared with the same period in 2017 was primarily due to customer growth in our Commercial risk business. Rate increases in our Commercial segment to recover underlying medical cost trend, the government’s suspension of cost share reduction subsidies, and the resumption of the health insurance industry tax also contributed to the increase.

Medical care ratios. The Commercial medical care ratio decreased for the three months ended March 31, 2018 compared with the same period in 2017, reflecting strong ongoing medical cost performance in our Commercial business, including favorable claim experience in the U.S. individual business. The pricing impact of the resumption of the health insurance industry tax also contributed to the decline.

The Government medical care ratio decreased for the three months ended March 31, 2018 compared with the same period in 2017, primarily reflecting increased premium rates and lower medical costs in our Medicare business, partially offset by less favorable prior year reserve development.

Operating expense ratio. The operating expense ratio increased for the three months ended March 31, 2018, compared to the same period in 2017, primarily reflecting the resumption of the health insurance industry tax in 2018. Excluding the impact of this tax, the operating expense ratio was flat, reflecting business initiative investments offset by higher revenues.

Other Items Affecting ~~Global Supplemental Benefits~~Health Care Results

~~For our Global Supplemental Benefits segment, South Korea~~Medical Customers

A medical customer is ~~the single largest geographic market. South Korea generated 51%~~defined as a person meeting any one of the segment’s operating revenues and 87% of the segment’s adjusted income from operations for the nine months ended September 30, 2017. On a consolidated basis, our operations in South Korea represented 5% of our operating revenues and 11% of adjusted income from operations for the ~~nine months ended~~ ~~September 30, 2017~~.following criteria:

~~As a global company,~~· is covered under an insurance policy, managed care arrangement, or service agreement issued by us;

· has access to our ~~business is exposed~~provider network for covered services under their medical plan; or

· has medical claims and services that are administered by us.

Our medical customer base was higher at March 31, 2018 compared to ~~risks inherent~~the same period in ~~foreign operations. We continue~~2017, primarily reflecting growth in our middle market and select market segments.

Global Health Care Medical Costs Payable

Medical costs payable was higher at March 31, 2018 compared to ~~monitor and evaluate~~December 31, 2017, primarily due to seasonality in our stop loss products. See Note 6 to the ~~impacts of the U.K. vote to exit the European Union, the political unrest in Turkey and tensions in the Korean Peninsula.~~Consolidated Financial Statements for additional information.

~~Group Disability and Life~~Global Supplemental Benefits Segment

As described in the Segment Reporting introduction on page ~~58,~~53, the performance of the ~~Group Disability and Life~~Global Supplemental Benefits segment is measured using adjusted income from operations. The key factors affecting adjusted income from operations for this segment are:

·premium growth, including new business and customer retention;

·~~net investment income;~~

·benefit expenses as a percentage of premiums (loss ratio); ~~and~~

·operating expenses and acquisition expenses as a percentage of ~~premiums and fees and other~~operating revenues (expense ratio and acquisition cost ratio).; and

·the impact of foreign currency movements.

Throughout this discussion and in the table presented below, prior period currency adjusted income from operations and operating revenues are calculated by applying the current period’s exchange rates to reported results in the prior period. A strengthening U.S. dollar against foreign currencies decreases these measures, while a weakening U.S. dollar produces the opposite effect.

Results of Operations

Group Disability and Life segment financial summary

Three Months Ended

Nine Months Ended

September 30,

Change

September 30,

Change

(In millions)

2017

2016

Favorable
(Unfavorable)

2017

2016

Favorable
(Unfavorable)

Operating revenues

$
1,099

$
1,111

(1)%

$
3,332

$
3,318

-%

Adjusted income from operations

$
73

$
53

38%

$
224

$
56

300%

Adjusted margin

6.6
%

4.8
%
180bps

6.7
%

1.7
%
500bps

Loss ratio

76.3
%

80.4
%
410bps

76.9
%

85.2
%
830bps

Expense ratio

23.3
%
22.9
%
(40)bps

22.8
%
22.6
%
(20)bps

~~Adjusted income from operations.~~ ~~The increase for the three months ended September 30, 2017 compared with the same period in 2016 was primarily driven~~ ~~by favorable~~ claims experience in both the disability and life businesses. For the nine months ended September 30, 2017, the increase reflects lower disability new claim incidence and a higher resolution rate as modifications to the disability claims management process implemented in the first half of 2016 continue to mature. In addition, life claims have returned to normal levels after a period of significantly elevated claims and a $17 million after-tax unfavorable reserve review, both in the second quarter of 2016.

	Three Months Ended
Global Supplemental Benefits segment financial summary	March 31,						Change
(In millions)	2018			2017			Favorable (Unfavorable)
Operating revenues	$	1,102		$	909		21	%
Adjusted income from operations	$	112		$	74		51	%
Operating revenues, using 2018 currency exchange rates	$	1,102		$	955		15	%
Adjusted income from operations, using 2018 currency exchange rates	$	112		$	81		38	%
Adjusted margin	10.2		%	8.1		%	210bps
Loss ratio	56.2		%	58.4		%	220bps
Acquisition cost ratio	16.9		%	17.2		%	30bps
Expense ratio (excluding acquisition costs)	14.8		%	17.2		%	240bps

Operating revenues ~~decreased~~ increased for the three months ended ~~September 30, 2017~~ March 31, 2018 compared with the same period in ~~2016~~2017, primarily due to ~~cancellations~~business growth, particularly in ~~non-core products. Operating revenues~~the United States and South Korea.

Adjusted income from operations increased for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 compared with the same period in ~~2016 due to disability~~2017, reflecting business growth, primarily in South Korea and ~~higher investment income driven~~the United States, and lower acquisition cost and operating expense ratios, partially offset by higher ~~asset levels.~~taxes, primarily in South Korea.

The segment’s loss ratio decreased for the three months ended ~~September 30, 2017~~ March 31, 2018compared with the same period in ~~2016~~2017, primarily due to ~~lower disability new claim incidence and~~ favorable ~~life~~ claims experience.

The ~~loss~~acquisition cost ratio decreased for the ~~nine~~three months ended ~~September 30, 2017~~ March 31, 2018 compared with the same period in ~~2016~~2017 due to ~~improvement~~a shift toward higher premium markets with lower acquisition costs, primarily in the ~~disability claim resolution rate as noted above, lower disability new claim incidence and significantly improved life claims experience.~~United States.

Operating expense ratio. The operating expense ratio ~~is essentially flat~~(excluding acquisition costs) decreased for the three months ~~and nine months~~ ended ~~September 30, 2017~~March 31, 2018 compared with the same ~~periods~~period in ~~2016.~~2017 reflecting strong expense management.

~~Other Operations~~

As described in the Segment Reporting introduction on page 58, the performance of the Other Operations segment is measured using adjusted income from operations. Cigna’s corporate-owned life insurance (“COLI”) business contributes the majority of earnings in Other Operations. Other Operations also includes the results from the run-off reinsurance and settlement annuity businesses, as well as the remaining deferred gains recognized from the sale of the individual life insurance and annuity and retirement benefits businesses.

Results of Operations

Other Operations segment financial summary	Three Months Ended							Nine Months Ended
Other Operations segment financial summary	September 30,						Change	September 30,						Change
															Three Months Ended
Global Health Care segment financial summary															March 31,						Change
(In millions)	2017			2016			Favorable (Unfavorable)	2017			2016			Favorable (Unfavorable)	2018			2017			Favorable (Unfavorable)
Operating revenues	$	115		$	115		-%	$	349		$	353		(1)%	$	9,089		$	8,287		10	%
Adjusted income from operations	$	14		$	14		-%	$	53		$	54		(2)%	$	871		$	610		43	%
Adjusted margin	12.2		%	12.2		%	-bps	15.2		%	15.3		%	(10)bps	9.6		%	7.4		%	220bps
Medical Care Ratios
Commercial															73.7		%	76.0		%	230bps
Government															84.5		%	85.9		%	140bps
Consolidated Global Health Care															76.7		%	79.1		%	240bps
Operating expense ratio															22.7		%	21.8		%	(90)bps

	As of March 31,
(In thousands)	2018	2017	% Change
Customers
Total Commercial risk	3,153	2,927	8	%
Total Government	484	502	(4	)
Total risk	3,637	3,429	6
Service	12,597	12,305	2
Total medical customers	16,234	15,734	3	%

	As of
(In millions)	March 31, 2018		December 31, 2017		% Change
Global Health Care medical costs payable	$	2,925	$	2,719	8	%

Other Items Affecting Health Care Results

Medical Customers

A medical customer is defined as a person meeting any one of the following criteria:

· is covered under an insurance policy, managed care arrangement, or service agreement issued by us;

· has access to our provider network for covered services under their medical plan; or

· has medical claims and services that are administered by us.

Our medical customer base was higher at March 31, 2018 compared to the same period in 2017, primarily reflecting growth in our middle market and select market segments.

Global Health Care Medical Costs Payable

Medical costs payable was higher at March 31, 2018 compared to December 31, 2017, primarily due to seasonality in our stop loss products. See Note 6 to the Consolidated Financial Statements for additional information.

Global Supplemental Benefits Segment

As described in the Segment Reporting introduction on page 53, the performance of the Global Supplemental Benefits segment is measured using adjusted income from operations. The key factors affecting adjusted income from operations for this segment are:

·premium growth, including new business and customer retention;

·benefit expenses as a percentage of premiums (loss ratio);

·operating expenses and acquisition expenses as a percentage of operating revenues (expense ratio and acquisition cost ratio); and

·the impact of foreign currency movements.

Results of Operations

	Three Months Ended
Global Supplemental Benefits segment financial summary	March 31,						Change
(In millions)	2018			2017			Favorable (Unfavorable)
Operating revenues	$	1,102		$	909		21	%
Adjusted income from operations	$	112		$	74		51	%
Operating revenues, using 2018 currency exchange rates	$	1,102		$	955		15	%
Adjusted income from operations, using 2018 currency exchange rates	$	112		$	81		38	%
Adjusted margin	10.2		%	8.1		%	210bps
Loss ratio	56.2		%	58.4		%	220bps
Acquisition cost ratio	16.9		%	17.2		%	30bps
Expense ratio (excluding acquisition costs)	14.8		%	17.2		%	240bps

Adjusted income from operations increased for the three months ended March 31, 2018 compared with the same period in 2017, reflecting business growth, primarily in South Korea and the United States, and lower acquisition cost and operating expense ratios, partially offset by higher taxes, primarily in South Korea.

The segment’s loss ratio decreased for the three months ended March 31, 2018 compared with the same period in 2017, primarily due to favorable claims experience.

The acquisition cost ratio decreased for the three months ended March 31, 2018 compared with the same period in 2017 due to a shift toward higher premium markets with lower acquisition costs, primarily in the United States.

Operating expense ratio. The operating expense ratio (excluding acquisition costs) decreased for the three months ended March 31, 2018 compared with the same period in 2017 reflecting strong expense management.

Other Items Affecting Global Supplemental Benefits Results

For our Global Supplemental Benefits segment, South Korea is the single largest geographic market. South Korea generated 49% of the segment’s operating revenues and 85% of the segment’s adjusted income from operations for the three months ended March 31, 2018. On a consolidated basis, our operations in South Korea represented 5% of our operating revenues and 9% of adjusted income from operations for the three months ended March 31, 2018.

Group Disability and Life Segment

As described in the Segment Reporting introduction on page 53, the performance of the Group Disability and Life segment is measured using adjusted income from operations. The key factors affecting adjusted income from operations for this segment are:

·premium growth, including new business and customer retention;

·net investment income;

·benefit expenses as a percentage of premiums (loss ratio); and

·operating expenses as a percentage of premiums and fees and other revenues (expense ratio).

Results of Operations

	Three Months Ended
Group Disability and Life segment financial summary	March 31,						Change
(In millions)	2018			2017			Favorable (Unfavorable)
Operating revenues	$	1,116		$	1,121		-%
Adjusted income from operations	$	67		$	68		(1)%
Adjusted margin	6.0		%	6.1		%	(10)bps
Loss ratio	79.1		%	78.2		%	(90)bps
Expense ratio	23.5		%	22.7		%	(80)bps

Operating revenues were relatively flat for the three months ended March 31, 2018 compared with the same period in 2017 due to slightly lower premium and fees, mostly offset by higher investment income.

Adjusted income from operations. The slight decrease for the three months ended March 31, 2018 compared with the same period in 2017 was ~~largely consistent with 2016.~~driven by unfavorable life results and a higher overall expense ratio, mostly offset by a lower tax rate.

The segment’s loss ratio increased for the three months ended March 31, 2018 compared with the same period in 2017 due primarily to higher life claim sizes for claims incurred in 2018.

Operating expense ratio. The operating expense ratio increased for the three months ended March 31, 2018 compared with the same period in 2017 due primarily to higher claims management costs.

Other Operations

As described in the Segment Reporting introduction on page 53, the performance of the Other Operations segment is measured using adjusted income from operations. Cigna’s corporate-owned life insurance (“COLI”) business contributes the majority of earnings in Other Operations. Other Operations also includes the results from the run-off reinsurance and settlement annuity businesses, as well as the remaining deferred gains recognized from the sale of the individual life insurance and annuity and retirement benefits businesses.

Results of Operations

	Three Months Ended
Other Operations segment financial summary	March 31,						Change
(In millions)	2018			2017			Favorable (Unfavorable)
Operating revenues	$	116		$	116		-	%
Adjusted income from operations	$	24		$	20		20	%
Adjusted margin	20.7		%	17.2		%	350bps

Operating revenues ~~decreased~~ for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 were consistent when compared with the same period in ~~2016 primarily due to~~2017.

Adjusted income from operations for the three months ended March 31, 2018 increased when compared with the same period in 2017 and reflects a lower ~~investment income yields across all businesses, partially offset by lower ceded premiums~~tax rate in the COLI ~~business.~~business in 2018 as a result of U.S. tax reform legislation.

~~Corporate~~Corporate

Description

Corporate reflects amounts not allocated to operating segments, such as net interest expense (defined as interest on corporate debt less net investment income on investments not supporting segment operations), interest on uncertain tax positions, ~~certain litigation matters,~~ intersegment eliminations, compensation cost for stock options and related excess tax benefits, expense associated with our frozen pension plans and certain litigation matters, overhead and project costs.

Corporate financial summary	Three Months Ended						Nine Months Ended						Three Months Ended
	September 30,						September 30,						March 31,
(In millions)	2017		2016		% Change		2017		2016		% Change		2018		2017		% Change
Adjusted (loss) from operations	$	(55)	$	(61)	10	%	$	(156)	$	(168)	7	%	$	(64)	$	(53)	(21)	%

Corporate’s adjusted loss from operations ~~was lower~~increased for the three months ~~and nine months~~ ended ~~September 30, 2017~~March 31, 2018 compared with the same ~~periods~~period in ~~2016,~~2017, primarily due to ~~higher~~lower excess tax benefits on stock compensation ~~driven by increased option exercise activity in 2017. For~~and the ~~nine months ended September 30, 2017, higher net investment income also contributed to~~impact of the lower ~~loss, partially~~U.S. tax rate effective in 2018 resulting from U.S. tax reform legislation, offset by ~~higher~~lower operating expenses.

INVESTMENT ASSETS

The following table presents our investment asset portfolio, excluding separate account assets, as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017. Additional information regarding our investment assets and related accounting policies is included in Notes 9, 10, 11, 12 and 13 to the Consolidated Financial Statements.

	September 30,		December 31,		March 31,		December 31,
(In millions)	2017		2016		2018		2017
Fixed maturities	$	22,944	$	20,961	$	24,178	$	23,138
Equity securities	641		583		567		588
Commercial mortgage loans	1,684		1,666		1,801		1,761
Policy loans	1,393		1,452		1,404		1,415
Other long-term investments	1,408		1,462		1,669		1,518
Short-term investments	175		691		245		199
Total investment assets	$	28,245	$	26,815	$	29,864	$	28,619

Fixed Maturities

Investments in fixed maturities include publicly traded and privately placed debt securities, mortgage and other asset-backed securities and preferred stocks redeemable by the investor. These investments are classified as available for sale and are carried at fair value on our balance sheet. Additional information regarding valuation methodologies, key inputs and controls is included in Note 9 to the Consolidated Financial Statements. More detailed information about fixed maturities by type of issuer and maturity dates is included in Note 10 to ~~these~~the Consolidated Financial Statements.

The following table reflects our fixed maturity portfolio by type of issuer as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016:~~2017:

September 30,

December 31,

(In millions)

2017

2016

Federal government and agency

$
902

$
877

State and local government

1,323

1,435

Foreign government

2,307

2,113

Corporate

17,933

16,050

Mortgage and other asset-backed

479

486

Total fixed maturities

$
22,944

$
20,961

	March 31,		December 31,
(In millions)	2018		2017
Federal government and agency	$	868	$	779
State and local government	1,129		1,287
Foreign government	2,499		2,487
Corporate	19,173		18,088
Mortgage and other asset-backed	509		497
Total fixed maturities	$	24,178	$	23,138

The fixed maturity portfolio increased ~~$2.0~~by $1.0 billion during the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2018, primarily reflecting an increase in investable ~~funds.~~funds, partially offset by declines in fair value due to increasing market interest rates. As of ~~September 30, 2017, $20.3~~March 31, 2018, $21.5 billion, or 89%, of the fixed maturities in our investment portfolio were investment grade (Baa and above, or equivalent), and the remaining $2.6 billion were below investment grade. The majority of the bonds that were below investment grade were rated at the higher end of the non-investment grade spectrum. These quality characteristics have not materially changed from the prior year and are consistent with our investment strategy.

State and local government. Our investment in state and local government securities, with an average quality rating of Aa2, was diversified by issuer and geography with no single exposure greater than ~~$30~~$35 million as of ~~September 30, 2017.~~March 31, 2018. We assess each issuer’s credit quality based on a fundamental analysis of underlying financial information and do not rely solely on statistical rating organizations or monoline insurer guarantees.

Foreign government. We invest in high quality foreign government obligations, with an average quality rating of Aa3 as of ~~September 30, 2017.~~March 31, 2018. These investments were concentrated in Asia, primarily South Korea, consistent with the geographic locations of our international business operations. Foreign government obligations also ~~included $228~~include $260 million of investments in European sovereign debt, none of which were in countries with significant political or economic concerns such as Portugal, Italy, Ireland, Greece, Spain or Turkey.

Corporate. As of ~~September 30, 2017,~~March 31, 2018, corporate fixed maturities included the following:

· Private placement investments were ~~$5.9~~$7 billion. These investments are generally less marketable than publicly-traded bonds; however, yields on these investments tend to be higher than yields on publicly-traded bonds with comparable credit risk. We perform a credit analysis of each issuer, diversify investments by industry and issuer and require financial and other covenants that allow us to monitor issuers for deteriorating financial strength and pursue remedial actions, if warranted.

· Investments in companies that are domiciled or have significant business interests in Italy, Ireland, Spain and Turkey were ~~$406~~$431 million. These investments have an average quality rating of Baa2 and are diversified by industry sector, including ~~less than~~approximately 2% invested in financial institutions.

· Investments in the energy and natural gas sector were $1.8 billion with gross unrealized losses of $9$22 million. These investments ~~had~~have an average quality rating of Baa2 and were diversified by issuer with no exposure greater than ~~$70~~$65 million.

· ~~Retail sector fixed~~Fixed maturity investments in the retail sector were approximately ~~$460~~$430 million with gross unrealized losses of $3$7 million. These investments ~~had~~have an average quality rating of ~~Baa1~~Baa2 and were diversified across approximately 40 issuers with no exposure exceeding ~~$50~~$45 million.

In addition to amounts classified in fixed maturities on our Consolidated Balance Sheets, we operate aan insurance joint venture in China in which we have a 50% ownership interest. We account for this joint venture on the equity basis of accounting and report it in other assets, including other intangibles. This entity had an investment portfolio of approximately ~~$4.6~~$5.5 billion that is primarily invested in local Chinese corporate and government fixed maturities. There are no investments with a material unrealized loss as of ~~September 30, 2017.~~March 31, 2018.

Equity Securities

As of ~~September 30, 2017,~~March 31, 2018, approximately $400 million in equity securities were invested in an ~~exchange traded~~exchange-traded fund (“ETF”) as part of a program to invest available cash in high quality and liquid assets. The underlying assets of the ETF are primarily U.S. investment grade corporate ~~bonds and there was a gross~~bonds. Effective January 1, 2018, unrealized ~~gain~~gains of $8$10 million ~~as of September 30, 2017 due~~were reclassified from accumulated other comprehensive income to ~~a decrease~~retained earnings upon adopting ASU 2016-01. Going forward, quarterly changes in market ~~yields since purchase.~~value will be recognized in realized investment results.

Commercial Mortgage Loans

Our commercial mortgage loans are fixed rate loans, diversified by property type, location and borrower. Loans are secured by high quality commercial properties located throughout the United States and are generally made at less than 70% of the property’s value at origination of the loan. Property value, debt service coverage, quality, building tenancy and stability of cash flows are all important financial underwriting considerations. We hold no direct residential mortgage loans and do not originate or service securitized mortgage loans.

We completed the annual in-depth review of our commercial mortgage loan portfolio during the second quarter of 2017. The results of the 2017 review were in line with the prior year and confirmed the strength of the overall portfolio. For further discussion of the results of this review and changes in key loan metrics, see Note 10 to the Consolidated Financial Statements.

Commercial real estate capital markets remain very active for well-leased, quality commercial real estate located in strong institutional investment markets. The vast majority of properties securing the mortgages in our mortgage loan portfolio possess these characteristics. As of ~~September 30, 2017,~~March 31, 2018, we had ~~$136~~$134 million of commercial mortgage loans ~~in the~~secured by retail properties, a sector ~~for various shopping centers in the U.S.~~that has been under pressure generally. The loan-to-value ratio for these loans was ~~49%~~48%, and the debt service coverage ratio was ~~2.15.~~2.16. All of these loans are current.

As of ~~September 30, 2017,~~March 31, 2018, the ~~$1.7~~$1.8 billion commercial mortgage loan portfolio consisted of approximately 60 loans that are all in good standing. ~~As of September 30, 2017, we had $38 million of loans maturing in the next twelve months.~~ Given the quality and diversity of the underlying real estate, positive debt service coverage and significant borrower cash investment generally ranging between 30 and 40%, we remain confident that borrowers will continue to perform as expected under their contract terms.

Other Long-term Investments

As of ~~September 30, 2017,~~March 31, 2018, other long-term investments of ~~$1.4~~$1.7 billion included investments in securities limited partnerships and real estate limited partnerships as well as direct investments in real estate joint ventures. The funds typically invest in mezzanine debt or equity of privately held companies (securities partnerships) and equity real estate. Given our subordinate position in the capital structure of these underlying entities, we assume a higher level of risk for higher expected returns. To mitigate risk, these investments are diversified across approximately ~~120~~125 separate partnerships, and approximately 65 general partners who manage one or more of these partnerships. Also, the funds’ underlying investments are diversified by industry sector or property type, and geographic region. No single partnership investment exceeded 4% of our securities and real estate partnership portfolio.

Problem and Potential Problem Investments

“Problem” bonds and commercial mortgage loans are either delinquent by 60 days or more or have been restructured as to terms, including concessions by us to modify the interest rate, principal payment or maturity date. “Potential problem” bonds and commercial mortgage loans are considered current (no payment is more than 59 days past due), but management believes they have certain characteristics that increase the likelihood that they may become problems. The characteristics management considers include, but are not limited to, the following:

· request from the borrower for restructuring;

· principal or interest payments past due by more than 30 but fewer than 60 days;

· downgrade in credit rating;

· collateral losses on asset-backed securities; and

· for commercial mortgages, deterioration of debt service coverage below 1.0 or value declines resulting in estimated loan-to-value ratios increasing to 100% or more.

We recognize interest income on problem bonds and commercial mortgage loans only when payment is actually received. The 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 not significant for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 or ~~2016.~~2017.

The following table shows problem and potential problem investments at amortized cost, net of valuation reserves and write-downs:

	September 30, 2017						December 31, 2016						March 31, 2018						December 31, 2017
(In millions)	Gross		Reserve		Net		Gross		Reserve		Net		Gross		Reserve		Net		Gross		Reserve		Net
Problem bonds	$	33	$	(2)	$	31	$	70	$	(9)	$	61	$	25	$	(14)	$	11	$	25	$	(7)	$	18
Problem commercial mortgage loans	-		-		-		26		(5)		21
Foreclosed real estate	47		-		47		49		-		49		45		-		45		46		-		46
Total problem investments	$	80	$	(2)	$	78	$	145	$	(14)	$	131	$	70	$	(14)	$	56	$	71	$	(7)	$	64

Potential problem bonds	$	25	$	(7)	$	18	$	12	$	(7)	$	5	$	7	$	(1)	$	6	$	31	$	(1)	$	30
Potential problem commercial mortgage loans	-		-		-		-		-		-
Total potential problem investments	$	25	$	(7)	$	18	$	12	$	(7)	$	5	$	7	$	(1)	$	6	$	31	$	(1)	$	30

Problem and potential problem investments decreased by ~~$40~~$32 million since December 31, ~~2016~~2017 due primarily to ~~payoffs~~sales of fixed maturity bonds. There were no problem or potential problem mortgage loans at March 31, 2018 and ~~paydowns of problem bonds and mortgage loans.~~December 31, 2017.

Investment Outlook

~~Although financial~~Financial markets in the United States ~~remained stable~~experienced increased volatility during the first ~~three quarters~~quarter of ~~2017, we~~2018, as interest rates rose along with inflation expectations. We continue to closely monitor global macroeconomic trends and their potential impact to our investment portfolio. Certain sectors, such as retail, energy and natural gas have ~~shown~~continued to show volatility and we expect that trend to continue. See the fixed maturities and commercial mortgage loan sections of this MD&A for further information on our investments in these sectors. Future realized and unrealized investment results will be driven largely by market conditions that exist when a transaction occurs or at the reporting date. These future conditions are not reasonably predictable; however, we believe that the vast majority of our investments will continue to perform under their contractual terms. Based on our strategy to match the duration of invested assets to the duration of insurance and contractholder liabilities, we expect to hold a significant portion of these assets for the long term. Although future impairment losses resulting from interest rate movements and credit deterioration due to both ~~company-specific~~investment-specific and the global economic uncertainties discussed above remain possible, we do not expect these losses to have a material adverse effect on our financial condition or liquidity.

MARKET RISK

Financial Instruments

Our assets and liabilities include financial instruments subject to the risk of potential losses from adverse changes in market rates and prices. Our primary market risk exposures are interest rate risk and foreign currency exchange rate risk. Certain financial instruments, such as insurance-related assets and liabilities, are excluded from these hypothetical calculations. We encourage you to read this in conjunction with “Market Risk – Financial Instruments” included in Part II, Item 7 of our ~~2016~~2017 Form 10-K. As of ~~September 30, 2017,~~March 31, 2018, there are no material changes in our risk exposures from that reported in our ~~2016~~2017 Form 10-K.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Information responsive to this item is contained under the caption “Market Risk” 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 Securities and Exchange Commission’s rules and forms and is accumulated and communicated to Cigna’s management, including Cigna’s Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

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.

Part II. OTHER INFORMATION

Item 1. �� LEGAL PROCEEDINGS

The information contained under “Litigation Matters”, “Regulatory Matters” and “Other Legal Matters” in Note 16 to the Consolidated Financial Statements is incorporated herein by reference.

Item 1A.RISK FACTORS

In addition to the risk factors set forth in Part 1, Item 1A of Cigna’s Annual Report on Form 10-K for the year ended December 31, ~~2016 includes a~~2017, investors should consider the following risk factors arising from our proposed acquisition of Express Scripts. The risk factors set forth below update and should be read together with the detailed description of risk factors reported in Cigna’s 2017 Form 10-K.

Cigna will be subject to business uncertainties and contractual restrictions while the Merger is pending.

Uncertainty about the effect of the Merger on employees and customers may have an adverse effect on Cigna and consequently on the combined company after the closing of the Merger. These uncertainties may impair Cigna’s ability to retain and motivate key personnel and could cause customers and others that deal with Cigna to defer or decline entering into contracts with Cigna or making other decisions concerning Cigna or seek to change existing business relationships with Cigna. Certain of Cigna’s customer contracts, joint venture agreements, shareholder or partnership agreements, vendor or supplier contracts, financing-related agreements, promissory notes and indentures contain change of control restrictions that may give rise to a right of termination or cancellation in connection with the Merger. In addition, if key employees depart because of uncertainty about their future roles and the potential complexities of the Merger, Cigna’s businesses could be harmed. Furthermore, the Merger Agreement contains restrictions on the conduct of Cigna’s businesses prior to the consummation of the Merger, which may prevent Cigna from undertaking certain actions or business opportunities that may arise pending consummation of the Merger.

The parties must obtain certain regulatory approvals in order to complete the actions contemplated by the Merger Agreement; if such approvals are not obtained or are obtained with conditions, the Merger may be prevented or delayed or the anticipated benefits of the Merger could be reduced.

Consummation of the Merger is conditioned upon, among other things, the expiration or termination of the waiting period (and any extensions thereof) applicable to the Merger under the federal Hart-Scott-Rodino Antitrust Improvements Act of 1976 (“HSR Act”). At any time before or after the Merger is consummated, any of the Department of Justice, the Federal Trade Commission or U.S. state attorneys general could take action under the antitrust laws in opposition to the Merger, including seeking to enjoin completion of the Merger, condition completion of the Merger upon the divestiture of assets of Cigna, Express Scripts or their subsidiaries or impose restrictions on the combined company’s post-merger operations. These could negatively affect the results of operations and financial condition of the combined company following completion of the Merger. Any such requirements or restrictions may prevent or delay completion of the Merger or may reduce the anticipated benefits of the Merger, which could also have a material adverse effect on the combined company’s business and cash flows, financial condition and results of operations. Additionally, Cigna has agreed to accept certain remedies, conditioned on the closing, and may take other actions that Cigna determines in its sole discretion to take, to the extent necessary to ensure satisfaction, on or prior to the termination date of the Merger Agreement (as it may be extended), of certain conditions to the closing of the Merger relating to regulatory approvals.

Consummation of the Merger is also conditioned upon receiving certain approvals from, and/or making certain filings with, certain state insurance departments relating to Cigna’s and Express Scripts’ insurance company subsidiaries and certain state health departments relating to Cigna’s health care service plans and, to the extent required by applicable law, certain state pharmacy boards relating to Express Scripts’ subsidiaries licensed or authorized to engage in pharmaceutical-related business and certain state health departments relating to Express Scripts’ subsidiaries licensed or authorized as home health agencies. No assurance can be given that the required regulatory approvals will be obtained or that the required conditions to closing will be satisfied, and, even if all such approvals are obtained and the conditions are satisfied, no assurance can be given as to the terms, conditions and timing of the approvals.

The Merger is subject to a number of closing conditions and, if these conditions are not satisfied, the Merger Agreement may be terminated in accordance with its terms and the Merger may not be completed. In addition, the parties have the right to terminate the Merger Agreement under other specified circumstances, in which case the Merger would not be completed.

The Merger is subject to a number of closing conditions and, if these conditions are not satisfied or waived (to the extent permitted by law), the Merger will not be completed. These conditions include, among others: (1) the adoption of the Merger Agreement by Cigna stockholders; (2) the adoption of the Merger Agreement by Express Scripts stockholders; (3) the absence of certain legal restraints prohibiting completion of the Merger; (4) the absence of certain actions or proceedings seeking to prohibit consummation of the Merger; (5) the receipt of certain regulatory approvals and consents without the imposition, individually or in the aggregate, of any condition that would result in, or would be reasonably likely to result in, individually or in the aggregate, a material adverse effect on Cigna, Express Scripts and their respective subsidiaries, taken as a whole, after giving effect to the Merger, including the synergies expected to be realized from the Merger; (6) the approval for listing of the shares of New Cigna common stock on the NYSE to be issued to Cigna stockholders and Express Scripts stockholders; and (7) the effectiveness of the registration statement to be filed by New Cigna in connection with the Merger. In addition, each of Cigna’s and Express Scripts’ obligation to complete the Merger is subject to the accuracy of the other party’s representations and warranties in the Merger Agreement (subject in most cases to “materiality” and “material adverse effect” qualifications), the other party’s compliance with its covenants and agreements in the Merger Agreement in all material respects and such party’s receipt of a legal opinion from its tax counsel with respect to the tax treatment of the Merger.

The conditions to the closing may not be fulfilled and, accordingly, the Merger may not be completed. In addition, if the Merger is not completed by December 8, 2018 (subject to extension to June 8, 2019 in certain circumstances), Cigna or Express Scripts may choose not to proceed with the Merger. Moreover, the parties can mutually decide to terminate the Merger Agreement at any time prior to the consummation of the Merger, before or after the required Cigna stockholder approval and Express Scripts stockholder approval. In addition, each of Cigna and Express Scripts may elect to terminate the Merger Agreement in certain other circumstances. If the Merger Agreement is terminated, Cigna may incur substantial fees in connection with termination of the Merger Agreement and it will not realize the anticipated benefits of the Merger.

Failure to complete the Merger could impact the business, financial results and stock price of Cigna.

If the Merger is not completed, the ongoing businesses of Cigna may be adversely affected and Cigna will be subject to several risks and consequences, including the following:

· Cigna may be required, under certain circumstances, to pay Express Scripts a termination fee of $1.6 billion;

· Cigna may be required to pay Express Scripts a reverse termination fee of $2.1 billion under certain circumstances relating to the failure to obtain the required regulatory approvals for the Merger (but in no event will Cigna be required to pay both the termination fee and the reverse termination fee);

· Cigna will be required to pay certain costs relating to the Merger, whether or not the Merger is completed, such as significant fees and expenses relating to regulatory filings, financing arrangements and legal, accounting, financial advisory, consulting and other advisory fees and expenses, employee benefit-related expenses, and filing and printing fees;

· Cigna may be required to pay significant fees and expenses relating to financing arrangements, whether or not the Merger is completed, which may include investment banking fees and commissions, commitment fees, early termination or redemption premiums, interest on debt financing between the date of incurrence and the date of repayment, professional fees and other costs and expenses;

· under the Merger Agreement, Cigna is subject to certain restrictions on the conduct of its business prior to completing the Merger which may adversely affect its ability to execute certain of its business strategies; and

· matters relating to the Merger may require substantial commitments of time and resources by Cigna management and the expenditure of significant funds in the form of fees and expenses, which could otherwise have been devoted to day-to-day operations and other opportunities that may have been beneficial to Cigna as an independent company.

Investors’ reactions to a failure to complete the Merger may be reflected in the trading price of our common stock. In addition, employees, clients, customers and partners could have a variety of reactions if the Merger is not completed, which could affect our business relationships. Cigna also could be subject to litigation related to a failure to complete the Merger or to enforce its obligations under the Merger Agreement. If the Merger is not consummated, Cigna cannot assure its stockholders that the risks described above will not materially affect the business, financial results and stock price of Cigna.

Cigna’s inability to satisfy and comply with conditions under its existing financing arrangements or raise additional or replacement financing could delay or prevent the completion of the Merger.

Consummation of the Merger is not conditioned on Cigna’s ability to obtain financing. Cigna expects to use cash on hand and debt financing to fund the cash component of the Merger Consideration. Such debt financing could take any of several forms or any combination of them, including but not limited to the following: (1) New Cigna may borrow under the Bridge Facility; (2) Cigna or New Cigna may issue senior notes in the public and/or private capital markets; (3) New Cigna may borrow up to $3.0 billion under the Term Loan Credit Agreement; (4) New Cigna may borrow under the Revolving Credit Agreement; and (5) Cigna and/or New Cigna may issue commercial paper. The Term Loan Credit Agreement contains and the Commitment Letter contemplates customary conditions to funding, affirmative covenants, negative covenants and events of default. There is a risk ~~factors.~~that these conditions or covenants will not be satisfied or complied with, as applicable, on a timely basis or at all. There is also a risk that one or more members of the lending syndicate will default on its obligations to provide its committed portion of the financing (and the commitments of any defaulting syndicate member may not be replaced on a timely basis or at all). There are a number of risks and uncertainties associated with the execution of a capital markets financing. All of these risks are magnified given the scale and complexity of financing required to consummate the transactions contemplated by the Merger Agreement. Any failure of Cigna or New Cigna to satisfy and comply with conditions under its existing financing arrangements or raise additional or replacement financing could delay or impede the closing of the Merger.

Failure to successfully combine the businesses of Cigna and Express Scripts in the expected time frame may adversely affect the combined company’s future results.

The success of the Merger will depend, in part, on the combined company’s ability to realize the anticipated benefits from combining the businesses of Cigna and Express Scripts. To realize these anticipated benefits, the businesses of Cigna and Express Scripts must be successfully combined. Historically, Cigna and Express Scripts have been independent companies, and they will continue to be operated as such until the completion of the Merger. The management of the combined company may face significant challenges in consolidating the functions of Cigna and Express Scripts, integrating the technologies, organizations, procedures, policies and operations, as well as addressing the different business cultures at the two companies, and retaining key personnel. If the combined company is not successfully integrated, the anticipated benefits of the Merger may not be realized fully or at all or may take longer to realize than expected. The integration may also be complex and time consuming, and require substantial resources and effort. The integration process and other disruptions resulting from the Merger may also disrupt each company’s ongoing businesses and/or adversely affect each company’s relationships with employees, regulators and others with whom each company has business or other dealings.

Combining the businesses of Cigna and Express Scripts may be more difficult, costly or time-consuming than expected, which may adversely affect the combined company’s results and negatively affect the value of the combined company’s common stock following the Merger.

Cigna has entered into the Merger Agreement because it believes that the Merger will be beneficial to Cigna and its stockholders and that combining the businesses of Cigna and Express Scripts will produce benefits and cost savings. If the combined company is not able to successfully combine the businesses of Cigna and Express Scripts in an efficient, effective and timely manner, the anticipated benefits and cost savings of the Merger may not be realized fully, or at all, or may take longer to realize than expected, and the value of the common stock of the combined company may be affected adversely. An inability to realize the full extent of the anticipated benefits of the Merger, as well as any delays encountered in the integration process, could have an adverse effect upon the revenues, level of expenses and operating results of the combined company, which may adversely affect the value of the common stock of the combined company after the completion of the Merger. In addition, the actual integration may result in additional and unforeseen expenses, and the anticipated benefits of the integration plan may not be realized. Actual synergies, if achieved, may be lower than expected and may take longer to achieve than anticipated. If the combined company is not able to adequately address integration challenges, the combined company may be unable to successfully integrate Cigna’s and Express Scripts’ operations or to realize the anticipated benefits of the integration of the two companies.

Third parties may terminate or alter existing contracts or relationships with Cigna or Express Scripts.

Each of Cigna and Express Scripts has contracts with customers, vendors, licensors, joint venture partners, lenders and other business partners which may require Cigna or Express Scripts, as applicable, to obtain consents from these other parties in connection with the Merger. If these consents cannot be obtained, the counterparties to these contracts and other third parties with which Cigna and/or Express Scripts currently have relationships may have the ability to terminate, reduce the scope of or otherwise materially adversely alter their relationships with either party or both parties in anticipation of the Merger, or with the combined company following the Merger. The pursuit of such rights may result in Cigna, Express Scripts or the combined company suffering a loss of potential future revenue or incurring liabilities in connection with a breach of such agreements or losing rights that are material to its business. Any such disruptions could limit the combined company’s ability to achieve the anticipated benefits of the Merger. The adverse effect of such disruptions could also be exacerbated by a delay in the completion of the Merger or the termination of the Merger Agreement.

The Merger Agreement limits Cigna’s ability to pursue alternatives to the Merger.

The Merger Agreement contains provisions that make it more difficult for Cigna to enter into alternative transactions. The Merger Agreement contains certain provisions that restrict Cigna’s ability to, among other things, solicit, initiate or knowingly encourage or knowingly facilitate the submission of inquiries, proposals or offers relating to or that would reasonably be expected to lead to any acquisition proposal from a third party. The Merger Agreement also provides that the board of directors of Cigna will not change its recommendation that the stockholders of Cigna adopt the merger agreement and will not approve any agreement with respect to an acquisition proposal, subject to limited exceptions.

In addition, Cigna may be required to pay a termination fee of $1.6 billion to Express Scripts if the Merger is not consummated under specified circumstances. In addition, upon adoption of the merger agreement by the stockholders of Cigna, Cigna’s right to terminate the merger agreement in response to a superior proposal will be eliminated. While Cigna believes these provisions are reasonable, customary and not preclusive of other offers, the provisions might discourage a third party that has an interest in acquiring all or a significant part of Cigna from considering or proposing such acquisition, even if such party were prepared to enter into an agreement that may be more favorable to Cigna and/or its stockholders. Furthermore, the requirement to pay a termination fee under certain circumstances may result in a third party proposing to pay a lower per-share price to acquire Cigna than it might otherwise have proposed to pay because of the added expense of the $1.6 billion termination fee that may become payable by Cigna in certain circumstances.

Cigna will incur significant transaction and merger-related transition costs in connection with the Merger.

Cigna expects that it will incur significant, non-recurring costs in connection with consummating the Merger and integrating the operations of the two companies post-closing. Cigna may incur additional costs to maintain employee morale and to retain key employees. Cigna will also incur significant fees and expenses relating to financing arrangements and legal, accounting and other transaction fees and other costs associated with the Merger. Some of these costs are payable regardless of whether the Merger is completed. Moreover, under specified circumstances, Cigna may be required to pay a termination fee of $1.6 billion. In addition, Cigna may be required to pay a reverse termination fee of $2.1 billion under certain circumstances relating to a failure to obtain the required regulatory approvals for the mergers. Notwithstanding the foregoing, in no event will the termination fee be paid to a party more than once, and in no event will Cigna be required to pay both the termination fee and the reverse termination fee. Cigna continues to assess the magnitude of these costs, and additional unanticipated costs may be incurred in the Merger and the integration of the two companies’ businesses.

Item 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table provides information about Cigna’s share repurchase activity for the quarter ended ~~September 30, 2017:~~March 31, 2018:

Issuer Purchases of Equity Securities

Period
Total # of
shares
purchased (1)

Average price
paid per
share

Total # of shares purchased as part
of publicly announced program (2)

Approximate dollar value of
shares that may yet be
purchased as part of publicly
announced program (3)

July 1-31, 2017
1,585,280

$     171.93

1,584,787

$                2,544,107,921

August 1-31, 2017
2,331,354

$     177.96

2,328,094

$                2,129,778,154

September 1-30, 2017
1,949,021

$     184.33

1,948,796

$                1,770,562,784

Total
5,865,655

$     178.45

5,861,677

N/A

Period	Total # of shares purchased (1)	Average price paid per share	Total # of shares purchased as part of publicly announced program (2)	Approximate dollar value of shares that may yet be purchased as part of publicly announced program (3)
January 1-31, 2018	1,222,045	$ 212.01	1,221,529	$ 739,232,139
February 1-28, 2018	203,633	$ 197.67	78,700	$ 2,723,207,261
March 1-31, 2018	161,769	$ 192.23	-	$ 2,723,207,261
Total	1,587,447	$ 208.16	1,300,229	N/A

(1) Includes shares tendered by employees as payment of taxes withheld on the vesting of restricted stock and strategic performance shares granted under the Company’s equity compensation plans. Employees tendered ~~493~~516 shares in ~~July, 3,260~~January, 124,933 shares in ~~August~~February and ~~225~~161,769 shares in ~~September 2017.~~March 2018.

(2) Additionally, the Company maintains a share repurchase program, authorized by the Board of Directors. Under this program, the Company may repurchase shares from time to time, depending on market conditions and alternate uses of capital. The timing and actual number of shares repurchased will depend on a variety of factors, including price, general business and market conditions and alternate uses of capital. The share repurchase program may be effected through open market purchases or privately negotiated transactions in compliance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended, including through Rule 10b5-1 trading plans. The program may be suspended or discontinued at any time. ~~From October~~In February 2018, the Board increased repurchase authority to $2.7 billion. No shares were repurchased from April 1, 2017 through ~~November 1, 2017,~~May 2, 2018. The Company does not expect to conduct additional share repurchases prior to closing of the ~~Company repurchased 1.5 million shares for approximately $279 million. The remaining share repurchase authorization under the program was $1.5 billion as of November 1, 2017.~~Express Scripts combination.

(3) Approximate dollar value of shares is as of the last date of the applicable month.

~~Item 4.~~ ~~MINE SAFETY DISCLOSURES~~

~~Not applicable.~~

Item 6.EXHIBITS

INDEX TO EXHIBITS

Number	Description	Method of Filing
2.1	Agreement and Plan of Merger, dated as of March 8, 2018, by and among Cigna Corporation, Express Scripts Holding Company, Halfmoon Parent, Inc., Halfmoon I, Inc., and Halfmoon II, Inc.	Filed as Exhibit 2.1 to the registrant’s Form 8-K filed March 13, 2018 and incorporated herein by reference.
3.1	Restated Certificate of Incorporation of the registrant as last amended ~~October 28, 2011~~April 25, 2018	Filed as Exhibit 3.1 to the registrant’s Form ~~10-Q for the quarterly period ended September~~8-K filed April 30, ~~2011~~2018 and incorporated herein by reference.
3.2	By-Laws of the registrant as last amended and restated ~~December 6, 2012~~April 25, 2018	Filed as Exhibit 3.2 to the registrant’s Form ~~10-K for the year ended December 31, 2012 and incorporated herein by reference.~~8-K filed April 30, 2018.
10.1	~~Supplemental Indenture No. 10,~~Revolving Credit and Letter of Credit Agreement, dated as of ~~September 14, 2017, between Cigna Corporation and U.S. Bank National Association, as trustee.~~	~~Filed as Exhibit 4.1 to the registrant’s Form 8-K filed September 14, 2017 and incorporated herein by reference.~~
10.2*	~~Agreement and Release between the Company and Matthew G. Manders dated October 16, 2017~~April 6, 2018	Filed as Exhibit 10.1 to the registrant’s Form 8-K filed ~~October 18, 2017~~April 12, 2018 and incorporated herein by ~~reference~~reference.
10.2	Term Loan Credit Agreement, dated as of April 6, 2018	Filed as Exhibit 10.2 to the registrant’s Form 8-K filed April 12, 2018 and incorporated herein by reference.
10.3*	Amendment No. 1, effective January 25, 2018, to the Cigna Long-Term Incentive Plan	Filed herewith.
10.4*	Form of Cigna Long-Term Incentive Plan: Strategic Performance Share Grant Agreement	Filed herewith.
10.5*	Form of Cigna Long-Term Incentive Plan: Nonqualified Stock Option Grant Agreement	Filed herewith.
10.6*	Form of Cigna Long-Term Incentive Plan: Restricted Stock Grant Agreement	Filed herewith.
10.7*	Form of Cigna Long-Term Incentive Plan: Restricted Stock Unit Grant Agreement	Filed herewith.
10.8*	Christopher Hocevar’s Promotion Letter dated January 30, 2017	Filed herewith.
12	Computation of Ratios of Earnings to Fixed Charges	Filed herewith.
31.1	Certification of Chief Executive Officer of Cigna Corporation pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934	Filed herewith.
31.2	Certification of Chief Financial Officer of Cigna Corporation pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934	Filed herewith.
32.1	Certification of Chief Executive Officer of Cigna Corporation pursuant to Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. Section 1350	Furnished herewith.
32.2	Certification of Chief Financial Officer of Cigna Corporation pursuant to Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. Section 1350	Furnished herewith.
101	Financial statements from the quarterly report on Form 10-Q of Cigna Corporation for the quarter ended ~~September 30, 2017~~March 31, 2018 formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Statements of Income; (ii) the Consolidated Statements of Comprehensive Income; (iii) the Consolidated Balance Sheets; (iv) the Consolidated Statements of Total Equity; (v) the Consolidated Statements of Cash Flow; and (vi) the Notes to the Consolidated Financial Statements	Filed herewith.

*Management contracts and compensatory plans or arrangements.

Shareholders may obtain copies of exhibits by writing to Cigna Corporation, Shareholder Services Department, 1601 Chestnut Street, Philadelphia, PA 19192.

SIGNATURE

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.

Cigna Corporation

Date:	~~November 2, 2017~~May 3, 2018
By:	/s/ Eric P. Palmer

	Eric P. Palmer
	Executive Vice President Chief Financial Officer
	(Duly Authorized Officer and Principal Financial Officer)

7370

Delaware		06-1059331
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
900 Cottage Grove Road Bloomfield, Connecticut		06002
(Address of principal executive offices)		(Zip Code)
(860) 226-6000
Registrant’s telephone number, including area code
(860) 226-6741 or (215) 761-5511
Registrant’s facsimile number, including area code
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark				YES	NO
· whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.				R	o
· whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).				R	o
· whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer R	Accelerated filer o	Non-accelerated filer o	Smaller Reporting Company o	Emerging growth company o
· If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
· whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).				o	R

	Unaudited				Unaudited
	As of		As of		As of		As of
	September 30,		December 31,		March 31,		December 31,
(In millions, except per share amounts)	2017		2016		2018		2017
Assets:
Investments:
Fixed maturities, at fair value (amortized cost, $21,670; $19,942)	$	22,944	$	20,961
Equity securities, at fair value (cost, $643; $583)	641		583
Fixed maturities, at fair value (amortized cost, $23,416; $21,867)					$	24,178	$	23,138
Equity securities					567		588
Commercial mortgage loans	1,684		1,666		1,801		1,761
Policy loans	1,393		1,452		1,404		1,415
Other long-term investments	1,408		1,462		1,669		1,518
Short-term investments	175		691		245		199
Total investments	28,245		26,815		29,864		28,619
Cash and cash equivalents	3,656		3,185		2,771		2,972
Premiums, accounts and notes receivable, net	3,308		3,077		3,455		3,380
Reinsurance recoverables	6,161		6,478		5,945		6,046
Deferred policy acquisition costs	2,073		1,818		2,315		2,237
Property and equipment	1,526		1,536		1,552		1,563
Deferred tax assets, net	172		304		96		39
Goodwill	6,001		5,980		6,170		6,164
Other assets, including other intangibles	2,362		2,227		2,720		2,316
Separate account assets	8,432		7,940		8,253		8,423
TOTAL ASSETS	$	61,936	$	59,360	$	63,141	$	61,759
Liabilities:
Contractholder deposit funds	$	8,246	$	8,458	$	8,153	$	8,196
Future policy benefits	9,857		9,648		9,934		10,040
Unpaid claims and claim expenses	5,077		4,917		5,215		5,168
Global Health Care medical costs payable	2,783		2,532		2,925		2,719
Unearned premiums	1,194		634		1,291		724
Total insurance and contractholder liabilities	27,157		26,189		27,518		26,847
Accounts payable, accrued expenses and other liabilities	6,802		6,414		7,825		7,290
Short-term debt	141		276		110		240
Long-term debt	5,207		4,756		5,191		5,199
Separate account liabilities	8,432		7,940		8,253		8,423
TOTAL LIABILITIES	47,739		45,575		48,897		47,999
Contingencies — Note 16
Redeemable noncontrolling interests	52		58		49		49
Shareholders’ Equity:
Common stock (par value per share, $0.25; shares issued, 296; authorized, 600)	74		74		74		74
Additional paid-in capital	2,929		2,892		2,963		2,940
Accumulated other comprehensive (loss)	(1,124)		(1,382)		(1,547)		(1,082)
Retained earnings	15,590		13,855		16,933		15,800
Less treasury stock, at cost	(3,324)		(1,716)		(4,228)		(4,021)
TOTAL SHAREHOLDERS’ EQUITY	14,145		13,723		14,195		13,711
Other noncontrolling interests	-		4
Total equity	14,145		13,727
Total liabilities and equity	$	61,936	$	59,360
Total liabilities and shareholders’ equity					$	63,141	$	61,759
SHAREHOLDERS’ EQUITY PER SHARE	$	57.13	$	53.42	$	58.36	$	56.20

					Accumulated												Redeemable
Unaudited			Additional		Other								Other Non-				Non-
For the three months ended September 30, 2017	Common		Paid-in		Comprehensive		Retained		Treasury		Shareholders’		controlling		Total		controlling
(In millions)	Stock		Capital		(Loss)		Earnings		Stock		Equity		Interests		Equity		Interests

Balance at July 1, 2017	$	74	$	2,922	$	(1,146)-	$	15,102	$	(2,406)	$	14,546	$	1	$	14,547	$	58
Effect of issuing stock for employee benefit plans			7				(72)		128		63				63
Other comprehensive income					22						22				22
Net income (loss)							560				560				560		2
Repurchase of common stock									(1,046)		(1,046)				(1,046)
Other transactions impacting noncontrolling interests											-		(1)		(1)		(8)
BALANCE AT SEPTEMBER 30, 2017	$	74	$	2,929	$	(1,124)	$	15,590	$	(3,324)	$	14,145	$	-	$	14,145	$	52








For the three months ended September 30, 2016
Balance at July 1, 2016	$	74	$	2,879	$	(844)	$	13,046	$	(1,799)	$	13,356	$	8	$	13,364	$	71
Effect of issuing stock for employee benefit plans			7				(15)		43		35				35
Other comprehensive income (loss)					129						129				129		(3)
Net income (loss)							456				456		(3)		453		(1)
Other transactions impacting noncontrolling interests			(2)								(2)		3		1		1
BALANCE AT SEPTEMBER 30, 2016	$	74	$	2,884	$	(715)	$	13,487	$	(1,756)	$	13,974	$	8	$	13,982	$	68

						Accumulated												Redeemable						Accumulated												Redeemable
Unaudited			Additional			Other								Other non-				Non-				Additional		Other								Other Non-				Non-
For the nine months ended September 30, 2017	Common		Paid-in			Comprehensive		Retained		Treasury		Shareholders’		controlling		Total		controlling
For the three months ended March 31, 2018																				Common		Paid-in		Comprehensive		Retained		Treasury		Shareholders’		controlling		Total		controlling
(In millions)	Stock		Capital			(Loss)		Earnings		Stock		Equity		Interests		Equity		Interests		Stock		Capital		(Loss)		Earnings		Stock		Equity		Interests		Equity		Interests
Balance at January 1, 2017	$	74	$	2,892		$	(1,382)	$	13,855	$	(1,716)	$	13,723	$	4	$	13,727	$	58

Balance at December 31, 2017 as retrospectively adjusted																				$	74	$	2,940	$	(1,082)	$	15,800	$	(4,021)	$	13,711	$	-	$	13,711	$	49
Cumulative effect of accounting for financial instruments and hedging (1)																								(10)		68				58				58
Reclassification adjustment related to U.S. tax reform legislation (1)																								(229)		229				-				-
Effect of issuing stock for employee benefit plans			40					(226)		380		194				194						23				(69)		68		22				22
Other comprehensive income						258						258				258
Net income (loss)								1,971				1,971		(5)		1,966		(1)
Other comprehensive (loss)																								(226)						(226)				(226)		(2)
Net income																										915				915				915		2
Common dividends declared (per share: $0.04)								(10)				(10)				(10)										(10)				(10)				(10)
Repurchase of common stock										(1,988)		(1,988)				(1,988)												(275)		(275)				(275)
Other transactions impacting noncontrolling interests			(3		)							(3)		1		(2)		(5)												-				-
BALANCE AT SEPTEMBER 30, 2017	$	74	$	2,929		$	(1,124)	$	15,590	$	(3,324)	$	14,145	$	-	$	14,145	$	52
BALANCE AT MARCH 31, 2018																				$	74	$	2,963	$	(1,547)	$	16,933	$	(4,228)	$	14,195	$	-	$	14,195	$	49







For the nine months ended September 30, 2016
Balance at January 1, 2016	$	74	$	2,859		$	(1,250)	$	12,121	$	(1,769)	$	12,035	$	9	$	12,044	$	69

For the three months ended March 31, 2017
Balance at December 31, 2016 as reported																				$	74	$	2,892	$	(1,382)	$	13,855	$	(1,716)	$	13,723	$	4	$	13,727	$	58
Cumulative effect of accounting for revenue recognition (1)																										(24)				(24)				(24)
Balance at December 31, 2016 as retrospectively adjusted																				74		2,892		(1,382)		13,831		(1,716)		13,699		4		13,703		58
Effect of issuing stock for employee benefit plans			38					(109)		123		52				52						23				(87)		102		38				38
Other comprehensive income (loss)						535						535				535		(1)						130						130				130		(2)
Net income (loss)								1,485				1,485		(12)		1,473		(4)								598				598		(3)		595		(2)
Common dividends declared (per share: $0.04)								(10)				(10)				(10)										(10)				(10)				(10)
Repurchase of common stock										(110)		(110)				(110)												(250)		(250)				(250)
Other transactions impacting noncontrolling interests			(13)									(13)		11		(2)		4				(3)								(3)		2		(1)		2
BALANCE AT SEPTEMBER 30, 2016	$	74	$	2,884		$	(715)	$	13,487	$	(1,756)	$	13,974	$	8	$	13,982	$	68
BALANCE AT MARCH 31, 2017																				$	74	$	2,912	$	(1,252)	$	14,332	$	(1,864)	$	14,202	$	3	$	14,205	$	56



PART I	FINANCIAL INFORMATION	Page

Item 1.	Financial Statements (Unaudited)
	Consolidated Statements of Income	1
	Consolidated Statements of Comprehensive Income	2
	Consolidated Balance Sheets	3
	Consolidated Statements of Changes in Total Equity	4
	Consolidated Statements of Cash Flows	65
	Notes to the Consolidated Financial Statements	76
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4843
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	6862
Item 4.	Controls and Procedures	6862


PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	6963
Item 1.A.	Risk Factors	7063
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	71
~~Item 4.~~	~~Mine Safety Disclosures~~	7167
Item 6.	Exhibits	7268
SIGNATURE		7370

	Unaudited Three Months Ended September 30,				Unaudited Nine Months Ended September 30,				Unaudited Three Months Ended March 31,
(In millions, except per share amounts)	2017		2016		2017		2016		2018		2017
Revenues:
Revenues
Premiums	$	8,030	$	7,605	$	24,143	$	23,005	$	8,999	$	8,151
Fees and other revenues	1,204		1,156		3,619		3,554		1,368		1,264
Net investment income	298		282		909		848		329		303
Mail order pharmacy revenues	733		762		2,200		2,207		717		710
Realized investment gains (losses):
Realized investment gains (losses)
Other-than-temporary impairments on fixed maturities	(6)		(1)		(15)		(31)		(13)		(7)
Other realized investment gains, net	123		76		229		141
Net realized investment gains	117		75		214		110
Other realized investment (losses) gains, net									(20)		53
Net realized investment (losses) gains									(33)		46
TOTAL REVENUES	10,382		9,880		31,085		29,724		11,380		10,474
Benefits and expenses:
Benefits and expenses
Global Health Care medical costs	4,880		4,692		14,789		14,230		5,317		4,949
Other benefit expenses	1,342		1,343		4,044		4,125		1,455		1,367
Mail order pharmacy costs	612		638		1,819		1,842		561		581
Other operating expenses	2,696		2,428		7,497		7,038		2,802		2,655
Amortization of other acquired intangible assets, net	28		37		88		115
Amortization of other acquired intangible assets									27		32
TOTAL BENEFITS AND EXPENSES	9,558		9,138		28,237		27,350		10,162		9,584
Income before income taxes	824		742		2,848		2,374		1,218		890
Income taxes:
Income taxes
Current	231		210		821		842		292		286
Deferred	31		80		62		63		9		11
TOTAL INCOME TAXES	262		290		883		905		301		297
Net Income	562		452		1,965		1,469
Net income									917		593
Less: Net income (loss) attributable to noncontrolling interests	2		(4)		(6)		(16)		2		(5)
SHAREHOLDERS’ NET INCOME	$	560	$	456	$	1,971	$	1,485	$	915	$	598
Shareholders’ net income per share:
Shareholders’ net income per share
Basic	$	2.25	$	1.78	$	7.79	$	5.82	$	3.78	$	2.34
Diluted	$	2.21	$	1.76	$	7.67	$	5.72	$	3.72	$	2.30
Dividends declared per share	$	-	$	-	$	0.04	$	0.04	$	0.04	$	0.04

	Unaudited
	Three Months Ended March 31,
(In millions)	2018		2017
Cash Flows from Operating Activities
Net income	$	917	$	593
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	140		146
Realized investment losses (gains)	33		(46)
Deferred income taxes	9		11
Net changes in assets and liabilities, net of non-operating effects:
Premiums, accounts and notes receivable	(53)		(55)
Reinsurance recoverables	31		41
Deferred policy acquisition costs	(76)		(76)
Other assets	114		(22)
Insurance liabilities	849		868
Accounts payable, accrued expenses and other liabilities	(191)		(186)
Current income taxes	260		291
Distributions from partnership investments	34		45
Other, net	(42)		(31)
NET CASH PROVIDED BY OPERATING ACTIVITIES	2,025		1,579
Cash Flows from Investing Activities
Proceeds from investments sold:
Fixed maturities and equity securities	499		414
Investment maturities and repayments:
Fixed maturities and equity securities	297		475
Commercial mortgage loans	28		21
Other sales, maturities and repayments (primarily short-term and other long-term investments)	112		667
Investments purchased or originated:
Fixed maturities and equity securities	(2,259)		(1,240)
Commercial mortgage loans	(68)		(107)
Other (primarily short-term and other long-term investments)	(206)		(256)
Property and equipment purchases	(103)		(91)
NET CASH (USED IN) INVESTING ACTIVITIES	(1,700)		(117)
Cash Flows from Financing Activities
Deposits and interest credited to contractholder deposit funds	292		374
Withdrawals and benefit payments from contractholder deposit funds	(306)		(385)
Net change in short-term debt	(3)		(10)
Repayment of long-term debt	(131)		(250)
Repurchase of common stock	(310)		(239)
Issuance of common stock	20		38
Other, net	(92)		(43)
NET CASH (USED IN) FINANCING ACTIVITIES	(530)		(515)
Effect of foreign currency rate changes on cash and cash equivalents	4		23
Net (decrease) increase in cash and cash equivalents	(201)		970
Cash and cash equivalents, January 1,	2,972		3,185
Cash and cash equivalents, March 31,	$	2,771	$	4,155
Supplemental Disclosure of Cash Information:
Income taxes paid, net of refunds	$	31	$	(8)
Interest paid	$	46	$	70

	Unaudited
	Nine Months Ended September 30,
(In millions)	2017		2016
Cash Flows from Operating Activities
Net income	$	1,965	$	1,469
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	425		460
Realized investment (gains)	(214)		(110)
Deferred income taxes	62		63
Net changes in assets and liabilities, net of non-operating effects:
Premiums, accounts and notes receivable	(190)		184
Reinsurance recoverables	144		132
Deferred policy acquisition costs	(209)		(167)
Other assets	(156)		(32)
Insurance liabilities	988		1,098
Accounts payable, accrued expenses and other liabilities	221		9
Current income taxes	7		(57)
Debt extinguishment costs	321		-
Distributions from partnership investments (1)	114		105
Other, net	33		25
NET CASH PROVIDED BY OPERATING ACTIVITIES (1)	3,511		3,179
Cash Flows from Investing Activities
Proceeds from investments sold:
Fixed maturities and equity securities	1,376		1,012
Investment maturities and repayments:
Fixed maturities and equity securities	1,444		1,178
Commercial mortgage loans	253		117
Other sales, maturities and repayments (primarily short-term and other long-term investments) (1)	1,486		799
Investments purchased or originated:
Fixed maturities and equity securities	(4,292)		(2,894)
Commercial mortgage loans	(272)		(121)
Other (primarily short-term and other long-term investments)	(722)		(1,317)
Property and equipment purchases	(340)		(362)
Acquisitions, net of cash acquired	(33)		(5)
Other	-		(101)
NET CASH (USED IN) INVESTING ACTIVITIES (1)	(1,100)		(1,694)
Cash Flows from Financing Activities
Deposits and interest credited to contractholder deposit funds	965		1,133
Withdrawals and benefit payments from contractholder deposit funds	(1,079)		(1,042)
Net change in short-term debt	(16)		(143)
Payments for debt extinguishment	(313)		-
Repayment of long-term debt	(1,250)		-
Net proceeds on issuance of long-term debt	1,584		-
Repurchase of common stock	(1,961)		(139)
Issuance of common stock	111		23
Other, net	(9)		(87)
NET CASH (USED IN) FINANCING ACTIVITIES	(1,968)		(255)
Effect of foreign currency rate changes on cash and cash equivalents	28		26
Net increase in cash and cash equivalents	471		1,256
Cash and cash equivalents, January 1,	3,185		1,968
Cash and cash equivalents, September 30,	$	3,656	$	3,224
Supplemental Disclosure of Cash Information:
Income taxes paid, net of refunds	$	812	$	904
Interest paid	$	197	$	192

	Three Months Ended
	September 30, 2017				September 30, 2016
(In millions)	Before-tax		After-tax		Before-tax		After-tax
Merger-related transaction costs	$	9	$	6	$	49	$	46
Tax (benefit) - previously non-deductible costs	-		-		-		-
Merger-related transaction costs (benefits), net	$	9	$	6	$	49	$	46

	Three Months Ended September 30,		Nine Months Ended September 30,
(In millions)	2017	2016	2017	2016
Anti-dilutive options	-	2.6	1.2	2.2


(In millions)
Debt Instrument	Principal	Term	Maturity	Stated Interest Rate	Effective Interest Rate	Amount net of discount and fees		Interest payment dates

10-Year Notes	$ 600	10-Year	October 15, 2027	3.05%	3.183%	$	594	April 15 and October 15
30-Year Notes	$ 1,000	30-Year	October 15, 2047	3.875%	3.951%	$	987	April 15 and October 15

	For the period ended
	September 30,		December 31,
(In millions)	2017		2016
Balance at January 1	$	1,224	$	1,252
Add: Unpaid claims	16		18
Less: Reinsurance and other amounts recoverable	1,129		1,164
Balance at January 1, net	111		106
Add: Incurred benefits	-		4
Less: Paid benefits (recoveries)	(1)		(1)
Ending balance, net	112		111
Less: Unpaid claims	17		16
Add: Reinsurance and other amounts recoverable	1,027		1,129
Ending balance	$	1,122	$	1,224

For the Three Months Ended September 30, 2017	Changes in Level 3 financial assets and financial liabilities
(In millions)	Fixed Maturities & Equity Securities		GMIB Assets		GMIB Liabilities		GMIB Net
Balance at July 1, 2017	$	751	$	777	$	(764)	$	13
Gains (losses) included in shareholders’ net income:
GMIB fair value gain/(loss)	-		40		(40)		-
Other	(2)		(1)		6		5
Total gains (losses) included in shareholders’ net income	(2)		39		(34)		5
Losses included in other comprehensive income	(9)		-		-		-
Losses required to adjust future policy benefits for settlement annuities (1)	(2)		-		-		-
Purchases, sales and settlements:
Purchases	37		-		-		-
Sales	(3)		-		-		-
Settlements	(30)		(18)		18		-
Total purchases, sales and settlements	4		(18)		18		-
Transfers into/(out of) Level 3:
Transfers into Level 3	178		-		-		-
Transfers out of Level 3	(116)		-		-		-
Total transfers into/(out of) Level 3	62		-		-		-
Balance at September 30, 2017	$	804	$	798	$	(780)	$	18
Total gains (losses) included in shareholders’ net income attributable to instruments held at the reporting date	$	1	$	39	$	(34)	$	5

For the Nine Months Ended September 30, 2017
Balance at January 1, 2017	$	776	$	799	$	(780)	$	19
Gains (losses) included in shareholders’ net income:
GMIB fair value gain/(loss)	-		44		(44)		-
Other	22		-		(1)		(1)
Total gains (losses) included in shareholders’ net income	22		44		(45)		(1)
Losses included in other comprehensive income	(12)		-		-		-
Gains required to adjust future policy benefits for settlement annuities (1)	7		-		-		-
Purchases, sales and settlements:
Purchases	127		-		-		-
Sales	(73)		-		-		-
Settlements	(69)		(45)		45		-
Total purchases, sales and settlements	(15)		(45)		45		-
Transfers into/(out of) Level 3:
Transfers into Level 3	254		-		-		-
Transfers out of Level 3	(228)		-		-		-
Total transfers into/(out of) Level 3	26		-		-		-
Balance at September 30, 2017	$	804	$	798	$	(780)	$	18
Total gains (losses) included in shareholders’ net income attributable to instruments held at the reporting date	$	-	$	44	$	(45)	$	(1)

September 30, 2017 (In millions)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Guaranteed separate accounts - see Note 16(A)	$	216	$	313	$	-	$	529
Non-guaranteed separate accounts (1)	1,511		5,240		300		7,051
Subtotal	$	1,727	$	5,553	$	300	7,580
Non-guaranteed separate accounts priced at NAV as a practical expedient (1)							852
Total separate account assets							$	8,432

December 31, 2016
Guaranteed separate accounts - see Note 16(A)	$	238	$	262	$	-	$	500
Non-guaranteed separate accounts (1)	1,368		4,885		331		6,584
Subtotal	$	1,606	$	5,147	$	331	7,084
Non-guaranteed separate accounts priced at NAV as a practical expedient (1)							856
Total separate account assets							$	7,940

(In millions)
	Debt Service Coverage Ratio
	1.30x or		1.20x to		1.10x to		1.00x to		Less than
Loan-to-Value Ratios	Greater		1.29x		1.19x		1.09x		1.00x		Total
As of September 30, 2017
Below 50%	$	304	$	14	$	-	$	-	$	45	$	363
50% to 59%	651		27		-		-		-		678
60% to 69%	524		-		-		-		-		524
70% to 79%	84		-		-		-		35		119
80% to 89%	-		-		-		-		-		-
90% to 100%	-		-		-		-		-		-
Total	$	1,563	$	41	$	-	$	-	$	80	$	1,684

As of December 31, 2016
Below 50%	$	335	$	15	$	-	$	-	$	-	$	350
50% to 59%	517		46		-		30		-		593
60% to 69%	624		14		-		-		-		638
70% to 79%	-		-		29		-		35		64
80% to 89%	-		-		-		-		-		-
90% to 100%	-		-		-		-		21		21
Total	$	1,476	$	75	$	29	$	30	$	56	$	1,666

Fair Value Hedge of Long-Term Corporate Debt	Notional Value (in millions)
Type of instrument. Interest rate swap contracts	September 30, 2017		December 31, 2016
	$	750	$	750

Purpose. To convert a portion of the interest rate exposure on the Company’s long-term debt from fixed to variable rates. This more closely aligns the Company’s interest expense with the interest income received on its cash equivalent and short-term investment balances. The variable rates are benchmarked to LIBOR.

Terms of derivative instruments. The Company provides upfront margin and settles fair value changes and net interest between variable and fixed rates daily with a central clearinghouse.

Accounting. Using fair value hedge accounting, the fair values of the swap contracts are reported in other assets, including other intangibles, or accounts payable, accrued expenses, and other liabilities. The critical terms of these swaps match those of the long-term debt being hedged. As a result, the carrying value of the hedged debt is adjusted to reflect changes in its fair value driven by LIBOR. The effects of those adjustments on other operating expenses are offset by the effects of corresponding changes in the swaps’ fair value. The net impact from the hedge reported in other operating expenses reflects interest expense on the hedged debt at the variable interest rate.

			Tax
			(Expense)		After-
(In millions)	Pre-Tax		Benefit		Tax
Three Months Ended September 30, 2017
Net unrealized appreciation, securities, July 1,	$	660	$	(224)	$	436
Unrealized (depreciation) on securities arising during the period	(5)		-		(5)
Reclassification adjustment for (gains) included in shareholders’ net income (realized investment gains)	(26)		9		(17)
Net unrealized (depreciation) on securities arising during the period	(31)		9		(22)
Net unrealized appreciation, securities, September 30,	$	629	$	(215)	$	414
Net translation of foreign currencies, July 1,	$	(249)	$	19	$	(230)
Net translation of foreign currencies arising during the period	38		(4)		34
Net translation of foreign currencies, September 30,	$	(211)	$	15	$	(196)
Postretirement benefits liability adjustment, July 1,	$	(2,080)	$	728	$	(1,352)
Reclassification adjustment for amortization of net losses from past experience and prior service costs (other operating expenses)		16		(6)		10
Postretirement benefits liability adjustment, September 30,	$	(2,064)	$	722	$	(1,342)

Three Months Ended September 30, 2016
Net unrealized appreciation, securities, July 1,	$	1,135	$	(367)	$	768
Unrealized appreciation on securities arising during the period		94		(24)		70
Reclassification adjustment for (gains) included in shareholders’ net income (realized investment gains)		(6)		2		(4)
Net unrealized appreciation on securities arising during the period		88		(22)		66
Net unrealized appreciation, securities, September 30,	$	1,223	$	(389)	$	834
Net unrealized appreciation, derivatives, July 1,	$	5	$	(2)	$	3
Unrealized appreciation on derivatives arising during the period		2		-		2
Reclassification adjustment for (gains) included in shareholders’ net income (other operating expenses)		(4)		1		(3)
Net unrealized (depreciation) on derivatives arising during the period		(2)		1		(1)
Net unrealized appreciation, derivatives, September 30,	$	3	$	(1)	$	2
Net translation of foreign currencies, July 1,	$	(251)	$	18	$	(233)
Net translation of foreign currencies arising during the period		55		-		55
Net translation of foreign currencies, September 30,	$	(196)	$	18	$	(178)
Postretirement benefits liability adjustment, July 1,	$	(2,127)	$	745	$	(1,382)
Reclassification adjustment for amortization of net losses from past experience and prior service costs (other operating expenses)		16		(4)		12
Net change due to valuation update		(3)		-		(3)
Net postretirement benefits liability adjustment arising during the period		13		(4)		9
Postretirement benefits liability adjustment, September 30,	$	(2,114)	$	741	$	(1,373)