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    CIGNA ANNUAL REPORT 2008 Making the path to health, well-being and security easier.


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    TABLE OF CONTENTS Letter to our Shareholders 2 2008 Milestones and Accomplishments 10 CIGNA in Perspective 12 Corporate and Board of Directors Information 14


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    At CIGNA we put the health, well-being and security of the people we serve first. We know good health For more than three generations, we have benefits everyone. helped individuals overcome obstacles and supported them during hardship. And in the process, have earned their trust and confidence. Today, we’re more committed than ever to helping our customers overcome whatever challenges that may lie ahead. We understand that improving health is the only sustainable way to reduce costs, improve productivity, and help businesses both large and small to prosper and thrive. That is why we made improving health the core of our purpose. And why we’ll keep working until every individual and every business we serve reaches their full health potential. Because now, more than ever, it’s time to feel better. And we can help make that path to health, well-being and security easier.


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    LETTER TO OUR SHAREHOLDERS To Our Shareholders By any measure, 2008 was a challenging year for our company, our customers and our country. Business and industry in virtually every segment of society felt the impact of a pervasive recession that adversely affected profitability and shareholder returns. Companies of all sizes, many of them our employer customers, responded to the recessionary pressures by cutting operating costs out of necessity – frequently by downsizing and paring back their expenditures for employee benefits. As a consequence, the industry’s major health H. Edward Hanway service and benefits providers – including CIGNA – had to compete CIGNA Corporation Chairman and Chief Executive Officer more aggressively for a share of a rapidly contracting benefits market. It was a year in which people from every walk of life were fearful and anxious about their future, and about maintaining a good and healthy quality of life for themselves and their families. They wanted help, and CIGNA was there to lend a hand. Financial Overview Our financial results for 2008 were very disappointing. For the full year, our net income was $292 million, or $1.05 per share, compared with $1.12 billion, or $3.87 per share, in 2007. Revenue was $19.1 billion versus $17.6 billion in 2007. The decline in earnings reflects the prevailing economic conditions and intensely competitive business environment. The decline was driven, to a significant degree, by the losses in our run-off reinsurance business – specifically, our variable annuity benefit products – which are sensitive to fluctuations in the stock market and interest rates. The run-off reinsurance results, while significant, were manageable from a capital perspective and our operating subsidiaries continue to be capitalized well in excess of regulatory requirements. Despite the circumstances, our ongoing businesses – CIGNA HealthCare, CIGNA Group Insurance and CIGNA International – in aggregate, posted higher earnings in a very challenging environment. 2


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    We generated positive results under difficult circumstances because of: the successful acquisition of Great-West Healthcare, the strength and diversity of our earnings stream and product portfolio, our deep commitment to service and clinical excellence, and our smart and steady investment in the people and technology we need to operate effectively in meeting customer needs. Our goal is to see life through the eyes of the people who depend on us … to help people find an easier path to health, well-being and security. In times like these – especially in times like these – fulfilling that mission is paramount. That was our mandate for 2008, just as it is today. Business Review CIGNA HealthCare earned $664 million last year. Though less than originally anticipated, this result reflects our acquisition of Great-West Healthcare and our emphasis on quality and service. That said, our earnings also clearly reflect a highly competitive pricing environment and the broad impact of the economic recession. At the same time, our health care specialty businesses – behavioral, dental and pharmacy – continue to add value as key components of our health service value proposition. The fact When times are hard, our customers need us more than ever. 3


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    LETTER TO OUR SHAREHOLDERS We aspire to be the best at listening to, understanding, and helping individuals improve their health. is, we can combine and integrate a wide range of health services and products to design personalized health care programs that are specific to the needs of every individual – programs that improve health and wellness and give people a real sense of security. This is a significant competitive advantage for us. CIGNA Group Insurance – our disability, life and accident insurance operation posted earnings of $273 million – 7 percent more than 2007. The increase is primarily attributable to our skill and experience in disability management. Our Group Insurance team consistently leads the industry in helping people with disabilities return to work and full productivity quickly and cost-effectively, an assertion validated by independent studies. Despite the impact of a poor economy, Group Insurance premiums and fees grew year-over- year, with strong margins compared to the competition. CIGNA International recorded another strong performance as well, with competitively strong margins on earnings of $182 million – 3 percent higher than earnings for full-year 2007. International’s results reflect the continued growth of our supplemental health, life 4


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    and accident business – especially in major markets in Asia – and in our expatriate benefits business, through which we meet the health and wellness needs of expatriate employees in many countries across the globe. International results were tempered to a degree by unfavorable fluctuations in foreign exchange rates, most notably the significant currency movements in South Korea, our largest market outside the United States. However, CIGNA International is fundamentally strong and well positioned for profitable growth in promising markets around the globe. Reform in a Changing Environment We’re also poised for new opportunities to improve health and well-being here in the United States, where people need and want a better, more effective approach to staying healthy. There’s no question about it – Americans want health care reform. Business leaders want reform, too. They know that value-driven, cost-effective health care is critically important to a productive, competitive work force. In fact, concerns about the state of our nation’s economic health relate specifically to staying healthy at a personal level. Various studies show that a disturbingly high number of people are short-changing their own health care because of the financial pressures they feel in this economy. People are under stress and they’re neglecting their health, with a greater likelihood of depression, illness, and disability as a consequence. We know that our customers – employers and individuals – need us now, more than ever, to help them stay healthy and well. Many of the reforms being discussed involve proposals to lower costs by investing in health information technology, wellness programs, and disease and disability prevention. CIGNA has been driving the effort to make these aspirations a reality. We’ve helped shape the debate on these initiatives – and on health care reform in general. We’ve been actively working with legislators at both the state and federal levels, as well as with business and industry groups. This is our business – and we have experience and insight to share with regard to what will work and what’s sustainable for the long term. CIGNA’s recommendations build on the best of what we already have and incorporate needed changes to ensure access and affordability for all, as well as more consistent quality. We have four main recommendations: 5


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    LETTER TO OUR SHAREHOLDERS First, that all individuals should have access to affordable, quality health care. We believe the employer-based system – through which some 165 million Americans gain access to a choice of health plans and benefits – should remain the primary source of coverage for working individuals and their families. Second, individuals should have ready access to evidence-based information about value (clinical quality and cost), and a full range of tools and resources they can use to make smarter, healthier, more cost-effective choices about the care they need. Third, we need a coordinated, public/private partnership to create a value-driven market that eliminates systemic inefficiencies and expands coverage to the uninsured. Finally, we need a renewed emphasis on quality. To ensure higher quality care, we strongly support the development of nationally recognized quality benchmarks for both private and public programs. Everyone in the system should be striving to perform to the highest standards as defined by clinically validated measures and outcome data. By gathering more and better information on health care professionals and services – including experience, outcomes, price, and patient satisfaction – we can help people make informed health care decisions that reward innovation and efficiency. In short, CIGNA proposes moving toward a value-based health care system that makes access to care universal, fosters and rewards quality, and makes care more affordable through evidence-based information that supports better decision-making. Delivering Value, One Person at a Time Put another way, value-based health care means removing the cost barriers to quality. For example, about 75 percent of the people enrolled in CIGNA HealthCare have benefit plans that require no copays, coinsurance costs or out-of-pocket expenses of any kind for primary preventive services (like immunizations) or primary screening services (such as mammograms or colonoscopies). We also offer financial incentives to plan participants who take advantage of our health and wellness programs – often health services provided person-to-person by medical professionals. Our skilled health coaches help individuals stop smoking, lose weight, deal with stress and depression, and more. 6


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    In addition, we reward individuals who complete health assessment and disease management programs that help them achieve clinically validated goals, such as lowering blood pressure or cholesterol. Their employers stand to gain, too. When programs such as these are instituted in the workplace, employers reap the benefit of improved health and productivity in their employee population. Creating value by removing the cost-related barriers to better quality of care, driving active participation of the individual through proven disease and lifestyle management programs, and encouraging people to embrace healthy behaviors and comply with treatment regimens – that’s the essence of health advocacy. What “Health Service” Really Means This approach is fundamental to our orientation as a health service company. We aspire to be the best at listening to, understanding and helping individuals improve their health. In that capacity, we’re not just a company that pays claims for illnesses and injuries after the fact, we also actively promote prevention and wellness. As such, we believe that we can make the path to health, well-being and security easier by helping people better manage and maintain their own health. We can help reduce the cost of care for them and their employers, help employees be more productive, and help make the health care delivery system more effective and cost-efficient. CIGNA’s businesses work together, strategically and operationally, to support the whole person. 7


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    LETTER TO OUR SHAREHOLDERS We’re helping people stay healthy and secure, at a time when the help we can offer is more critical than ever. CIGNA’s businesses work together, strategically and operationally, to support the whole person. We integrate a full slate of high-quality health and wellness offerings – including disease and disability management and lifestyle behavior change programs – for people in communities across America and around the globe. Our approach works. In 2008: Our “effectiveness of care” ratings put us at, or near, the top of the industry according to the National Committee for Quality Assurance (NCQA), one of the industry’s most respected benchmarking organizations. Our expanded network of high-performing, cost-efficient hospitals – Centers of Excellence – demonstrated measurable reductions in medical complications and lower hospital admission costs for the people who used them. We helped people with asthma, diabetes, cardiac problems, low back pain and cardio- pulmonary disorders take better care of themselves, which saved them money and lowered their rate of hospital admissions. And, we made life easier for the people we served. Our health care call centers were recognized by J.D. Power and Associates for delivering “an outstanding customer service experience” for the third straight year.* * For J.D. Power and Associates Certified Call Center ProgramSM information, visit jdpower.com. 8


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    Organizational and Operational Initiatives We’re determined to maintain our momentum and work to grow earnings in a sustainable way. To that end, we initiated a far-reaching series of actions in 2008. In particular, we: Set in motion an organizational realignment that will enable our ongoing businesses to function in a more concerted way, better equipped to deliver the fully integrated health and wellness solutions our customers require. Instituted a far-reaching plan to manage our business expenses and substantially reduce our day-to-day operating costs, while maintaining a high level of service. Sharpened our strategic focus to identify and cultivate promising growth opportunities in markets and business segments with high potential, especially those likely to grow in an environment of health care reform. The market for small groups – small businesses with fewer than 250 employees – and for benefits sold to individuals, represents such an opportunity. In 2008, we made strong progress in integrating the operations of Great-West Healthcare – a company with deep experience in the small group arena – following our acquisition of that organization. Great-West Healthcare has already enhanced our position in promising geographic markets of the country – notably the western United States – and improved our competitiveness and capabilities in the small business sector. It is also a solid contributor to earnings. Outlook for 2009 I’m positive about CIGNA’s prospects for the future. Here’s why: We’re firmly focused on growing our businesses in a profitable, sustainable way and generating shareholder value. We’re well capitalized and have the financial strength and flexibility to compete successfully in the current market conditions. We’re working to improve our competitive cost position and to expand in market segments we believe hold promise and potential for growth as health care reforms are implemented. And – perhaps most important – we’re helping people stay healthy and secure, at a time when the help we can offer is more critical than ever. Essentially, we’re well equipped to meet the challenges of these turbulent times, and I’m confident that we’ll deliver the value our customers and shareholders expect from us. H. Edward Hanway Chairman and Chief Executive Officer 9


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    2008 MILESTONES AND ACCOMPLISHMENTS Acknowledging that many Americans feel frustrated with the current health care system, CIGNA launched a national “it’s time to feel better” (itstimetofeelbetter.com) campaign to support its health service mission. Product Innovation For the ninth consecutive year, CIGNA International released a and Service Intracorp has been named the new transactional website that nation’s leading case management offers advanced tools that help CIGNA was named the best services provider by Business ease benefits administration for managed care organization and Insurance magazine in their employers and enable covered has the best employee assistance annual ranking. individuals to access benefit program (EAP) according to the information anywhere in the 2008 Business Insurance Readers For the second year in a row world. The website includes Choice Awards. This is the first time CIGNA was among the leaders mobile medical translation tools, CIGNA has been awarded both in athenahealth’s PayerViewSM podcasts, printable medical ID honors, and the fourth year in a rankings for timely and accurate cards, online benefits enrollment, row that CIGNA has been named claims payment. and weight and medical condition for offering the best EAP. management resources. CIGNA & CMC Life Insurance Co. Making Helpful Information Easy to Obtain CIGNA Senior & Retiree Services Ltd., a joint venture between partnered with the National CIGNA and China Merchants CIGNA Pharmacy Management’s Council on Aging (NCOA) to Group, captured the 2008 Best online Prescription Drug Price make available NCOA’s Foreign Life Insurance Company Quote tool received two awards BenefitsCheckUp® to CIGNA’s Award in the annual China Best from Consumer Health World for Medicare members. The Financial Institutions Rankings. 2008: Best Innovation Stimulating program identifies federal, CIGNA was named the winner Consumer Engagement and Best state and local benefits of the disability category in Application for Enhancing Patient programs that can help enhance The Life and Health Insurance Access for Information. the quality of seniors’ lives. Foundation for Education’s (LIFE) CIGNA Care Connections, our suite realLIFEstories Client Service of cost/quality transparency tools, Award contest. It’s the first time was named for Best Website for a group disability insurance Patient/Consumer Information in the carrier has been recognized Consumer Health World awards. as a winner in the 13 years since the contest began. 10


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    CIGNA’s charitable giving program provided funding for donations to Water for People, a nonprofit international organization that funds safe drinking water and sanitation projects in developing countries. Funding made it possible for more than 55,000 days of clean water to be provided to students at five schools in India. The funding was linked with a new online health education game from CIGNA in which players triggered a day of clean water each time they answered three questions correctly. The program allowed people to learn about their health while helping others in far corners of the world, and it served as an incentive for people to play the game and then advance to three online interactive health education courses developed by CIGNA. As an Employer As an Advocate As a Member of the Community The National Business Group CIGNA formally introduced on Health (NBGH), a national Communities of Health to help A CIGNA Foundation/Equal nonprofit organization of large cities, towns and neighborhoods Justice Works Fellowship employers, honored CIGNA with consider the social and enabled a Stanford University a Platinum Award – the highest environmental factors that law graduate to assist people honor – for the company’s determine health and to create with diabetes who face legal commitment to promoting community-based solutions. issues that interfere with proper a healthy workplace. management of their disease. The Global Knowledge Exchange CIGNA received the 2008 Network (GKEN) was created CIGNA established a unified Corporate Award from The through a $1 million grant from corporate social responsibility National Forum for Black Public the CIGNA Foundation. This program to extend our mission Administrators (NFBPA), an initiative brings leaders from to improve the health, well-being honor given to a company that government, health care, and security for all those we serve. has made significant contributions business, philanthropy and The CIGNA Foundation provided to NFBPA to support the academia together to discuss funds to sponsor The Ph.D. Project, development of future leaders. and advance better practices supporting the development in health care among The New York Business Group of management educators and industrialized nations. on Health (NYBGHTM) honored future business leaders within Chairman and CEO H. Edward Seventeen CIGNA plans were the African-American, Hispanic- Hanway for excellence in Health rated among the nation’s top American and Native American Care and Business Leadership. 100 commercial plans, including communities. CIGNA HealthCare of New Hampshire, which finished in the top 10; and Connecticut, Massachusetts and Maine, which ranked among the top 50. Seven CIGNA plans were named the highest-rated plan in their markets, according to U.S. News & World Report and the NCQA. 11


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    CIGNA IN PERSPECTIVE CIGNA HealthCare CIGNA HealthCare is one of the largest providers of health care benefits and health services, based on premiums and covered lives. The organization offers Medical 92% a broad portfolio of medical and specialty health care Dental 7% Life & Other 1% products and services, as well as a wide range of funding and plan design options. CIGNA HealthCare Premiums and Fees (in millions) $11,615 provides select health programs, which often include Business Mix Premiums and Fees information and tools to help people gain the full benefit of available health and wellness resources. CIGNA HealthCare has offerings in all 50 states, the District of Columbia and Puerto Rico. CIGNA Group Insurance CIGNA Group Insurance is one of the top providers of group disability, life and accident coverage in the Life 49% United States. The organization’s disability programs Disability 39% help to improve employee productivity and lower Accident & Other 12% employers’ disability costs. Disability programs may be integrated with CIGNA HealthCare medical, dental, Premiums and Fees (in millions) $2,562 pharmacy, behavioral, and care management programs Business Mix Premiums and Fees to further improve return-to-work rates and lower medical and disability costs. In addition, all group products come with access to free will preparation services and CIGNA’s Healthy Rewards® program, which offers a variety of discounts on health and wellness products and services. CIGNA International CIGNA International, with active operations in countries located in Europe, Asia Pacific and North America, Health Care 46% provides health care and medical care management Life, Accident, & Health 54% services to employers and employees; and direct- markets life, accident and supplemental health Premiums and Fees (in millions) $1,870 insurance to individuals. The organization is also a Business Mix Premiums and Fees leading provider of specialized health care and related employee insurance benefits to expatriate employees of multinational companies on international assignments. 12


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    Products and Services Medical: wide spectrum of insured and self-insured Vision: PPO, indemnity and managed care plans medical plan options including Consumer-Directed Behavioral: mental health, behavior modification, Health Plans (Health Reimbursement Arrangements, substance abuse, work/life and employee assistance Health Savings Accounts and Flexible Spending programs Accounts); Health Maintenance Organization (HMO), Seniors: Medicare Part D plans in 50 states, Medicare Network, Point of Service, Open Access Plus, Preferred Advantage plans with and without prescription Provider Organization (PPO), and Individual and coverage in 28 states, and a Medicare HMO in Arizona Voluntary plans; and Stop Loss coverage Care management: health coaching, disease and Pharmacy: tiered benefit designs with a range of condition management, and lifestyle management formulary plans; mail-order, online and retail pharmacy programs Dental: DHMO, DPPO, DEPO, indemnity and blended plans; and a dental discount program Products and Services Short- and long-term disability insurance Group basic accident insurance, group voluntary and management accident insurance, business travel accident Family and Medical Leave Act management insurance with beneficiary services, travel Integration of disability services with assistance programs, identity theft program CIGNA HealthCare medical and specialty plans Workers’ compensation and disability case Comprehensive employee assistance programs management with medical bill review, pharmacy available with disability and life products benefit management, utilization management and return-to-work programs Disease management programs available with disability and life products Group basic term life insurance and group voluntary term life insurance with beneficiary services; group universal life insurance Products and Services Life, accident and supplemental health insurance: direct-marketed supplemental health products, such as cash for hospital stay and critical illness diagnosis; dental, personal accident, term and variable life insurance, and credit protection Expatriate benefits: medical, dental, behavioral, vision, pharmacy, personal accident, disability, business travel and life insurance; and wellness programs for expatriate employees Health care: medical and related products provided through employer group benefits programs in select countries 13


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    CORPORATE AND BOARD OF DIRECTORS INFORMATION Board of Directors JAMES E. ROGERS Standing Board Committees Chairman, President and H. EDWARD HANWAY Executive Committee Chief Executive Officer Chairman and Duke Energy Corporation, H. EDWARD HANWAY, Chairman Chief Executive Officer an electric power company ROBERT H. CAMPBELL CIGNA Corporation ISAIAH HARRIS, JR. CAROL COX WAIT ROBERT H. CAMPBELL PETER N. LARSON President Retired Chairman and CAROL COX WAIT Boggs, Atkinson, Inc., Chief Executive Officer a real estate company Audit Committee Sunoco, Inc., a domestic refiner and marketer of ERIC C. WISEMAN ROBERT H. CAMPBELL, Chairman petroleum products Chairman, President and JANE E. HENNEY, M.D. Chief Executive Officer JOHN M. PARTRIDGE ISAIAH HARRIS, JR. VF Corporation, an ERIC C. WISEMAN Retired President and apparel manufacturer DONNA F. ZARCONE Chief Executive Officer AT&T Advertising and DONNA F. ZARCONE Corporate Governance Committee Publishing – East (formerly President and CAROL COX WAIT, Chairman BellSouth Advertising & Publishing Chief Executive Officer ROBERT H. CAMPBELL Group), a communications D.F. Zarcone & Associates LLC, ISAIAH HARRIS, JR. services company a strategic advisory consulting firm JANE E. HENNEY, M.D. JANE E. HENNEY, M.D. WILLIAM D. ZOLLARS PETER N. LARSON Professor of Medicine Chairman, President and ERIC C. WISEMAN University of Cincinnati Academic Chief Executive Officer Finance Committee Health Center, an educational YRC Worldwide Inc., PETER N. LARSON, Chairman institution a holding company whose ROMAN MARTINEZ IV subsidiaries provide regional, PETER N. LARSON JOHN M. PARTRIDGE national and international Retired Chairman and JAMES E. ROGERS transportation and Chief Executive Officer DONNA F. ZARCONE related services Brunswick Corporation, WILLIAM D. ZOLLARS a producer of recreational People Resources Committee consumer products ISAIAH HARRIS, JR., Chairman ROMAN MARTINEZ IV ROMAN MARTINEZ IV Private Investor JAMES E. ROGERS JOHN M. PARTRIDGE CAROL COX WAIT Chief Operating Officer WILLIAM D. ZOLLARS Visa, Inc., a consumer credit company 14


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    Executive Officers Other Officers H. EDWARD HANWAY ANNMARIE T. HAGAN Chairman and Vice President, Chief Executive Officer Chief Accounting Officer CIGNA Corporation and Controller CIGNA Corporation MICHAEL W. BELL Executive Vice President and NICOLE S. JONES Chief Financial Officer Vice President, CIGNA Corporation Deputy General Counsel, and Corporate Secretary DAVID M. CORDANI CIGNA Corporation President and Chief Operating Officer CIGNA Corporation THOMAS A. MCCARTHY Vice President and Treasurer JOHN M. MURABITO CIGNA Corporation Executive Vice President Human Resources and Services Chairman Emeritus CIGNA Corporation WILSON H. TAYLOR CAROL ANN PETREN Executive Vice President and General Counsel CIGNA Corporation MICHAEL D. WOELLER Executive Vice President and Chief Information Officer CIGNA Corporation WILLIAM L. ATWELL President CIGNA International KAREN S. ROHAN President CIGNA Group Insurance, Dental and Vision Care 15


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    Annual Meeting Connecticut General Life Direct Deposit of Dividends Insurance Company The 2009 annual meeting of Direct deposit of dividends provides 900 Cottage Grove Road shareholders will be held on a prompt, efficient way to have your Hartford, CT 06152 Wednesday, April 22, at 3:30 p.m., dividends electronically deposited 860.226.6000 at the Pennsylvania Academy of into your checking or savings the Fine Arts, Samuel M.V. Hamilton Life Insurance Company account. It avoids the possibility of Auditorium located at 118 – 128 of North America lost or delayed dividend checks. The North Broad Street in Philadelphia, Two Liberty Place deposit is made electronically on the Pennsylvania. 1601 Chestnut Street payment date. For more information Philadelphia, PA 19192 and an enrollment authorization Proxies and proxy statements 215.761.1000 form, contact the BNY Mellon were mailed to shareholders of Shareowner Services at 800.760.8864 record as of February 27, 2009. Direct Stock Purchase Plan or outside the United States and At December 31, 2008, there Shareholders can automatically Canada at 201.680.6535. You can were 9,014 common reinvest their annual dividend access your account on the Internet shareholders of record. and make optional cash purchases through the BNY Mellon Shareowner Financial Information of common shares. For information services website at www.bnymellon. on these services, please contact: com/shareowner/isd. CIGNA’s Form 10-K is also available BNY Mellon Shareowner Services on the Internet at www.CIGNA.com. Stock Listing P.O. Box 358015 For a copy of CIGNA’s quarterly Pittsburgh, PA 15252-8015 CIGNA’s common shares are listed earnings news releases, visit our Toll-free at 800.760.8864 or outside on the New York Stock Exchange. website at www.CIGNA.com and the United States and Canada at The ticker symbol is CI. click on “News.” 201.680.6535. Transfer Agent The tentative release dates for Shareholder Account Access BNY Mellon Shareowner Services CIGNA’s 2009 earnings are: You can access your CIGNA P.O. Box 358015 1st Quarter April 30, 2009 shareholder account on the Pittsburgh, PA 15252-8015 2nd Quarter July 30, 2009 Internet through the BNY Mellon Toll-free at 800.760.8864; outside 3rd Quarter November 5, 2009 Shareowner Services’ website at the United States and Canada at Full Year February 4, 2010 www.bnymellon.com/shareowner/ 201.680.6535; or hearing impaired Offices and Principal Subsidiaries isd or through the interactive voice TDD at 800.231.5469. CIGNA Corporation response system at 800.760.8864. Website: www.bnymellon.com/ Two Liberty Place shareowner/isd You will need your Investor ID and 1601 Chestnut Street Email: shrrelations@bnymellon.com PIN for access to your account. If, Philadelphia, PA 19192 for any reason, you do not have CIGNA Online 215.761.1000 your Investor ID or PIN, you may To access information about CIGNA obtain one by following the online and our products and services online, instructions. visit www.CIGNA.com. Certifications In 2008, CIGNA submitted to the New York Stock Exchange the Annual CEO Certification required by Section 303A.12(a) of the New York Stock Exchange Listed Company Manual. CIGNA has also filed, as exhibits to its Annual Report on Form 10-K for the year ended December 31, 2008, the certifications of its Chief Executive Officer and Chief Financial Officer required by Section 302 of the Sarbanes-Oxley Act of 2002. 16


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    UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ___________________ (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2008 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to ______________ Commission file number 1-8323 CIGNA Corporation (Exact name of registrant as specified in its charter) Delaware 06-1059331 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Two Liberty Place, Philadelphia, Pennsylvania 19192 (Address of principal executive offices) (Zip Code) Registrant’s telephone number, including area code (215) 761-1000 Securities registered pursuant to section 12(b) of the Act: Name of each exchange on Title of each class which registered Common Stock, Par Value $0.25 New York Stock Exchange, Inc. Securities registered pursuant to section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes X No __ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes __ No X Indicate by check mark 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. Yes X No __ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated filer [X] Accelerated filer [ ] Non-accelerated filer [ ] Smaller Reporting Company [ ] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes _ No X The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 30, 2008 was approximately $13.2 billion. As of January 30, 2009, 271,037,887 shares of the registrant’s Common Stock were outstanding. Part III of this Form 10-K incorporates by reference information from the registrant’s proxy statement to be dated on or about March 19, 2009.


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    TABLE OF CONTENTS Page PART I Item 1. Business A. Description of Business..................................................................................................... 1 B. Financial Information about Business Segments............................................................... 1 C. Health Care........................................................................................................................ 1 D. Disability and Life............................................................................................................. 11 E. International ...................................................................................................................... 14 F. Run-off Reinsurance ......................................................................................................... 16 G. Other Operations ............................................................................................................... 18 H. Investments and Investment Income ................................................................................. 21 I. Regulation ......................................................................................................................... 24 J. Ratings............................................................................................................................... 28 K. Miscellaneous.................................................................................................................... 30 Item 1A. Risk Factors ............................................................................................................................. 31 Item 1B. Unresolved Staff Comments ................................................................................................... 39 Item 2. Properties ................................................................................................................................. 39 Item 3. Legal Proceedings .................................................................................................................... 39 Item 4. Submission of Matters to a Vote of Security Holders .............................................................. 39 Executive Officers of the Registrant.............................................................................................................. 40 PART II Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities.............................................................................................. 41 Item 6. Selected Financial Data............................................................................................................ 42 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations............................................................................................................................. 43 Item 7A. Quantitative and Qualitative Disclosures about Market Risk................................................... 81 Item 8. Financial Statements and Supplementary Data ........................................................................ 82 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure ............................................................................................................................. 139 Item 9A. Controls and Procedures .......................................................................................................... 139 Item 9B. Other Information..................................................................................................................... 140 PART III Item 10. Directors and Executive Officers of the Registrant.................................................................. 140 A. Directors of the Registrant ................................................................................................ 140 B. Executive Officers of the Registrant ................................................................................. 140 C. Code of Ethics and Other Corporate Governance Disclosures.......................................... 140 Item 11. Executive Compensation.......................................................................................................... 140 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters .................................................................................................. 141 Item 13. Certain Relationships and Related Transactions ...................................................................... 141 Item 14. Principal Accounting Fees and Services .................................................................................. 141 PART IV Item 15. Exhibits and Financial Statement Schedules............................................................................ 141 Signatures ...................................................................................................................................................... 143 Index to Financial Statement Schedules ........................................................................................................ FS-1 Index to Exhibits............................................................................................................................................ E-1


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    PART I Item 1. BUSINESS A. Description of Business CIGNA Corporation and its subsidiaries constitute one of the largest investor-owned health service organizations in the United States. Its subsidiaries are major providers of health care and related benefits, the majority of which are offered through the workplace, including: health care products and services; group disability, life and accident insurance; and workers’ compensation case management and related services. The Company also has certain inactive businesses, including a run-off reinsurance operation. CIGNA Corporation had consolidated shareholders’ equity of $3.6 billion and assets of $41.4 billion as of December 31, 2008, and revenues of $19.1 billion for the year then ended. CIGNA’s major insurance subsidiary, Connecticut General Life Insurance Company (“CG Life”), traces its origins to 1865. CIGNA Corporation was incorporated in the State of Delaware in 1981. As used in this document, “CIGNA” and the “Company” may refer to CIGNA Corporation itself, one or more of its subsidiaries, or CIGNA Corporation and its consolidated subsidiaries. CIGNA Corporation is a holding company and is not an insurance company. Its subsidiaries conduct various businesses, which are described in this Form 10-K. CIGNA’s revenues are derived principally from premiums, fees, mail order pharmacy, other revenues and investment income. The financial results of CIGNA’s businesses are reported in the following segments: • Health Care; • Disability and Life; • International; • Run-off Reinsurance; and • Other Operations. Available Information Our annual, quarterly and current reports, proxy statements and other information are also made available free of charge on our website (http://www.cigna.com, under the "Investors—SEC Filings" captions) as soon as reasonably practicable after we electronically file these materials with, or furnish them to, the Securities and Exchange Commission (the “SEC”). We use our website as a channel of distribution for material company information. Important information, including [news releases, analyst presentations and financial information] regarding CIGNA is routinely posted on and accessible at www.cigna.com. See “Code of Ethics and Other Corporate Governance Disclosures” in Part III, Item 10 on page 140 of this Form 10-K for additional available information. B. Financial Information about Business Segments The financial information included herein is in conformity with accounting principles generally accepted in the United States of America (“GAAP”), unless otherwise indicated. Certain reclassifications have been made to prior years’ financial information to conform to the 2008 presentation. Industry rankings and percentages set forth herein are for the year ended December 31, 2007, unless otherwise indicated. Unless otherwise noted, statements set forth in this document concerning CIGNA’s rank or position in an industry or particular line of business have been developed internally, based on publicly available information. Financial data for each of CIGNA’s business segments is set forth in Note 21 to the Consolidated Financial Statements beginning on page 130 of this Form 10-K. C. Health Care CIGNA’s Health Care segment (“CIGNA HealthCare”) offers insured and self-funded medical, dental, behavioral health, vision, and prescription drug benefit plans, health advocacy programs and other products and services that may be integrated to provide individuals with comprehensive health care benefit programs. CIGNA HealthCare also provides disability and life insurance products 1


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    that were historically sold in connection with certain experience-rated medical products. These products and services are provided and administered by subsidiaries of CIGNA Corporation. CIGNA HealthCare is focused on helping to improve the health, well-being and security of the individuals which it serves. CIGNA HealthCare believes the most sustainable approach to enhancing quality and managing health care costs is to fully engage customers in their own health care. Therefore, CIGNA HealthCare seeks to engage its members by providing actionable information about health and advocacy programs, including information about the cost and quality of care that members can use to make informed choices about health care for themselves and their families. Underlying CIGNA HealthCare’s operations is a foundation of clinical expertise and an ability to provide quality service. CIGNA HealthCare’s strengths include: (1) its ability to integrate medical and specialty product offerings to achieve a more holistic and integrated approach to members’ health that promotes consistent case management; and (2) its ability to provide predictive modeling and other analytical tools (for example, through the Company’s exclusive access to analytical tools and algorithms developed by the University of Michigan), to assist in providing targeted outreach and health advocacy by CIGNA’s clinical professionals to CIGNA HealthCare members. Principal Products and Services and Funding Arrangements With the exception of HMO and Medicare Part D products, each of CIGNA HealthCare’s products (as described below) is offered with multiple funding options (also described below). CIGNA may sell multiple products under the same funding arrangement to the same employer. Accordingly, the revenue table included in the Health Care section of the Management’s Discussion and Analysis (“MD&A”) beginning on page 54 reflects both the product type and funding arrangement as well as the impact from the acquisition in April of 2008 of Great-West Healthcare, the health care division of Great-West Life & Annuity Insurance Company. CIGNA HealthCare companies offer products and services in all 50 states, the District of Columbia, Puerto Rico and the US Virgin Islands. Medical CIGNA HealthCare provides a wide array of products and services to meet the needs of employers and other sponsors of health benefit plans and the employees and dependents participating in these plans, including: • Network and Open Access Plus Plans. CIGNA HealthCare offers a product line of indemnity managed care benefit plans. All indemnity benefit plans in the managed care product line use meaningful coinsurance differences for “in-network” versus “out-of- network” care, give members the option of selecting a primary care physician, and use a national provider network, which is somewhat smaller than the national network used with the preferred provider (“PPO”) plan product line. The Network, Network Open Access, and Open Access Plus In-Network (“OAPIN”) products cover only those services provided by CIGNA HealthCare participating (“in-network”) providers and emergency services provided by non-participating (“out-of-network”) providers. The Network POS, Network POS Open Access and Open Access Plus plans cover health care services provided by participating (“in- network”), and non-participating (“out-of-network”) health care providers. • Preferred Provider (“PPO”) Plans. CIGNA HealthCare also offers a PPO product line that features a broader national network with generally less favorable provider discounts than the managed care products described above, no requirement to select a primary care physician, and in-network and out-of-network coverage, but with lesser benefit incentives to encourage the use of participating providers. • Health Maintenance Organizations (“HMOs”). HMOs are required by law to provide coverage for all basic health services. They use various tools to facilitate the appropriate use of health care services through employed and/or contracted health care providers. HMOs control unit costs by negotiating rates of reimbursement with providers and by requiring that certain treatments be authorized for coverage in advance. CIGNA HealthCare offers HMO plans that require members to obtain all non-emergency services from participating providers as well as point of service (“POS”) HMO plans that also provide a lesser level of insurance coverage for out-of-network care from non-participating providers. • Voluntary Plans. CIGNA HealthCare’s voluntary medical products are offered to employers with 51 or more eligible employees and are designed to meet the needs of the working uninsured (such as hourly or part-time employees) by offering more limited and more affordable coverage than traditional major medical plans. 2


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    • CIGNA Choice Fund®, Health Reimbursement Arrangements (“HRAs”), Health Savings Accounts (“HSAs”) and Flexible Spending Accounts (“FSAs”). In connection with many of the products described above, CIGNA HealthCare offers the CIGNA Choice Fund suite of consumer-directed products, including HRA, HSA and FSA options. An HRA allows employers to choose from a variety of benefit plan designs and for employees to fund un-reimbursed health care expenses with reimbursement account funds that can be rolled over from year to year. HSA plans allow employers to choose from a variety of benefit plan designs and funding options and combine a high deductible payment feature for a health plan with a tax-preferred savings account offering mutual fund investment options. Funds in an HSA can be used to pay the deductible and for other eligible tax-deductible medical expenses. In connection with its consumer-directed products, CIGNA HealthCare offers Custom Benefit BuilderSM, a tool that allows members to customize plan options including co-payments and deductible levels, to create a personalized benefit design that meets their individual needs. In 2007, CIGNA HealthCare expanded the availability of its HRA plans to smaller businesses with 51-200 employees and also began offering an integrated HSA product to this segment. The HRA and HSA products for employers with 51-200 employees are now available in 49 states. • Stop-Loss Coverage. CIGNA HealthCare offers stop-loss insurance coverage to both experience-rated and self-insured plans. This stop-loss coverage reimburses the plan for claims in excess of some predetermined amount, either for individuals (“specific”) or the entire group (“aggregate”), or both. • Shared Administration Services. CIGNA HealthCare makes shared administration products available to self-insured Taft-Hartley trusts and other groups. CIGNA HealthCare provides these self-insured plans access to its national provider network and provides claim re-pricing and other services (e.g. utilization management). Specialty Health Advocacy and CareAllies®. Through its CareAllies brand, CIGNA HealthCare offers medical management, disease management, and health advocacy services to employers and other plan sponsors. CareAllies services are not only offered to members covered under CIGNA HealthCare administered plans but also to those employees who have elected coverage under a plan offered through their employer by competing insurers/third party administrators. CareAllies offers a consistent set of services to address the clinical and administrative inconsistencies that are inherent in the multi-vendor approach. Through its health advocacy programs, CIGNA HealthCare works to: • help healthy people stay healthy; • help people change behaviors that are putting their health at risk; • help people with existing health care issues access quality care and practice healthy self-care; and • help people with a disabling illness or injury return to productive work quickly and safely. In addition, CIGNA HealthCare offers a wide array of programs and services to help individuals improve the health of the mind and body, including: • early intervention by CIGNA’s network of approximately 2,400 clinical professionals; • CIGNA’s online health assessment, powered by analytics from the University of Michigan Health Management Research Center, which helps members identify potential health risks and learn what they can do to live a healthier life; • the CIGNA Well Aware for Better Health® program, which helps patients with chronic conditions such as asthma, diabetes, depression and weight complications better manage their conditions; • CIGNA Health Advisor®, one of our fastest-growing offerings, which provides members with access to a personal health coach to help them reach their health and wellness goals; • CIGNA’s Well Informed program (first available in January 2008), which uses clinical rules-based software to identify potential gaps and omissions in members’ health care through analysis of the Company’s integrated medical, behavioral, pharmacy and lab data allowing CIGNA HealthCare to communicate the gaps to the member and the member’s doctor; and 3


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    • CIGNA's online coaching capabilities. Behavioral Health. CIGNA Behavioral Health arranges for the provision of behavioral health care services to individuals through its network of participating behavioral health care providers, offers behavioral health care management services, employee assistance programs, and work/life programs to employer sponsored benefit plans, HMOs, governmental entities and disability insurers. CIGNA Behavioral Health focuses on integrating its programs and services to facilitate customized, holistic care. As of December 31, 2008, CIGNA Behavioral Health’s national network had approximately 66,800 access points to independent psychiatrists, psychologists and clinical social workers and approximately 5,600 facilities and clinics that are reimbursed on a contracted fee-for-service basis. In 2008, CIGNA completed its integration of the CIGNA Behavioral Health, vielife® and CareAllies brands and operations into a unified Health Solutions unit that supports CIGNA’s health advocacy strategy and manages the delivery of the Company’s health and wellness programs, including: condition and disease management, maternity management, case management, lifestyle management, health coaching (including online), employee assistance, work/life balance, mental health and substance abuse, health assessment, oncology support, transplant network/management, 24-hour health information line, wellness consulting, and the Healthy Rewards® discount program. Dental. CIGNA Dental Health offers a variety of dental care products including dental health maintenance organization (“DHMO”), dental preferred provider organization (“DPPO”), dental exclusive provider organization (“DEPO”), traditional indemnity products and a dental discount program. Customers can purchase CIGNA Dental Health products as stand-alone products or integrated with CIGNA HealthCare’s medical products. As of December 31, 2008, CIGNA Dental Health members totaled approximately 10.6 million, representing employees at more than one-third of all Fortune 100 companies. Managed dental care products are offered in 36 states and the District of Columbia through a network of independent providers that have contracted with CIGNA Dental Health to provide dental services to members. CIGNA Dental Health members access care from one of the largest dental HMO and dental PPO networks in the U.S., with approximately 110,000 DPPO-contracted access points (approximately 56,000 unique providers) and approximately 41,500 dental HMO-contracted access points (approximately 10,500 unique providers). CIGNA Dental Health stresses preventive dentistry; it believes that promoting preventive care contributes to a healthier workforce, an improved quality of life, increased productivity and fewer treatment claims and associated costs over time. CIGNA Dental Health offers members a dental treatment cost estimator to educate individuals on oral health and aid them in their dental health care decision-making. Vision. CIGNA Vision offers flexible, cost-effective PPO coverage that includes a range of both in and out-of-network benefits for routine vision services. CIGNA's national vision care network, which consists of over 40,000 providers in approximately 20,000 locations, includes private practice ophthalmologist and optometrist offices, as well as retail eye care centers. Routine vision products are offered in conjunction with CIGNA HealthCare’s medical and dental product offerings. Pharmacy. CIGNA Pharmacy offers prescription drug plans to its insured and self-funded members both in conjunction with its medical products and on a stand-alone basis. With a nationwide network of approximately 58,000 contracted pharmacies, CIGNA Pharmacy is a comprehensive pharmacy benefits manager offering clinical integration programs, specialty pharmacy solutions, and fast, efficient home delivery pharmacy capabilities that improve outcomes and reduce costs for a Return On Health®. Programs that reflect this integration of medical, behavioral and pharmacy offerings include: • Well Informed. CIGNA’s Well Informed program focuses on the chronic conditions most likely to benefit from disciplined prescription therapy, such as asthma, diabetes, back pain and high cholesterol. • Cost Management Programs. CIGNA’s cost management programs motivate individuals and physicians to take positive steps in the treatment of acute, chronic and complex conditions. For example, Step Therapy is a Cost Management program that encourages individuals to use generic drugs and low-cost alternatives for anti-ulcer, hypertension, and high cholesterol medications through communications with the individual and the individual’s physician. 4


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    • Specialty Pharmacy Solutions. As an integrated payor, CIGNA HealthCare is uniquely positioned to manage holistic care for individuals with chronic conditions. This approach allows individuals to access medication in the most appropriate setting based on their unique circumstances. This results in less confusion and disruption in care, which in turn promotes medication adherence and healthier outcomes. • CIGNA Tel-Drug® Home Delivery Pharmacy. CIGNA HealthCare also offers cost-effective mail order, telephone and on-line pharmaceutical fulfillment services through its home delivery operation. CIGNA Tel-Drug Home Delivery Pharmacy provides an individual-focused, efficient home delivery pharmacy with high standards of quality, accuracy and individual care relating to maintenance and specialty medications. Orders may be submitted through the mail, via phone or through the internet at myCIGNA.com. • CIGNA HealthCare also offers a suite of online tools to individuals, including our award-winning Prescription Drug Price Quote Tool, which empowers individuals with actionable information that helps them maximize their benefits and lower their out-of-pocket costs. Medicare Part D. CIGNA’s Medicare Part D prescription drug program, CIGNA Medicare Rx ®, provides a number of plan options as well as service and information support to Medicare-eligible members aged 65 and over. CIGNA Medicare Rx is available in all 50 states and the District of Columbia. Retail Pharmacies. CIGNA HealthCare operates 19 retail pharmacies, including on-site retail pharmacies for members to serve the needs of CIGNA HealthCare members. Funding Arrangements The segment’s health care products and services are offered through the following funding arrangements: • guaranteed cost; • retrospectively experience-rated (including minimum premium funding arrangements); and • administrative service. Guaranteed Cost. Under guaranteed cost funding arrangements, group policyholders pay a fixed premium and CIGNA HealthCare bears the risk for claims and costs that exceed the premium. Some insurance policies are offered on a guaranteed cost basis. The HMO product is offered only on a guaranteed cost basis. Retrospectively Experience-rated (including Minimum Premium). Under insurance policies using a retrospectively experience-rated funding arrangement, a premium that typically includes a margin to partially protect against adverse claim fluctuations is determined at the beginning of the policy period. CIGNA HealthCare generally bears the risk if claims and expenses exceed this premium, but has the potential to recover any deficit from margins in future years if the policy is renewed. For additional discussion, see “Pricing, Reserves and Reinsurance” later in this section of the 10-K. Under insurance policies using a minimum premium funding arrangement, instead of paying a fixed monthly premium, the group policyholder establishes and funds a bank account and authorizes the insurer to draw upon funds in the account to pay claims and other authorized expenses. The policyholder pays a significantly reduced monthly “residual” premium while the policy is in effect and a supplemental premium (to cover reserves for run-out claims and administrative expenses) upon termination. Minimum premium funding arrangements combine insurance protection with an element of self-funding. The policyholder is responsible for funding all claims up to a predetermined aggregate, maximum amount, and CIGNA HealthCare bears the risk for claim costs incurred in excess of that amount. CIGNA HealthCare has the potential to recover this deficit from margins in future years if the policy is renewed. Accordingly, minimum premium funding arrangements have a risk profile similar to retrospectively experience-rated insurance arrangements. Administrative Service. Under the administrative service funding arrangement, CIGNA HealthCare contracts with employers on an administrative services only (“ASO”) basis to administer claims and perform other plan related services. CIGNA HealthCare collects administrative service fees in exchange for providing ASO plans with access to CIGNA HealthCare’s applicable participating provider network and for providing other services and programs including: quality management; utilization management; cost 5


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    containment; health advocacy; 24-hour help line; case management; disease management; pharmacy benefit management; behavioral health care management services (through its provider networks); or any combination of the services. The employer/plan sponsor is responsible for self-funding all claims, but may purchase stop-loss insurance from CIGNA HealthCare or other insurers for claims in excess of a predetermined amount, for either individuals (“specific”), the entire group (“aggregate”), or both. In 2008, CIGNA purchased Great-West Healthcare, the healthcare division of Great-West Life & Annuity Insurance Company (“Great-West”). Great-West Healthcare has historically offered similar products and services through similar funding arrangements, although Great-West Healthcare focused on smaller customers, and as a result, a substantially higher portion of the claims in their book of business are covered by some type of stop-loss arrangement. Financial information, including premiums and fees is presented in the Health Care section of the MD&A beginning on page 54 and Note 21 to CIGNA’s Consolidated Financial Statements beginning on page 130. Service and Quality CIGNA HealthCare operates eleven service centers that together processed approximately 122 million medical claims in 2008. Satisfying customers and members is a primary business objective and critical to the Company’s success. To address a variety of member issues, CIGNA HealthCare offers members access to its grievance and appeals processes. CIGNA operates six member service centers that members can call toll-free to address requests for information and complaints and grievances. CIGNA HealthCare customer service representatives are empowered to immediately resolve a wide range of issues to help members obtain the most from their benefit plan. In many cases, a customer service representative can resolve the member’s issue. If an issue cannot be resolved informally, CIGNA HealthCare has a formal appeals process that can be initiated by telephone or in writing and involves two levels of internal review. For those matters not resolved by internal reviews, CIGNA HealthCare members are offered the option of a voluntary external review of claims. The CIGNA HealthCare formal appeals process addresses member inquiries and appeals concerning initial coverage determinations based on medical necessity and other benefits/coverage determinations. CIGNA HealthCare’s formal appeals process meets National Committee for Quality Assurance (“NCQA”), Employee Retirement Income Security Act (“ERISA”), Utilization Review Accreditation Commission (“URAC”) and/or applicable state regulatory requirements. CIGNA HealthCare’s commitment to promoting quality care and service to its members is reflected in a variety of activities including: the credentialing of medical providers and facilities that participate in CIGNA HealthCare’s Managed Care and PPO networks; the development of the CIGNA Care® specialist physician designation described below, and participation in initiatives that provide information to members to enable educated health care decision-making. Participating Provider Network. CIGNA HealthCare has an extensive national network of participating health care providers, which as of December 31, 2008 consisted of approximately 5,200 hospitals and approximately 573,000 providers as well as other facilities, pharmacies and vendors of health care services and supplies (these hospital and provider counts exclude the impact of the Great-West Healthcare acquisition). As part of the purchase of Great-West Healthcare, CIGNA acquired the participating provider network of Great-West Healthcare. In many cases, the providers in the Great-West Healthcare network were already in the CIGNA HealthCare participating provider network, however, the acquisition has expanded and strengthened CIGNA HealthCare’s network in some regions of the country. CIGNA HealthCare is in the process of consolidating the network it acquired from Great-West with its existing participating provider network. As of December 31, 2007, CIGNA HealthCare’s national network of participating health care providers consisted of approximately 5,100 hospitals and approximately 542,000 providers. In most instances, CIGNA HealthCare contracts directly with the participating provider to provide covered services to members at agreed-upon rates of reimbursement. In some instances, however, CIGNA HealthCare companies contract with third parties for access to their provider networks. In addition, CIGNA HealthCare has entered into strategic alliances with several regional managed care organizations (Tufts Health Plan, HealthPartners, Inc., Health Alliance Plan, and MVP Health Plan) to gain access to their provider networks and discounts. CIGNA Care®. CIGNA Care is a benefit design option available for CIGNA HealthCare administered plans in 57 service areas across the country. CIGNA Care is a subset of participating physicians in certain specialties who are designated as CIGNA Care physicians based on specific clinical quality and cost-efficiency selection criteria. Members pay reduced co-payments or co-insurance when they receive care from a specialist designated as a CIGNA Care provider. CIGNA participating specialists are evaluated annually for the CIGNA Care designation. 6


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    Provider Credentialing. CIGNA HealthCare credentials physicians, hospitals and other health care providers in its participating provider networks using quality criteria which meet or exceed the standards of external accreditation or state regulatory agencies, or both. Typically, most providers are re-credentialed every three years. Health Plan Credentialing. Each of CIGNA HealthCare’s 23 HMO and POS plans that have undergone an accreditation review have earned the highest rating possible – Excellent – from the NCQA and have earned Distinction for NCQA’s Quality Plus Member Connections and Physician and Hospital Quality standards. The Member Connections standards assess a plan’s web-based and telephonic consumer decision support tools. The Physician and Hospital Quality standards assess how well a plan provides members with information about physicians and hospitals in its network to help consumers make informed health care decisions. In early 2008, CIGNA HealthCare received “Full” accreditation (the highest rating possible) from NCQA for its PPO plans and for CIGNA’s Open Access Plus plans nationwide. The case management and utilization management programs provided to CIGNA HealthCare members have been awarded full accreditation by URAC. HEDIS® Measures. In addition, CIGNA HealthCare participates in NCQA’s Health Plan Employer Data and Information Set (“HEDIS®”) Quality Compass Report. HEDIS® Effectiveness of Care measures are a standard set of metrics to evaluate the effectiveness of managed care clinical programs. CIGNA HealthCare’s national results compare favorably to industry averages. Technology. CIGNA HealthCare understands the critical importance of information technology to the level of service the Company is able to provide to its members and to the continued growth of the health care business. The health care marketplace is evolving and the level of service that is acceptable to consumers today may not be acceptable tomorrow. Therefore, CIGNA HealthCare continues to invest in its information technology infrastructure and capabilities including technology essential to fundamental claim administration and customer service, as well as tools and Internet-enabled technology that support CIGNA HealthCare’s focus on engaging members in health care decisions. For example, CIGNA HealthCare has developed a range of member decision support tools including: • myCIGNA.com, CIGNA’s consumer Internet portal. The portal is personalized with each member's CIGNA medical, dental and pharmacy plan information; • myCignaPlans.com, a website which allows prospective members to compare plan coverage and pricing options, before enrolling, based on a variety of factors. The application gives members information on the total health care cost to them and their employer; • a number of interactive online cost and quality information tools that compare hospital quality and efficiency information, prescription drug choices and average price estimates and member-specific average out-of-pocket cost estimates for certain medical procedures; and • Health Risk Assessment, an online interactive tool through which members can identify potential health risks and monitor their health status. In addition, a special website designed for seniors was launched in 2007 to offer customized features as well as access to both the myCIGNA.com and cigna.com websites. Pricing, Reserves and Reinsurance Premiums and fees charged for HMO and most health insurance products and life insurance products are generally set in advance of the policy period and are guaranteed for one year. Premium rates for fully insured products are established either on a guaranteed cost basis or on a retrospectively experience-rated basis. Charges to customers established on a guaranteed cost basis at the beginning of the policy period cannot be adjusted to reflect actual claim experience during the policy period. A guaranteed cost pricing methodology reflects assumptions about future claims, health care inflation (unit cost, location of delivery of care and utilization), effective medical cost management, expenses, credit risk, enrollment mix, investment returns, and profit margins. Claim and expense assumptions may be based in whole or in part on prior experience of the account or on a pool of accounts, depending on the group size and the statistical credibility of the experience. Generally, guaranteed cost groups are smaller and less statistically credible than retrospectively experience-rated groups. In addition, pricing for health care products that use networks of contracted providers reflects assumptions about the impact of the reimbursement rates in the provider contracts on future claims. Premium rates may vary among accounts to reflect the anticipated contract mix, 7


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    family size, industry, renewal date, and other cost-predictive factors. In some states, premium rates must be approved by the state insurance departments, and state laws may restrict or limit the use of rating methods. Premiums established for retrospectively experience-rated business may be adjusted for the actual claim and, in some cases, administrative cost experience of the account through an experience settlement process subsequent to the policy period. To the extent that the cost experience is favorable in relation to the prospectively determined premium rates, a portion of the initial premiums may be credited to the policyholder as an experience refund. If claim experience is adverse in relation to the initial premiums, CIGNA HealthCare may recover the resulting experience deficit, according to contractual provisions, through future premiums and experience settlements, provided the policy remains in force. CIGNA HealthCare contracts on an ASO basis with customers who fund their own claims. CIGNA HealthCare charges these customers administrative fees based on the expected cost of administering their self-funded programs. In some cases, CIGNA HealthCare provides performance guarantees associated with meeting certain service related and other performance standards. If these standards are not met, CIGNA HealthCare may be financially at risk up to a stated percentage of the contracted fee or a stated dollar amount. CIGNA HealthCare establishes liabilities for estimated payouts associated with these guarantees. In addition to paying current benefits and expenses under HMO and health insurance policies, CIGNA HealthCare establishes reserves for amounts estimated to settle reported claims not yet paid, as well as claims incurred, but not yet reported. Also, liabilities are established for estimated experience refunds based on the results of retrospectively experience-rated policies and applicable contract terms. As of December 31, 2008, approximately $1.0 billion, or 65% of the reserves of CIGNA HealthCare’s operations comprise liabilities that are likely to be paid within one year, primarily for medical and dental claims, as well as certain group disability and life insurance claims. Of the reserve amount expected to be paid within one year, $202 million relates to amounts recoverable from certain ASO customers and from minimum premium policyholders, and is offset by a receivable. The remaining reserves related primarily to contracts that are short term in nature, but have long term payouts and include liabilities for group long-term disability insurance benefits and group life insurance benefits for disabled and retired individuals, benefits paid in the form of both life and non- life contingent annuities to survivors and contractholder deposit funds. CIGNA HealthCare credits interest on experience refund balances to retrospectively experience-rated policyholders through rates that are set by CIGNA HealthCare taking investment performance and market rates into consideration. Generally, for interest-crediting rates set at CIGNA HealthCare’s discretion, higher rates are credited to funds with longer terms reflecting the fact that higher yields are generally available on investments with longer maturities. For 2008, the rates of interest credited ranged from 2.75% to 4.00%, with a weighted average rate of 3.15%. The profitability of CIGNA HealthCare’s fully insured health care products depends on the adequacy of premiums charged relative to claims and expenses. For medical and dental products, profitability reflects the accuracy of cost projections for health care (unit costs and utilization), the adequacy of fees charged for administration and risk assumption and effective medical cost and utilization management. CIGNA HealthCare reduces its exposure to large catastrophic losses under group life, disability and accidental death contracts by purchasing reinsurance from unaffiliated reinsurers. Markets and Distribution CIGNA HealthCare targets the following markets for its products: • national accounts, which are multi-site employers generally with more than 5,000 employees; • regional accounts, which are generally defined as multi-site employers with more than 250 but fewer than 5,000 employees, and single-site employers with more than 250 employees; • “Select,” which generally includes employers with 51- 250 employees; • small business, which generally includes employers with 2-50 employees; 8


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    • individuals; • government, which includes employees in federal, state and local governments, primary and secondary schools, and colleges and universities; • Taft-Hartley plans, which includes members covered by union trust funds; • seniors, which focuses on the health care needs of individuals 50 years and older; • voluntary, which focuses on employers with working uninsured employees; and • emerging markets, which includes non-CIGNA HealthCare payors to which leased network and other services are offered. To date, the national and regional account markets have comprised a significant amount of CIGNA HealthCare’s business. With the acquisition of Great-West Healthcare, the healthcare division of Great-West, the “Select,” small business, and emerging markets now constitute a larger share of CIGNA HealthCare’s business. CIGNA HealthCare employs group sales representatives to distribute its products and services through insurance brokers and insurance consultants or directly to employers. CIGNA HealthCare also employs representatives to sell utilization review services, managed behavioral health care and employee assistance services directly to insurance companies, HMOs, third party administrators and employer groups. As of December 31, 2008, the field sales force for the products and services of this segment consisted of approximately 970 sales representatives in approximately 120 field locations. Competition CIGNA HealthCare’s business is subject to intense competition, and industry consolidation has created an even more competitive business environment. While no one competitor dominates the health care market, CIGNA HealthCare expects a continuing trend of consolidation in the industry given the current economic environment. In certain geographic locations, some health care companies may have significant market share positions. A large number of health care companies and other entities compete in offering similar products. Competition in the health care market exists both for employers and other groups sponsoring plans and for the employees in those instances where the employer offers its employees the choice of products of more than one health care company. Most group policies are subject to annual review by the policyholder, who may seek competitive quotations prior to renewal. The principal competitive factors are: quality and cost-effectiveness of service and provider networks; effectiveness of medical care management; product responsiveness to the needs of customers and their employees; cost-containment services; technology; price; and effectiveness of marketing and sales. Financial strength of the insurer, as indicated by ratings issued by nationally recognized rating agencies, is also a competitive factor. For more information concerning insurance ratings, see “Ratings” in Section J beginning on page 28. CIGNA HealthCare believes that its national scope, integrated approach to consumer engagement, breadth of product and funding offerings, clinical care and medical management capabilities and funding options are strategic competitive advantages. These advantages allow CIGNA HealthCare to respond to the diverse needs of its customer base in each market in which it operates. CIGNA HealthCare also believes that its focus on helping to improve the health, well-being and security of its members will allow it to distinguish itself from its competitors. The principal competitors are: • other large insurance companies that provide group health and life insurance products; • Blue Cross and Blue Shield organizations; • stand-alone HMOs and PPOs; • third party administrators; • HMOs affiliated with major insurance companies and hospitals; and 9


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    • national managed pharmacy, behavioral health and utilization review services companies. Competition also arises from smaller regional or specialty companies with strength in a particular geographic area or product line, administrative service firms and, indirectly, self-insurers. In addition to these traditional competitors, a new group of competitors is emerging. These new competitors are focused on delivering employee benefits and services through Internet-enabled technology that allows consumers to take a more active role in the management of their health. This is accomplished primarily through financial incentives, access to enhanced medical quality data and other information sharing. The effective use of the Company’s health advocacy capabilities, decision support tools (some of which are web-based) and enabling technology are critical to success in the health care industry, and CIGNA HealthCare believes they will be competitive differentiators. Industry Developments and Strategic Overview Both state and federal lawmakers have supported a broad range of health care reform efforts due to the recent demand for changes to the health care industry. The Company expects that these efforts will intensify in 2009. The proposal and/or passing of any reform initiatives would affect the health care industry in general and CIGNA, specifically. CIGNA advocates creating a value-based healthcare system that provides access to care for the uninsured, fosters and rewards quality, and makes care more affordable by educating consumers to the true costs and quality of care and supporting better decision making. CIGNA envisions such a system as a partnership between private and public sectors, taking the best of what the private and public sector programs offer and creating a system that addresses the needs of all. CIGNA is intensely involved in developing workable solutions for reforming America’s healthcare system. As part of its business strategy, CIGNA continually evaluates potential acquisitions and other transactions that could enhance the Company’s competitive capabilities and provide a basis for membership growth and/or improved medical costs. In 2008, CIGNA acquired the assets of Great-West Healthcare, the healthcare division of Great-West. Also, in connection with CIGNA’s long-term business strategy, the Company intends to continue to focus on the fundamentals of its health care business in order to provide consistent, reliable service to customers at a competitive cost; differentiating the health care business from its competitors by facilitating consumer engagement to realize improvement in the individual’s health and well-being; and segment expansion, particularly in the voluntary, individual, small business and “Select” markets. 10


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    D. Disability and Life Principal Products and Services CIGNA’s Disability and Life segment (“CIGNA Disability and Life”) provides the following insurance products and their related services: group life insurance, long-term and short-term disability insurance, workers’ compensation and disability case management, and accident and specialty insurance. These products and services are provided by subsidiaries of CIGNA Corporation. Disability Insurance CIGNA Disability and Life markets group long-term and short-term disability insurance products and services in all 50 states and statutorily required disability insurance plans in certain states. These products and services generally provide a fixed level of income to replace a portion of wages lost because of disability. They also provide assistance to the employee in returning to work and assistance to the employer in managing the cost of employee disability. Group disability coverage is typically employer-paid or a combination of employer and employee-paid. CIGNA Disability and Life also provides case management and related services to workers’ compensation insurers and employers who self-fund workers’ compensation and disability benefits. CIGNA Disability and Life’s disability insurance products may be integrated with other disability benefit programs, behavioral programs, workers’ compensation, medical programs, social security advocacy, and the Family and Medical Leave Act and leave of absence administration. CIGNA Disability and Life believes this integration provides customers with increased efficiency and effectiveness in disability claims management, enhances productivity and reduces overall costs to employers. Combining CIGNA Disability and Life disability and CIGNA HealthCare’s medical programs may provide enhanced opportunities to influence outcomes, reduce the cost of both medical and disability events and improve the return to work rate. CIGNA Disability and Life has formalized an integrated approach to health and wellness through the Disability and Healthcare Connect Program. This program uses information from the CIGNA HealthCare and CIGNA Disability and Life databases to help identify, treat and manage disabilities before they become chronic, longer in duration and more costly. Proactive outreach from CIGNA Behavioral Health assists employees suffering from a mental health condition, either as a primary condition or as a result of another condition. CIGNA may receive fees for providing these integrated services to customers. CIGNA Disability and Life is an industry leader in returning employees to work quickly. Shorter disability claim durations mean higher productivity and lower cost for employers and a better quality of life for their employees. Data from a recent industry customer satisfaction survey showed that CIGNA Disability and Life’s short-term and long-term disability claimant satisfaction levels meet and in certain metrics exceed those of our competitors. Approximately 7,100 insured disability policies covering approximately 4.9 million lives were outstanding as of December 31, 2008. Life Insurance Group life insurance products include group term life and group universal life. Group term life insurance may be employer-paid basic life insurance, employee-paid supplemental life insurance or a combination thereof. CIGNA no longer actively markets group universal life insurance to new employers, but continues to administer the product for and markets to existing policyholders. Group universal life insurance is a voluntary life insurance product in which the owner may accumulate cash value. The cash value earns interest at rates declared from time to time, subject to a minimum guaranteed contracted rate, and may be borrowed, withdrawn, or, within certain limits, used to fund future life insurance coverage. With group variable universal life insurance, the cash value varies directly with the performance of the underlying investments and neither the return nor the principal is guaranteed. Approximately 6,500 group life insurance policies covering approximately 6.2 million lives were outstanding as of December 31, 2008. 11


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    Other Products and Services CIGNA Disability and Life offers personal accident insurance coverage, which consists primarily of accidental death and dismemberment and travel accident insurance to employers. Group accident insurance may be employer-paid or employee-paid. CIGNA Disability and Life also offers specialty insurance services that consist primarily of life, accident, student accident medical and disability insurance to professional associations, financial institutions, schools and participant organizations. Voluntary benefits are those paid by the employee and are offered at the employer’s worksite. CIGNA Disability and Life plans provide, among other services, flexible enrollment options, list billing, medical underwriting, and individual record keeping. CIGNA Disability and Life designed its voluntary offerings to offer employers a complete and simple way to manage their benefits, including personalized enrollment communication and administration of the benefits program. Pricing, Reserves and Reinsurance Premiums and fees charged for disability and life insurance products are generally established in advance of the policy period and are generally guaranteed for one to three years, but policies may be subject to early termination. Premium rates reflect assumptions about future claims, expenses, credit risk, investment returns and profit margins. Assumptions may be based in whole or in part on prior experience of the account or on a pool of accounts, depending on the group size and the statistical credibility of the experience, which varies by product. Fees for universal life insurance products consist of mortality, administrative and surrender charges assessed against the policyholder’s fund balance. Interest credited and mortality charges for universal life, and mortality charges on variable universal life, may be adjusted prospectively to reflect expected interest and mortality experience. In addition to paying current benefits and expenses, CIGNA Disability and Life establishes reserves in amounts estimated to be sufficient to pay reported claims not yet paid, as well as claims incurred but not yet reported. For liabilities with longer-term pay-out periods such as long-term disability, reserves represent the present value of future expected payments. CIGNA Disability and Life discounts these expected payments using assumptions for interest rates and the length of time over which claims are expected to be paid. The annual effective interest rate assumptions used in determining reserves for most of the long-term disability insurance business is 4.75% for claims that were incurred in 2008 and 2007. For universal life insurance, CIGNA Disability and Life establishes reserves for deposits received and interest credited to the policyholder, less mortality and administrative charges assessed against the policyholder’s fund balance. The profitability of this segment’s products depends on the adequacy of premiums charged relative to claims, including the degree to which future experience deviates from mortality and morbidity assumptions, expenses and investment returns. CIGNA Disability and Life’s previous claim experience and industry data indicate a correlation between disability claim incidence levels and economic conditions, with submitted claims rising under adverse economic conditions. The effectiveness of return to work programs and mortality levels also impact the profitability of disability insurance products. In order to reduce its exposure to large individual and catastrophic losses under group life, disability and accidental death policies, CIGNA Disability and Life purchases reinsurance from unaffiliated reinsurers. Markets and Distribution CIGNA Disability and Life markets the group insurance products and services described above to employers, employees, professional and other associations and groups. In marketing these products, CIGNA Disability and Life employs a captive sales force to target customers with 50 or more employees and the products and services of this segment are primarily distributed through insurance brokers and consultants, along with some direct sales. As of December 31, 2008, the field sales force for the products and services of this segment consisted of approximately 200 sales professionals in 27 field locations. 12


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    Competition The principal competitive factors that affect the CIGNA Disability and Life segment are underwriting and pricing, the quality and effectiveness of claims management, relative operating efficiency, investment and risk management, distribution methodologies and producer relations, the breadth and variety of products and services offered, and the quality of customer service. The Company believes that CIGNA Disability and Life’s claims management capabilities and integration with CIGNA HealthCare’s benefits provide a competitive advantage in this marketplace. For certain products with longer-term liabilities, such as group long-term disability insurance, the financial strength of the insurer, as indicated by ratings issued by nationally recognized rating agencies, is also a competitive factor. For more information concerning insurance ratings, see “Ratings” in Section J beginning on page 28. The principal competitors of CIGNA’s group disability, life and accident businesses are other large and regional insurance companies that market and distribute these or similar types of products. As of December 31, 2008, CIGNA is one of the top providers of group disability, life and accident insurance, based on premiums. Industry Developments and Strategic Initiatives The group insurance market remains highly competitive as the rising cost of providing medical coverage to employees has forced companies to reevaluate their overall employee benefit spending. Demographic shifts have further driven demand for products and services that are sufficiently flexible to meet the evolving needs of employers and employees who want innovative, cost-effective solutions to their insurance needs. A shift to greater employee participatory coverage and voluntary purchases is also an emerging trend. Employers are also expressing a growing interest in employee wellness, absence management and productivity and recognizing a strong link between health, productivity and their profitability. As a result, employers are looking to offer programs that promote a healthy lifestyle, offer assistance in returning to work and integrate health care and disability programs. CIGNA believes it is well positioned to deliver integrated solutions that address these broad employer and employee needs. CIGNA also believes that its strong disability management portfolio and fully integrated programs provide employers and employees tools to improve health status. This focus on managing the employee’s total absence enables CIGNA to increase the number and likelihood of interventions and minimize disabling events. The disability industry is under continuing review by regulators and legislators with respect to its offset practices regarding Social Security Disability Insurance (“SSDI”). There has been specific inquiry as to the industry’s role in assisting individuals with their applications for SSDI. The Company has received one Congressional inquiry and has responded to the information request. Also legislation prohibiting the offset of SSDI payments against private disability insurance payments for prospectively issued policies has been introduced in the Connecticut state legislature. The Company is also involved in related pending litigation. If the industry is forced to change its offset SSDI procedures, the practices and products for this segment could be significantly impacted. Other Risks For more information on “Disability and Life,” see the “Industry Developments and Other Matters” section beginning on page 67 of this Form 10-K and Note 21 to the Consolidated Financial Statements beginning on 130. 13


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    E. International CIGNA’s International segment (“CIGNA International”) offers life, accident and supplemental health insurance products as well as international health care products and services. These products and services are provided by subsidiaries of CIGNA Corporation, including foreign operating entities. Principal Products and Services Life, Accident and Supplemental Health Insurance CIGNA International’s life, accident and supplemental health insurance products generally provide simple, affordable coverage of risks for the health and financial security of individuals. Supplemental health products provide a specified payment for a variety of health risks and include personal accident, accidental death, critical illness, hospitalization, dental, cancer and other dread disease coverages. Variable universal life insurance products are also included in the product portfolio. International Health Care CIGNA International’s health care operations primarily consist of products and services to meet the needs of multinational companies and their expatriate employees and dependents. These benefits include medical, dental, vision, life, accidental death and dismemberment and disability products. The expatriate benefits products and services are offered through guaranteed cost, experience-rated, administrative services only, and minimum premium funding arrangements. For definitions of funding arrangements, see “Funding Arrangements” in Section C beginning on page 1. In addition, CIGNA International’s health care operations include medical products, which are provided through group benefits programs. These products are primarily medical indemnity insurance coverage, with some offerings having managed care or administrative service aspects. These products generally provide an alternative or supplement to government programs. Pricing, Reserves and Reinsurance Premiums for CIGNA International’s life, accident and supplemental health insurance products are based on assumptions about mortality, morbidity, customer retention, expenses and target profit margins, as well as interest rates. The profitability of these products is primarily driven by mortality, morbidity, and customer retention. Fees for variable universal life insurance products consist of mortality, administrative, asset management and surrender charges assessed against the contractholder’s fund balance. Mortality charges on variable universal life may be adjusted prospectively to reflect expected mortality experience. Premiums and fees for CIGNA International’s health care products reflect assumptions about future claims, expenses, investment returns, and profit margins. For products using networks of contracted providers, premiums reflect assumptions about the impact of provider contracts and utilization management on future claims. Most of the premium volume for the medical indemnity business is on a guaranteed cost basis. Other premiums are established on an experience-rated basis. Most contracts permit rate changes at least annually. The profitability of health care products is dependent upon the accuracy of projections for health care inflation (unit cost, location of delivery of care, including currency of incurral and utilization), the adequacy of fees charged for administration and risk assumptions and effective medical cost management. In addition to paying current benefits and expenses, CIGNA International establishes reserves in amounts estimated to be sufficient to settle reported claims not yet paid, claims incurred but not yet reported as well as future amounts payable on experience rated arrangements. Additionally, for some individual life insurance and supplemental health insurance products, CIGNA International establishes policy reserves which reflect the present value of expected future obligations less the present value of expected future premiums attributable to policyholder obligations. CIGNA International defers acquisition costs, such as commissions, solicitation and policy fulfillment costs, incurred in the sales of long-duration life, accident and supplemental health products. For most products, these costs are amortized in proportion to premium revenue recognized, which is impacted by customer retention. For variable universal life products, acquisition costs are amortized in proportion to expected gross profits. 14


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    CIGNA International reduces its exposure to large and/or multiple losses arising out of a single occurrence by purchasing reinsurance from unaffiliated reinsurers. Markets and Distribution CIGNA International’s life, accident and supplemental health insurance products are generally marketed through distribution partners with whom the individual insured has an affinity relationship. These products are sold primarily through direct marketing channels, such as outbound telemarketing, in-branch bancassurance and direct response television. Marketing campaigns are conducted through these channels under a variety of arrangements with affinity partners. These affinity partners primarily include banks, credit card companies, other financial institutions, and other businesses. CIGNA International’s life, accident and supplemental health insurance operations are located in South Korea, Taiwan, Hong Kong, Indonesia, New Zealand, China, Thailand, and the European Union. In the second quarter of 2008, CIGNA sold its run-off Brazilian life insurance business. CIGNA International’s health care products are distributed through independent brokers and consultants, select partners as well as CIGNA International’s own sales personnel. The customers of CIGNA International’s expatriate benefits business are multinational companies and international organizations headquartered in the United States, Canada, Europe, the Middle East, Hong Kong and other international locations. In addition, CIGNA International’s health care operations include medical products, which are provided through group benefits programs in the United Kingdom and Spain. For CIGNA International’s life, accident and supplemental health insurance products a significant portion of the premiums are billed and collected through credit cards. A substantial contraction in consumer credit could impact CIGNA International's ability to retain existing policies and sell new policies. A decline in customer retention can result in both a reduction of revenue and an acceleration of the amortization of acquisition related costs. Competition Competitive factors in CIGNA International’s life, accident and supplemental health operations and expatriate benefits business include product and distribution innovation and differentiation, efficient management of direct marketing processes, commission levels paid to distribution partners, and quality of claims and customer services. The principal competitive factors that affect CIGNA International’s health care operations are underwriting and pricing, relative operating efficiency, relative effectiveness in medical cost management, product innovation and differentiation, producer relations, and the quality of claims and customer service. In most overseas markets, perception of financial strength is also an important competitive factor. For the life, accident and supplemental health insurance line of business, competitors are primarily locally based insurance companies, including insurance subsidiaries of banks. However, insurance company competitors in this segment primarily focus on traditional product distribution through captive agents, with direct marketing being a secondary objective. CIGNA International estimates that it has less than 2% market share of the total life insurance premiums in any given market in which it operates. For the expatriate benefits business, CIGNA International is the market leader in the U.S., whose primary competitors include U.S.-based and European health insurance companies with global expatriate benefits operations. For the health care operations in the UK and Spain, the primary competitors are regional and local insurers, with CIGNA's market share at less than 5% of the premiums of the total local health care market. CIGNA International expects that the competitive environment will intensify as U.S. and Europe-based insurance and financial services providers pursue global expansion opportunities. Industry Developments Pressure on social health care systems and increased wealth and education in emerging markets is leading to higher demand for products providing health insurance and financial security. In the life, accident and supplemental health business, direct marketing is growing and attracting new competitors while industry consolidation among financial institutions and other affinity partners continues. For the international health care benefits business, trade liberalization and rapid economic growth in emerging markets is leading to multi-national companies expanding foreign operations. 15


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    F. Run-off Reinsurance Principal Products and Services Until 2000, CIGNA offered reinsurance coverage for part or all of the risks written by other insurance companies (or “ceding companies”) under life and annuity policies (both group and individual); accident policies (workers’ compensation, personal accident, and catastrophe coverages); and health policies. The products and services related to these operations were offered by subsidiaries of CIGNA Corporation. In 2000, CIGNA sold its U.S. individual life, group life and accidental death reinsurance businesses. CIGNA placed its remaining reinsurance businesses (including its accident, domestic health, international life and health, and annuity reinsurance businesses) into run-off as of June 1, 2000 and stopped underwriting new reinsurance business. CIGNA’s exposures stem primarily from its annuity reinsurance business, including its reinsurance of guaranteed minimum death benefits (“GMDB”) and guaranteed minimum income benefits (“GMIB”) contracts. Additional exposures arise from its reinsurance of workers’ compensation and other personal accident and catastrophic risks. Life and Annuity Policies Guaranteed Minimum Death Benefit Contracts CIGNA’s reinsurance segment reinsured GMDB (also known as variable annuity death benefits (“VADBe”)), under certain variable annuities issued by other insurance companies. These variable annuities are essentially investments in mutual funds combined with a death benefit. CIGNA has equity and other market exposures as a result of this product. The Company purchased retrocessional protection that covers a portion of the assumed risks. The Company also maintains a dynamic hedge program (“GMDB equity hedge program”) to substantially reduce the equity market exposures relating to GMDB contracts by entering into exchange- traded futures contracts. For additional information about guaranteed minimum death benefit contracts, see “Run-off Reinsurance” beginning on page 62 and Note 7 to CIGNA’s Consolidated Financial Statements beginning on page 100 of this Form 10-K. Guaranteed Minimum Income Benefit Contracts In certain circumstances where CIGNA’s reinsurance operations reinsured the guaranteed minimum death benefit, CIGNA also reinsured GMIB under certain variable annuities issued by other insurance companies. These variable annuities are essentially investments in mutual funds combined with minimum income and death benefits. All reinsured GMIB policies also have a GMDB benefit reinsured by the Company. When annuitants elect to receive these minimum income benefits, CIGNA may be required to make payments which will vary based on changes in underlying mutual fund values and interest rates. CIGNA has retrocessional coverage for 55% of the exposures on these contracts, provided by two external reinsurers. For additional information about guaranteed minimum income benefit contracts, see “Guaranteed Minimum Income Benefits” under “Run-off Reinsurance” beginning on page 62 and Note 11 to CIGNA’s Consolidated Financial Statements beginning on page 110 of this Form 10-K. Workers’ Compensation, Personal Accident and Catastrophe CIGNA reinsured workers’ compensation and other personal accident and catastrophic risks in the London market and in the United States. CIGNA purchased retrocessional coverage in these markets to substantially reduce the risk of loss on these contracts. Health The health policies have been substantially run off. 16


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    Markets and Distribution These products under CIGNA's Run-off Reinsurance segment were sold principally in North America and Europe through a small sales force and through intermediaries. Prior to 2000, CIGNA also purchased reinsurance to reduce the risk of losses on contracts that it had written. CIGNA determines its net exposure for run-off reinsurance contracts by estimating the portion of its policy and claim reserves that it expects will be recovered from its reinsurers (or “retrocessionaires”) and reflecting these in its financial statements as Reinsurance Recoverables, or, with respect to guaranteed minimum income benefit contracts discussed above, as Other Assets. Other Risks For more information see “Run-off Reinsurance” beginning on page 62, and Note 8 to CIGNA’s Consolidated Financial Statements beginning on page 103 of this Form 10-K. For more information on the risk associated with Run-off Reinsurance, see the “Risk Factors” beginning on page 31 of this Form 10-K, and the “Critical Accounting Estimates” section of the MD&A beginning on page 49 of this Form 10-K. 17


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    G. Other Operations Other Operations consists of: • non-leveraged and leveraged corporate-owned life insurance; • 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. The products and services related to these operations are offered by subsidiaries of CIGNA Corporation. Corporate-owned Life Insurance (“COLI”) Principal Products and Services The principal products of the COLI business are permanent insurance contracts sold to corporations to provide coverage on the lives of certain of their employees. Permanent life insurance provides coverage that, when adequately funded, does not expire after a term of years. The contracts are primarily non-participating universal life policies. The key distinction between leveraged and non- leveraged COLI products is that, with leveraged COLI, the product design anticipates borrowing by the policy owner of a portion of the surrender value, while policy loans are not a significant feature of non-leveraged COLI. Universal life policies typically provide flexible coverage and flexible premium payments. Policy cash values fluctuate with the amount of the premiums paid, mortality and expense charges assessed, and interest credited to the policy. Variable universal life policies are universal life contracts in which the cash values vary directly with the performance of a specific pool of investments underlying the policy. The principal services provided by the corporate-owned life insurance business are issuance and administration of the insurance policies (e.g., maintenance of records regarding cash values and death benefits, claims processing, etc.) as well as oversight of the investment management for separate account assets that support the variable universal life product. Product Features Cash values on universal life policies are credited interest at a declared interest rate that reflects the anticipated investment results of the assets backing these policies and may vary with the characteristics of each product. Universal life policies generally have a minimum guaranteed declared interest rate which may be cumulative from the issuance date of the policy. The declared interest rate may be changed monthly, but is generally changed less frequently. While variable universal life products may have a guaranteed minimum crediting rate, CIGNA did not have any such contracts at December 31, 2008. In lieu of credited interest rates, holders of certain universal life policies may elect to receive credited income based on changes in an equity index, such as the S&P 500®. No such elections have been made since 2004. Mortality risk is retained according to guidelines established by CIGNA. To the extent a given policy carries mortality risk that exceeds these guidelines, reinsurance is purchased from third parties for the balance. Pricing, Reserves, and Reinsurance Fees for universal life insurance products consist of mortality, administrative and surrender charges assessed against the policyholder’s fund balance. Interest credited and mortality charges for universal life and mortality charges on variable universal life may be adjusted prospectively to reflect expected interest and mortality experience. For universal life insurance, CIGNA establishes reserves for deposits received and interest credited to the contractholder, less mortality and administrative charges assessed against the contractholder’s fund balance. 18


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    In order to reduce its exposure to large individual and catastrophe losses, CIGNA purchases reinsurance from unaffiliated reinsurers. Markets and Distribution Prior to 2008, the Company was not actively marketing and distributing COLI products. In 2008, the Company decided to re- enter the market for COLI products, and is currently actively pursuing opportunities associated with the COLI business. The principal markets for COLI products are regional to national account-sized corporations, including banks. CIGNA»s COLI products are offered through a select group of independent brokers with particular expertise in the bank market and in the use of COLI for the financing of benefit plan liabilities. Competition The principal competitive factors that affect CIGNA’s COLI business are pricing, service, product innovation and access to third- party distribution. For CIGNA’s COLI business, competitors are primarily national life insurance companies, including insurance subsidiaries of banks. CIGNA expects that the competitive environment will intensify as the economy recovers and competitors develop new investment strategies and product designs, and aggressively price their offerings to build distribution capacity and gain market share. Industry Developments and Strategic Initiatives The legislative environment surrounding COLI has evolved considerably over the past decade. Most recently, the Pension Protection Act of 2006 included provisions related to the notice requirements given to insured employees and limited coverage to certain more highly compensated employees. These changes were widely viewed as clarification of existing rules or industry best practices. Sale of Individual Life Insurance & Annuity and Retirement Benefits Businesses CIGNA sold its individual life insurance and annuity business in 1998 and its retirement business in 2004. Portions of the gains from these sales were deferred because the principal agreements to sell these businesses were structured as reinsurance arrangements. The deferred portion relating to the remaining reinsurance is being recognized at the rate that earnings from the sold businesses would have been expected to emerge, primarily over 15 years on a declining basis. Because the individual life and annuity business was sold in an indemnity reinsurance transaction, CIGNA is not relieved of primary liability for the reinsured business and had reinsurance recoverables totaling $4.6 billion as of December 31, 2008. Effective as of December 14, 2007, the purchaser placed a significant portion of the assets supporting the reserves for the purchased business into a trust for the benefit of CIGNA which qualifies to support CIGNA’s credit for the reinsurance ceded under Regulation 114 of the New York Department of Insurance. Trust assets are limited to cash, certificates of deposits in U.S. banks, and securities specified by section 1404 (a) of the New York insurance law and consist primarily of fixed maturities. At December 31, 2008, the value of the trust assets secured approximately 90% of the reinsurance recoverable. The remaining balance is currently unsecured. If Lincoln National Life Insurance Company and Lincoln Life & Annuity of New York do not maintain a specified minimum credit or claims paying rating, these reinsurers are required to fully secure the outstanding balance. S&P has assigned both of these reinsurers a rating of AA. CIGNA’s sale of its retirement business primarily took the form of an arrangement under which CIGNA reinsured with the purchaser of the retirement business the general account contractholder liabilities under an indemnity reinsurance arrangement and the separate account liabilities under modified coinsurance and indemnity reinsurance arrangements. Since the sale of the retirement benefits business in 2004, the purchaser of that business has entered into agreements with certain insured party contractholders (“novation agreements”), which relieved CIGNA of any remaining contractual obligations to the contractholders. As a result, CIGNA reduced reinsurance recoverables, contractholder deposit funds, and separate account balances 19


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    for these obligations. The purchaser of the retirement benefits business deposited assets associated with the reinsurance of general account contracts into a trust (the “Ceded Business Trust”) to provide security to CIGNA for the related reinsurance recoverables. The purchaser is permitted to withdraw assets from the Ceded Business Trust equal to the reduction in CIGNA’s reserves whenever a reduction occurs. For example, reductions will occur when the purchaser enters into additional novation agreements and directly assumes liability to the insured party. Assets in the trust must be greater than or equal to general account statutory liabilities of the ceded business. Trust assets are limited to those types of investments that are permitted by the state of Connecticut for general account investing and consist primarily of fixed maturities. As of December 31, 2008, assets totaling $2.5 billion remained in the Ceded Business Trust, and the remaining reserves for the purchased business were $1.9 billion. Settlement Annuity Business CIGNA’s settlement annuity business is a run-off block of contracts. These contracts are primarily liability settlements with approximately 35% of the liabilities associated with payments which are guaranteed and not contingent on survivorship. In the case of the contracts that involve non-guaranteed payments, such payments are contingent on the survival of one or more parties involved in the settlement. The Settlement Annuities business is premium deficient, meaning initial premiums were not sufficient to cover all claims and profit. Liabilities are estimates of the present value of benefits to be paid less the present value of investment income generated by the assets supporting the product including realized and unrealized capital gains. The company estimates these liabilities based on assumptions for investment yields, mortality, and administrative expenses. Refer to Note 2 to CIGNA’s Consolidated Financial Statements beginning on page 86 for additional information regarding reserves for this business. Other Risks For more information, see “Other Operations” beginning on page 65 of this Form 10-K. 20


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    H. Investments and Investment Income CIGNA’s investment operations provide investment management and related services primarily for CIGNA’s corporate invested assets and the insurance-related invested assets in its General Account (“Invested Assets”). CIGNA acquires or originates, directly or through intermediaries, various investments including private placements, public securities, commercial mortgage loans, real estate and short-term investments. CIGNA’s Invested Assets are managed primarily by CIGNA subsidiaries and external managers with whom CIGNA’s subsidiaries contract. The Invested Assets comprise a majority of the combined assets of the Health Care, Disability and Life, Run-off Reinsurance and Other Operations segments (collectively, the “Domestic Portfolios”). There are, in addition, portfolios containing Invested Assets that consist of the assets of the International segment (collectively, the “International Portfolios”). Net investment income and realized investment gains (losses) are not reported separately in the investment operations. Instead, net investment income is included as a component of earnings for each of CIGNA’s operating segments (Health Care, Disability and Life, Run-off Reinsurance, Other Operations, International and Corporate), net of the expenses attributable to the investment operations. Realized investment gains (losses) are reported for each of CIGNA’s operating segments. Assets Under Management CIGNA’s Invested Assets under management at December 31, 2008 totaled $18.0 billion. See Schedule I to CIGNA’s 2008 Consolidated Financial Statements on page FS-3 of this Form 10-K for more information as to the allocation to types of investments. As of December 31, 2008, CIGNA’s separate account funds consisted of: • $1.5 billion in separate account assets that are managed by the buyer of the retirement benefits business pursuant to reinsurance arrangements described in “Sale of Individual Life Insurance & Annuity and Retirement Benefits Businesses” in Note 3 beginning on page 96 of this Form 10-K; • $1.5 billion in separate account assets which constitute a portion of the assets of the CIGNA Pension Plan; and • $2.9 billion in separate account assets which primarily support certain corporate-owned life insurance, health care and disability and life products. Types of Investments CIGNA invests in a broad range of asset classes, including domestic and international fixed maturities and common stocks, commercial mortgage loans, real estate and short-term investments. Fixed maturity investments include publicly traded and private placement corporate bonds, government bonds, publicly traded and private placement asset-backed securities, and redeemable preferred stocks. In connection with CIGNA’s investment strategy to enhance investment yields by selling senior participations of commercial mortgage loans, as of December 31, 2008, commercial mortgage loans include $75 million of commercial mortgage loans originated with the intent to sell. These commercial mortgage loans held for sale are carried at the lower of cost or fair value with any resulting valuation allowance reported in realized investment gains and losses. For the International Portfolios, CIGNA invests primarily in publicly traded fixed maturities, short-term investments and time deposits denominated in the currency of the relevant liabilities and surplus. Fixed Maturities CIGNA’s fixed maturities are 92% investment grade as determined by external rating agencies (for public investments) and by CIGNA (for private investments). These assets are well diversified by individual holding and industry sector. For information about below investment grade holdings, see the “Investment Assets” section of the MD&A beginning on page 73 of this Form 10-K. Commercial Mortgages and Real Estate Commercial mortgage loan investments are subject to underwriting criteria addressing loan-to-value ratio, debt service coverage, cash flow, tenant quality, leasing, market, location and borrower’s financial strength. Such investments consist primarily of first 21


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    mortgage loans on commercial properties and are diversified by property type, location and borrower. CIGNA invests primarily in commercial mortgages on fully completed and substantially leased commercial properties. Virtually all of CIGNA’s commercial mortgage loans are balloon payment loans, under which all or a substantial portion of the loan principal is due at the end of the loan term. CIGNA holds no direct residential mortgages. The weighted average loan to value ratio of the Company’s commercial mortgage loan portfolio, based on management’s annual valuation completed in the third quarter of 2008, was approximately 64% and the weighted average debt service coverage was approximately 1.5 times. CIGNA enters into joint ventures with local partners to develop, lease, manage, and sell commercial real estate to maximize investment returns. CIGNA’s portfolio of real estate investments consists of properties under development and stabilized properties, and is diversified relative to property type and location. CIGNA also acquires real estate through foreclosure of commercial mortgage loans. CIGNA rehabilitates, re-leases, and sells foreclosed properties, a process that usually takes from two to four years unless management considers a near-term sale preferable. Additionally, CIGNA invests in third party sponsored real estate funds to maximize investment returns and to maintain diversity with respect to its real estate related exposure. CIGNA sold its remaining foreclosed property and did not acquire any properties through foreclosure in 2008. Mezzanine and Private Equity Partnerships CIGNA invests in limited partnership interests in partnerships formed and managed by seasoned, experienced fund managers with diverse mezzanine and private equity strategies. Derivative Instruments CIGNA generally uses derivative financial instruments to minimize its exposure to certain market risks. CIGNA has also written derivative instruments to minimize certain insurance customers’ market risks. In addition, to enhance investment returns, CIGNA may invest in indexed credit default swaps or other credit derivatives from time to time. However, as of December 31, 2008, CIGNA held no indexed credit default swaps or other credit derivatives. For information about CIGNA’s use of derivative financial instruments, see Note 12 to CIGNA’s 2008 Consolidated Financial Statements beginning on page 115 of this Form 10-K. See also the “Investment Assets” section of the MD&A beginning on page 73, and Notes 2, 12, and 13 to the Consolidated Financial Statements beginning on pages 86, 115 and 121, respectively, of this Form 10-K for additional information about CIGNA’s investments. Domestic Portfolios – Investment Strategy As of December 31, 2008 the Domestic Portfolios had $16.6 billion in Invested Assets, allocated among fixed maturity investments (63%); commercial mortgage loan investments (22%); and policy loans, real estate investments, short-term investments and mezzanine and private equity partnership investments (15%). CIGNA generally manages the characteristics of these assets to reflect the underlying characteristics of related insurance and contractholder liabilities and related capital requirements, as well as regulatory and tax considerations pertaining to those liabilities, and state investment laws. CIGNA’s domestic insurance and contractholder liabilities as of December 31, 2008, excluding liabilities of businesses sold through the use of reinsurance arrangements, were associated with the following products, and the Invested Assets are allocated proportionally as follows: other life and health, 52%; fully guaranteed annuity, 19%; and interest-sensitive life insurance, 29%. While the businesses and products supported are described elsewhere in this Form 10-K, the Invested Assets supporting CIGNA’s insurance and contractholder liabilities related to each of its segments are as follows: • The Invested Assets supporting CIGNA’s Health Care segment are structured to emphasize investment income, and provide the necessary liquidity to meet cash flow requirements. • The Invested Assets supporting CIGNA’s Disability and Life segment are also structured to emphasize investment income, and provide necessary liquidity to meet cash flow requirements. Invested Assets supporting longer-term group disability insurance benefits and group life waiver of premium benefits are generally managed to an aggregate duration similar to that of the related benefit cash flows. 22


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    • The Invested Assets supporting the Run-off Reinsurance segment with respect to reinsurance provided for guaranteed minimum death benefit contracts and guaranteed minimum income benefit contracts are structured to emphasize investment income, and provide the necessary liquidity to meet cash flow requirements. For information about CIGNA’s use of derivative financial instruments in the Run-off Reinsurance segment, see Notes 7 and 11 to CIGNA’s Consolidated Financial Statements beginning on pages 100 and 110 of this Form 10-K. • The Invested Assets supporting CIGNA’s Other Operations segment are associated primarily with fully guaranteed annuities (primarily settlement annuities) and interest-sensitive life insurance (primarily corporate-owned life insurance products). Because settlement annuities generally do not permit withdrawal by policyholders prior to maturity, the amount and timing of future benefit cash flows can be reasonably estimated so funds supporting these products are invested in fixed income investments that generally match the aggregate duration of the investment portfolio with that of the related benefit cash flows. As of December 31, 2008, the duration of assets that supported these liabilities was approximately 12.2 years. Invested Assets supporting interest- sensitive life insurance products are primarily fixed income investments and policy loans. Fixed income investments emphasize investment yield while meeting the liquidity requirements of the related liabilities. Investment strategy and results are affected by the amount and timing of cash available for investment, competition for investments, economic conditions, interest rates and asset allocation decisions. CIGNA routinely monitors and evaluates the status of its investments in light of current economic conditions, trends in capital markets and other factors. Such factors include industry sector considerations for fixed maturity investments and mezzanine and private equity partnership investments, and geographic and property-type considerations for commercial mortgage loan and real estate investments. International Portfolios – Investment Strategy As of December 31, 2008 the International Portfolios had $1.4 billion in Invested Assets. The International Portfolios are primarily managed by external managers with whom CIGNA’s subsidiaries contract. The characteristics of these assets are generally managed to reflect the underlying characteristics of related insurance and contractholder liabilities, as well as regulatory and tax considerations in the countries where CIGNA’s subsidiaries operate. CIGNA International’s Invested Assets are generally invested in the currency of related liabilities, typically the currency in which the subsidiaries operate and with an aggregate duration generally matching the duration of insurance liabilities and surplus. CIGNA’s investment policy allows the investment of subsidiary assets in U.S. dollars to the extent permitted by regulation. CIGNA International’s Invested Assets as of December 31, 2008 were held primarily in support of statutory surplus and liabilities associated with the life, accident and supplemental health and healthcare products described in Section E on page 14. 23


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    I. Regulation CIGNA and its subsidiaries are subject to federal, state and international regulations and CIGNA has established policies and procedures to comply with applicable requirements. CIGNA»s insurance and HMO subsidiaries must be licensed by the jurisdictions in which they conduct business. These subsidiaries are subject to numerous state and federal regulations related to their business operations, including, but not limited to: • the form and content of customer contracts including benefit mandates (including special requirements for small groups, generally under 50 employees); • premium rates; • the content of agreements with participating providers of covered services; • producer appointment and compensation; • claims processing and appeals; • underwriting practices; • reinsurance arrangements; • unfair trade and claim practices; • protecting the privacy and confidentiality of the information received from members; • risk sharing arrangements with providers; and • the operation of consumer-directed plans (including health savings accounts, health reimbursement accounts, flexible spending accounts and debit cards). CIGNA and its international subsidiaries comply with regulations in international jurisdictions where foreign insurers are, in some countries, faced with greater restrictions than their domestic competitors. These restrictions may include discriminatory licensing procedures, compulsory cessions of reinsurance, required localization of records and funds, higher premium and income taxes, and requirements for local participation in an insurer’s ownership. CIGNA and its subsidiaries are also subject to state and federal laws relating to business entities. Other types of regulatory oversight predominantly as to CIGNA and its subsidiaries products and services are described below. Regulation of Insurance Companies Financial Reporting Regulators closely monitor the financial condition of licensed insurance companies and HMOs. States regulate the form and content of statutory financial statements and the type and concentration of permitted investments. CIGNA’s insurance and HMO subsidiaries are required to file periodic financial reports with regulators in most of the jurisdictions in which they do business, and their operations and accounts are subject to examination by such agencies at regular intervals. Guaranty Associations, Indemnity Funds, Risk Pools and Administrative Funds Most states and certain non-U.S. jurisdictions require insurance companies to support guaranty associations or indemnity funds, which are established to pay claims on behalf of insolvent insurance companies. In the United States, these associations levy assessments on member insurers licensed in a particular state to pay such claims. 24


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    Several states also require HMOs to participate in guaranty funds, special risk pools and administrative funds. For additional information about guaranty fund and other assessments, see Note 22 to CIGNA’s Consolidated Financial Statements beginning on page 133 of this Form 10-K. Some states also require health insurers and HMOs to participate in assigned risk plans, joint underwriting authorities, pools or other residual market mechanisms to cover risks not acceptable under normal underwriting standards. Solvency and Capital Requirements Many states have adopted some form of the National Association of Insurance Commissioners (“NAIC”) model solvency-related laws and risk-based capital rules (“RBC rules”) for life and health insurance companies. The RBC rules recommend a minimum level of capital depending on the types and quality of investments held, the types of business written and the types of liabilities incurred. If the ratio of the insurer’s adjusted surplus to its risk-based capital falls below statutory required minimums, the insurer could be subject to regulatory actions ranging from increased scrutiny to conservatorship. In addition, various non-U.S. jurisdictions prescribe minimum surplus requirements that are based upon solvency, liquidity and reserve coverage measures. During 2008, CIGNA’s HMOs and life and health insurance subsidiaries, as well as non-U.S. insurance subsidiaries, were compliant with applicable RBC and non-U.S. surplus rules. In 2008, the NAIC adopted Actuarial Guideline VACARVM, Commissioners Annuity Reserve Valuation Method for Variable Annuities, which will be effective December 31, 2009. VACARVM will impact statutory and tax reserves for CIGNA’s contracts covering guaranteed minimum death benefits and guaranteed minimum income benefits. Upon implementation, it is anticipated that statutory reserves for those products will increase and thus statutory surplus for Connecticut General Life Insurance Company will be reduced. The magnitude of any impact depends on equity market and interest rate levels at the time of implementation. Holding Company Laws CIGNA’s domestic insurance companies and certain of its HMOs are subject to state laws regulating subsidiaries of insurance holding companies. Under such laws, certain dividends, distributions and other transactions between an insurance or HMO subsidiary and its affiliates may require notification to, or approval by, one or more state insurance commissioners. Oversight of Marketing, Advertising and Broker Compensation State and/or federal regulatory scrutiny of life and health insurance company and HMO marketing and advertising practices, including the adequacy of disclosure regarding products and their administration, may result in increased regulation. Products offering limited benefits, such as those issued in connection with the Star HRG business acquired in July 2006, may attract increased regulatory scrutiny. States have responded to concerns about the marketing, advertising and administration of insurance and HMO products and administrative practices by increasing the number and frequency of market conduct examinations and imposing larger penalties for violations of applicable laws and regulations. In recent years, perceived abuses in broker compensation practices have been the focus of greatly heightened regulatory scrutiny. This increased regulatory focus may lead to legislative or regulatory changes that would affect the manner in which CIGNA and its competitors compensate brokers. For more information regarding general governmental inquiries relating to CIGNA subsidiaries, see “Legal Proceedings” in Item 3 beginning on page 39. Licensing Requirements Pharmacy Licensure Laws Certain CIGNA subsidiaries are pharmacies, which dispense prescription drugs to participants of benefit plans administered or insured by CIGNA subsidiary HMOs and insurance companies. These pharmacy-subsidiaries are subject to state licensing requirements and regulation. 25


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    Claim Administration, Utilization Review and Related Services Certain CIGNA subsidiaries contract for the provision of claim administration, utilization management and other related services with respect to the administration of self-insured benefit plans. These CIGNA subsidiaries may be subject to state third-party administration and other licensing requirements and regulation. Federal Regulations Employee Retirement Income Security Act CIGNA subsidiaries sell most of their products and services to sponsors of employee benefit plans that are governed by the Federal Employee Retirement Income Security Act (“ERISA”). CIGNA subsidiaries may be subject to requirements imposed by ERISA on plan fiduciaries and parties in interest, including regulations affecting claim and appeals procedures for health, dental, disability, life and accident plans. Medicare Regulations Several CIGNA subsidiaries engage in businesses that are subject to federal Medicare regulations such as: • those offering individual and group Medicare Advantage (HMO) coverage in Arizona; • contractual arrangements with the federal government for the processing of certain Medicare claims and other administrative services; and • those offering Medicare Pharmacy (Part D) and Medicare Advantage Private Fee-for-Service products that are subject to federal Medicare regulations. Federal Audits of Government Sponsored Health Care Programs Participation in government sponsored health care programs subjects CIGNA to a variety of federal laws and regulations and risks associated with audits conducted under the programs (which may occur in years subsequent to provision by CIGNA of the relevant services under audit). These risks may include reimbursement claims as well as potential fines and penalties. For example, the federal government requires Medicare and Medicaid providers to file detailed cost reports for health care services provided. These reports may be audited in subsequent years. CIGNA HMOs that contract to provide community-rated coverage to participants in the federal Employees Health Benefit Plan may be required to reimburse the federal government if, following an audit, it is determined that a federal employee group did not receive the benefit of a discount offered by a CIGNA HMO to one of the two groups closest in size to the federal employee group. See “Health Care” in Section C beginning on page 1 for additional information about CIGNA’s participation in government health-related programs. Privacy and Information Disclosure and Portability Regulations The Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) imposes requirements for guaranteed issuance (for groups with 50 or fewer lives), electronic data security standards, and renewal and portability, on health care insurers and HMOs. In addition, HIPAA regulations required the assignment of a unique national identifier for providers by May 2007. The federal government, states and territories (as well as most non-U.S. jurisdictions) impose requirements regarding the use and disclosure of identifiable information about individuals and, in an effort to deal with the growing threat of identity theft, the handling of privacy and security breaches. Antitrust Regulations CIGNA subsidiaries are also engaged in activities that may be scrutinized under federal and state antitrust laws and regulations. These activities include the administration of strategic alliances with competitors, information sharing with competitors and provider contracting. 26


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    Anti-Money Laundering Regulations Certain CIGNA subsidiaries are subject to United States Department of the Treasury anti-money laundering regulations. Those subsidiaries have implemented anti-money laundering policies designed to insure their affected products comply with the regulations. Investment-Related Regulations Depending upon their nature, CIGNA’s investment management activities are subject to U.S. federal securities laws, ERISA, and other federal and state laws governing investment related activities. In many cases, the investment management activities and investments of individual insurance companies are subject to regulation by multiple jurisdictions. Regulatory Developments The business of administering and insuring employee benefit programs, particularly health care programs, is heavily regulated by federal and state laws and administrative agencies, such as state departments of insurance and the federal Departments of Labor and Justice, as well as the courts. In the growing area of consumer-driven plans, health savings accounts and health reimbursement accounts are also regulated by the United States Department of the Treasury and the Internal Revenue Service. For information on Regulatory and Industry Developments, see page 67 in the MD&A and Note 22 to CIGNA’s Consolidated Financial Statements beginning on page 133 of this Form 10-K. Federal and state regulation and legislation may affect CIGNA’s operations in a variety of ways. In addition to proposals discussed above related to increased regulation of the health care industry, other proposed measures that may significantly affect CIGNA’s operations include calls for universal health care coverage and for government sponsored single payor, market reforms achieved through state and federal legislation, modifications of the Medicare program, and employee benefit regulation including modification to the tax treatment of employee benefits. The economic and competitive effects of the legislative and regulatory proposals discussed above on CIGNA’s business operations will depend upon the final form of any such legislation or regulation. 27


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    J. Ratings CIGNA and certain of its insurance subsidiaries are rated by nationally recognized rating agencies. The significance of individual ratings varies from agency to agency. However, companies that are assigned ratings at the top end of the range have, in the opinion of the rating agency, the strongest capacity for repayment of debt or payment of claims, while companies at the bottom end of the range have the weakest capacity. Insurance ratings represent the opinions of the rating agencies on the financial strength of a company and its capacity to meet the obligations of insurance policies. The principal agencies that rate CIGNA’s insurance subsidiaries characterize their insurance rating scales as follows: A.M. Best Company, Inc. (“A.M. Best”), A++ to S (“Superior” to “Suspended”); Moody’s Investors Service (“Moody’s”), Aaa to C (“Exceptional” to “Lowest”); Standard & Poor’s Corp. (“S&P”), AAA to R (“Extremely Strong” to “Regulatory Action”); and Fitch, Inc. (“Fitch”), AAA to D (“Exceptionally Strong” to “Order of Liquidation”). As of February 25, 2009, the insurance financial strength ratings for CIGNA subsidiaries, Connecticut General Life Insurance Company (CG Life) and Life Insurance Company of North America (LINA) were as follows: CG Life LINA Insurance Insurance Ratings(1) Ratings (1) A.M. Best.................... A A (“Excellent,” (“Excellent,” 3rd of 16) 3rd of 16) Moody’s...................... A2 A2 (“Good,” (“Good,” 6th of 21) 6th of 21) S&P............................. A (“Strong,” 6th of 21) Fitch ............................ A+ A+ (“Strong,” (“Strong,” 5th of 24) 5th of 24) _______________ (1) Includes the rating assigned, the agency’s characterization of the rating and the position of the rating in the agency’s rating scale (e.g., CG Life’s rating by A.M. Best is the 3rd highest rating awarded in its scale of 16). 28


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    Debt ratings are assessments of the likelihood that a company will make timely payments of principal and interest. The principal agencies that rate CIGNA’s senior debt characterize their rating scales as follows: Moody’s, Aaa to C (“Exceptional” to “Lowest”); S&P, AAA to D (“Extremely Strong” to “Default”); and Fitch, AAA to D (“Highest” to “Default”). The commercial paper rating scales for those agencies are as follows: Moody’s, Prime-1 to Not Prime (“Superior” to “Not Prime”); S&P, A-1+ to D (“Extremely Strong” to “Default”); and Fitch, F-1+ to D (“Very Strong” to “Distressed”). As of February 25, 2009, the debt ratings assigned to CIGNA Corporation by the following agencies were as follows: Debt Ratings(1) CIGNA CORPORATION Commercial Senior Debt Paper Moody’s................................................................................. Baa2 P2 (“Adequate,” (“Strong,” 9th of 21) 2nd of 4) S&P........................................................................................ BBB+ A2 (“Adequate,” (“Good,” 8th of 22) 3rd of 7) Fitch ....................................................................................... BBB+ F2 (“Good,” (“Moderately 8th of 24) Strong,” 3rd of 7) ________________________ (1) Includes the rating assigned, the agency’s characterization of the rating and the position of the rating in the applicable agency’s rating scale. CIGNA is committed to maintaining appropriate levels of capital in its subsidiaries to support financial strength ratings that meet customers’ expectations, and to improving the earnings of the health care business. Lower ratings at the parent company level increase the cost to borrow funds. Lower ratings of CG Life and LINA could adversely affect new sales and retention of current business. 29


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    K. Miscellaneous CIGNA and its principal subsidiaries are not dependent on business from one or a few customers. No customer accounted for 10% or more of CIGNA’s consolidated revenues in 2008. CIGNA and its principal subsidiaries are not dependent on business from one or a few brokers or agents. In addition, CIGNA’s insurance businesses are generally not committed to accept a fixed portion of the business submitted by independent brokers and agents, and generally all such business is subject to its approval and acceptance. CIGNA had approximately 30,300, 26,600, and 27,100 employees as of December 31, 2008, 2007 and 2006, respectively. 30

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