Delaware
|
06-1059331
|
(State
or other jurisdiction
|
(I.R.S.
Employer
|
of
incorporation or organization)
|
Identification
No.)
|
Page
No.
|
||
|
||
CIGNA
Corporation
|
|||||||
Consolidated
Statements of Income
|
|||||||
Three
Months Ended
|
|
||||||
|
|
March
31,
|
|
||||
(In millions,
except per share amounts)
|
|
2007
|
|
2006
|
|||
Revenues
|
|||||||
Premiums
and fees
|
$
|
3,708
|
$
|
3,268
|
|||
Net
investment income
|
280
|
329
|
|||||
Other
revenues
|
365
|
366
|
|||||
Realized
investment gains
|
21
|
144
|
|||||
Total revenues
|
4,374
|
4,107
|
|||||
Benefits
and Expenses
|
|||||||
Health
Care medical claims expense
|
1,719
|
1,448
|
|||||
Other
benefit expenses
|
836
|
788
|
|||||
Other
operating expenses
|
1,406
|
1,343
|
|||||
Total benefits and expenses
|
3,961
|
3,579
|
|||||
Income
from Continuing Operations before Income Taxes
|
413
|
528
|
|||||
Income
taxes (benefits):
|
|||||||
Current
|
132
|
254
|
|||||
Deferred
|
4
|
(78
|
)
|
||||
Total taxes
|
136
|
176
|
|||||
Income
from Continuing Operations
|
277
|
352
|
|||||
Income
from Discontinued Operations, Net of Taxes
|
12
|
-
|
|||||
Net
Income
|
$
|
289
|
$
|
352
|
|||
Earnings
Per Share - Basic:
|
|||||||
Income from continuing operations
|
$
|
2.86
|
$
|
2.93
|
|||
Income from discontinued operations
|
0.13
|
-
|
|||||
Net
income
|
$
|
2.99
|
$
|
2.93
|
|||
Earnings
Per Share - Diluted:
|
|||||||
Income from continuing operations
|
$
|
2.80
|
$
|
2.87
|
|||
Income from discontinued operations
|
0.13
|
-
|
|||||
Net
income
|
$
|
2.93
|
$
|
2.87
|
|||
Dividends
Declared Per Share
|
$
|
0.025
|
$
|
0.025
|
|||
The
accompanying Notes to the Financial Statements are an integral
part of
these statements.
|
CIGNA
Corporation
|
|||||||||||||
Consolidated
Balance Sheets
|
|||||||||||||
(In millions,
except per share amounts)
|
As
of March 31,
|
|
As
of December 31,
|
|
|||||||||
|
|
2007
|
|
2006
|
|||||||||
Assets
|
|||||||||||||
Investments:
|
|||||||||||||
Fixed maturities, at fair value (amortized cost, $11,510;
$11,373)
|
$
|
12,267
|
$
|
12,155
|
|||||||||
Equity securities, at fair value (cost, $111; $112)
|
130
|
131
|
|||||||||||
Mortgage loans
|
3,968
|
3,988
|
|||||||||||
Policy loans
|
1,419
|
1,405
|
|||||||||||
Real estate
|
67
|
117
|
|||||||||||
Other long-term investments
|
455
|
418
|
|||||||||||
Short-term investments
|
74
|
89
|
|||||||||||
Total
investments
|
18,380
|
18,303
|
|||||||||||
Cash
and cash equivalents
|
1,589
|
1,392
|
|||||||||||
Accrued
investment income
|
271
|
255
|
|||||||||||
Premiums,
accounts and notes receivable
|
1,432
|
1,459
|
|||||||||||
Reinsurance
recoverables
|
7,832
|
8,045
|
|||||||||||
Deferred
policy acquisition costs
|
715
|
707
|
|||||||||||
Property
and equipment
|
603
|
632
|
|||||||||||
Deferred
income taxes
|
902
|
926
|
|||||||||||
Goodwill
|
1,739
|
1,736
|
|||||||||||
Other
assets, including other intangibles
|
423
|
379
|
|||||||||||
Separate
account assets
|
8,492
|
8,565
|
|||||||||||
Total
assets
|
$
|
42,378
|
$
|
42,399
|
|||||||||
Liabilities
|
|||||||||||||
Contractholder
deposit funds
|
$
|
9,042
|
$
|
9,164
|
|||||||||
Future
policy benefits
|
8,286
|
8,373
|
|||||||||||
Unpaid
claims and claim expenses
|
4,264
|
4,310
|
|||||||||||
Health
Care medical claims payable
|
989
|
960
|
|||||||||||
Unearned
premiums and fees
|
558
|
499
|
|||||||||||
Total
insurance and contractholder liabilities
|
23,139
|
23,306
|
|||||||||||
Accounts
payable, accrued expenses and other liabilities
|
4,461
|
4,435
|
|||||||||||
Short-term
debt
|
291
|
382
|
|||||||||||
Long-term
debt
|
1,792
|
1,294
|
|||||||||||
Nonrecourse
obligations
|
51
|
87
|
|||||||||||
Separate
account liabilities
|
8,492
|
8,565
|
|||||||||||
Total
liabilities
|
38,226
|
38,069
|
|||||||||||
Contingencies
— Note 15
|
|||||||||||||
Shareholders’
Equity
|
|||||||||||||
Common
stock (par value per share, $0.25; shares issued, 160;
160)
|
40
|
40
|
|||||||||||
Additional
paid-in capital
|
2,485
|
2,451
|
|||||||||||
Net
unrealized appreciation, fixed maturities
|
$
|
181
|
$
|
187
|
|||||||||
Net
unrealized appreciation, equity securities
|
10
|
22
|
|||||||||||
Net
unrealized depreciation, derivatives
|
(16
|
)
|
(15
|
)
|
|||||||||
Net
translation of foreign currencies
|
33
|
33
|
|||||||||||
Postretirement
benefits liability adjustment
|
(379
|
)
|
(396
|
)
|
|||||||||
Accumulated
other comprehensive loss
|
(171
|
)
|
(169
|
)
|
|||||||||
Retained
earnings
|
6,375
|
6,177
|
|||||||||||
Less
treasury stock, at cost
|
(4,577
|
)
|
(4,169
|
)
|
|||||||||
Total
shareholders’ equity
|
4,152
|
4,330
|
|||||||||||
Total
liabilities and shareholders’ equity
|
$
|
42,378
|
$
|
42,399
|
|||||||||
Shareholders’
Equity Per Share
|
$
|
43.28
|
$
|
43.89
|
|||||||||
The
accompanying Notes to the Financial Statements are an integral
part of
these statements.
|
CIGNA
Corporation
|
|||||||||||||
Consolidated
Statements of Comprehensive Income and Changes in Shareholders’
Equity
|
|||||||||||||
(In millions,
except per share amounts)
|
|||||||||||||
Three
Months Ended March 31,
|
|||||||||||||
2007
|
|
2006
|
|
||||||||||
|
|
Compre-
hensive
Income
|
|
Share-
holders'
Equity
|
|
Compre-
hensive
Income
|
|
Share-
holders'
Equity
|
|
||||
Common
Stock
|
$
|
40
|
$
|
40
|
|||||||||
Additional
Paid-In Capital, January 1
|
2,451
|
2,385
|
|||||||||||
Effect
of issuance of stock for employee benefit plans
|
34
|
34
|
|||||||||||
Additional
Paid-In Capital, March 31
|
2,485
|
2,419
|
|||||||||||
Accumulated
Other Comprehensive Loss, January 1
|
|||||||||||||
prior to implementation effect
|
(169
|
)
|
(509
|
)
|
|||||||||
Implementation
effect of SFAS No.155 (see Note 2)
|
(12
|
)
|
-
|
||||||||||
Accumulated
Other Comprehensive Loss,
|
|||||||||||||
January 1 as adjusted
|
(181
|
)
|
(509
|
)
|
|||||||||
Net
unrealized depreciation, fixed maturities
|
$
|
(6
|
)
|
(6
|
)
|
$
|
(95
|
)
|
(95
|
)
|
|||
Net
unrealized depreciation, equity securities
|
-
|
-
|
(4
|
)
|
(4
|
)
|
|||||||
Net
unrealized depreciation on securities
|
(6
|
)
|
(99
|
)
|
|||||||||
Net
unrealized depreciation, derivatives
|
(1
|
)
|
(1
|
)
|
(1
|
)
|
(1
|
)
|
|||||
Net
translation of foreign currencies
|
-
|
-
|
7
|
7
|
|||||||||
Postretirement
benefits liability adjustment
|
17
|
17
|
-
|
-
|
|||||||||
Other comprehensive income (loss)
|
10
|
(93
|
)
|
||||||||||
Accumulated
Other Comprehensive Loss, March 31
|
(171
|
)
|
(602
|
)
|
|||||||||
Retained
Earnings, January 1 prior to
|
|||||||||||||
implementation effects
|
6,177
|
5,162
|
|||||||||||
Implementation
effect of SFAS No. 155 (see Note 2)
|
12
|
-
|
|||||||||||
Implementation
effect of FIN 48 (see Note 2)
|
(29
|
)
|
-
|
||||||||||
Retained
Earnings, January 1 as adjusted
|
6,160
|
5,162
|
|||||||||||
Net
income
|
289
|
289
|
352
|
352
|
|||||||||
Effects
of issuance of stock for employee benefit plans
|
(72
|
)
|
(86
|
)
|
|||||||||
Common
dividends declared
|
(2
|
)
|
(3
|
)
|
|||||||||
Retained
Earnings, March 31
|
6,375
|
5,425
|
|||||||||||
Treasury
Stock, January 1
|
(4,169
|
)
|
(1,718
|
)
|
|||||||||
Repurchase
of common stock
|
(576
|
)
|
(419
|
)
|
|||||||||
Other,
primarily issuance of treasury stock for employee
|
|||||||||||||
benefit plans
|
168
|
207
|
|||||||||||
Treasury
Stock, March 31
|
(4,577
|
)
|
(1,930
|
)
|
|||||||||
Total
Comprehensive Income and Shareholders’
|
|||||||||||||
Equity
|
$
|
299
|
$
|
4,152
|
$
|
259
|
$
|
5,352
|
|||||
The
accompanying Notes to the Financial Statements are an integral
part of
these statements.
|
|||||||||||||
Consolidated
Statements of Cash Flows
|
|||||||
(In millions)
|
Three
Months Ended March 31,
|
||||||
2007
|
|
2006
|
|||||
Cash
Flows from Operating Activities
|
|||||||
Net
income
|
$
|
289
|
$
|
352
|
|||
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|||||||
Income
from discontinued operations
|
(12
|
)
|
-
|
||||
Insurance
liabilities
|
74
|
(132
|
)
|
||||
Reinsurance
recoverables
|
12
|
31
|
|||||
Deferred
policy
acquisition costs
|
(12
|
)
|
(21
|
)
|
|||
Premiums,
accounts and notes receivable
|
17
|
68
|
|||||
Accounts
payable, accrued expenses and other liabilities
|
(74
|
)
|
(165
|
)
|
|||
Current
income taxes
|
100
|
222
|
|||||
Deferred
income
taxes
|
4
|
(78
|
)
|
||||
Realized
investment gains
|
(21
|
)
|
(144
|
)
|
|||
Depreciation
and amortization
|
54
|
54
|
|||||
Gains
on sales of businesses (excluding discontinued operations)
|
(11
|
)
|
(17
|
)
|
|||
Mortgage
loans
originated and held for sale
|
-
|
(240
|
)
|
||||
Other,
net
|
(42
|
)
|
(17
|
)
|
|||
Net
cash provided by (used in) operating activities
|
378
|
(87
|
)
|
||||
Cash
Flows from Investing Activities
|
|||||||
Proceeds
from investments sold:
|
|||||||
Fixed
maturities
|
188
|
535
|
|||||
Equity
securities
|
11
|
5
|
|||||
Mortgage
loans
|
28
|
136
|
|||||
Other
(primarily short-term investments)
|
143
|
611
|
|||||
Investment
maturities and repayments:
|
|||||||
Fixed
maturities
|
107
|
518
|
|||||
Mortgage
loans
|
62
|
69
|
|||||
Investments
purchased:
|
|||||||
Fixed
maturities
|
(440
|
)
|
(755
|
)
|
|||
Equity
securities
|
(2
|
)
|
(30
|
)
|
|||
Mortgage
loans
|
(69
|
)
|
(252
|
)
|
|||
Other
(primarily short-term investments)
|
(185
|
)
|
(150
|
)
|
|||
Property
and equipment, net
|
(19
|
)
|
(30
|
)
|
|||
Cash
provided by investing activities of discontinued
operations
|
31
|
-
|
|||||
Other,
net
|
(6
|
)
|
-
|
||||
Net
cash provided by (used in) investing activities
|
(151
|
)
|
657
|
||||
Cash
Flows from Financing Activities
|
|||||||
Deposits
and interest credited to contractholder deposit funds
|
141
|
141
|
|||||
Withdrawals
and benefit payments from contractholder deposit funds
|
(142
|
)
|
(179
|
)
|
|||
Change
in cash overdraft position
|
12
|
4
|
|||||
Net
proceeds on issuance of long-term debt
|
498
|
-
|
|||||
Repayment
of long-term debt
|
(87
|
)
|
(100
|
)
|
|||
Repurchase
of common stock
|
(583
|
)
|
(400
|
)
|
|||
Issuance
of common stock
|
133
|
162
|
|||||
Common
dividends paid
|
(2
|
)
|
(3
|
)
|
|||
Net
cash used in financing activities
|
(30
|
)
|
(375
|
)
|
|||
Net
increase in cash and cash equivalents
|
197
|
195
|
|||||
Cash
and cash equivalents, beginning of period
|
1,392
|
1,709
|
|||||
Cash
and cash equivalents, end of period
|
$
|
1,589
|
$
|
1,904
|
|||
Supplemental
Disclosure of Cash Information:
|
|||||||
Income
taxes paid, net of refunds
|
$
|
8
|
$
|
8
|
|||
Interest
paid
|
$
|
20
|
$
|
22
|
|||
The
accompanying Notes to the Financial Statements are an integral
part of
these statements.
|
(Dollars
in millions, except
|
|
|
Effect
of
|
|
|
|
||||
per
share amounts)
|
|
Basic
|
|
Dilution
|
|
Diluted
|
||||
Three
Months Ended March 31,
|
||||||||||
2007
|
||||||||||
Income
from continuing
|
||||||||||
operations
|
$
|
277
|
-
|
$
|
277
|
|||||
Shares
(in
thousands):
|
||||||||||
Weighted
average
|
96,790
|
-
|
96,790
|
|||||||
Options
and restricted stock grants
|
1,994
|
1,994
|
||||||||
Total
shares
|
96,790
|
1,994
|
98,784
|
|||||||
EPS
|
$
|
2.86
|
$
|
(0.06
|
)
|
$
|
2.80
|
|||
2006
|
||||||||||
Income
from continuing
|
||||||||||
operations
|
$
|
352
|
-
|
$
|
352
|
|||||
Shares
(in
thousands):
|
||||||||||
Weighted
average
|
119,946
|
-
|
119,946
|
|||||||
Options
and restricted stock grants
|
2,567
|
2,567
|
||||||||
Total
shares
|
119,946
|
2,567
|
122,513
|
|||||||
EPS
|
$
|
2.93
|
$
|
(0.06
|
)
|
$
|
2.87
|
Three
Months
|
|
||||||
|
|
Ended
|
|
||||
|
|
March
31,
|
|||||
(In
millions)
|
2007
|
|
2006
|
||||
Antidilutive
options
|
0.5
|
0.7
|
|||||
(Dollars
in millions, except
|
|
|
Effect
of
|
|
|
|
||||
per
share amounts)
|
|
Basic
|
|
Dilution
|
|
Diluted
|
||||
Three
Months Ended March 31,
|
||||||||||
2007
|
||||||||||
Income
from continuing
|
||||||||||
operations
|
$
|
277
|
-
|
$
|
277
|
|||||
Shares
(in
thousands):
|
||||||||||
Weighted
average
|
290,370
|
-
|
290,370
|
|||||||
Options
and restricted stock grants
|
5,982
|
5,982
|
||||||||
Total
shares
|
290,370
|
5,982
|
296,352
|
|||||||
EPS
|
$
|
0.95
|
$
|
(0.02
|
)
|
$
|
0.93
|
|||
2006
|
||||||||||
Income
from continuing
|
||||||||||
operations
|
$
|
352
|
-
|
$
|
352
|
|||||
Shares
(in
thousands):
|
||||||||||
Weighted
average
|
359,838
|
-
|
359,838
|
|||||||
Options
and restricted stock grants
|
7,701
|
7,701
|
||||||||
Total
shares
|
359,838
|
7,701
|
367,539
|
|||||||
EPS
|
$
|
0.98
|
$
|
(0.02
|
)
|
$
|
0.96
|
March
31,
|
|
December
31,
|
|
||||
(In
millions)
|
|
2007
|
|
2006
|
|||
Incurred
but not yet reported
|
$
|
847
|
$
|
820
|
|||
Reported
claims in process
|
95
|
95
|
|||||
Other
medical expense payable
|
47
|
45
|
|||||
Medical
claims payable
|
$
|
989
|
$
|
960
|
|||
As
of
|
|
As
of
|
|
||||
(In millions)
|
|
March
31, 2007
|
|
December
31, 2006
|
|||
Balance
at January 1,
|
$
|
960
|
$
|
1,165
|
|||
Less:
Reinsurance and other
|
|||||||
amounts recoverable
|
250
|
342
|
|||||
Balance
at January 1, net
|
710
|
823
|
|||||
Incurred
claims related to:
|
|||||||
Current year
|
1,785
|
6,284
|
|||||
Prior years
|
(66
|
)
|
(173
|
)
|
|||
Total incurred
|
1,719
|
6,111
|
|||||
Paid
claims related to:
|
|||||||
Current year
|
1,163
|
5,615
|
|||||
Prior years
|
511
|
609
|
|||||
Total paid
|
1,674
|
6,224
|
|||||
Ending
Balance, net
|
755
|
710
|
|||||
Add:
Reinsurance and other
|
|||||||
amounts recoverable
|
234
|
250
|
|||||
Ending
Balance
|
$
|
989
|
$
|
960
|
|||
· |
The
reserves represent estimates of the present value of net amounts
expected
to be paid, less the present value of net future premiums. Included
in net
amounts expected to be paid is the excess of the guaranteed death
benefits
over the values of the contractholders’ accounts (based on underlying
equity and bond mutual fund
investments).
|
· |
The
reserves include an estimate for partial surrenders that essentially
lock
in the death benefit for a particular policy based on annual election
rates that vary from 0-20% depending on the net amount at risk for
each
policy and whether surrender charges
apply.
|
· |
The
mean investment performance assumption is 5% considering CIGNA's
program
to reduce equity market exposures using futures contracts. In addition,
the results of futures contracts are reflected in the liability
calculation as a component of investment
returns.
|
· |
The
volatility assumption is 15-30%, varying by equity fund type; 3-8%,
varying by bond fund type; and 1% for money market
funds.
|
· |
The
discount rate is 5.75%.
|
· |
The
mortality assumption is 70-75% of the 1994 Group Annuity Mortality
table,
with 1% annual improvement beginning January 1,
2000.
|
· |
The
lapse rate assumption is 0-15%, depending on contract type, policy
duration and the ratio of the net amount at risk to account
value.
|
Three
Months
|
|
||||||
|
|
Ended
|
|
||||
|
|
March
31,
|
|
||||
(In
millions)
|
|
2007
|
|
2006
|
|||
Premiums
and fees
|
|||||||
Individual
life insurance
|
|||||||
and annuity business sold
|
$
|
57
|
$
|
64
|
|||
Other
|
54
|
45
|
|||||
Total
|
$
|
111
|
$
|
109
|
|||
Reinsurance
recoveries
|
|||||||
Individual
life insurance
|
|||||||
and annuity business sold
|
$
|
92
|
$
|
75
|
|||
Other
|
34
|
35
|
|||||
Total
|
$
|
126
|
$
|
110
|
|||
Three
Months
|
|
||||||
|
|
Ended
|
|
||||
|
|
March
31,
|
|
||||
(In
millions)
|
|
2007
|
|
2006
|
|||
Service
cost
|
$
|
19
|
$
|
19
|
|||
Interest
cost
|
58
|
55
|
|||||
Expected
return on plan assets
|
(52
|
)
|
(52
|
)
|
|||
Amortization
of:
|
|||||||
Net loss from past experience
|
31
|
41
|
|||||
Net
pension cost
|
$
|
56
|
$
|
63
|
|||
Three
Months
|
|
||||||
|
|
Ended
|
|
||||
|
|
March
31,
|
|
||||
(In
millions)
|
|
2007
|
|
2006
|
|||
Service
cost
|
$
|
1
|
$
|
1
|
|||
Interest
cost
|
6
|
6
|
|||||
Amortization
of:
|
|||||||
Net gain from past experience
|
(1
|
)
|
(1
|
)
|
|||
Prior service cost
|
(4
|
)
|
(4
|
)
|
|||
Net
other postretirement
|
|||||||
benefit cost
|
$
|
2
|
$
|
2
|
|||
Three
Months
|
|
||||||
|
|
Ended
|
|
||||
|
|
March
31,
|
|
||||
(In
millions)
|
|
2007
|
|
2006
|
|||
Fixed
maturities
|
$
|
4
|
$
|
2
|
|||
Equity
securities
|
10
|
3
|
|||||
Mortgage
loans
|
-
|
(6
|
)
|
||||
Other
investments,
|
|||||||
including derivatives
|
7
|
145
|
|||||
Realized
investment gains
|
|||||||
from continuing operations,
|
|||||||
before income taxes
|
21
|
144
|
|||||
Less
income taxes
|
8
|
50
|
|||||
Realized
investment gains
|
|||||||
from continuing operations
|
13
|
94
|
|||||
Realized
investment gains from
|
|||||||
discontinued operations
|
|||||||
before income taxes
|
18
|
-
|
|||||
Less
income taxes
|
6
|
-
|
|||||
Realized
investment gains
|
|||||||
from discontinued operations
|
12
|
-
|
|||||
Net
realized investment gains
|
$
|
25
|
$
|
94
|
|||
|
|
As
of
|
|
As
of
|
|
||
(In
millions)
|
|
March
31, 2007
|
|
December
31, 2006
|
|||
Included
in fixed maturities:
|
|||||||
Trading
securities
|
$
|
26
|
$
|
27
|
|||
Hybrid
securities
|
8
|
10
|
|||||
Total
|
$
|
34
|
$
|
37
|
|||
Included
in equity securities:
|
|||||||
Hybrid
securities
|
$
|
104
|
$
|
105
|
|
Three
Months
|
|
|||||
|
|
Ended
|
|
||||
|
|
March
31,
|
|
||||
(In
millions)
|
|
2007
|
|
2006
|
|||
Proceeds
from sales
|
$
|
199
|
$
|
540
|
|||
Gross
gains from sales
|
$
|
15
|
$
|
16
|
|||
Gross
losses from sales
|
$
|
(1
|
)
|
$
|
(12
|
)
|
|
·
|
length
of time and severity of decline;
|
· |
financial
health and specific near term prospects of the issuer;
|
· |
changes
in the regulatory, economic or general market environment of the
issuer’s
industry or geographic region; and
|
· |
ability
and intent to hold until recovery.
|
Fair
|
|
Amortized
|
|
Unrealized
|
|
|||||
(In
millions)
|
|
Value
|
|
Cost
|
|
Depreciation
|
||||
Fixed
Maturities:
|
||||||||||
One year or less:
|
||||||||||
Investment
grade
|
$
|
1,405
|
$
|
1,420
|
$
|
(15
|
)
|
|||
Below
investment grade
|
$
|
88
|
$
|
89
|
$
|
(1
|
)
|
|||
More than one year:
|
||||||||||
Investment
grade
|
$
|
1,298
|
$
|
1,331
|
$
|
(33
|
)
|
|||
Below
investment grade
|
$
|
104
|
$
|
107
|
$
|
(3
|
)
|
· |
$267
million to limited liability entities that hold either real estate
or
loans to real estate entities; and
|
· |
$228
million to entities that hold securities.
|
March
31,
|
December
31,
|
||||||
(In
millions)
|
2007
|
|
2006
|
||||
Short-term:
|
|||||||
Current
maturities of long-term debt
|
$
|
291
|
$
|
376
|
|||
Short-term
note payable
|
-
|
6
|
|||||
Total
short-term debt
|
$
|
291
|
$
|
382
|
|||
Long-term:
|
|||||||
Uncollateralized
debt:
|
|||||||
7%
Notes due 2011
|
$
|
222
|
$
|
222
|
|||
6.375%
Notes due 2011
|
226
|
226
|
|||||
5.375%
Notes due 2017
|
250
|
-
|
|||||
6.37%
Note due 2021
|
78
|
78
|
|||||
7.65%
Notes due 2023
|
100
|
100
|
|||||
8.3%
Notes due 2023
|
17
|
17
|
|||||
7.875%
Debentures due 2027
|
300
|
300
|
|||||
8.3%
Step Down Notes due 2033
|
83
|
83
|
|||||
6.15%
Notes due 2036
|
500
|
250
|
|||||
Other
|
16
|
18
|
|||||
Total
long-term debt
|
$
|
1,792
|
$
|
1,294
|
· |
$250
million of Senior Notes bearing interest at the rate of 5.375% per
year, which is payable on March 15 and September 15 of each year,
beginning September 15, 2007. The Notes will mature on March 15,
2017;
and
|
· |
$250
million of Senior Notes bearing interest at the rate of 6.150% per
year, which is payable on May 15 and November 15 of each year, beginning
May 15, 2007. The Notes will mature on November 15, 2036.
|
|
|
Tax
|
|
|
|
|||||
|
|
|
|
(Expense)
|
|
After-
|
|
|||
(In
millions)
|
|
Pre-tax
|
|
Benefit
|
|
tax
|
||||
Three
Months Ended March 31,
|
||||||||||
2007
|
||||||||||
Net
unrealized depreciation, securities:
|
||||||||||
Implementation
effect of
|
||||||||||
SFAS No. 155
|
$
|
(18
|
)
|
$
|
6
|
$
|
(12
|
)
|
||
Net
unrealized appreciation on securities
|
||||||||||
arising during the year
|
4
|
(1
|
)
|
3
|
||||||
Less:
reclassification adjustment for gains
|
||||||||||
included in net income
|
(14
|
)
|
5
|
(9
|
)
|
|||||
Net
unrealized depreciation, securities
|
$
|
(28
|
)
|
$
|
10
|
$
|
(18
|
)
|
||
Net
unrealized depreciation,
|
||||||||||
derivatives
|
$
|
(1
|
)
|
$
|
-
|
$
|
(1
|
)
|
||
Net
translation of foreign
|
||||||||||
currencies
|
$
|
(1
|
)
|
$
|
1
|
$
|
-
|
|||
Postretirement
benefits liability
|
||||||||||
adjustment:
|
||||||||||
Reclassification
adjustment for
|
||||||||||
amortization of net losses from past
|
||||||||||
experience and prior service costs
|
$
|
26
|
$
|
(9
|
)
|
$
|
17
|
|||
2006
|
||||||||||
Net
unrealized depreciation, securities:
|
||||||||||
Net
unrealized depreciation on securities
|
||||||||||
arising during the year
|
$
|
(147
|
)
|
$
|
51
|
$
|
(96
|
)
|
||
Less:
reclassification adjustment for gains
|
||||||||||
included in net income
|
(5
|
)
|
2
|
(3
|
)
|
|||||
Net
unrealized depreciation, securities
|
$
|
(152
|
)
|
$
|
53
|
$
|
(99
|
)
|
||
Net
unrealized depreciation,
|
||||||||||
derivatives
|
$
|
(2
|
)
|
$
|
1
|
$
|
(1
|
)
|
||
Net
translation of foreign
|
||||||||||
currencies
|
$
|
11
|
$
|
(4
|
)
|
$
|
7
|
|
Three
Months
|
|
|||||
|
|
Ended
|
|||||
|
|
March
31,
|
|
||||
(In
millions)
|
|
2007
|
|
2006
|
|||
Compensation
cost
|
$
|
13
|
$
|
12
|
|||
Tax
benefits
|
$
|
5
|
$
|
4
|
Three
Months
|
|
||||||
|
|
Ended
|
|
||||
|
|
March
31,
|
|
||||
(Options
in thousands)
|
|
2007
|
|
2006
|
|||
Options
granted
|
541
|
524
|
|||||
Weighted
average fair
|
|||||||
value of options granted
|
$
|
48.04
|
$
|
43.97
|
As
of March 31,
|
|
||||||
|
|
2007
|
|
2006
|
|||
Dividend
yield
|
0.1%
|
|
0.1%
|
|
|||
Expected
volatility
|
35.0%
|
|
35.0%
|
|
|||
Risk-free
interest rate
|
4.7%
|
|
4.6%
|
|
|||
Expected
option life
|
4 years
|
4.5
years
|
|
|
Three
Months
|
|
||||
|
|
Ended
|
|
||||
|
|
March
31,
|
|
||||
(Grants
in thousands)
|
|
2007
|
|
2006
|
|||
Restricted
stock granted
|
216
|
193
|
|||||
Weighted
average fair value
|
$
|
140.49
|
$
|
122.50
|
Three
Months
|
|
||||||
|
|
Ended
|
|
||||
|
|
March
31,
|
|
||||
(In
millions)
|
|
2007
|
|
2006
|
|||
Premiums
and fees and other revenues
|
|||||||
Health
Care
|
$
|
3,006
|
$
|
2,698
|
|||
Disability
and Life
|
610
|
556
|
|||||
International
|
415
|
357
|
|||||
Run-off
Reinsurance
|
7
|
(25
|
)
|
||||
Other
Operations
|
47
|
60
|
|||||
Corporate
|
(12
|
)
|
(12
|
)
|
|||
Total
|
$
|
4,073
|
$
|
3,634
|
|||
Income
(loss) from continuing operations
|
|||||||
Health
Care
|
$
|
168
|
$
|
156
|
|||
Disability
and Life
|
60
|
58
|
|||||
International
|
38
|
37
|
|||||
Run-off
Reinsurance
|
1
|
-
|
|||||
Other
Operations
|
23
|
25
|
|||||
Corporate
|
(26
|
)
|
(18
|
)
|
|||
Segment
earnings
|
264
|
258
|
|||||
Realized
investment gains,
|
|||||||
net of taxes
|
13
|
94
|
|||||
Income
from continuing
|
|||||||
operations
|
$
|
277
|
$
|
352
|
· |
CIGNA
guarantees that separate account assets will be sufficient to pay
certain
retiree or life benefits. The sponsoring employers are primarily
responsible for ensuring that assets are sufficient to pay these
benefits
and are required to maintain assets that exceed a certain percentage
of
benefit obligations. This percentage varies depending on the asset
class
within a sponsoring employer’s portfolio (for example, a bond fund would
require a lower percentage than a riskier equity fund) and thus will
vary
as the composition of the portfolio changes. If employers do not
maintain
the required levels of separate account assets, CIGNA or an affiliate
of
the buyer has the right to redirect the management of the related
assets
to provide for benefit payments. As of March 31, 2007, employers
maintained assets that exceeded the benefit obligations. Benefit
obligations under these arrangements were $2.0 billion as of March
31,
2007. As of March 31, 2007, approximately 75% of these guarantees
is
reinsured by an affiliate of the buyer of the retirement benefits
business. There were no additional liabilities required for these
guarantees as of March 31, 2007.
|
· |
CIGNA
guarantees that separate account assets, primarily fixed income
investments, will be sufficient to pay retiree benefits for participants
under a certain group annuity contract. These guarantees are fully
reinsured by an affiliate of the buyer of the retirement benefits
business. These guaranteed benefit obligations were $31 million as
of
March 31, 2007. CIGNA had no additional liabilities for these guarantees
as of March 31, 2007.
|
· |
These
liabilities represent estimates of the present value of net amounts
expected to be paid, less the present value of net future premiums
expected to be received. Included in net amounts expected to be paid
is
the excess of the expected value of the income benefits over the
values of
the annuitant’s accounts at the time of annuitization. The assets
associated with these contracts represent receivables in connection
with
reinsurance that CIGNA has purchased from third parties (see below).
|
· |
The
market return assumption is 8-11% varying by equity fund type; 6-7%
varying by bond fund type; and 5-6% for money market
funds.
|
· |
The
volatility assumption is 14-23%, varying by equity fund type; 5-7%,
varying by bond fund type; and 2-3% for money market
funds.
|
· |
The
discount rate is 5.75%.
|
· |
The
projected interest rate used to calculate the reinsured income benefits
at
the time of annuitization varies by economic scenario, reflects interest
rates as of the valuation date, and has a long-term mean rate of
5-6% and
a standard deviation of 12-13%.
|
· |
The
mortality assumption is 70% of the 1994 Group Annuity Mortality table,
with 1% annual improvement beginning January 1,
2000.
|
· |
The
lapse rate assumption is 3-12%, depending on policy
duration.
|
· |
The
annuity election rate assumption is that no more than 5% of the policies
eligible to annuitize their variable annuity contracts will do so
each
year.
|
· |
No
annuitants surrendered their accounts;
and
|
· |
All
annuitants lived to elect their benefit;
and
|
· |
All
annuitants elected to receive their benefit on the next available
date
(2007 through 2014); and
|
· |
All
underlying mutual fund investment values remained at the March 31,
2007
value of $3.2 billion, with no future
returns.
|
· |
additional
mandated benefits or services that increase
costs;
|
· |
legislation
that would grant plan participants broader rights to sue their health
plans;
|
· |
changes
in public policy and in the political environment, which could affect
state and federal law, including legislative and regulatory proposals
related to health care issues, which could increase cost and affect
the
market for CIGNA's health care products and services; and pension
legislation, which could increase pension
cost;
|
· |
changes
in ERISA regulations resulting in increased application of varying
state
laws to benefit plan administration, thus increasing administrative
burdens and costs;
|
· |
additional
restrictions on the use of prescription drug formularies and rulings
from
pending purported class action litigation, which could result in
adjustments to or the elimination of the average wholesale price
or “AWP”
of pharmaceutical products as a benchmark in establishing certain
rates,
charges, discounts, guarantees and fees for various prescription
drugs;
|
· |
additional
privacy legislation and regulations that interfere with the proper
use of
medical information for research, coordination of medical care and
disease
and disability management;
|
· |
additional
variations among state laws mandating the time periods and administrative
processes for payment of health care provider claims;
|
· |
legislation
that would exempt independent physicians from antitrust laws;
and
|
· |
changes
in federal laws, such as amendments that could affect the taxation
of
employer provided benefits.
|
· |
cost
trends and inflation levels for medical and related
services;
|
· |
patterns
of utilization of medical and other
services;
|
· |
employment
levels;
|
· |
the
tort liability system;
|
· |
interest
rates and equity market returns;
|
· |
regulations
and tax rules related to the provision and administration of employee
benefit plans; and
|
· |
initiatives
to increase health care regulation.
|
· |
competitiveness
of CIGNA's product design and service
quality;
|
· |
the
absolute level of and trends in benefit
costs;
|
· |
the
volume of customers served and the mix of products and services purchased
by those customers;
|
· |
the
ability to price products and services competitively at levels that
appropriately account for underlying cost inflation and utilization
patterns;
|
· |
the
relationship between administrative costs and revenue;
and
|
· |
the
ability to execute on key technology initiatives, particularly those
related to enhancing and developing consumer-directed health plan
products
and the related service model, and successfully managing outsourcing
arrangements with vendors, including International Business Machines
Corporation (IBM) (see “Contractual Obligations” on page 50 in CIGNA's
2006 Annual Report to
Shareholders).
|
FINANCIAL
SUMMARY
|
Three
Months
|
|
|||||
|
|
Ended
|
|
||||
|
|
March
31,
|
|
||||
(In
millions)
|
|
2007
|
|
2006
|
|||
Premiums
and fees
|
$
|
3,708
|
$
|
3,268
|
|||
Net
investment income
|
280
|
329
|
|||||
Other
revenues
|
365
|
366
|
|||||
Realized
investment gains
|
21
|
144
|
|||||
Total
revenues
|
4,374
|
4,107
|
|||||
Benefits
and expenses
|
3,961
|
3,579
|
|||||
Income
from continuing
|
|||||||
operations before taxes
|
413
|
528
|
|||||
Income
taxes
|
136
|
176
|
|||||
Income
from continuing
|
|||||||
operations
|
277
|
352
|
|||||
Income
from discontinued
|
|||||||
operations, net of taxes
|
12
|
-
|
|||||
Net
income
|
$
|
289
|
$
|
352
|
|||
Realized
investment gains,
|
|||||||
net of taxes
|
$
|
13
|
$
|
94
|
· | lower realized gains from the sales of investments (see Note 9 to the Financial Statements); |
· | lower net investment income primarily due to the impact of share repurchase activity (see page 37); and |
· | higher earnings in the Health Care segment (see page 29). |
· | higher premiums and fees in the Health Care segment (see page 29) due to medical membership growth, rate increases and higher Medicare Part D premiums; and |
· | higher premiums and fees in the Disability and Life segment (see page 33) and in the International segment (see page 34) due to business growth. |
· | higher medical claims expense in the Health Care segment (see page 29); and |
· | higher benefits expense in the International segment due to overall business growth, as well as higher loss ratios in the expatriate employee benefits business. |
· |
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 impact on CIGNA’s consolidated results of operations or
financial condition.
|
· |
future
policy benefits - guaranteed minimum de |