avatar Cigna Holding Company Finance, Insurance, And Real Estate

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    INVESTING INYOU 201 2 C I G N A A N NUA L R E P O RT


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    We believe BELIEVING IN in our customers’ potential as much YOUR POTENTIAL. as they do. CONTENTS 4 TO OUR SHAREHOLDERS 8 GROWING 10 LEADING 12 SERVING 14 CIGNA IN PERSPECTIVE 16 CORPORATE & BOARD OF DIRECTORS 2


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    That’s why everything we do – from service operations to clinical programs to financial management – is an investment in the health, well-being and sense of security of our customers and all those who depend on us. Our diverse, global investments of time, talent and technology come in many forms. We work around the clock, handling up to 100,000 calls a day, to provide service on a deeply personal level. We eliminate roadblocks and red tape to make it easier to work with us. We collaborate with employers, doctors, governments, health care systems and communities who are as interested as we are in improving global health and making health care more accessible and affordable. We have given millions of dollars to charities – while our employees have contributed more than a million hours of volunteer time – so people worldwide can build better neighborhoods and lead healthier lives. Investing in you and believing in your potential. So you can do the same. It’s the best investment strategy of all. 3


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    TO OUR SHAREHOLDERS A Track Record of Success Three years ago, we embarked on a bold, long-term strategy for Cigna, with three fundamental goals, to: 1 ) Reposition our portfolio for growth in target markets; 2) Improve our strategic and financial flexibility; and 3) Pursue new opportunities in high-growth markets, with a particular focus on individuals. 2011 2012 ADJUSTED INCOME FROM OPERATIONS* $1,361 $1,734 in millions We’ve stayed true to this direction, guided by our strategy of “Go Deep, Go Global, Go Individual,” 2012: and in 2012 we once again delivered strong results against each of our goals by: ANOTHER STRONG • Growing our global customer relationships to approximately 75 million people while increasing YEAR FOR CIGNA our global medical customer base to more than 14 million – all while delivering solid results in each of our ongoing businesses. In 2012, the breadth and depth of our • Further improving our strategic and financial customer insights, coupled with our focused flexibility, with continued delivery of significant free strategy and strong operating performance, cash flow and strong return on capital from each led to another successful year for Cigna. of our businesses – positioning us well to further enhance value in 2013 and beyond. We continued to invest fully in understanding • Continuing to deepen our presence in existing evolving customer needs around the world. geographies, customer segments and product lines, as demonstrated by our new joint ventures At the heart of our customer awareness and in Turkey and India; and to pursue important appreciation is our belief that health is intensely new opportunities, most notably finalizing our personal for each individual we serve, and acquisition of HealthSpring, a best-in-class operator in the growing seniors segment, which added that well-being is interwoven with a sense of more than one million new customer relationships security and a supportive community. and drove much of our revenue growth. 4


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    As a result, 2012 was our third consecutive year of strong Global Health Care premiums and fees grew by 45 growth, and we are pleased with the value we delivered percent compared to full-year 2011 to $21 billion, to our customers, clients and investors. Our consolidated and full-year adjusted income from operations* was revenues were $29.1 billion, an increase of 33 percent over approximately $1.5 billion, representing 34 percent growth. 2011. Our adjusted income from operations* was $1.73 This growth was prompted by several factors: primarily billion in 2012, compared to $1.36 billion the previous by contributions from HealthSpring, as well as strong year. This equates to $5.99 per share in 2012 – which organic customer growth in our Commercial business represents per share growth of 21 percent over 2011. and the penetration of our specialty products through Cigna’s shareholders net income for full-year 2012 was our Administrative Services Only (ASO) business. $1.62 billion – a 29 percent increase over full-year 2011. In the three years since implementing our “Go Go Go” Global Supplemental Benefits strategy, we’ve delivered compound annual growth of Cigna’s Global Supplemental Benefits segment – nearly 17 percent for revenues and nearly 15 percent for which provides supplemental health, life, and accident adjusted income from operations* on a per share basis. insurance, including Medicare supplemental coverage, Further, our capital deployment strategy remains focused in the U.S. and in foreign markets – continues to around several core tenets, including supporting our deliver attractive growth and profitability. ongoing businesses with the adequate capital to grow; Premiums and fees in this segment grew by 30 percent pursuing mergers, acquisitions and partnerships to in 2012 compared to full-year 2011, driven by strong accelerate our growth and create strategic competitive customer retention and growth as well as contributions differentiation; and returning capital to our shareholders. from our recent acquisitions, including Great American Supplemental Benefits. 2012 Business Segment Results Our full-year adjusted income from operations* in this segment was $148 million, representing a 48 percent Each of Cigna’s business segments performed well in increase over 2011. 2012. Overall, these financial and operating results reflect strong organic revenue and earnings contributions from each of our ongoing businesses, as evidenced by our Group Disability and Life high customer retention rates, continued expansion of existing customer relationships and success in winning Our Group Disability and Life segment – which provides new relationships, whether they are with individual group disability, life, and accident insurance products – customers, employers, or governments. delivered solid results, considering the challenging economic environment. Group premiums and fees Here are our 2012 performance highlights by increased by nine percent in 2012 over full-year 2011, business segment: while our full-year adjusted income from operations* decreased by three percent, to $281 million. Global Health Care Our Global Health Care segment – which provides health care, wellness and preventive solutions to individuals and employers around the world – was the 2011 primary driver of our results, with strong performance 2012 in both our Commercial and Seniors businesses. We ended 2012 with approximately 14 million global medical customers, representing growth of 1.4 million medical customers during the year – of which one CONSOLIDATED REVENUES $21.9 $29.1 million represented organic growth. in billions 5


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    Remaining Operations Our success also comes from the ability to apply the breadth of our expertise across a diverse global portfolio Our remaining operations – including operations in run of businesses. By orienting ourselves around customer off – reported a combined adjusted loss from operations* segments and solutions, rather than geographies, we can of $175 million in 2012. Our early-2013 agreement take advantage of our distribution and service delivery with Berkshire Hathaway to effectively exit our run capabilities, more effectively execute our strategy, and off reinsurance businesses creates improved financial capitalize on market opportunities for the benefit of our flexibility, eliminates volatility and enables us to better customers and clients. For example, we can now better focus on our ongoing health and related businesses. serve our global employers and better serve our individual customers both internationally and in the growing seniors Continued Success in a Dynamic segment in the United States. In one specific example, we learned from our U.S. dental operation how to create a Global Business Environment dental product that has become one of the fastest-growing products in South Korea, to the direct benefit of our As we look forward, and assess the transforming economic customers in that country. and regulatory environment, we see good opportunities for continued innovation and growth. Demographic shifts and economic pressures are creating a search for solutions – Cigna’s Critical Differentiators especially in the health care sector, where the need to improve health quality and provide affordable care is Cigna has the scale, experience and talent to continue prompting a number of legislative and regulatory activities – being successful in developed, developing and emerging including in the U.S., where health care reform is well markets as we leverage three critical differentiators. underway. We are well prepared to continue our success The first is putting our customers at the center of by going deep in our existing markets and selectively everything we do, aided by deep analytical insights expanding our operations. that allow us to better understand their needs. As we’ve already seen, the organizations that excel will Customer-supporting technologies are a major part be those best equipped to act strategically, nimbly and of the integrated, tailored programs we bring to our with laser focus. Our agility in this environment, in large customers to empower them to make more informed part, comes from the degree to which we have successfully health care decisions. More than “apps for the sake distinguished ourselves as a global health service company, of apps” or technology for the sake of technology, set apart from traditional health insurance companies. these programs are at the forefront of the support we bring, and are serious investments to keep our customers This transformation began several years ago as we healthy, which ultimately saves on medical costs. pioneered the health service model and determined that our relationships with customers must go deeper than For example, in 2012, we enhanced myCigna.com to paying claims. Our thousands of nurses, health coaches, provide pricing and quality information on doctors case managers, health educators and other allied health and hospitals for more than 200 medical procedures – professionals form the backbone of a health service representing 80 percent of customer claims – based on approach that promotes prevention, helps customers the customer’s health plan and available health account stay well, and understands how to help each customer funds. We also recently introduced four healthy living on a one-to-one basis – a capability we’ve bolstered mobile phone applications designed to help our significantly through our acquisition of HealthSpring, customers eat right, exercise, get enough sleep and which provides us with a best-in-class physician manage stress. engagement model that complements our path to build collaborative provider relationships. 6


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    Second, we use our understanding of our customers’ needs low-income seniors live in unsafe housing, we worked to identify the right products for the right customers at with a Habitat for Humanity program to renovate homes. the right time – which we refer to as consultative selling Similarly, in Taiwan, Cigna helped to provide health and distribution. Among other areas, this plays a and social services to disabled seniors living in poverty. critical role in Cigna’s ability to effectively address and These are just a few of the ways that the Cigna team capitalize on the growing market opportunities presented strives to be a force for good around the world. by globally mobile individuals and employers, whose Cigna was also proud to be recognized in 2012 by the evolving needs require the power, collaboration and Alzheimer’s Association for our service and philanthropy flexibility of the Cigna network of more than one million in the fight against Alzheimer’s disease. health care professionals worldwide. A third differentiator is our best-in-class physician engagement and partnership programs, which Looking Ahead: improve health care quality and overall affordability. 2013 and Beyond In the United States, Cigna continues to strengthen our physician partnerships through our rapidly growing As we look forward to 2013 and beyond and assess number of collaborative accountable care initiatives the transforming global economic and regulatory spanning 22 states – which, when combined with our environment, we are confident that our strong product HealthSpring seniors programs, are already serving portfolio, financial flexibility and ability to create new nearly one million customers. We view our physician opportunities in target geographies will continue to engagement strategy as a critical aspect of improving create solid growth for Cigna. health outcomes and affordability while expanding We are prepared to build on the progress and investments the rewards for top-performing physicians and health we’ve made in the past three years since implementing systems. Cigna’s physician relationships increase our “Go Go Go” strategy. Our company comprises more the likelihood that individuals get health screenings than 35,000 people around the world who are proud and and refill prescriptions, reduce their use of hospital passionate about our customers and our mission. We’re emergency rooms, increase their preventive health visits excited about the future. Cigna’s clarity of direction, focus and improve follow-up care for those transitioning and outstanding team – together with the powerful belief from the hospital to home – encouraging better quality in the potential of each customer – give us a rock-solid of care and a more affordable outcome. foundation for continued success. Thank you for your confidence and investment in us. In Our Communities Just as important as Cigna’s strategy and financial results is the value our global team delivers every day to help the people we serve. In a noteworthy milestone, the Cigna Foundation celebrated its 50th anniversary in David M. Cordani 2012, and has given $220 million to worthy causes in President and Chief Executive Officer its first five decades. Our employees stepped up time and again in 2012 to help communities whose needs are as varied as they * Adjusted income (loss) from operations is a non-GAAP measure used to describe the Company’s financial results. A definition of adjusted income from are great. For example, our employees raised funds for operations along with a reconciliation to the most directly comparable GAAP measure is contained in Management’s Discussion and Analysis of Financial victims’ families immediately after the tragic Sandy Condition and Results of Operations on page 35 of the Form 10-K included in Hook, Connecticut school shooting. In Shanghai, where this annual report. 7


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    GROWING Internationally, Cigna entered new markets poised for growth. EXPANDING AROUND THE WORLD Cigna in 2012 broadened its capabilities and strengthened the company’s foothold in markets around the world. In the U.S., Cigna completed its acquisition of HealthSpring, which intensifies Cigna’s presence in the rapidly growing seniors market while leveraging the successful HealthSpring model built on deep understanding of customers and working with physicians to deliver the care their patients need. Additionally, Cigna acquired Great American Supplemental Benefits, expanding the company’s portfolio of products for individuals and bolstering Cigna’s retail distribution capabilities. Cigna entered several new developing international markets poised for growth. Cigna and its joint venture partner in India, the Indian business conglomerate TTK, announced plans to begin operations in 2013 following regulatory approvals and expect to secure a full health and accident license in 2013. Cigna also entered a joint venture with Saudi Arabian Insurance Company B.S.C. (C) to develop a portfolio of health, wellness and insurance products targeted to regional and multi-national employers across the Middle East. In Turkey, Cigna launched a joint venture with Finansbank – a retail bank with 10 million customers and a network of 500 branches. The Turkish joint venture will enable Cigna to reach customers in a country of significant geographic and strategic importance. Increasing Collaborative Accountable Care Programs In 2012, Cigna expanded its collaborative accountable care (CAC) programs by establishing 38 new initiatives with physician groups in 19 states, including the company’s first CACs in California, Florida, Virginia, Ohio and South Carolina. Cigna now has more than 50 collaborative accountable care programs in 22 states covering more than 500,000 customers. These programs increase patient access to health care, improve care coordination, and achieve better health care quality, affordability, and patient satisfaction. Cigna’s programs focus on high-risk individuals, including people with chronic health conditions such as diabetes or heart disease. CACs help identify individuals who may have missed an important medical test or health screening or may be overdue for a prescription refill; help reduce unnecessary use of hospital emergency rooms; help increase preventive health visits and help improve follow-up care for those leaving the hospital. 8


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    Cigna Collaborative Accountable Care Initiatives Cigna’s collaborative accountable care program has expanded to 22 states and now covers more than half a million customers. Putting Power in Customers’ Hands Cigna uses technology including gamification, social media and web-based information and tools to help make health a fun, interesting and easier part of customers’ everyday lives. In 2012, we introduced myCigna.com, which provides accurate pricing and quality information on doctors and hospitals for more than 200 medical procedures according to the real-time status of each customer’s health plan and available health account funds. We also launched the myCigna Mobile App, which puts the power in customers’ hands to improve their health, manage their costs, and to get the most from their health plan benefits. The myCigna Mobile App allows Cigna health plan customers instant access to their personalized health care information to find a doctor using Cigna’s award-winning physician directory, access ID cards in one convenient location, view and manage account balances and deductibles, look up medical, dental and pharmacy claims, and research and compare drug prices at 62,000 pharmacies. 9


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    LEADING In 2012 Cigna achieved some historic milestones. MILESTONES & RECOGNITION IN 2012... BY THE NUMBERS Cigna earned a DALBAR Recognition for Excellence award for the My Personal Champion program – becoming the first health service company to win this award. My Personal Champion, currently available to six million customers, makes it easier for customers who have experienced a serious illness or injury to navigate the complexity of health care and the resources available to them through their communities. DALBAR is a leading independent evaluator of service practices in the health care and financial services industries, recognizing companies and programs that meet strict performance criteria. Cigna & CMC Life Insurance Co. Ltd, a joint venture between Cigna and its China Merchants Group affiliate, reached one million insurance policies in force. Cigna & CMC achieved this historic milestone in just nine years, a testament to the vision and values both joint venture partners share. As one of the most successful financial services-related joint ventures in China, Cigna & CMC combines Cigna’s years of experience, distribution expertise, and deep knowledge of insurance services with China Merchant Bank’s vast retail experience and powerful brand. In just under a decade, the joint venture has grown into an impressive insurance operation with 4,000 employees and licenses to operate in 10 provinces – representing approximately 540 million people – enabling the joint venture to reach more than one third of all Chinese consumers. Cigna joined the 100,000 Jobs Mission, a coalition of private sector companies dedicated to helping 100,000 U.S. veterans find jobs. The coalition companies, collectively, hired 51,835 veterans in 2012 and are halfway toward their goal. To help fuel America’s entrepreneurial spirit and create jobs, Cigna became the first health service company to make health and dental coverage available to the 11,297 members of the Startup America Partnership. Startup companies often go without health care coverage, making it difficult for them to attract top talent and to keep their workforce healthy. The Partnership is a national movement of founders, experts and resources providing startups with access to the corporations, investors, and services they need to grow. 10


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    Cigna was recognized as one of the Best Places to Work for Lesbian, Gay, Bisexual and Transgender Equality by the Human Rights Campaign (HRC) Foundation. Cigna scored 100 percent on HRC’s Corporate Equality Index. Cigna scored tops for overall favorability in ReviveHealth’s sixth annual survey of hospital executives, with a 71 percent favorable score, up from 65 percent in 2011. Hospital executives also rated Cigna as “the best payer to deal with” for the second year in a row. The survey asked hospital executives to rate health insurers on more than a dozen factors, from image and reputation to contract negotiation tactics and claims processing. The Cigna Foundation, founded in Philadelphia on October 19, 1962, celebrated 50 years of giving. From its first donation to the United Way of $110,000, the Foundation has developed an increasingly global scope. Overall, it has contributed $220 million to charities worldwide and supported the volunteerism of Cigna employees, who have devoted more than one million total hours in service to their communities. In 2012, Cigna celebrated the 30th anniversary of its modern formation through the merger of Insurance Company of North America (INA) – a multi-line insurance company that traces its roots back to 1792 – and Connecticut General Life Insurance Company, a life and health insurance company organized in 1865. Cigna also celebrated the 30th anniversary of the company’s listing on the New York Stock Exchange. Cigna’s common stock began trading on the NYSE on April 1, 1982. Cigna marked its 25th year of service to the people of South Korea, with more than two million customers and more than four million insurance policies in force. Cigna was the first foreign life insurance company to enter the South Korean market and is now one of the top 10 life insurers in all of South Korea. Fortune Korea magazine recently named Cigna’s South Korea business as one of the 500 fastest growing companies in the country. Cigna’s impressive growth in South Korea is due to its rapidly expanding direct-to-consumer channel, including award-winning TV commercial advertising. Over the years, Cigna’s company in South Korea has earned a reputation for having a best-in-class telemarketing distribution channel among life insurers, with a team of nearly 5,000 employees who offer a full range of health and protection products to the South Korean market. InformationWeek Magazine named Cigna one of the Top 10 Innovators of 2012. No other health service company ranked in the top 100. Cigna’s dedication to understanding and helping each customer on a one-to-one basis was recognized by U.S. Surgeon General Regina Benjamin, who named Cigna as a leading company for reducing health care disparities. The recognition came at a special roundtable at the White House hosted by the Department of Health and Human Services, the White House Business Council and the National Business Group on Health. Cigna launched its Health Disparities Council in 2008. Through the Council’s efforts, more than 20,000 Cigna employees have completed cultural competency training. Health disparities are differences in rates of disease, health outcomes or access to health care that are related to many factors, such as gender, age, geography, race/ethnicity, education, income, language, culture, literacy, sexual orientation, gender identity or disability. 11


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    SERVING ONE STORY OF HOW WE HELP OUR MEDICARE CUSTOMERS Ann* is a community case manager with HealthSpring in Mobile, Alabama, where many HealthSpring customers struggle with poverty. At HealthSpring, which serves the Medicare-eligible population, health care is more than pills and procedures or billing codes and copays. Ann works directly with customers and doctors, focusing on the relationship between patients and health care professionals. One of Ann’s customers is Kate,* who called Ann to say she had nowhere to live. Ann found Kate staying 30 miles outside of town in a tent. Ann immediately called Kate’s doctor and arranged for an evaluation at a local hospital emergency room. Later, Ann worked with the hospital to transport Kate from the emergency room to a nursing facility, where Kate received skilled therapy and the knee replacement surgery she needed. Kate still lives in the nursing home full time, but is hopeful that she might live on her own in the future. In the meantime, Kate is in a safe and supportive environment. *Names have been changed to ensure customer privacy. Returning Customers to Health and Productivity Cigna and Achilles International – a non-profit organization dedicated to helping people with disabilities gain physical strength and build confidence through participation in mainstream athletics – believe in helping people return to health and productivity. Cigna and Achilles joined forces in 2012 to give Cigna’s long-term disability customers access to Achilles programs, including coaching, training, and an opportunity to participate in races with other Achilles athletes. Two of the first Cigna customers to benefit from the Achilles relationship were Bill Henderson, a cancer survivor who underwent surgery and 30 rounds of radiation treatment watch video and Dominic Alexander, whose fall from a ladder caused a traumatic brain injury watch video. Cigna’s vocational rehabilitation specialist for Bill and Dominic referred both customers to the Achilles program and helped them create a plan to restore strength, endurance and wellness. Gradually, through workouts and training, Bill finished the five-mile Hope & Possibility Race in New York and Dominic completed a full marathon at Walt Disney World®. The future looks bright for Bill, who has returned to his former occupation as an associate pastor, and for Dominic, who has a part-time occupation while volunteering in his community. Paying It Forward for Connecticut Students Cigna teamed with the University of Connecticut to expand its On-campus Developers Internship Program for computer science and engineering students. The initiative gives qualified junior- and senior-year college students valuable career experience, working directly with Cigna employees to develop web and mobile programming applications. The program also offers future employment for students with Cigna in the Technology Early Career Development. Photo (top right): Cigna customer Bill Henderson and his Cigna vocational rehabilitation counselor Betty Sims. 12


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    Cigna Connects — Our Approach to Corporate Responsibility In 2012, Cigna launched Cigna Connects, a comprehensive corporate responsibility program tied to Cigna’s mission to improve the health, well-being and sense of security for those we serve. Cigna Connects’ vision is to gather, engage and activate key groups to achieve improvements in the areas of child wellness, senior care, health literacy and health equity. For example, in child wellness, Cigna led the funding of a nationwide school competition created by ChildObesity180. The contest identified the most impactful school physical activity models in the U.S. and is now helping other schools to create similar programs. In the field of senior care, Cigna worked in collaboration with the Alzheimer’s Association and Cigna’s own Employee Assistance Program to create a support program for caregivers. Cigna was honored with the Alzheimer’s Association’s Corporate Award for service and philanthropy. As one example of improving health literacy, Cigna in Florida created a picture postcard campaign to help Haitian customers understand their health coverage. A postcard with a culturally meaningful photo and message in French, Creole and English is mailed when a Haitian customer can’t be reached by phone. To help ensure health equity, the Cigna Foundation provided a $100,000 grant to the Methodist Healthcare Foundation in Memphis to address racial health disparities in Riverview, Tennessee. The grant is making it possible for Methodist Hospital to offer patients greater personal help in navigating the health care system. Highlights of Cigna’s Global Giving and Volunteerism Cigna’s global giving and volunteerism celebrates the power of the individual spirit and reinforces the importance of supporting organizations worldwide that are aligned with Cigna’s mission. A grant from the Cigna Foundation enabled members of the Achilles Freedom Team of Wounded Veterans and others with disabilities to participate in the 2012 Walt Disney World® Marathon Weekend. Cigna’s president and CEO David Cordani and Cigna employees personally guided the Achilles athletes as they completed the Disney course. Cigna’s longstanding partnership with the March of Dimes® took on special meaning when Cigna employee Shalini Wittstruck, her husband Shane and son, Kieran, were Lending named the March of Dimes National Ambassador Family. The Wittstrucks travelled a hand across America throughout 2012 to spread the message of prenatal care. around the Cigna’s relationship with the Red Cross helped Cigna respond when Hurricane Sandy devastated parts of the U.S., as the Cigna Foundation provided $50,000 in immediate world. relief funding and matched an additional $55,000 in employee giving. In many reaches of the world, the Cigna Foundation and Cigna employees offered a helping hand. The Cigna Foundation gave $25,000 to Water for People to support clean water projects in India. As part of the launch of its new Complete Cancer Protection product, Cigna Indonesia donated 10 percent of all premiums collected during the first three months of product sales to the Indonesian Care for Cancer Kids Foundation. In addition, Cigna’s employees raised funds – matched by the Cigna Foundation – to support a Habitat for Humanity home building project in the Thailand community of Rayong Province, which was devastated by flooding in 2010. Photo: The 2012 March of Dimes Ambassador Family: Cigna employee Shalini Wittstruck, her husband Shane and son, Kieran. 13


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    CIGNA IN PERSPECTIVE Cigna is a global health service organization that provides medical, dental, disability, life and accident insurance and related products and services to customers in the United States and around the globe. In 2012, Cigna realigned its businesses according to the nature of the Company’s products and services, rather than its geographies, to better leverage distribution and service capabilities for the benefit of customers worldwide. As of December 31, 2012, Cigna’s business segment results reflect the Company’s realignment. Global Health Care Global Health Care includes a Commercial line of business encompassing U.S. and International operations. Commercial offers a broad line of insured and self-insured medical, dental, behavioral health, vision, and prescription drug benefit plans, health advocacy programs and other products and services that may be integrated to provide comprehensive global health care benefit programs to employers and their employees, including globally mobile individuals. Cigna serves its globally mobile customers virtually everywhere in the world. Global Health Care also includes a Government line of business that offers Medicare Advantage, Medicare Part D and Medicaid plans sold to Medicare or Medicaid-eligible individuals, primarily seniors. Approximately 75 percent of our Medicare Advantage customers are served by physicians in innovative models designed to improve health outcomes and lower medical costs. Cigna offers Medicare Advantage plans in 13 states and the District of Columbia, Medicare Part D plans in all 50 states and the District of Columbia, and Medicaid plans in targeted markets, including the business associated with the 2012 acquisition of HealthSpring. Global Supplemental Benefits Global Supplemental Benefits offers supplemental health, life and accident insurance products in the U.S. and selected international markets. With local licenses and partnerships across Asia-Pacific, Europe and North America, Cigna offers products and services to local citizens and globally mobile individuals. Global Supplemental Benefits also includes Medicare supplemental coverage following the 2012 acquisition of Great American Supplemental Benefits. 14


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    Group Disability and Life Group Disability and Life provides insurance products and related services for group long-term and short-term disability insurance, group life insurance and accident and specialty insurance. Cigna markets products in all 50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands and Canada. Group Disability and Life programs are designed to help improve employee productivity and lower employers’ overall absence costs. All products are coupled with comprehensive tools and services for easy benefit management. GLOBAL HEALTH CARE By product: Medical 64% Commercial Segment (69%) Dental 5% Government 31% Premiums and fees in millions: $20,973 GLOBAL SUPPLEMENTAL BENEFITS By country: South Korea 54% Taiwan 13% Europe 12% U.S. 5% Indonesia 5% Other 11% Premiums and fees in millions: $1,984 GROUP DISABILITY AND LIFE By product: Life 46% Disability 45% Other 9% Premiums and fees in millions: $3,109 15


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    CORPORATE & BOARD CORPORATE & BOARD OF DIRECTORS BOARD OF DIRECTORS ISAIAH HARRIS, JR. ROMAN MARTINEZ IV DONNA F. ZARCONE Independent Chairman Private Investor President and Chief Executive Officer Retired President and The Economic Club of Chicago, Chief Executive Officer JOHN M. PARTRIDGE a civic and business leadership AT&T Advertising and Publishing – East, organization President a communications services company Visa Inc., a consumer credit company WILLIAM D. ZOLLARS DAVID M. CORDANI Retired Chairman, President President and JAMES E. ROGERS and Chief Executive Officer Chief Executive Officer YRC Worldwide Inc., Chairman, President and Cigna Corporation a transportation and related Chief Executive Officer services holding company Duke Energy Corporation, ERIC J. FOSS an electric power company President, Chief Executive Officer and Director JOSEPH P. SULLIVAN ARAMARK Corporation, Private Investor a provider of food services, facilities management and uniform and career apparel ERIC C. WISEMAN Chairman, President and Chief Executive Officer JANE E. HENNEY, MD VF Corporation, Retired Professor of Medicine an apparel company University of Cincinnati College of Medicine, an educational institution 16


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    STANDING BOARD COMMITTEES AND OFFICERS EXECUTIVE COMMITTEE PEOPLE RESOURCES RALPH J. NICOLETTI COMMITTEE Executive Vice President ISAIAH HARRIS, JR. and Chief Financial Officer Chairperson WILLIAM D. ZOLLARS Cigna Corporation Chairperson DAVID M. CORDANI JASON D. SADLER JANE E. HENNEY, MD JANE E. HENNEY, M.D. President JOHN M. PARTRIDGE JOSEPH P. SULLIVAN Global Individual Health, ERIC C. WISEMAN Life & Accident Segment DONNA F. ZARCONE WILLIAM D. ZOLLARS EXECUTIVE OFFICERS OTHER OFFICERS AUDIT COMMITTEE DAVID M. CORDANI DANTHU THI PHAN DONNA F. ZARCONE President, Chief Executive Officer Corporate Secretary and Director Cigna Corporation Chairperson Cigna Corporation TIMOTHY D. BUCKLEY ERIC J. FOSS MARK L. BOXER Vice President and Treasurer ROMAN MARTINEZ IV Executive Vice President and Cigna Corporation JOHN M. PARTRIDGE Global Chief Information Officer Cigna Corporation MARY T. HOELTZEL JAMES E. ROGERS Vice President and HERBERT A. FRITCH Chief Accounting Officer CORPORATE President Cigna Corporation GOVERNANCE COMMITTEE Cigna HealthSpring JANE E. HENNEY, MD DAVID D. GUILMETTE Chairperson President, Global Employer Segment ERIC J. FOSS NICOLE S. JONES JOSEPH P. SULLIVAN Executive Vice President and General Counsel ERIC C. WISEMAN Cigna Corporation WILLIAM D. ZOLLARS MATTHEW G. MANDERS FINANCE COMMITTEE President, Regional and Operations JOHN M. PARTRIDGE JOHN M. MURABITO Chairperson Executive Vice President Human Resources and Services ROMAN MARTINEZ IV Cigna Corporation JAMES E. ROGERS DONNA F. ZARCONE 17


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    Annual Meeting Direct Stock Purchase Plan Stock Listing The 2013 annual meeting of Shareholders can automatically Cigna’s common shares are listed shareholders will be held on reinvest their annual dividends and on the New York Stock Exchange. Wednesday, April 24 at 10 a.m., make optional cash purchases of The ticker symbol is CI. in the Windsor 4 Ballroom at the common shares. For information on Windsor Marriott Hotel, 28 Day these services, please contact: Transfer Agent Hill Road in Windsor, Connecticut. Computershare Shareowner Services Computershare Shareowner Services Proxies and proxy statements have P.O. Box 43078 P.O. Box 43078 been made available to shareholders Providence, RI 02940-3078 Providence, RI 02940-3078 of record as of February 25, 2013. Toll-free at 800.760.8864; or outside Toll-free at 800.760.8864 On December 31, 2012, there were the United States and Canada or outside the United States and 7,885 common shareholders of record. at 201.680.6535; or for the hearing Canada at 201.680.6535 impaired, TDD at 800.231.5469. Financial Information Website: www.computershare.com Shareholder Account Access Cigna’s Form 10-K is available You can access your Cigna online at www.Cigna.com. For a Cigna Online shareholder account online through the copy of Cigna’s quarterly earnings To access information about Cigna, Computershare Shareowner Services news releases, visit our website at and our products and services online, website: www.computershare.com. www.Cigna.com and click on “News.” visit www.Cigna.com. Or, call: 800.760.8864. You’ll need your Investor ID and PIN for access to Offices and your account. If, for any reason, you Principal Subsidiaries don’t have your Investor ID or PIN, Cigna Corporation you may obtain one by following the 900 Cottage Grove Road online instructions. Bloomfield, CT 06002 860.226.6000 Direct Deposit Of Dividends and Direct deposit of dividends provides a prompt, efficient way to have your Two Liberty Place dividends electronically deposited 1601 Chestnut Street into your checking or savings account. Philadelphia, PA 19192-1550 It avoids the possibility of lost or 215.761.1000 delayed dividend checks. The deposit Connecticut General Life is made electronically on the payment Insurance Company date. For more information and an 900 Cottage Grove Road enrollment authorization form, contact Bloomfield, CT 06002 Computershare Shareowner Services 860.226.6000 at 800.760.8864 or outside the United States and Canada at 201.680.6535. Life Insurance Company You can access your account of North America online through the Computershare Two Liberty Place Shareowner Services website: 1601 Chestnut Street www.computershare.com. Philadelphia, PA 19192-1550 215.761.1000 18


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    UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ፼ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2012 OR 䡺 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 29OCT201118203261 CIGNA CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 06-1059331 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 900 Cottage Grove Road, Bloomfield, Connecticut 06002 (Address of principal executive offices) (Zip Code) (860) 226-6000 Registrant’s telephone number, including area code (860) 226-6741 Registrant’s facsimile number, including area code SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: Title of each class Name of each exchange on 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 YES NO • if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ፼ 䡺 • if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. 䡺 ፼ • 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. ፼ 䡺 • whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ፼ 䡺 • 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. 䡺 ፼ • 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 ፼ Accelerated filer 䡺 Non-accelerated filer 䡺 Smaller Reporting Company䡺 • whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 䡺 ፼ The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 29, 2012 was approximately $12.7 billion. As of January 31, 2013, 285,954,499 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 15, 2013.


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    Table of contents PART I 1 ITEM 1 Business ..................................................................................................................................... 1 A. Description of Business ......................................................................................................1 B. Global Health Care ............................................................................................................................................2 C. Group Disability and Life ...................................................................................................9 D. Global Supplemental Benefits ............................................................................................. 11 E. Run-off Reinsurance ........................................................................................................ 12 F. Other Operations ............................................................................................................ 13 G. Investments and Investment Income ..................................................................................... 13 H. Regulation .................................................................................................................... 14 I. Miscellaneous................................................................................................................. 18 ITEM 1A Risk Factors ............................................................................................................................. 19 ITEM 1B Unresolved Staff Comments ..................................................................................................... 28 ITEM 2 Properties ................................................................................................................................. 28 ITEM 3 Legal Proceedings ..................................................................................................................... 28 ITEM 4 Mine Safety Disclosures ........................................................................................................... 28 EXECUTIVE OFFICERS OF THE REGISTRANT .................................................................................. 29 PART II 30 ITEM 5 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.................................................................................. 30 ITEM 6 Selected Financial Data ............................................................................................................ 31 ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations....... 32 ITEM 7A Quantitative and Qualitative Disclosures about Market Risk.................................................... 63 ITEM 8 Financial Statements and Supplementary Data ......................................................................... 64 ITEM 9 Changes in and Disagreements With Accountants on Accounting and Financial Disclosure........ 129 ITEM 9A Controls and Procedures ........................................................................................................ 129 ITEM 9B Other Information ................................................................................................................. 129


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    PART III 130 ITEM 10 Directors, Executive Officers and Corporate Governance ....................................................... 130 A. Directors of the Registrant ................................................................................................130 B. Executive Officers of the Registrant .....................................................................................130 C. Code of Ethics and Other Corporate Governance Disclosures .....................................................130 ITEM 11 Executive Compensation ........................................................................................................ 130 ITEM 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ............................................................................................................... 131 ITEM 13 Certain Relationships, Related Transactions and Director Independence ................................ 131 ITEM 14 Principal Accountant Fees and Services .................................................................................. 131 PART IV 132 ITEM 15 Exhibits and Financial Statement Schedules ........................................................................... 132 SIGNATURES ........................................................................................................................................... 133 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 was incorporated in the State of Delaware in • GO GLOBAL: Cigna delivers a range of differentiated products 1981. Various businesses that are described in this Annual Report on and superior service to meet the distinct needs of a growing global Form 10-K for the fiscal year ended December 31, 2012 middle class and a globally mobile workforce through expansion in (‘‘Form 10-K’’) are conducted by its insurance and other subsidiaries. existing international markets as well as an extension of the As used in this document, ‘‘Cigna’’, the ‘‘Company’’, ‘‘we’’ and ‘‘our’’ Company’s business model to new geographic areas. may refer to Cigna Corporation itself, one or more of its subsidiaries, • GO INDIVIDUAL: Cigna strives to establish a deep understanding or Cigna Corporation and its consolidated subsidiaries. of its customers’ unique needs and to be a highly customer-centric Cigna had consolidated shareholders’ equity of $9.8 billion and assets organization through simplifying the buying process by providing of $53.7 billion as of December 31, 2012, and revenues of choice, transparency of information, and a personalized customer $29.1 billion for the year then ended. Cigna’s revenues are derived experience. The Company’s goal is to build long-term relationships principally from premiums, fees, mail order pharmacy, and with each of the individuals it serves and meet their needs investment income. throughout the stages of their lives regardless of the customer’s plan type: employer-based, government-sponsored, or individual coverage. Strategy and Key Developments Executing on Cigna’s strategy, including the goals of achieving better Cigna is a global health services organization with a mission to help its health outcomes for our global customers, improving employee customers improve their health, well-being and sense of security. Its productivity and realizing medical cost savings is being achieved by: insurance subsidiaries are major providers of medical, dental, disability, life and accident insurance and related products and • focusing on delivery of innovative health and wellness solutions services, the majority of which are offered through employers and tailored to each of our employer and government clients; other groups (e.g. governmental and non-governmental organizations, • ensuring that we focus on the individual customer by providing unions and associations). Cigna also offers Medicare and Medicaid deep customer insights through customer research and feedback; products and health, life and accident insurance coverages primarily to and individuals in the U.S. and selected international markets. In addition to its ongoing operations described above, Cigna also has certain • enhancing collaboration with physicians and hospitals to offer run-off operations, including a Run-off Reinsurance segment. affordable access to value-based high-quality care. Cigna’s long-term growth strategy is based on: (1) repositioning the In addition to investing in these capabilities, Cigna executed on its portfolio for growth in targeted geographies, product lines, buying strategy during 2012 with three acquisitions that better position the segments and distribution channels; (2) improving its strategic and Company in several key markets: seniors, individual and global financial flexibility; and (3) pursuing additional opportunities in high supplemental. HealthSpring, the largest of the acquisitions, growth markets with particular focus on individuals. strengthens Cigna’s ability to serve individuals across their life stages as well as deepens the Company’s presence in a number of geographic Cigna’s mission and focus on delivering value by serving the emerging markets. The addition of HealthSpring also brings industry leading needs of our global customers is being accomplished through physician partnership capabilities, deepens Cigna’s existing client and executing on our long-term growth strategy, that is: customer relationships, and facilitates a broader deployment of • GO DEEP: Cigna seeks to increase its presence and brand strength Cigna’s range of health and wellness capabilities and product offerings. in key ‘‘go deep’’ geographic areas, grow in targeted segments or The acquisition of Great American Supplemental Benefits strengthens capabilities, and deepen its relationships with current customers Cigna’s capabilities in the individual market in addition to allowing through cross selling. Cigna to expand into the Medicare supplemental business, and our CIGNA CORPORATION - 2012 Form 10-K 1


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    PART I ITEM 1 Business joint venture with Finansbank expands Cigna’s global footprint in and supplemental health, life and accident) are now reported as Turkey. follows: Cigna is also focused on continuing to improve its strategic and • substantially all of the international health care business (comprised financial flexibility by driving further operating expense efficiencies, primarily of the global health benefits business) is now reported improving its medical cost competitiveness in targeted markets and with the former Health Care segment and renamed Global Health effectively managing balance sheet exposures. In 2013, Cigna reached Care; and a significant milestone in this strategy related to mitigating the • the supplemental health, life and accident business becomes a financial exposure associated with the Run-off guaranteed minimum separate reporting segment named Global Supplemental Benefits. death benefit (‘‘GMDB’’ also known as ‘‘VADBe’’) and guaranteed minimum income benefit (‘‘GMIB’’) reinsurance businesses. Effective As a result of these changes, the financial results of Cigna’s businesses February 4, 2013, the Company entered into an agreement with are now reported in the following segments: Berkshire Hathaway Life Insurance Company of Nebraska • Global Health Care aggregates the following two operating (‘‘Berkshire’’) to reinsure 100% of the Company’s future exposures for segments: these businesses, net of retrocessional arrangements in place as of February 4, 2013, up to a specified limit. See Note 25 to the • Commercial (including the international health care business) Consolidated Financial Statements for additional information. • Government Financial Information about Business Segments • Group Disability and Life The financial information included herein is in conformity with • Global Supplemental Benefits accounting principles generally accepted in the United States of • Run-off Reinsurance and America (‘‘GAAP’’), unless otherwise indicated. Certain reclassifications have been made to prior years’ financial information • Other Operations, including Corporate-owned Life Insurance. to conform to the 2012 presentation. Industry rankings and Financial data for each of Cigna’s business segments is set forth in percentages set forth herein are for the year ended December 31, 2012 Note 23 to the Consolidated Financial Statements. Prior year segment unless otherwise indicated. In addition, statements set forth in this information has been conformed to the new segment structure. document concerning Cigna’s rank or position in an industry or particular line of business have been developed internally, based on publicly available information, unless otherwise noted. Available Information Effective December 31, 2012, Cigna changed its external reporting Cigna’s annual, quarterly and current reports, proxy statements and segments to reflect the Company’s realignment of its businesses to other filings, and any amendments to these filings, are made available better leverage distribution and service delivery capabilities for the free of charge on its website (http://www.cigna.com, under the benefit of our global clients and customers. Management believes the ‘‘Investors – Quarterly Reports and SEC Filings’’ captions) as soon as realignment of its businesses will enable the Company to more reasonably practicable after the Company electronically files these effectively address global health services challenges by leveraging best materials with, or furnishes them to, the Securities and Exchange practices across geographies to improve the health, well being and Commission (the ‘‘SEC’’). The Company uses its website as a channel sense of security of the global customers that the Company serves. of distribution for material company information. Important The changes in the Company’s internal financial reporting structure, information, including news releases, analyst presentations and to support this realignment, took effect on December 31, 2012 and financial information regarding Cigna is routinely posted on and resulted in changes to our external reporting segments. The accessible at www.cigna.com. See ‘‘Code of Ethics and Other Company’s results are now aggregated based on the nature of the Corporate Governance Disclosures’’ in Part III, Item 10 beginning on Company’s products and services, rather than its geographies. page 130 of this Form 10-K for additional available information. The primary segment reporting change is that the two businesses that comprised the former International segment (international health care B. Global Health Care As explained in Item 1A ‘‘Description of Business’’, in the fourth designed to meet the needs of local and multinational companies and quarter of 2012 Cigna changed its external reporting segments. The organizations and their domestic and globally mobile employees and new Global Health Care segment (previously Health Care) now dependents. includes substantially all of the international health care business Global Health Care aggregates the following two operating segments: previously reported in the former International segment. This business, that is included in the Commercial operating segment, • The Commercial operating segment includes both the U.S. consists principally of global health benefits, products and services commercial and international health care businesses and offers 2 CIGNA CORPORATION - 2012 Form 10-K


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    PART I ITEM 1 Business insured and self-insured medical, dental, behavioral health, vision, Financial information, including premiums and fees, is presented in and prescription drug benefit plans, health advocacy programs and the Global Health Care section of the MD&A beginning on page 41 other products and services that may be integrated to provide and in Note 23 to Cigna’s Consolidated Financial Statements comprehensive global health care benefit programs to employers beginning on page 119 of this Form 10-K. and their employees, including globally mobile individuals. Cigna, either directly or through its partners, offers some or all of these products and services in all 50 states, the District of Columbia, the Health Plans U.S. Virgin Islands, Canada, Europe, the Middle East, and Asia. Commercial Medical – U.S. and International Cigna services its globally mobile customers virtually everywhere in the world. These products and services are offered through a variety • Managed Care Plans. Global Health Care offers a broad product line of funding arrangements such as administrative services only (ASO), of managed care benefit plans that use meaningful coinsurance and guaranteed cost and retrospectively experience rated. copayment differences to encourage the use of ‘‘in-network’’ versus ‘‘out-of-network’’ health care providers and the use of primary care • The Government operating segment offers Medicare Advantage physicians. While these products offer access to a broad national plans to seniors in 13 states and the District of Columbia, Medicare network of ‘‘in-network’’ health care providers (that is somewhat Part D plans in all 50 states and the District of Columbia and smaller than the network used with the preferred provider (‘‘PPO’’) Medicaid plans. plan product line), employers may elect to utilize a subset of Cigna’s Global Health Care seeks to differentiate itself by providing superior network to better manage costs and quality. customer insights, care delivery, product integration and unique • Preferred Provider Plans. Global Health Care also offers an open product offerings. Global Health Care expects to accomplish these access product line that features a network with even broader access goals by deepening its reach in selected geographies and market than the Managed Care Plans with no option to designate a primary segments as well as accelerating its engagement with preferred health care physician, in-network and out-of-network coverage, and may care professionals. For its globally mobile customers, Global Health be at a somewhat higher medical cost. Care’s strategic advantages include unique health care solutions, seamless worldwide care delivery and superior customer service. • Choice Fund suite of Consumer-Driven Products. In connection with many of the health care products described above, Global Health With the exception of Health Maintenance Organization (‘‘HMO’’), Care offers the Cigna Choice Fund suite of consumer-driven Medicare, Medicaid and stop loss products, each of Global Health products, including Health Reimbursement Accounts (‘‘HRA’’), Care’s group health benefit products are offered with alternative Health Savings Accounts (‘‘HSA’’) and Flexible Spending Accounts funding options (i.e.: administrative services only (‘‘ASO’’ or (‘‘FSA’’). These plans can be used to pay medical care expenses not ‘‘self-insured’’), insured experience rated, and insured guaranteed covered by a base medical plan and are designed to encourage cost). These funding options are further described on page 5 of this customers to understand and manage their health and health Form 10-K. Approximately 86% of the Company’s commercial benefits. medical customers are enrolled in self-insured and experience-rated plans, where lower costs of providing health care directly benefit our 1. Cigna’s Choice Fund HRA is funded by employer corporate clients and their employees, with the remainder being contributions and is often combined with a high deductible insured under guaranteed cost plans. plan. HRA dollars can be rolled over from year-to-year at the plan sponsors’ discretion. Principal Products and Services 2. HSA plans combine a high deductible health plan with a tax-advantaged savings account funded by customer Cigna’s principal health care products (discussed below) include: contributions that offers mutual fund investment options. • Health Plans – group and individual medical coverage: Funds in an HSA can be used to pay the deductible and other IRS-approved health care expenses. The health • Commercial Medical: U.S. and International – medical plans savings account is portable and unused funds accumulate covering domestic-based employees and, for certain from year to year. multinational employers, their globally mobile employees. In order to engage customers in their health care choices, consumer- 3. An FSA allows customers to pay for IRS-approved health driven core medical plans are often combined with the Cigna care expenses with pre-tax employee contributions. Unused Choice Fund suite of accounts. funds in an FSA do not accumulate from year to year, but are forfeited by the employee. • Government – Medicare Advantage, Medicare Part D and Medicaid plans sold to Medicare or Medicaid-eligible individuals • Stop Loss Coverage. Global Health Care offers stop loss insurance (primarily seniors). coverage for self-insured plans. This stop loss coverage reimburses the plan for claims in excess of a predetermined amount, for • Specialty Products – products and services that improve quality, lower individuals (‘‘specific’’), the entire group (‘‘aggregate’’), or both. the cost of medical services and help customers achieve better health Global Health Care also includes stop loss features in its experience- outcomes. These products can be sold on a standalone basis but are rated policies (discussed below). most effective when integrated with a Cigna-administered health plan. CIGNA CORPORATION - 2012 Form 10-K 3


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    PART I ITEM 1 Business Government healthier life; 3) Cigna’s Well Informed program, that uses clinical rules-based software to identify potential gaps and omissions in Medicare Advantage. Cigna offers Medicare Advantage coordinated customers’ health care by analyzing integrated medical, behavioral, care plans in 13 states and the District of Columbia. Under a pharmacy and lab data allowing Cigna to communicate the gaps to Medicare Advantage plan, Medicare-eligible beneficiaries may receive customers and their doctors; and 4) an array of health coaching health care benefits, including prescription drugs, through a managed offerings to address lifestyle management issues such as stress, weight, care health plan such as the Company’s coordinated care plans, and and tobacco cessation. the Centers for Medicare and Medicaid Services (‘‘CMS’’) reimburse the Company pursuant to a risk adjustment payment methodology. Cost Containment Service. Cigna administers cost containment Cigna ensures that our Medicare Advantage customers receive quality programs for health care services and supplies that are covered under medical care through our innovative plan models that focus on health benefit plans. These programs, that may involve contracted developing highly engaged physician networks, aligning payment vendors, are designed to control health costs by reducing incentives to improved health outcomes, and using timely and out-of-network utilization, including educating customers regarding transparent data sharing. Approximately 75% of our Medicare the availability of lower cost in-network services, reviewing provider Advantage customers are served by physicians in these innovative bills, and recovering overpayments from other insurance carriers or models, and Cigna is focused on expanding these models in the health care professionals. Cigna charges fees for providing or future. The HealthSpring acquisition expanded the size of Cigna’s arranging for these services. Medicare Advantage customer base. As of December 31, 2012, HealthSpring represented 89% of Cigna’s Medicare Advantage customer base. Cigna also offers Medicaid coverage to low income Behavioral Specialty individuals in selected markets in the U.S. Cigna’s Medicaid Behavioral Health. Cigna arranges for behavioral health care services customers benefit from many of the coordinated care aspects of the for customers through its network of participating behavioral health Company’s Medicare Advantage programs discussed above. care professionals. Cigna offers behavioral health care case management services, employee assistance programs (EAP), and Medicare Part D. Cigna’s Medicare Part D prescription drug work/life programs to employers, government entities and other program provides a number of plan options as well as service and groups sponsoring health benefit plans. Cigna Behavioral Health information support to Medicare and Medicaid eligible customers. focuses on integrating its programs and services with medical, Cigna’s Part D plans are available in all 50 states and the District of pharmacy and disability programs to facilitate customized, holistic Columbia. These plans offer the savings of Medicare combined with care. the flexibility to provide enhanced benefits and a drug list tailored to individuals’ specific needs. Retirees benefit from broad network access As of December 31, 2012, Cigna’s behavioral network had and value-added services that help keep them well and save them approximately 118,000 access points to independent psychiatrists, money. The HealthSpring acquisition expanded the size of Cigna’s psychologists and clinical social workers and approximately 9,800 Medicare Part D customer base. As of December 31, 2012, facilities and clinics that are reimbursed on a contracted fee-for-service HealthSpring represented 49% of Cigna’s Medicare Part D customer basis. base. Cigna Pharmacy Management Specialty Products Cigna Pharmacy Management. Cigna Pharmacy Management offers Medical Specialty prescription drug plans to its insured and self-funded customers both in conjunction with its medical products and on a stand-alone basis. Health Advocacy. Global Health Care offers a wide array of medical With a network of over 64,000 contracted pharmacies, Cigna management, disease management, and other health advocacy services Pharmacy Management is a comprehensive pharmacy benefits to employers and other plan sponsors to help individuals improve manager (PBM) offering clinical integration programs, specialty their health, well-being and sense of security. These services are pharmacy solutions, and fast, efficient home delivery of prescription offered to customers covered under Global Health Care’s administered medicines. plans or plans insured or administered by competing insurers or third- party administrators. Cigna offers seamless integration of services that Programs that facilitate this integration of medical, behavioral and address the clinical and administrative challenges inherent in pharmacy offerings include the Well Informed program, that is focused coordinating multiple vendors. Through its health advocacy on chronic conditions requiring strict compliance with a prescription programs, Global Health Care works to help healthy people stay drug therapy such as asthma, diabetes, back pain or high cholesterol, healthy; help people change behaviors that put their health at risk; and as well as Step Therapy, that encourages customers to use generic assist those with problems in accessing quality care. and/or preferred brand drugs rather than higher cost brand-named drugs. Step Therapy is implemented through claim management Health advocacy programs and services include: 1) early intervention protocols, that may include communications with customers and by Cigna’s network of clinical professionals; 2) Cigna’s online health their physicians. The Company coordinates pharmacy management assessment, powered by insights and analytics from the University of with all of Cigna’s health advocacy programs and tools by focusing on Michigan Health Management Research Center, that helps customers patient education, including emphasizing the importance of adhering identify potential health risks and learn what they can do to live a to medication instructions. 4 CIGNA CORPORATION - 2012 Form 10-K


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    PART I ITEM 1 Business Cigna Specialty Pharmacy Management. Cigna’s administered optometrist offices, as well as retail eye care centers. Routine vision medical and pharmacy coverage can meet the needs of customers with products are offered in conjunction with Global Health Care’s complex conditions that require specialty pharmaceuticals. These medical and dental product offerings. types of medications are covered under both pharmacy and medical benefits and can be expensive, often requiring associated lab work and administration by a health care professional. Therefore, coordination Funding Arrangements is critical in improving affordability and outcomes. Clients with The segment’s commercial medical products and services are offered Cigna-administered medical and pharmacy coverage benefit from through the following funding arrangements: continuity of care, integrated reporting, and aggressive unit cost discounts on all specialty drugs – regardless of where they are • Administrative Services Only (80% of commercial medical administered. customers); • Insured – Guaranteed Cost (14% of commercial medical Cigna Home Delivery Pharmacy. Cigna also offers cost-effective mail customers); and order, telephone and on-line pharmaceutical fulfillment services through its home delivery operation. Cigna Home Delivery Pharmacy • Insured – Shared ReturnsSM (6% of commercial medical customers). provides a high-quality, efficient home delivery pharmacy distinguished by individual care relating to compliance and specialty Administrative Services Only. Global Health Care contracts with medications. Orders may be submitted through the mail, via phone or employers, unions and other groups sponsoring self-insured plans on through the internet at myCigna.com. an administrative services only (‘‘ASO’’) basis to administer claims and perform other plan related services. The key features of an ASO funding arrangement are: Dental and Vision • Global Health Care collects administrative service fees in exchange Dental. Cigna Dental Health offers a variety of dental care products for providing these self-insured plans with access to Global Health including dental health maintenance organization plans (‘‘Dental Care’s applicable participating provider network and for providing HMO’’), dental preferred provider organization (‘‘Dental PPO’’) other services and programs including: claim administration; plans, dental exclusive provider organization plans, traditional dental quality management; utilization management; cost containment; indemnity plans and a dental discount program. Employers and other health advocacy; 24-hour help line; 24/7 call center; case groups can purchase Cigna Dental Health products as stand-alone management; disease management; pharmacy benefit management; products or integrated with Global Health Care’s medical products. behavioral health care management services (through its provider Additionally, individual customers can purchase Dental PPO plans in networks); or any combination of these services. conjunction with individual medical policies. As of December 31, 2012, Cigna Dental Health customers totaled approximately • The self-insured plan sponsor is responsible for self-funding all 11.4 million. Most of these customers are in self-insured plans. All of claims, but may purchase stop loss insurance from Global Health Cigna’s Dental HMO customers participate in guaranteed cost Care or other insurers for claims in excess of a predetermined insured plans. Managed dental care products are offered in 37 states amount, for either individuals (‘‘specific’’), the entire group for Dental HMO and 42 states and the District of Columbia for (‘‘aggregate’’), or both. Dental PPO through a network of independent health care • In some cases, Global Health Care provides performance guarantees professionals that have contracted with Cigna Dental Health to associated with meeting certain service standards, clinical outcomes, provide dental services. or financial metrics. If these service standards, clinical outcomes, or Cigna Dental Health customers access care from one of the largest financial metrics are not met, Global Health Care may be financially dental PPO networks and dental HMO networks in the U.S., with at risk up to a stated percentage of the contracted fee or a stated approximately 266,400 Dental PPO-contracted access points dollar amount. Global Health Care does not recognize revenues for (approximately 99,200 unique health care professionals) and estimated payouts associated with these guarantees. See Note 2 to approximately 68,600 Dental HMO-contracted access points the Consolidated Financial Statements for details regarding these (approximately 18,000 unique health care professionals). guarantees. Cigna Dental Health stresses preventive dentistry; it believes that Insured – Guaranteed Cost. Charges to policyholders under an promoting preventive care contributes to a healthier workforce, an insured, guaranteed cost policy are established at the beginning of the improved quality of life, increased productivity and fewer treatment policy period and are not adjusted to reflect actual claim experience claims and associated costs over time. Cigna Dental Health offers during the policy period. Accordingly, Global Health Care bears the customers a dental treatment cost estimator to educate customers on risk for claims and costs. Generally, guaranteed cost policyholder oral health and aid them in their dental health care decision-making. groups are smaller than retrospectively experience-rated groups; accordingly, claim and expense assumptions may be based in whole or Vision. Cigna Vision offers flexible, cost-effective PPO coverage that in part on prior experience of the policyholder or on a pool of includes a range of both in and out-of-network benefits for routine accounts, depending on the policyholder’s size and the statistical vision services. Cigna’s national vision care network, which consists of credibility of the experience. approximately 57,500 health care professionals in approximately 23,500 locations, includes private practice ophthalmologist and CIGNA CORPORATION - 2012 Form 10-K 5


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    PART I ITEM 1 Business Insured – Shared ReturnsSM (also referred to as experience-rated). U.S. Department of Health and Human Service (‘‘HHS’’) require the Under a Shared Returns funding arrangement, the premium MLR to be calculated on a state-by-state basis for each separate determined at the beginning of the policy period may be adjusted for insurance company or HMO, and then separately within each state the actual claim and, in some cases, administrative cost experience of for large groups, small groups and individuals. The MLR is the policyholder. Favorable cost experience in relation to the premium determined generally as the sum of claims plus health care quality rates may result in a portion of the initial premiums being credited to improvement expenses divided by premiums less taxes and the policyholder as an experience refund. However, if claims and assessments. HHS regulations permit adjustments to be made to the expenses exceed the initial premiums (an ‘‘experience deficit’’), Global claims used in the calculation for Cigna’s international health care and Health Care generally bears the risk. These experience deficits may be limited benefit plans subject to the MLR minimums. The adjustment recovered through future year surpluses, according to contractual for limited benefit plans is only permitted through 2014. To the provisions, provided the policy remains in force. extent the MLR minimums are not met for large groups, small groups or individual segments within each state, premium rebates are paid to Minimum premium funding arrangements combine insurance both employers and customers enrolled in the plans based on the protection with an element of self-funding. Key features of insurance portion of the premium each has contributed. Approximately 20% of policies using a minimum premium funding arrangement are Cigna’s commercial customers are enrolled in insured plans subject to summarized below: the MLR requirements. For additional information related to the • The policyholder is responsible for funding a bank account to pay effects of Health Care Reform on these businesses, see the Regulation all claims up to a predetermined aggregate, maximum monthly section of this Form 10-K. amount, and Global Health Care bears the risk for claim costs Medicare Advantage pricing is determined based upon expected incurred in excess of that amount. medical services utilization and costs resulting from CMS-required • The policyholder must maintain an agreed-upon amount in the services and Company-specific supplemental plan benefits, as well as account. expected administrative expenses and profit margin. Revenue for each plan customer is received from CMS, with CMS providing a subsidy • The policyholder pays a significantly reduced monthly ‘‘residual’’ payment based on customer demographic data and expected customer premium while the policy is in effect and a supplemental premium health risk factors compared to the broader Medicare population. (to cover reserves for run-out claims and administrative expenses) Additional revenue from CMS may be earned by the Company upon termination. related to quality performance measures. In many markets, the • Global Health Care may recover deficits from surplus amounts in customer pays no premium. In some situations, additional premiums future years if the policy is renewed. may be received from customers, representing the difference between CMS subsidy payments and the revenue assumed by the Company as Liabilities are established for estimated experience refunds based on part of its annual Medicare Advantage bid submissions. Profits from the results of Shared Returns (retrospectively experience-rated) our Medicare Advantage plans vary depending on the actual policies and applicable contract terms. Global Health Care credits utilization of medical services, the cost of services provided, the costs interest on experience refund balances to these policyholders using to administer the benefit programs, and the receipt of quality rates that are set at Global Health Care’s discretion, taking investment performance revenue from CMS. Beginning in 2014, Health Care performance and market rates into consideration. For 2012, the rates Reform requires Medicare Advantage and Medicare Part D plans to of interest credited ranged from 0.5% to 3.5%, with a weighted meet a minimum MLR of 85%. Under the rules proposed by HHS, if average rate of approximately 1%. the MLR for a CMS contract is less than 85%, the contractor is required to pay a penalty to CMS and could be subject to additional Pricing and Reinsurance sanctions if the MLR continues to be less than 85% for successive years. Pricing. Premium rates for insured funding arrangements are based on assumptions about the expected utilization levels of medical Pricing for self-funded arrangements is generally based on the services, costs of medical services and the Company’s administrative expected cost to administer these arrangements and will vary by the costs. The profitability of these arrangements will vary by the actual services provided and the size and complexity of the benefit programs, utilization level of medical services, the cost of the services provided among other factors. and the costs to administer the benefit programs and the premium Reinsurance. Cigna’s international health care business reduces its charged. In some states, premium rates must be approved by the state exposure to large catastrophic losses under insurance contracts by insurance department and state laws may restrict or limit the use of purchasing reinsurance from unaffiliated reinsurers. rating methods. Premium rates for groups and individuals are subject to state and/or the United States Department of Health and Human Services (‘‘HHS’’) review for unreasonable increases. Service and Quality The Patient Protection and Affordable Care Act (‘‘Health Care Customer Service Reform’’) requires Cigna’s comprehensive medical insurance products to meet a minimum medical loss ratio (‘‘MLR’’) of 85% for large For U.S.-based customers, Global Health Care operates 19 service groups (generally defined as employers with more than 50 employees) centers that together processed approximately 154 million medical and 80% for small groups and individuals. Regulations issued by the claims in 2012. Cigna recognizes that customers with significant 6 CIGNA CORPORATION - 2012 Form 10-K


  • Page 29

    PART I ITEM 1 Business health events may have additional customer service needs. As of coordinate end-to-end care for a defined population of patients and December 31, 2012, Cigna operated 13 call centers and a virtual team share timely, patient-specific medical information with the physician that customers can call toll-free about their health care benefits, group. Each CAC has an embedded care coordinator that supports wellness programs and claims. Ten of these call centers are available patient care and care plan development. The coordinator uses patient- 24 hours a day, 365 days a year. The remaining three, that service specific information supplied by Cigna to conduct proactive outreach HealthSpring providers and customers, operate for extended hours to coordinate care for patients in three categories: i) patients who are during high volume periods to accommodate customer demands. being discharged from the hospital who are at risk for readmission; Cigna offers the ‘‘My Personal Champion’’ program that provides ii) patients with high priority gaps in care; and iii) patients with high qualified customers with a dedicated point of contact. Personal health risk scores based on Cigna’s predictive models. This approach Champions serve as a resource for benefits and claims questions, assist leverages the role of the physician as the trusted advisor. With the with navigating the complex health care industry, and offer education innovative physician engagement models acquired with HealthSpring, and support to customers and their families. As of December 31, we utilize a variety of business arrangements that shift the physician’s 2012, approximately 5 million Cigna customers had access to the My reimbursement from the traditional fee-for-service approach to one Personal Champion program. that is focused on rewarding quality medical outcomes and an enhanced customer experience at a lower cost. In these arrangements, With over 1.2 million customers across the globe, Cigna’s the physician group shares financial risk with Cigna. The international health care business continues to be a leader in providing HealthSpring clinical model also includes outreach to new and at-risk quality customer service. Its globally mobile customers have access to customers to ensure they are accessing their primary care physician. medical professionals, case management experts and claims specialists 24 hours a day, 365 days a year, through service centers dedicated to Cigna also continues to engage in a variety of other medical quality their unique needs. Cigna uses a wide range of measurement tools to activities, including: credentialing medical health care professionals better understand customers’ needs – ranging from quick 5-minute and facilities that participate in Global Health Care’s Managed Care surveys of a customer’s call-center experience to more elaborate and PPO networks as well as developing the Cigna Care NetworkSM tracking of loyalty as measured by customers’ likelihood to refer Cigna specialist physician designation described below. to a friend. Participating Provider Network. Cigna has an extensive network of Technology. Global Health Care understands the important role that participating health care professionals and hospitals, as well as other information technology plays in improving the level of service that facilities, pharmacies and vendors of health care services and supplies. Cigna can provide to its customers, which is critical to the continued In most instances, Global Health Care contracts directly with the growth of the Company’s health care business and its focus on participating hospital, health care professional or other facility to customer-centricity. Accordingly, Global Health Care continues to provide covered services to customers at agreed-upon rates of invest in its information technology infrastructure and capabilities reimbursement. In some instances, however, Global Health Care including innovative mobile tools and Internet-enabled technology companies contract with third parties for access to their provider that support Global Health Care’s focus on providing customers with networks and care management services. In addition, Global Health a personalized experience in making health care decisions and Care has entered into strategic alliances with several regional managed leveraging customer insights to drive the Company’s strategy and care organizations (Tufts Health Plan, HealthPartners, Inc., Health mission. Alliance Plan, and MVP Health Plan) to gain access to their provider networks and discounts. Quality Medical Care Cigna Medical Group. Cigna Medical Group is the multi-specialty medical group practice division of Cigna HealthCare of Arizona, Inc. Global Health Care’s commitment to promoting quality medical care that delivers primary care and certain specialty care services through to its customers is reflected in a variety of activities. Most recently, 25 medical facilities and approximately 190 employed clinicians in the Cigna has focused on collaborating with physicians and other health Phoenix, Arizona metropolitan area. Twenty-two of these multi- care professionals and facilities with the goal of improving quality and specialty health care centers and their affiliated primary care customer satisfaction while lowering medical costs. This focus has physicians have received the top level of accreditation (level 3) from manifested itself through the rapid expansion of collaborative the National Committee for Quality Assurance (NCQA) a private, accountable care organizations developed by Cigna as well as the nonprofit organization dedicated to improving health care quality. innovative physician engagement models acquired with HealthSpring Cigna Medical Group currently holds the highest level of this in 2012. As of December 31, 2012, almost one million medical accreditation for the greatest number of practices and physicians in customers are serviced by physicians compensated under these types the state of Arizona. of arrangements. Cigna Care NetworkSM. Cigna Care Network is a benefit design option Collaborative Accountable Care Organizations (CAC). As of available for Global Health Care administered plans in 69 service areas December 31, 2012, Cigna has established over 50 CACs, and expects across the U.S. Cigna Care Network’s designated physicians are a to continue to expand these arrangements. The overall objective of subset of participating physicians in certain specialties who are so these organizations is to improve the quality of care and service designated based on specific clinical quality and cost-efficiency experience for customers while lowering their costs, resulting in selection criteria. Customers pay reduced co-payments or improved overall value. The goal is to identify health care delivery co-insurance when they receive care from a specialist designated as a organizations (medical groups and hospital organizations) that can CIGNA CORPORATION - 2012 Form 10-K 7


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    PART I ITEM 1 Business Cigna Care Network provider. Participating specialists are evaluated • International Health Care – focused on health care products and regularly for the Cigna Care Network designation. services to meet the needs of local and multinational companies and organizations and their local and globally mobile employees and Provider Credentialing. Global Health Care credentials physicians, dependents. hospitals and other health care professionals in its participating provider networks using quality criteria that meet or exceed the Global Health Care employs sales representatives to distribute its standards of external accreditation or state regulatory agencies, or products and services through insurance brokers and insurance both. Typically, most health care professionals are re-credentialed consultants or directly to employers, unions and other groups. Global every three years. Health Care also employs representatives to sell utilization review services, managed behavioral health care, pharmacy, and employee External Validation. Cigna continues to demonstrate its assistance services directly to insurance companies, HMOs, third commitment to quality and has a broad scope of quality programs party administrators and employer groups. As of December 31, 2012, validated through nationally recognized external accreditation the field sales force for the products and services of this segment organizations. Cigna was awarded Excellent, Commendable or consisted of approximately 1,160 sales representatives in Accredited for Health Plan accreditation from NCQA in 36 of our approximately 115 field locations. With respect to the acquired markets. Additional NCQA recognitions include Full Accreditation HealthSpring business, Medicare Advantage enrollment is generally a for Managed Behavioral Healthcare Organization accreditation for decision made individually by the customer, and accordingly, sales Cigna Behavioral Health, Performance Reporting for Wellness & agents and representatives focus their efforts on in-person contacts Health Promotion accreditation for Cigna’s wellness programs and with potential enrollees as well as telephonic and group selling venues. Physician & Hospital Quality Certification for Cigna’s provider transparency program. Cigna has Full Accreditation for Health Utilization Management, Case Management and Pharmacy Benefit Competition and Industry Developments Management from URAC, an independent, nonprofit health care Global Health Care’s business is subject to intense competition and accrediting organization dedicated to promoting health care quality continuing industry consolidation that has created an even more through accreditation, certification and commendation. competitive business environment. In certain geographic locations, some health care companies may have significant market share HEDIS Measures. In addition, Global Health Care participates in positions, but no one competitor dominates the health care market the NCQA’s Health Plan Employer Data and Information Set nationally. Global Health Care expects a continuing trend of (‘‘HEDIS’’) Quality Compass Report, whose Effectiveness of Care consolidation in the industry given the current economic and political measures are a standard set of metrics to evaluate the effectiveness of environment. Global Health Care also expects continued vertical managed care clinical programs. Global Health Care’s national results integration, with the line blurring between clinicians and hospitals, compare favorably to industry averages. and traditional insurers. Competition in the health care market exists both for employers and Markets and Distribution other groups sponsoring plans and for the employees in those Global Health Care offers products in the following customer instances where the employer offers its employees a choice of products markets: from more than one health care company. Most group policies are subject to annual review by the policyholder, who may seek • National segment – these employers have 5,000 or more U.S.-based, competitive quotations prior to renewal. As Health Care Reform is full-time employees living in two or more states. implemented, Cigna expects competition to increase in the individual • Middle Market segment – comprised of employers with 250 to market as individual customers seek to purchase insurance for 4,999 U.S.-based, full-time employees located in one or more states themselves or their families. with a majority of their full-time employees living and working in The primary competitive factors are quality and cost-effectiveness of the same state. This segment also includes single site employers with service and provider networks; effectiveness of medical care more than 250 employees, Taft-Hartley plans and other third party management; products that meet the needs of clients and their payers. employees; price; total cost management; technology; and • Select segment – focused on employers with 51-249 eligible effectiveness of marketing and sales. Financial strength of the insurer, employees and provides ASO and guaranteed cost funding as indicated by ratings issued by nationally recognized rating agencies, solutions. Select also provides ASO funding to employers with a is also a competitive factor. Cigna believes that its health advocacy minimum of 25 employees. capabilities, holistic approach to consumer engagement, breadth of product offerings, clinical care and medical management capabilities • Individual – Global Health Care actively markets health and dental and funding options are competitive advantages. These advantages insurance to individuals in ten states as of December 31, 2012, allow Cigna to respond to the diverse needs of its customer base. including Arizona, California, Colorado, Connecticut, Florida, Cigna also believes that its focus on helping to improve the health, Georgia, North Carolina, South Carolina, Tennessee and Texas. well-being and sense of security of its customers will allow it to • Seniors (Medicare) – focused on the health care needs of individuals differentiate itself from its competitors. who are pre- or post-65 retirees and employers who offer coverage to their pre- and post-65 retirees. 8 CIGNA CORPORATION - 2012 Form 10-K


  • Page 31

    PART I ITEM 1 Business Cigna’s principal competitors in its U.S.-based business are: health. This is accomplished primarily through financial incentives, • other large insurance companies that provide group health and life access to enhanced medical quality data and other information insurance products; sharing. The effective use of the Company’s health advocacy, customer insight and physician engagement capabilities, along with decision • Blue Cross and Blue Shield organizations; support tools (some of which are web-based) and enabling technology • stand-alone HMOs and PPOs; are critical to success in the health care industry, and Cigna believes its capabilities in these areas will be competitive differentiators. • HMOs affiliated with major insurance companies and hospitals; and On February 15, 2013, CMS issued its Advance Notice of Methodological Changes for Calendar Year (CY) 2014 for Medicare • national managed pharmacy, behavioral health and utilization Advantage (MA) Capitation Rates, Part C and Part D Payment review services companies. Policies (the ‘‘Notice’’). CMS is accepting comments on the Notice, The primary competitors of the international health care business and final terms are expected to be published on April 1, 2013. While include U.S.-based and European health insurance companies with management believes that a significant number of comments from global health benefits operations. For the Company’s international interested parties (including Cigna) will be provided to CMS, there health care operations in the United Kingdom and Spain, the primary can be no assurance that CMS will amend its current position. Given competitors are regional and local insurers. the uncertainty regarding the final terms of the Notice, the Company Competition also arises from smaller regional or specialty companies cannot estimate the impact that it will have on its business, revenues with strength in a particular geographic area or product line, or results of operations but recognizes that any impacts could be administrative service firms and, indirectly, self-insurers. In addition materially adverse. Accordingly, the Company is currently evaluating to these traditional competitors, a new group of competitors is the potential implications of the Notice, including adjustments that emerging. These new competitors are focused on delivering employee the Company may make to the programs and services it offers to offset benefits and services through Internet-enabled technology that allows any adverse impacts. consumers to take a more active role in the management of their C. Group Disability and Life Cigna’s Group Disability and Life segment provides the following return to work rate. Examples of the benefits of this integrated insurance products and their related services: group long-term and approach (for which Cigna may receive fees) include: short-term disability insurance, group life insurance and accident and • using information from the health care and disability databases to specialty insurance. These products and services are provided by help identify, treat and manage disabilities before they become subsidiaries of Cigna Corporation. Cigna markets products in all 50 chronic, longer in duration and more costly; and states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands and Canada. • proactive outreach from Cigna Behavioral Health to assist employees suffering from a mental health condition, either as a primary condition or as a result of another condition. Principal Products and Services As measured by 2012 premiums and fees, disability constituted Disability approximately 45% of this segment’s business. Approximately 12,300 Long-term and short-term disability insurance products and services insured disability policies covering approximately 6.5 million lives generally provide a fixed level of income to replace a portion of wages were outstanding as of December 31, 2012. lost because of disability. Cigna also provides assistance to employees in returning to work and assistance to their employers in managing Life Insurance the cost of employee disability. Group disability coverage is typically employer-paid or a combination of employer and employee-paid, but Life insurance products offered by Group Disability and Life include may also include coverage paid for entirely by employees. group term life and group universal life. Group term life insurance may be employer-paid basic life insurance, employee-paid Cigna is an industry leader in returning employees to work quickly, supplemental life insurance or a combination thereof. resulting in higher productivity and lower cost for employers and a better quality of life for their employees. Cigna’s disability insurance Group universal life insurance is a voluntary life insurance product in products may be integrated with other disability benefit programs, which the owner may accumulate cash value. The cash value earns behavioral programs, medical programs, social security advocacy, and interest at rates declared from time to time, subject to a minimum leave of absence administration. Cigna believes this integration guaranteed contracted rate, and may be borrowed, withdrawn, or, provides customers with increased efficiency and effectiveness in within certain limits, used to fund future life insurance coverage. disability claims management, enhances productivity and reduces As measured by 2012 premiums and fees, group life insurance overall costs to employers. Coordinating the administration of the constituted approximately 46% of this segment’s business. segment’s disability programs with medical programs offered by Cigna Approximately 6,200 group life insurance policies covering HealthCare provides enhanced opportunities to influence outcomes, approximately 5.6 million lives were outstanding as of December 31, reduce the cost of both medical and disability events and improve the 2012. CIGNA CORPORATION - 2012 Form 10-K 9


  • Page 32

    PART I ITEM 1 Business Other Products and Services interest and mortality experience. Mortality charges are subject to guaranteed maximum rates stated in the policy. Cigna offers personal accident insurance coverage, which consists primarily of accidental death and dismemberment and travel accident The profitability of this segment’s products depends on the adequacy insurance to employers. Group accident insurance may be of premiums charged and investment returns relative to claims and employer-paid or employee-paid. expenses. The effectiveness of return to work programs and mortality levels also impact the profitability of disability insurance products. Cigna also offers specialty insurance services that consist primarily of Cigna’s previous claim experience and industry data indicate a disability and life, accident, and hospital indemnity products to correlation between disability claim incidence levels and economic professional or trade associations and financial institutions. conditions, with submitted claims rising under adverse economic Voluntary benefits are those paid by the employee and are offered at conditions, although the impact of the current adverse economic the employer’s worksite. Cigna plans provide employers, among other conditions is not clear. For life insurance products, the degree to services, flexible enrollment options, list billing, medical which future experience deviates from mortality, morbidity and underwriting, and individual record keeping. Cigna designed its expense assumptions also affects profitability. voluntary offerings to offer employers a complete and simple way to In order to reduce its exposure to large individual and catastrophic manage their benefits, including personalized enrollment losses under group life, disability and accidental death policies, Cigna communication and administration of the benefits program. purchases reinsurance from unaffiliated reinsurers. Financial information, including premiums and fees, is presented in the Group Disability and Life section of the MD&A beginning on Markets and Distribution page 44 and in Note 23 to Cigna’s Consolidated Financial Statements. Cigna markets the group insurance products and services described above to employers, employees, professional and other associations Pricing and Reinsurance and groups in the following customer segments: This segment’s products and services are offered on a fully insured, • National segment – these are multi-site employers generally with experience-rated and ASO basis. Under fully insured arrangements, more than 5,000 employees; policyholders pay a fixed premium and Cigna bears the risk for claims and costs. Under experience-rated funding arrangements, a premium • Middle Market segment – generally defined as multi-site employers that typically includes a margin to partially protect against adverse with more than 250 but fewer than 5,000 employees, and single-site claim fluctuations is determined at the beginning of the policy period. employers with more than 250 employees; and Cigna generally bears the risk if claims and expenses exceed this • Select segment – generally includes employers with more than 50 premium. If premiums exceed claims and expenses, any surplus but fewer than 250 employees. amount is generally first used to offset prior deficits and is otherwise generally returned to the policyholder if surplus exceeds minimum In marketing these products, Cigna primarily sells through insurance contractual levels. With experience-rated insurance products, Cigna brokers and consultants and employs a direct sales force. As of may recover deficits from margins in future years if the policy is December 31, 2012, the field sales force for the products and services renewed. Under ASO arrangements, Cigna contracts with groups of this segment consisted of approximately 200 sales professionals in sponsoring self-insured plans to administer claims and perform other 27 office locations. plan related services in return for service fees. The self-insured plan sponsor is responsible for self funding all claims. The majority of this Competition segment’s products and services are fully insured. The principal competitive factors that affect the Group Disability and Premiums and fees charged for disability and life insurance products Life segment are underwriting and pricing, the quality and are generally established in advance of the policy period and are effectiveness of claims management, relative operating efficiency, generally guaranteed for one to three years and selectively guaranteed investment and risk management, distribution methodologies and for up to five years, but policies are generally subject to early producer relations, the breadth and variety of products and services termination by the policyholder or by the insurance company. offered, and the quality of customer service. For certain products with Premium rates reflect assumptions about future claims, expenses, longer-term liabilities, such as group long-term disability insurance, credit risk, investment returns and profit margins. Assumptions may the financial strength of the insurer, as indicated by ratings issued by be based in whole or in part on prior experience of the account or on a nationally recognized rating agencies, is also a competitive factor. pool of accounts, depending on the group size and the statistical credibility of the experience, that varies by product. The principal competitors of Cigna’s group disability, life and accident businesses are other large and regional insurance companies that Premiums for group universal life insurance products consist of market and distribute these or similar types of products. As of mortality, administrative and surrender charges assessed against the December 31, 2012, Cigna is one of the top five providers of group policyholder’s fund balance. Interest credited and mortality charges disability, life and accident insurance in the United States, based on for group universal life, and mortality charges on group variable premiums. universal life, may be adjusted prospectively to reflect expected 10 CIGNA CORPORATION - 2012 Form 10-K


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    PART I ITEM 1 Business Industry Developments and Strategic grows, Cigna believes it is well positioned to deliver integrated solutions that address these broad employer and employee needs Initiatives through its programs that promote a healthy lifestyle, offer assistance The group insurance market remains highly competitive as the rising in returning to work and integrate health care and disability programs. cost of providing medical coverage to employees has forced companies Cigna also believes that its strong disability management portfolio and to re-evaluate their overall employee benefit spending. Demographic fully integrated programs provide employers and employees tools to shifts have further driven demand for products and services that are improve health status. This focus on managing the employee’s total sufficiently flexible to meet the evolving needs of employers and absence enables Cigna to increase the number and likelihood of employees who want innovative, cost-effective solutions to their interventions and minimize disabling events. insurance needs. Employers continue to shift towards greater There is heightened review by state regulators of group disability employee participatory coverage and voluntary purchases. insurance industry business and reporting practices. Cigna is Employers are also expressing a growing interest in employee wellness, frequently the subject of regulatory market conduct and other reviews, absence management and productivity and recognizing a strong link audits and investigations by state insurance departments. between health, productivity and their profitability. As this interest D. Global Supplemental Benefits As explained in Item 1A ‘‘Description of Business’’, in the fourth interest in a Chinese joint venture and a 51% interest in a joint quarter of 2012, Cigna changed its external reporting segments. The venture in Turkey, through which its products and services are offered. Global Supplemental Benefits segment is comprised of the Cigna continues to work with its partner in India to establish a health international supplemental health, life and accident businesses insurance company that will operate as a joint venture upon licensing. (previously reported in the former International segment) as well as Licensing is expected to occur in 2013. the Medicare supplement business acquired in 2012. This segment offers supplemental health, life and accident insurance Medicare Supplement Plans products in the U.S. and selected international markets. With local licenses and partnerships in approximately 20 countries and Through its 2012 acquisition, Cigna also offers individual Medicare jurisdictions, Cigna is able to offer products and services to local Supplement plans that provide retirees with federally standardized citizens and globally mobile individuals. These products and services Medigap-style plans. Retirees may select amongst the various plans are provided by subsidiaries of Cigna Corporation, including foreign with specific plan options to meet their unique needs and may visit operating entities. any health care professional or facility that accepts Medicare throughout the U.S. – with no referrals required. Cigna continues to distinguish itself in the global supplemental health, life and accident businesses through its differentiated direct to Financial information, including premiums and fees, is presented in consumer distribution, customer insights and marketing capabilities. the Global Supplemental Benefits section of the MD&A beginning Cigna enters new markets when the opportunity to bring its product on page 46 and in Note 23 to Cigna’s Consolidated Financial and health solutions is attractive. In 2012, Cigna extended its reach in Statements. Turkey through the joint venture with Finansbank and expanded into the U.S. Medigap and supplemental lines of business through Pricing and Reinsurance acquisition. The 2011 acquisition of FirstAssist in the U.K. added a travel insurance product line and expanded the Company’s Premium rates for Cigna’s global supplemental benefits products are distribution channels. based on assumptions about mortality, morbidity, customer acquisition and retention, expenses and target profit margins, as well as interest rates. The profitability of these products is primarily driven Principal Products and Services by the adequacy of mortality and morbidity assumptions used, and customer retention. Supplemental Health, Life and Accident Insurance Fees for variable universal life insurance products consist of mortality, These insurance products generally provide simple, affordable administrative, asset management and surrender charges assessed coverage of risks for the health and financial security of individuals. against the contractholder’s fund balance. Mortality charges on Supplemental health products provide specified payments for a variety variable universal life may be adjusted prospectively to reflect expected of health risks and include personal accident, accidental death, critical mortality experience. The profitability of these products is primarily illness, hospitalization, travel, dental, cancer and other dread disease driven by the policyholders’ fund balances on which fees are charged coverages. Term life and individual private medical insurance as well as well as customer retention. as variable universal life insurance and other savings products are also included in the product portfolio. Cigna’s supplemental health, life Premium rates and fees for Medicare supplement products reflect and accident insurance products are offered in South Korea, Taiwan, assumptions about future claims, customer retention, expenses, Indonesia, Hong Kong, the United States, the European Union, customer demographics, investment returns, and profit margins. China, New Zealand, Thailand and Turkey. Cigna owns a 50% CIGNA CORPORATION - 2012 Form 10-K 11


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    PART I ITEM 1 Business Most contracts permit premium rate changes at least annually. The distribution channels may also impact Cigna’s business or results. See profitability of Medicare supplement products is dependent upon the the Regulation section beginning on page 14 and the Risk Factors accuracy of projections for health care inflation (unit cost and section beginning on page 19 of this Form 10-K. utilization), customer retention, customer demographics, and the adequacy of fees charged for administration. Competition The operations of Cigna’s Global Supplemental Benefits segment are diversified by line of business. South Korea, however, represents the Competitive factors in Cigna’s supplemental health, life and accident single largest geographic market for this segment. In 2012, South and health care businesses include product and distribution Korea generated 54% of this segment’s revenues and 90% of its innovation and differentiation, efficient management of marketing segment earnings. For information on the concentration of risk with processes and costs, commission levels paid to distribution partners, respect to the Global Supplemental Benefits segment’s business in and quality of claims and customer services. In most overseas markets, South Korea, see ‘‘Other Items Affecting Results of Global perception of financial strength is also an important competitive Supplemental Benefits’’ in the Global Supplemental Benefits section factor. of the MD&A beginning on page 46 of this Form 10-K. For Cigna’s supplemental health, life and accident insurance A global approach to underwriting risk management allows for each businesses operating in foreign markets, competitors are primarily local business to underwrite and accept risk within specified limits. locally based insurance companies, including insurance subsidiaries of Retentions are centrally managed through cost effective use of external banks primarily in Asia and Europe as well as multi-national reinsurance to limit segment liability on a per life, per risk, and per companies. Insurance company competitors in this segment primarily event (catastrophe) basis. focus on traditional product distribution through captive agents, with direct marketing being secondary channels. Cigna estimates that it has less than 2% market share of the total life insurance premiums in any Markets and Distribution given market in which it operates. Cigna’s supplemental health, life and accident insurance products sold in foreign countries are generally marketed through distribution The principal competitive factors that affect Cigna’s Medicare partners with whom the individual insured has an affinity supplement business are underwriting and pricing, relative operating relationship. These products are sold primarily through direct efficiency, broker relations, and the quality of claims and customer marketing channels, such as outbound telemarketing and in-branch service. bancassurance (where Cigna partners with a bank and uses the bank’s The primary competitors of the Medicare supplement business sales channels to sell its insurance products). Marketing campaigns are include U.S.-based health insurance companies. conducted through these channels under a variety of arrangements with affinity partners. These affinity partners primarily include banks, Cigna expects that the competitive environment will intensify as U.S. credit card companies and other financial and non-financial and Europe-based insurance and financial services providers pursue institutions. Cigna also markets directly to consumers via direct global expansion opportunities. response television and the Internet. Cigna’s Medicare supplement product line acquired in 2012 is Industry Developments primarily distributed through independent agents and telemarketing Pressure on social health care systems and increased wealth and directly to the consumer. education in emerging markets are leading to higher demand for For Cigna’s supplemental health, life and accident insurance products products providing health insurance and financial security. In the sold in foreign markets, a significant portion of premiums are billed supplemental health, life and accident business, direct marketing and collected through credit cards. A substantial contraction in channels are growing and attracting new competitors while industry consumer credit could impact Cigna’s ability to retain existing policies consolidation among financial institutions and other affinity partners and sell new policies. A decline in customer retention would result in continues. See ‘‘Risk Factors’’ beginning on page 19 of this Form 10-K both a reduction of revenue and an acceleration of the amortization of for a discussion of risks related to the Global Supplemental Benefits acquisition related costs. Changes in regulation around permitted segment. E. Run-off Reinsurance Until 2000, Cigna offered reinsurance coverage for part or all of the reinsurance businesses) into run-off as of June 1, 2000, and stopped risks written by other insurance companies (or ‘‘ceding companies’’) underwriting new reinsurance business. under life and annuity policies (both group and individual) and As of December 31, 2012, Cigna’s remaining exposures resulted accident policies (workers’ compensation, personal accident, and primarily from its annuity reinsurance business, including its catastrophe coverages). The products and services related to these reinsurance of GMDB and GMIB contracts. Effective February 4, operations were offered by subsidiaries of Cigna Corporation. 2013, the Company reinsured 100% of the Company’s future In 2000, Cigna sold its U.S. individual life, group life and accidental exposures for the Run-off GMDB and GMIB businesses, net of death reinsurance businesses. Cigna placed its remaining reinsurance retrocessional arrangements in place prior to February 4, 2013 up to a businesses (including its accident, international life, and annuity specified limit. For additional information regarding this reinsurance transaction, see Note 25 to the Consolidated Financial Statements. 12 CIGNA CORPORATION - 2012 Form 10-K


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    PART I ITEM 1 Business F. Other Operations Cigna’s Other Operations segment includes the following businesses: mortality charges on variable universal life may be adjusted • corporate owned life insurance; prospectively to reflect expected interest and mortality experience. In order to reduce its exposure to large individual and catastrophe losses, • deferred gains recognized from the 1998 sale of the individual life Cigna purchases reinsurance from unaffiliated reinsurers. insurance and annuity business and the 2004 sale of the retirement benefits business; and • run-off settlement annuity business. Individual Life Insurance & Annuity and The products and services related to these operations are offered by Retirement Benefits Businesses subsidiaries of Cigna Corporation. For more information regarding the sale of these businesses and the arrangements which secure Cigna’s reinsurance recoverables, see Note 8 of the Consolidated Financial Statements. Corporate-owned Life Insurance (‘‘COLI’’) The principal products of the COLI business are permanent insurance contracts sold to corporations to provide coverage on the lives of Settlement Annuity Business certain employees for the purpose of funding employer-paid future Cigna’s settlement annuity business is a closed run-off block of single benefit obligations. Permanent life insurance provides coverage that, premium annuity contracts. These contracts are primarily liability when adequately funded, does not expire after a term of years. The settlements with approximately 28% of the liabilities associated with contracts are primarily non-participating universal life policies. Fees payments that are guaranteed and not contingent on survivorship. In for universal life insurance products consist primarily of mortality and the case of the contracts that involve non-guaranteed payments, such administrative charges assessed against the policyholder’s fund payments are contingent on the survival of one or more parties balance. Interest credited and mortality charges for universal life and involved in the settlement. G. Investments and Investment Income General Accounts cash flows to those of corresponding liabilities. Investment strategy and results are affected by the amount and timing of cash available for Cigna’s investment operations provide investment management and investment, competition for investments, economic conditions, related services for Cigna’s corporate invested assets and the insurance- interest rates and asset allocation decisions. Cigna routinely monitors related invested assets in its General Account (‘‘General Account Invested and evaluates the status of its investments, obtaining and analyzing Assets’’). Cigna acquires or originates, directly or through intermediaries, relevant investment-specific information as well as assessing current a broad range of investments including private placements and public economic conditions, trends in capital markets and other factors. securities, commercial mortgage loans, real estate, mezzanine, private Such factors include industry sector considerations for fixed maturity equity partnerships and short-term investments. Invested assets also investments and mezzanine and private equity partnership include policy loans, that are fully collateralized by insurance policy cash investments, and geographic and property-type considerations for values. Invested Assets are managed primarily by Cigna subsidiaries and, commercial mortgage loan and real estate investments. to a lesser extent, external managers with whom Cigna’s subsidiaries contract. Net investment income and realized investment gains (losses) are included as a component of earnings for each of Cigna’s operating Separate Accounts segments (Global Health Care, Group Disability and Life, Global Cigna subsidiaries or external managers manage Separate Account Supplemental Benefits, Run-off Reinsurance, and Other Operations) and assets on behalf of contractholders. These assets are legally segregated Corporate. For additional information about invested assets, see the from the Company’s other businesses and are not included in the ‘‘Investment Assets’’ section of the MD&A beginning on page 56 and General Account Invested Assets. Income, gains and losses generally Notes 11, 12, 13, 14 and 15 to Cigna’s Consolidated Financial accrue directly to the contractholders. Statements. As of December 31, 2012, Cigna’s Separate Account assets consisted Cigna’s investment strategy is to maximize risk-adjusted yields for the of: portfolios. Cigna manages the investment portfolios to reflect the • $3.4 billion in separate account assets that constitute a portion of underlying characteristics of related insurance and contractholder the assets of the Cigna Pension Plan; liabilities and capital requirements, as well as regulatory and tax considerations pertaining to those liabilities and state investment laws. • $3.4 billion in separate account assets that support Variable Insurance and contractholder liabilities range from short duration Universal Life products sold as a part of the Company’s corporate- health care products to longer term obligations associated with owned life insurance business, as well as through the Company’s disability and life products, and the run-off settlement annuity Global Supplemental Benefits segment; and business. Assets supporting these liabilities are managed in segregated • $1.0 billion in separate account assets that support primarily health investment portfolios to facilitate matching of asset durations and care and other disability and life products. CIGNA CORPORATION - 2012 Form 10-K 13


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    PART I ITEM 1 Business H. Regulation Cigna and its subsidiaries are subject to comprehensive state, federal reimbursement accounts and flexible spending accounts are also and international regulations. The laws and regulations governing regulated by the U.S. Department of the Treasury and the Internal Cigna’s business continue to increase each year and are subject to Revenue Service. frequent change. Cigna has established policies and procedures to Cigna’s operations, accounts and other books and records are subject comply with applicable requirements. to examination at regular intervals by regulatory agencies, including Cigna’s insurance and HMO subsidiaries must be licensed by the state insurance and health and welfare departments, state boards of jurisdictions in which they conduct business. These subsidiaries are pharmacy and the Centers for Medicare and Medicaid Services to subject to numerous state and federal regulations related to their assess compliance with applicable laws and regulations. In addition, business operations, including, but not limited to: Cigna’s current and past business practices are subject to review by, • the form and content of customer contracts including benefit and from time to time the Company receives subpoenas and other mandates (including special requirements for small groups, requests of information from, various state insurance and health care generally under 50 employees); regulatory authorities, attorneys general, the Office of Inspector General, and other state and federal authorities, including inquiries • premium rates; by, and testimony before committees and subcommittees of the U.S. • medical loss ratios; Congress regarding certain of its business practices. These • the content of agreements with participating providers of covered examinations, reviews, subpoenas and requests may result in changes services; to or clarifications of Cigna’s business practices, as well as fines, penalties or other sanctions. • producer appointment and compensation; • claims processing and appeals; Regulatory and Legislative Developments • underwriting practices; The federal and state governments in the U.S. as well as governments • reinsurance arrangements; in other countries where Cigna does business continue to enact and • unfair trade and claim practices; seriously consider many broad-based legislative and regulatory • protecting the privacy and confidentiality of the information proposals that could materially impact various aspects of Cigna’s received from customers; business. • risk sharing arrangements with providers; • reimbursement or payment levels for Medicare services; Health Care Reform • advertising; and In the first quarter of 2010, Health Care Reform was signed into law. Health Care Reform mandates broad changes in the delivery of health • the operation of consumer-directed plans (including health savings care benefits that may impact the Company’s current business model, accounts, health reimbursement accounts, flexible spending including its relationship with current and future customers, accounts and debit cards). producers and health care providers, products, services, processes and Cigna and its international subsidiaries comply with regulations in technology. Health Care Reform includes, among other requirements, international jurisdictions where foreign insurers may be faced with provisions for guaranteed coverage and renewal requirements, more onerous regulations than their domestic competitors. The prohibitions on some annual and all lifetime limits on the dollar broader regulatory environment may include anti-corruption laws, amount of benefits for essential health services, increased restrictions economic sanctions laws, various privacy, consumer protection, on rescinding coverage, minimum medical loss ratio and customer insurance, tax, tariff and trade laws and regulations, corporate rebate requirements, a requirement to cover preventive services on a governance, employment, intellectual property and investment laws first dollar basis, and greater controls on premium rate increases for and regulation, discriminatory licensing procedures, compulsory individual and small employer health insurance. It also reduces the cessions of reinsurance, required localization of records and funds, Medicare Part D coverage gap and reduces payments to private plans higher premium and income taxes, and requirements for local offering Medicare Advantage, as well as provides for state insurance participation in an insurer’s ownership. In addition, the expansion of exchanges through which qualified insurers and HMOs will be able to Cigna’s operations into foreign countries increases the Company’s offer insured plans to individuals and small employers. Certain of the exposure to certain U.S. laws, such as the Foreign Corrupt Practices law’s provisions became effective between 2010 and 2012 and other Act of 1977 (FCPA). See page 16 for further discussion of provisions will take effect from 2013 to 2018. Health Care Reform international regulations. left many of the details of the new law to be established through The business of administering and insuring employee benefit regulations. While federal agencies have published interim final programs, particularly health care programs, is heavily regulated by regulations with respect to certain requirements, many issues remain state and federal laws and administrative agencies, such as state uncertain. departments of insurance and the federal departments of Labor, The provisions of the new law that became effective between 2010 Health and Human Services, Treasury and Justice and the Internal and 2012 included those requiring coverage of preventive services Revenue Service, as well as the courts. Health savings accounts, health with no enrollee cost-sharing, banning the use of lifetime and annual 14 CIGNA CORPORATION - 2012 Form 10-K


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    PART I ITEM 1 Business limits on the dollar amount of essential health benefits, increasing Management continues to closely monitor the implementation of restrictions on rescinding coverage and extending coverage of Health Care Reform and is actively engaged with regulators and dependents to the age of 26. Minimum medical loss ratio policymakers on the conversion of legislation to regulation. In requirements as prescribed by the Department of Health and Human addition, management is implementing the necessary capabilities to Services (‘‘HHS’’) became effective in January 2011 and required ensure that the Company is compliant with the law and assessing payment of premium rebates beginning in 2012 to employers and potential opportunities arising from Health Care Reform. customers covered under the Company’s comprehensive medical insurance if certain annual minimum medical loss ratios (‘‘MLR’’) are not met. HHS regulations permit adjustments to be made to the Dodd-Frank Act claims used in the calculation for Cigna’s international health care and In 2010, Congress enacted the Dodd-Frank Wall Street Reform and limited benefit plans subject to the MLR minimums. The adjustment Consumer Protection Act (the ‘‘Dodd-Frank Act’’) that provides for a for limited benefit plans is only permitted through 2014. number of reforms and regulations in the corporate governance, financial reporting and disclosure, investments, tax and enforcement Certain other provisions of Health Care Reform will not become areas that affect Cigna. The SEC and other regulatory authorities effective until 2013 or later, including: (1) the annual health insurer engaged in rulemaking efforts under the Dodd-Frank Act throughout fee on health insurers and HMOs to help fund the expanded coverage 2011 and 2012, and additional rulemaking still continues. The provided under this legislation; (2) reinsurance assessments on Dodd-Frank Act established a Federal Insurance Office that will insurers and HMOs to help stabilize rates in the individual and small develop and coordinate federal policy on insurance matters. Cigna is group markets beginning in 2014; (3) the guaranteed issue and closely monitoring how these regulations impact the Company, renewal requirements and the requirement that individuals maintain however the full impact of the legislation may not be known for coverage, and (4) an excise tax on high-cost employer-sponsored several years until regulations become fully effective. coverage. These fees and excise taxes will generally not be tax deductible with the exception of the reinsurance assessment on insurers and HMOs. Health Care Reform also changed certain tax Regulation of Insurance Companies laws that will effectively limit the amount of certain employee compensation that is tax deductible by health insurers. Financial Reporting and Internal Control Regulators closely monitor the financial condition of licensed Health Care Reform also impacts Cigna’s Medicare Advantage and insurance companies and HMOs. States regulate the form and Medicare Part D prescription drug plan businesses acquired with content of statutory financial statements, the type and concentration HealthSpring in a variety of additional ways, including reduced of permitted investments, and corporate governance over financial Medicare premium rates (which began with the 2011 contract year), reporting. Cigna’s insurance and HMO subsidiaries are required to mandated minimum reductions to risk scores (beginning in 2014), file periodic financial reports and schedules with regulators in most of transition of Medicare Advantage ‘‘benchmark’’ rates to Medicare the jurisdictions in which they do business as well as annual financial fee-for-service parity, reduced enrollment periods and limitations on statements audited by independent registered public accountants. disenrollment, providing ‘‘quality bonuses’’ for Medicare Advantage Certain insurance and HMO subsidiaries are required to file an plans with a rating for four or five stars from CMS and mandated annual report of internal control over financial reporting with most consumer discounts on brand name and generic prescription drugs for jurisdictions in which they do business. Insurance and HMO Medicare Part D plan participants in the coverage gap. Beginning in subsidiaries’ operations and accounts are subject to examination by 2014, Health Care Reform requires Medicare Advantage and such agencies. Cigna expects states to expand the scope of regulations Medicare Part D plans to meet a minimum MLR of 85%. Under the relating to corporate governance and internal control activities of its rules proposed by HHS, if the MLR for a CMS contract is less than insurance and HMO subsidiaries as a result of the National 85%, the contractor is required to pay a penalty to CMS and could be Association of Insurance Commissioners’ (‘‘NAIC’’) amendment to subject to additional sanctions if the MLR continues to be less than the Annual Financial Reporting Model Regulation to adopt elements 85% for successive years. Through Health Care Reform and other of corporate governance and internal control requirements similar to federal legislation, funding for Medicare Advantage plans has been those under federal securities’ laws. and may continue to be altered. Health Care Reform significantly affects states that can elect to establish their own state exchanges for individual and small employer Guaranty Associations, Indemnity Funds, Risk Pools insurance business or allow the federal government to establish and and Administrative Funds operate the exchange for them. Cigna, therefore, expects state Most states and certain non-U.S. jurisdictions require insurance legislatures to focus on legislation to implement Health Care Reform companies to support guaranty associations or indemnity funds that and to address the impact of Health Care Reform on state budgets. are established to pay claims on behalf of insolvent insurance On June 28, 2012, the U.S. Supreme Court upheld the companies. In the United States, these associations levy assessments constitutionality of most parts of Health Care Reform, including the on member insurers licensed in a particular state to pay such claims. obligation to purchase health care coverage (the ‘‘individual Several states also require HMOs to participate in guaranty funds, mandate’’). The Company has implemented the provisions of Health special risk pools and administrative funds. For additional Care Reform that are currently in effect (including the commercial information about guaranty fund and other assessments, see Note 24 minimum MLR requirements) and continues its implementation to Cigna’s Consolidated Financial Statements. planning for those provisions that must be adopted in the future. CIGNA CORPORATION - 2012 Form 10-K 15


  • Page 38

    PART I ITEM 1 Business Some states also require health insurers and HMOs to participate in incorporate the concept of ‘‘enterprise risk’’ and to enact provisions assigned risk plans, joint underwriting authorities, pools or other designed to provide regulators with additional information and residual market mechanisms to cover risks not acceptable under authority to manage this new concept. To date, a few states have taken normal underwriting standards. action to adopt the amended Model Act and Regulation. Cigna continues to follow the states’ activity in this area and will amend its processes as necessary to comply with revised state laws. Solvency and Capital Requirements Many states have adopted some form of the NAIC model solvency- related laws and risk-based capital rules (‘‘RBC rules’’) for life and Marketing, Advertising and Products health insurance companies. The RBC rules recommend a minimum In most states, Cigna’s insurance companies and HMO subsidiaries level of capital depending on the types and quality of investments are required to certify compliance with applicable advertising held, the types of business written and the types of liabilities incurred. regulations on an annual basis. Cigna’s insurance companies and If the ratio of the insurer’s adjusted surplus to its risk-based capital falls HMO subsidiaries are also required in most states to file and secure below statutory required minimums, the insurer could be subject to regulatory approval of products prior to the marketing, advertising, regulatory actions ranging from increased scrutiny to conservatorship. and sale of such products. State and/or federal regulatory scrutiny of In addition, various non-U.S. jurisdictions prescribe minimum life and health insurance company and HMO marketing and surplus requirements that are based upon solvency, liquidity and advertising practices, including the adequacy of disclosure regarding reserve coverage measures. During 2012, Cigna’s HMOs and life and products and their administration, may result in increased regulation. health insurance subsidiaries, as well as non-U.S. insurance Products offering limited coverage, such as those Cigna issues through subsidiaries, were compliant with applicable RBC and non-U.S. the Star HRG business, continue to attract increased regulatory surplus rules. scrutiny. In September 2012, the National Association of Insurance Commissioners adopted the Risk Management and Own Risk and Licensing Requirements Solvency Assessment Model Act. The Act provides requirements and Pharmacy Licensure Laws principles for maintaining a group solvency assessment and a risk management framework and reflects a broader and more prospective Certain Cigna subsidiaries are pharmacies that dispense prescription approach to U.S. insurance regulation. The Act, which includes a drugs to participants of benefit plans administered or insured by requirement to file an annual ORSA Summary Report in the lead Cigna’s HMO and insurance company subsidiaries. These pharmacy- state of domicile, now must be adopted into law by each state. Cigna’s subsidiaries are subject to state licensing requirements and regulation insurance business in the U.S. will be subject to the requirements that as well as U.S. Drug Enforcement Agency registration requirements. are expected to become effective in 2015. Cigna will be prepared to Other laws and regulation affecting Cigna’s pharmacy-subsidiaries file an ORSA Summary Report with its lead state regulator consistent include federal and state laws concerning labeling, packaging, with the requirements. advertising and adulteration of prescription drugs and dispensing of controlled substances. Cigna’s businesses in the European Union will be subject to the directive on insurance regulation and solvency requirements known as Solvency II. This directive will impose economic risk-based solvency International Licensure Laws requirements and supervisory rules and is expected to become Cigna’s international subsidiaries are often required to be licensed effective in January 2014, although certain regulators are requiring when entering new markets or starting new operations in certain companies to demonstrate technical capability and comply with jurisdictions. The licensure requirements for these Cigna subsidiaries increased capital levels in advance of the effective date. Cigna’s vary by country and are subject to change. European insurance companies are capitalized at levels consistent with projected Solvency II requirements and in compliance with anticipated technical capability requirements. Claim Administration, Utilization Review and Related Services Holding Company Laws Certain Cigna subsidiaries contract to provide claim administration, utilization management and other related services for the Cigna’s domestic insurance companies and certain of its HMOs are administration of self-insured benefit plans. These Cigna subsidiaries subject to state laws regulating subsidiaries of insurance holding may be subject to state third-party administration and other licensing companies. Under such laws, certain dividends, distributions and requirements and regulation. other transactions between an insurance or HMO subsidiary and its affiliates may require notification to, or approval by, one or more state insurance commissioners. International Regulations In December 2010, the NAIC adopted revisions to the Model Cigna’s revenue from operations outside the United States exposes the Insurance Holding Company System Regulatory Act and Regulation. Company to laws of multiple jurisdictions and the rules and The revisions were designed to allow a better understanding of the regulations of various governing bodies and regulators, including risks and activities of non-insurance entities within a holding those related to financial and other disclosures, corporate governance, company system. The main focus of the revisions has been to privacy, data protection, data mining, data transfer, labor and 16 CIGNA CORPORATION - 2012 Form 10-K


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    PART I ITEM 1 Business employment, consumer protection and anti-corruption. The Medicare Regulations operations in countries outside the United States: Several Cigna subsidiaries, including those acquired in the • are subject to local regulations in the locations in which Cigna HealthSpring transaction, engage in businesses that are subject to subsidiaries conduct business, federal Medicare regulations such as: • in some cases, are subject to regulations in the locations of • those offering individual and group Medicare Advantage (HMO) customers, and coverage; • in all cases are subject to FCPA. • contractual arrangements with the federal government for the FCPA prohibits offering, promising, providing or authorizing others processing of certain Medicare claims and other administrative to give anything of value to a foreign government official to obtain or services; and retain business or otherwise secure a business advantage. Cigna is also • those offering Medicare Pharmacy (Part D) products that are subject subject to applicable anti-corruption laws in the jurisdictions in which to federal Medicare regulations. it operates. Additionally, in many countries outside of the U.S., health In Cigna’s Medicare Advantage business, the Company contracts with care professionals are employed by the government. Therefore, Cigna’s the Centers for Medicare and Medicaid Services (‘‘CMS’’) to provide dealings with them are subject to regulation under the FCPA. services to Medicare beneficiaries pursuant to their Medicare Violations of the FCPA and other anti-corruption laws may result in program. As a result, the Company’s right to obtain payment from severe criminal and civil sanctions as well as other penalties and the CMS is subject to compliance with numerous and complex SEC and Department of Justice have increased their enforcement regulations and requirements that are frequently modified and subject activities with respect to FCPA. The UK Bribery Act of 2010, which to administrative discretion. The marketing and sales activities went into effect in 2011, is an anti-corruption law that applies to all (including those of third-party brokers and agents) are also heavily companies with a nexus to the United Kingdom and whose scope is regulated by CMS and other governmental agencies. even broader than the FCPA. It is yet to be seen how the UK Bribery Act will be enforced, but any voluntary disclosures of FCPA violations Several Cigna subsidiaries are also subject to reporting requirements may be shared with the UK authorities, thus potentially exposing pursuant to Section 111 of the Medicare, Medicaid and SCHIP companies to liability and potential penalties in multiple jurisdictions. Extension Act of 2007. Cigna has internal control policies and procedures and has implemented training and compliance programs for its employees to Federal Audits of Government Sponsored Health Care deter prohibited practices. However, if Cigna’s employees or agents fail Programs to comply with applicable laws governing its international operations, the Company may face investigations, prosecutions and other legal Participation in government sponsored health care programs subjects proceedings and actions that could result in civil penalties, Cigna to a variety of federal laws and regulations and risks associated administrative remedies and criminal sanctions. See the Risk Factors with audits conducted under these programs. These audits may occur section beginning on page 19 for a discussion of the risks related to in years subsequent to Cigna providing the relevant services under operating globally. audit. These risks may include reimbursement claims as well as potential fines and penalties. For example, with respect to Cigna’s Medicare Advantage business, CMS and the Office of the Inspector Federal Regulations General perform audits to determine a health plan’s compliance with Employee Retirement Income Security Act and the federal regulations and contractual obligations, including compliance Public Health Service Act with proper coding practices (sometimes referred to as Risk Adjustment Data Validation Audits or RADV audits) and compliance Cigna subsidiaries sell most of their products and services to sponsors with fraud and abuse enforcement practices through Recovery Audit of employee benefit plans that are governed by ERISA. Many of the Contractor (RAC) audits in which third-party contractors conduct health insurance reform provisions of the Patient Protection and post-payment reviews on a contingency fee basis to detect and correct Affordable Care Act were incorporated in ERISA, Cigna subsidiaries improper payments. See ‘‘Global Health Care’’ in Section B beginning are subject to requirements imposed by ERISA affecting claim and on page 2 of this Form 10-K for additional information about Cigna’s appeals procedures for individual insurance and insured and participation in government health-related programs. self-insured group health plans and are expected to comply with these requirements on behalf of the dental, disability, life and accident plans The Federal government has made investigating and prosecuting they administer. These health insurance reform provisions made health care fraud and abuse a priority. Fraud and abuse prohibitions applicable to group health plans under ERISA were also incorporated encompass a wide range of activities, including kickbacks for referral into the Public Health Service Act and are directly applicable to health of customers, billing for unnecessary medical services, improper insurance issuers (i.e., health insurers and HMOs). marketing, and violation of patient privacy rights. The regulations and contractual requirements in this area are complex and subject to change and compliance will continue to require significant resources. CIGNA CORPORATION - 2012 Form 10-K 17


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    PART I ITEM 1 Business Health Insurance Portability and Accountability Act regulations, regulating data security and requiring security breach Regulations notification that may apply to Cigna in certain circumstances. The federal Health Insurance Portability and Accountability Act of 1996 and its implementing regulations (‘‘HIPAA’’) impose Antitrust Regulations requirements on health insurers, HMOs, health plans, health care Cigna subsidiaries are also engaged in activities that may be providers and clearinghouses. Health insurers and HMOs are further scrutinized under federal and state antitrust laws and regulations. subject to regulations related to guaranteed issuance (for groups with These activities include the administration of strategic alliances with 50 or fewer lives), guaranteed renewal, and portability of health competitors, information sharing with competitors and provider insurance. contracting. HIPAA also imposes minimum standards for the privacy and security of protected health information. HIPAA’s privacy and security Anti-Money Laundering Regulations requirements were expanded by the Health Information Technology for Economic and Clinical Health Act (‘‘HITECH’’) that enhanced Certain Cigna products (‘‘Covered Products’’ as defined in the Bank penalties for HIPAA violations and requires regulated entities to Secrecy Act) are subject to U.S. Department of the Treasury provide notification to various parties in the event of a breach of anti-money laundering regulations. Cigna has implemented unsecured protected health information. Regulations pursuant to anti-money laundering policies designed to ensure that its Covered HITECH continue to be promulgated and are monitored and Products are underwritten and sold in compliance with these implemented as they are finalized. regulations. Cigna may also be subject to anti-money laundering laws in non-U.S. jurisdictions where it operates. HIPAA also established rules that standardize the format and content of certain electronic transactions, including, but not limited to, eligibility and claims. Federal regulations were issued requiring Office of Foreign Assets Control entities subject to HIPAA to update their transaction formats for The Company is also subject to regulation put forth by the Office of electronic data interchange from HIPAA 4010 to version 5010 Foreign Assets Control of the U.S. Department of the Treasury which standards and convert from the ICD-9 diagnosis and procedure codes administers and enforces economic and trade sanctions based on U.S. to the ICD-10 diagnosis and procedure codes. The ICD-10 foreign policy and national security goals against targeted foreign conversion is required by October 1, 2013, though CMS has countries and regimes, terrorists, international narcotics traffickers, proposed a rule that would delay the implementation for one year those engaged in activities related to the proliferation of weapons of until October 1, 2014. mass destruction, and other threats to the national security, foreign policy or economy of the United States. In addition, Cigna may be Other Confidentiality Requirements subject to similar regulations in non-U.S. jurisdictions in which it operates. The federal Gramm-Leach-Bliley Act generally places restrictions on the disclosure of non-public information to non-affiliated third parties, and requires financial institutions, including insurers, to Investment-Related Regulations provide customers with notice regarding how their non-public Depending upon their nature, Cigna’s investment management personal information is used, including an opportunity to ‘‘opt out’’ of activities are subject to U.S. federal securities laws, ERISA, and other certain disclosures. State departments of insurance and certain federal federal and state laws governing investment related activities. In many agencies adopted implementing regulations as required by federal law. cases, the investment management activities and investments of Neither the HIPAA nor the Gramm-Leach-Bliley privacy regulations individual insurance companies are subject to regulation by multiple preempt more stringent state laws and regulations that apply to Cigna, jurisdictions. and a number of states have adopted data security laws and I. Miscellaneous Cigna and its principal subsidiaries are not dependent on business submitted by independent brokers and agents, and generally all such from one or a few customers. No one customer accounted for 10% or business is subject to its approval and acceptance. more of Cigna’s consolidated revenues in 2012. Cigna and its Cigna had approximately 35,800 employees as of December 31, principal subsidiaries are not dependent on business from one or a few 2012; 31,400 employees as of December 31, 2011; and 30,600 brokers or agents. In addition, Cigna’s insurance businesses are employees as of December 31, 2010. generally not committed to accept a fixed portion of the business 18 CIGNA CORPORATION - 2012 Form 10-K


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    PART I ITEM 1A Risk Factors ITEM 1A Risk Factors As a large company operating in a complex industry, Cigna risks and uncertainties that could have a material adverse effect on encounters a variety of risks and uncertainties including those Cigna’s business, liquidity, results of operations or financial condition. identified in this Risk Factor discussion and elsewhere in this report. These risks and uncertainties are not the only ones Cigna faces. Cigna has implemented and maintains enterprise-wide risk Additional risks and uncertainties not presently known to the management processes, in addition to the risk management processes Company or that it currently believes to be immaterial may also within its businesses. The factors discussed below represent significant adversely affect Cigna. Regulatory and Litigation Risks Health Care Reform legislation, as well as potential • causing employers to drop health care coverage for their employees; additional changes in federal or state regulations, • driving potential cost shifting in the health care delivery system to could have a material adverse effect on Cigna’s health insurance companies and HMOs; business, results of operations, financial condition • regulating business practices; and liquidity. • imposing new or increasing taxes and financial assessments; In 2010, Health Care Reform was signed into law, and it is resulting in significant changes to the current U.S. health care system. Health • limiting the ability to increase premiums to meet costs (including Care Reform mandates broad changes in the delivery of health care denial or delays in approval and implementation of those rates); and benefits that may impact the Company’s current business model, • significantly reducing the growth of Medicare program payments. including its relationship with current and future customers, producers and health care providers, products, services, processes and Accordingly, Health Care Reform, other regulatory reform initiatives technology. Health Care Reform includes, among other requirements, or additional changes in existing laws or regulations, or their provisions for guaranteed coverage and renewal requirements, interpretations, could have a material adverse effect on the Company’s prohibitions on annual and lifetime limits on the dollar amount of business, results of operations, financial condition and liquidity. benefits for essential health services, increased restrictions on The Medicare business acquired with HealthSpring presents rescinding coverage, minimum medical loss ratio and customer rebate additional risks for Cigna, as the Medicare program has been the requirements, a requirement to cover preventive services on a first subject of recent regulatory reform initiatives, including Health Care dollar basis, and greater controls on premium rate increases for Reform. Because Medicare program premiums account for individual and small employer health insurance. It also reduces the substantially all of the acquired business’s revenue, reductions or less Medicare Part D coverage gap and reduces payments to private plans than expected increases in funding for Medicare programs (including offering Medicare Advantage, as well as provides for state insurance the potential effect of sequestration) could significantly reduce the exchanges through which insurers and HMOs will, if qualified, be Company’s profitability, and non-renewal or termination of Medicare able to offer insured plans to individuals and small employers. In contracts would substantially impair the acquired business. addition, the legislation imposes an excise tax on high-cost employer- sponsored coverage and annual fees on insurance companies and In June 2012, the U.S. Supreme Court upheld the constitutionality of HMOs that will generally not be deductible for income tax purposes most parts of Health Care Reform, but considerable uncertainty and therefore may adversely impact the Company’s effective tax rate. remains and it is difficult to predict the impact of Health Care Reform It also limits the amount of compensation for executives of insurers on the business due to the law’s complexity, continuing development that is tax deductible. of implementing regulations and interpretive guidance. Cigna is unable to predict how these events will develop and what impact they Certain of the law’s provisions became effective between 2010 and will have on Health Care Reform, and in turn, on Cigna. 2012 and other provisions will take effect from 2013 to 2018. Health Care Reform left many of the details of the new law to be set forth For additional information on Health Care Reform, see ‘‘Business – through regulations. While federal agencies have published interim Regulation’’ in Section H beginning on page 14 of this Form 10-K final regulations with respect to certain requirements, many issues and the ‘‘Introduction’’ section of MD&A beginning on page 32 of remain uncertain, thus the full impact on the Company is not yet this Form 10-K. See also the description of minimum medical loss known. This legislation could impact the Company significantly by: ratio and customer rebate requirements in the ‘‘Business – B. Global Health Care’’ section beginning on page 2 of this Form 10-K. • disrupting the employer-based market, which is currently the primary business model for the Company’s Global Health Care segment; CIGNA CORPORATION - 2012 Form 10-K 19


  • Page 42

    PART I ITEM 1A Risk Factors Cigna’s business is subject to substantial government Court decisions and legislative activity may increase Cigna’s exposure regulation that, along with new regulation, could for any of these types of claims. In some cases, substantial non-economic or punitive damages may be sought. Cigna currently increase its costs of doing business and have a has insurance coverage for some of these potential liabilities. Other material adverse effect on its profitability. potential liabilities may not be covered by insurance, insurers may Cigna’s business is regulated at the international, federal, state and dispute coverage or the amount of insurance may not be sufficient to local levels. The laws and rules governing Cigna’s business and related cover the entire damages awarded. In addition, certain types of interpretations are increasing in number and complexity, are subject damages, such as punitive damages, may not be covered by insurance, to frequent change and can be inconsistent or even conflict with each and insurance coverage for all or certain forms of liability may become other. As a public company with global operations, Cigna is subject to unavailable or prohibitively expensive in the future. It is possible that the laws of multiple jurisdictions and the rules and regulations of the resolution of one or more of the legal matters and claims described various governing bodies, including those related to financial and could result in losses material to Cigna’s results of operations, financial other disclosures, corporate governance, privacy, data protection, condition and liquidity. labor and employment, consumer protection, tax and A description of material pending legal actions and other legal matters anti-corruption. Cigna must identify, assess and respond to new in which Cigna is currently involved is included in Note 24 to Cigna’s trends in the legislative and regulatory environments as well as Consolidated Financial Statements included in this Form 10-K. The effectively comply with the various existing regulations applicable to outcome of litigation and other legal matters is always uncertain, and its business. Existing or future laws, rules, regulatory interpretations outcomes that are not justified by the evidence or existing law can or judgments could force Cigna to change how it does business, occur. Cigna believes that it has valid defenses to the legal matters restrict revenue and enrollment growth, increase health care, pending against it and is defending itself vigorously. technology and administrative costs, including pension costs and capital requirements, require enhancements to the Company’s In addition, there is heightened review by federal and state regulators compliance infrastructure and internal controls environment. Existing of health care and group disability insurance industry business and or future laws and rules could also require Cigna to take other actions reporting practices. Cigna is frequently the subject of regulatory such as changing its business practices for disability payments thereby market conduct and other reviews, audits and investigations by state increasing Cigna’s liability in federal and state courts for coverage insurance and health and welfare departments, attorneys general, the determinations, contract interpretation and other actions. Centers for Medicare and Medicaid Services (CMS) and, the Office of Inspector General (OIG). With respect to Cigna’s Medicare In addition, Cigna must obtain and maintain regulatory approvals to Advantage business, CMS and OIG perform audits to determine a market many of its products, to increase prices for certain regulated health plan’s compliance with federal regulations and contractual products and to consummate some of its acquisitions and divestitures. obligations, including compliance with proper coding practices Delays in obtaining or failure to obtain or maintain these approvals (sometimes referred to as Risk Adjustment Data Validation Audits or could reduce the Company’s revenue or increase its costs. For further RADV audits) and compliance with fraud and abuse enforcement information on regulatory matters relating to Cigna, see ‘‘Business – practices through Recovery Audit Contractor (RAC) audits in which Regulation’’ in Section H of this Form 10-K. third-party contractors conduct post-payment reviews on a contingency fee basis to detect and correct improper payments. In Cigna faces risks related to litigation, regulatory 2012, Cigna significantly expanded its Medicare business with its acquisition of HealthSpring. This expansion of its Medicare business audits and investigations. may increase the risks the Company faces from lawsuits, regulatory Cigna is routinely involved in numerous claims, lawsuits, regulatory audits, investigations and other regulatory matters. These regulatory audits, investigations and other legal matters arising in the ordinary reviews could result in changes to or clarifications of Cigna’s business course of business, including that of administering and insuring practices or retroactive adjustments to certain premiums, and also employee benefit programs. These could include benefit claims, could result in significant fines, penalties, civil liabilities, criminal breach of contract actions, tort claims, disputes regarding reinsurance liabilities or other sanctions, that could have a material adverse effect arrangements, employment and employment discrimination-related on the Company’s business, results of operation, financial condition suits, employee benefit claims, wage and hour claims, tax, privacy, and liquidity. Additionally, the employee benefits industry remains intellectual property and real estate related disputes. In addition, under scrutiny by various state and federal government agencies and Cigna incurs and likely will continue to incur liability for claims could be subject to governmental efforts to bring criminal actions in related to its health care business, such as failure to pay for or provide circumstances that could previously have given rise only to civil or health care, poor outcomes for care delivered or arranged, provider administrative proceedings. disputes, including disputes over compensation, and claims related to self-funded business. Also, there are currently, and may be in the future, attempts to bring class action lawsuits against the industry. 20 CIGNA CORPORATION - 2012 Form 10-K


  • Page 43

    PART I ITEM 1A Risk Factors Business Risks Future performance of Cigna’s business will depend organizational processes smoothly and communicate roles and on the Company’s ability to execute on its strategic responsibilities clearly. and operational initiatives effectively. The future performance of Cigna’s business will depend in large part As a global company, Cigna faces political, legal, on Cigna’s ability to effectively implement and execute its strategic operational, regulatory, economic and other risks and operational initiatives that include: (1) driving growth in targeted that present challenges and could negatively affect its geographies, product lines, buying segments and distribution multinational operations or the Company’s long-term channels; (2) improving its strategic and financial flexibility; and growth. (3) pursuing additional opportunities in high-growth markets with particular focus on individuals. As a global company, Cigna’s business is increasingly exposed to risks inherent in foreign operations. These risks, which can vary Successful execution of these strategic and operational initiatives substantially by market, include political, legal, operational, depends on a number of factors including: regulatory, economic and other risks, including government • differentiating Cigna’s products and services from those of its intervention and censorship that the Company does not face in its competitors by leveraging its health advocacy capabilities and other U.S. operations. The global nature of Cigna’s business and operations strengths in targeted markets, geographies and buyer segments; presents challenges including, but not limited, to those arising from: • developing and introducing new products or programs, particularly • varying regional and geopolitical business conditions and demands; in response to government regulation and the increased focus on • discriminatory regulation, nationalization or expropriation of assets; consumer directed products; • price controls or other pricing issues and exchange controls or other • identifying and introducing the proper mix or integration of restrictions that prevent it from transferring funds from these products that will be accepted by the marketplace; operations out of the countries in which it operates or converting • attracting and retaining sufficient numbers of qualified employees; local currencies that our foreign operations hold into U.S. dollars or other currencies; • attracting and engaging a sufficient number of qualified partners, including physicians partners in an environment with a growing • foreign currency exchange rates and fluctuations that may have an shortage of primary care physicians; impact on the future costs or on future sales and cash flows from the Company’s international operations, and any measures that it may • effectively managing balance sheet exposures, including the implement to reduce the effect of volatile currencies and other risks Company’s pension funding obligation; of its international operations may not be effective; • improving medical cost competitiveness in targeted markets; and • reliance on local sales forces for some of its operations in countries • reducing Cigna HealthCare’s medical operating expenses to achieve that may have labor problems and less flexible employee sustainable benefits. relationships that can be difficult and expensive to terminate, or where changes in local regulation or law may disrupt the business If these initiatives fail or are not executed effectively, it could harm the operations; Company’s consolidated financial position and results of operations. For example, reducing operating expenses while maintaining the • risk associated with managing Cigna’s partner relationships in necessary resources and the Company’s talent pool is important to the accordance with business objectives in countries where our foreign Company and, if not managed effectively, could have long-term businesses voluntarily operate or are required to operate with local effects on the business such as failure to maintain or improve the business partners; quality of its products and limiting its ability to retain or hire key • challenges associated with managing more geographically diverse personnel. In addition, to succeed, the Company must align its operations and projects; organization to its strategy. Cigna must effectively integrate its operations, including its most recently acquired businesses, actively • the need to provide sufficient levels of technical support in different work to ensure consistency throughout the organization, and promote locations; a global mind-set and a focus on individual customers. If the • political instability or acts of war, terrorism, natural disasters, Company fails to do so, it may be unable to grow as planned, or the pandemics in locations where Cigna operates; and result of expansion may be unsatisfactory. Also, the current competitive, economic and regulatory environment will require • general economic and political conditions. Cigna’s organization to adapt rapidly and nimbly to new These factors may increase in importance as Cigna continues to opportunities and challenges. The Company will be unable to do so if expand globally, and any one of these challenges could negatively it does not make important decisions quickly, define its appetite for affect the Company’s operations or its long-term growth. Currently, risk specifically, implement new governance, managerial and South Korea is the single largest geographic market in Cigna’s Global CIGNA CORPORATION - 2012 Form 10-K 21


  • Page 44

    PART I ITEM 1A Risk Factors Supplemental Benefits segment. South Korea generated 54% of the outsources selected services or selected functions to third parties in segment’s revenues and 90% of the segment’s earnings in 2012. Due foreign jurisdictions, the Company could be exposed to risks inherent to the concentration of business in South Korea, the Global in conducting business outside of the United States, including Supplemental Benefits segment is exposed to potential losses resulting international economic and political conditions, and the additional from economic and geopolitical developments in that country, as well costs associated with complying with foreign laws and fluctuations in as foreign currency movements affecting the South Korean currency, currency values. that could have a significant impact on the segment’s results and the The expanding role of third party service vendors may also require Company’s consolidated financial results. Further, expansion into new changes to Cigna’s existing operations and the adoption of new markets may require considerable management time before any procedures and processes for retaining and managing these providers, significant revenues and earnings are generated, that could divert as well as redistributing responsibilities as needed, in order to realize management’s attention from other strategic activities. the potential productivity and operational efficiencies. Effective International operations also require the Company to devote management, development and implementation of its outsourcing significant management resources to implement its controls and strategies are important to Cigna’s business and strategy. If there are systems in new markets, to comply with the U.S. anti-bribery and delays or difficulties in enhancing business processes or its third party anti-corruption as well as anti-money laundering provisions and providers do not perform as anticipated, Cigna may not fully realize similar laws in local jurisdictions and to overcome logistical and other on a timely basis the anticipated economic and other benefits of the challenges based on differing languages, cultures and time zones. outsourcing projects or other relationships it enters into with key Violations of these laws and regulations could result in fines, criminal vendors, which could result in substantial costs or regulatory sanctions against the Company, its officers or employees, prohibitions compliance issues, divert management’s attention from other strategic on the conduct of its business, and reputational harm. Cigna must activities, negatively affect employee morale or create other regularly reassess the size, capability and location of its global operational or financial problems for the Company. Terminating or infrastructure and make appropriate changes, and must have effective transitioning arrangements with key vendors could result in change management processes and internal controls in place to additional costs and risks of operational delays, potential errors and address changes in its business and operations. Cigna’s success possible control issues as a result of the termination or during the depends, in part, on its ability to anticipate these risks and manage transition phase. these difficulties, and the failure to do so could have a material adverse effect on Cigna’s business, results of operations, financial condition, liquidity and long-term growth. Acquisitions, including HealthSpring, involve risks and the Company may not realize the expected benefits because of integration difficulties, Successful management of Cigna’s outsourcing underperformance relative to Cigna’s expectations projects and key vendors including taking steps to and other challenges. ensure that third parties that obtain access to sensitive personal information maintain its As part of the Company’s growth strategy, Cigna regularly considers strategic transactions, including acquisitions, with the expectation confidentiality and security, is important to its that these transactions will result in various benefits. Cigna’s ability to business. achieve the anticipated benefits of acquisitions is subject to a number To improve operating costs, productivity and efficiencies, Cigna of uncertainties, including whether Cigna integrates its acquired outsources selected functions to third parties. Cigna takes steps to companies in an efficient and effective manner, the performance of monitor and regulate the performance of independent third parties the acquired businesses and general competitive factors in the who provide services or to whom the Company delegates selected marketplace. Failure to achieve these anticipated benefits could result functions. These third parties include information technology system in increased costs, decreases in expected revenues, goodwill providers, independent practice associations, providers of medical impairment charges, and diversion of management’s time and energy. management services, call center and claim service providers and In January 2012, Cigna acquired HealthSpring, an operator of various types of other service providers. Medicare Advantage coordinated care plans in 13 states and the Arrangements with key vendors may make Cigna’s operations District of Columbia. The success of the HealthSpring acquisition vulnerable if third parties fail to satisfy their obligations to the depends on Cigna’s ability to integrate HealthSpring with its existing Company, including their obligations to maintain and protect the businesses and the performance of the acquired business. The security and confidentiality of the Company’s information and data, potential difficulties of integrating the operations of HealthSpring and as a result of their performance, changes in their own operations, achieving the performance expected of the acquired businesses financial condition, or other matters outside of Cigna’s control. The include: implementing the Company’s business plan for the combined Company has limited control over the actions of third-party providers business; executing Cigna’s growth plans by leveraging its capabilities even though contracts provide certain protections. Noncompliance and those of the businesses acquired in serving the Seniors segment; with any privacy or security laws and regulations or any security unanticipated issues in integrating logistics, information, breach involving one of its third-party service providers could have a communications and other systems; changes in applicable laws and material adverse effect on its business, results of operations, financial regulations or conditions imposed by regulators; retaining key condition, liquidity and reputation. In addition, to the extent Cigna employees; operating risks inherent in HealthSpring’s business and 22 CIGNA CORPORATION - 2012 Form 10-K


  • Page 45

    PART I ITEM 1A Risk Factors Cigna’s business; retaining and growing membership; renewing or processed as quickly as clients desire, decreased levels of client service successfully rebidding for contracts with CMS, including maintaining and client satisfaction, and harm to Cigna’s reputation. Because or improving upon the CMS performance plan star ratings; leveraging Cigna’s information technology and telecommunications systems the information technology platform of the acquired businesses; and interface with and depend on third-party systems, Cigna could unanticipated issues, costs, obligations and liabilities. If Cigna is experience service denials if demand for such service exceeds capacity unable to integrate the HealthSpring business successfully, or if the or a third-party system fails or experiences an interruption. If acquired business’ performance evaluations under contracts with sustained or repeated, such a business interruption, systems failure or CMS are adverse, these factors could have a material adverse effect on service denial could result in a deterioration of Cigna’s ability to pay Cigna’s business, results of operations, financial condition and claims in a timely manner, provide customer service, write and process liquidity and could affect expectations for future revenue and earnings new and renewal business, or perform other necessary corporate growth. functions, and could have a material adverse effect on Cigna’s business, results of operations, financial condition and liquidity. Effective internal controls are necessary for the Company to provide reliable and accurate financial reports and to mitigate the risk of fraud. Like other companies in our industry, we have been and may in the The integration of acquired businesses is likely to result in Cigna’s future be the subject of cybersecurity breaches. Computer systems systems and controls becoming increasingly complex and more may be vulnerable to physical break-ins, computer viruses, difficult to manage. Any difficulties in the assimilation of acquired programming errors, attacks by third parties or similar disruptive businesses into the Company’s control system could cause it to fail to problems. If a cybersecurity breach of Cigna’s computer systems or the meet its financial reporting obligations. Ineffective internal controls computer systems of a third-party service provider occurs, it could also could also cause investors to lose confidence in the Company’s interrupt Cigna’s operations and damage Cigna’s reputation. Cigna reported financial information, which could have a negative effect on could also be subject to liability if sensitive customer information is the trading price of Cigna’s stock and its access to capital. misappropriated. Any publicized compromise of security could result in a loss of existing or new customers, increased operating expenses, financial losses, and additional litigation or other claims that could Cigna’s business depends on its ability to properly have a material adverse effect on Cigna’s business, results of maintain the integrity of its data and the operations, financial condition and liquidity. uninterrupted operation of its systems and business functions, including information technology and Effective investment in and execution of other business systems. improvements in the Company’s information Cigna’s business depends on effective information systems and the technology infrastructure and functionality are integrity and timeliness of the data it uses to run its business. Cigna’s important to its strategy and failure to do so may business strategy requires providing customers and health care impede its ability to deliver the services required in professionals with Internet-enabled products and information to meet their needs. Cigna’s ability to adequately price its products and the evolving marketplace at a competitive cost. services, establish reserves, provide effective and efficient service to its Cigna’s information technology strategy and execution are critical to customers, and to timely and accurately report its financial results also the continued success of the Company. Increasing regulatory and depends significantly on the integrity of the data in its information legislative mandated changes will place additional demands on Cigna’s systems. If the information Cigna relies upon to run its businesses information technology infrastructure, which could have a direct were found to be inaccurate or unreliable due to fraud or other error, impact on available resources for projects more directly tied to or if Cigna (or the third-party service parties it utilizes) were to fail to strategic initiatives. The Company must continue to invest in maintain information systems and data integrity effectively, the long-term solutions that will enable it to anticipate customer needs Company could experience difficulties with: operational disruptions and expectations, enhance the customer experience and act as a (that may impact customers and health care professionals); differentiator in the market. Cigna’s success is dependent, in large determining medical cost estimates and establishing appropriate part, on maintaining the effectiveness of existing technology systems pricing; retaining and attracting customers; regulatory compliance and continuing to deliver and enhance technology systems that and other challenges. support the Company’s business processes in a cost-efficient and In addition, Cigna’s business is highly dependent upon its ability to resource-efficient manner. Cigna also must develop new systems to perform, in an efficient and uninterrupted fashion, its necessary meet current market standards and keep pace with continuing business functions, such as: claims processing and payment; internet changes in information processing technology, evolving industry and support and customer call centers; and the processing of new and regulatory standards and customer needs. Failure to do so may impede renewal business. Failure to comply with relevant regulations, a power the Company’s ability to deliver services at a competitive cost. outage, pandemic, cyber-attack or other failure of one or more of Furthermore, system development projects are long-term in nature, information technology, telecommunications or other systems could may be more costly than expected to complete and may not deliver the cause slower system response times resulting in claims not being expected benefits upon completion. CIGNA CORPORATION - 2012 Form 10-K 23


  • Page 46

    PART I ITEM 1A Risk Factors Effective prevention, detection and control systems In operating its onsite clinics and medical facilities, are critical to maintain regulatory compliance and the Company may be subject to additional liability, prevent fraud and failure of these systems could that could result in significant time and expense and adversely affect the Company. divert management’s attention from other strategic Failure of Cigna’s prevention, detection or control systems related to activities. regulatory compliance or the failure of employees to comply with The Company employs physicians, nurse practitioners, nurses and Cigna’s internal policies, including data systems security or unethical other health care professionals at onsite low acuity and primary care conduct by managers and employees, could adversely affect Cigna’s clinics it operates for the Company’s customers (as well as certain reputation and also expose it to litigation and other proceedings, fines clinics for Company employees). Through the HealthSpring business and penalties. Federal and state governments have made investigating acquired in 2012, Cigna also operates LivingWell health centers and and prosecuting health care and other insurance fraud and abuse a health care practices for its customers. In addition, the Company priority. Fraud and abuse prohibitions encompass a wide range of owns and operates medical facilities in the Phoenix, Arizona activities, including kickbacks for referral of members, billing for metropolitan area, including multispecialty health care centers, unnecessary medical services, improper marketing, and violations of outpatient surgery and urgent care centers, low acuity clinics, patient privacy rights. The regulations and contractual requirements laboratory, pharmacy and other operations that employ primary care applicable to the Company are complex and subject to change. In as well as specialty care physicians and other types of health care addition, ongoing vigorous law enforcement, a highly technical professionals. As a direct employer of health care professionals and as regulatory scheme and the Dodd-Frank legislation and related an operator of primary and low-acuity care clinics and other types of regulations being adopted to enhance regulators’ enforcement powers medical facilities, the Company is subject to liability for negligent and whistleblower incentives and protections, mean that Cigna’s acts, omissions, or injuries occurring at one of its clinics or caused by compliance efforts in this area will continue to require significant one of its employees. Even if any claims brought against the Company resources. were unsuccessful or without merit, it would have to defend against In addition, provider or customer fraud that is not prevented or such claims. The defense of any actions may be time-consuming and detected could impact Cigna’s medical costs or those of its self-insured costly, and may distract management. As a result, Cigna may incur customers. Further, during an economic downturn, Cigna’s segments, significant expenses that could have a material adverse effect on including Global Health Care, Group Disability and Life and Global Cigna’s business, results of operations, financial condition, and Supplemental Benefits, may see increased fraudulent claims volume liquidity. that may lead to additional costs due to an increase in disputed claims and litigation. Cigna faces competitive pressure, particularly price competition, that could result in premiums which are Cigna’s pharmacy benefit management business is insufficient to cover the cost of the health care subject to a number of risks and uncertainties, in services delivered to its members and inadequate addition to those Cigna faces with its health care medical claims reserves. business. While health plans compete on the basis of many factors, including Cigna’s pharmacy benefit management business is subject to federal service quality of clinical resources, claims administration services and and state regulation, including federal and state anti-remuneration medical management programs, and quality, sufficiency and cost laws, ERISA, HIPAA and laws related to the operation of Internet and effectiveness of health care professional network relationships, Cigna mail-service pharmacies. Noncompliance with such regulations could expects that price will continue to be a significant basis of have a material adverse effect on Cigna’s business, results of competition. Cigna’s customer contracts are subject to negotiation as operations, financial condition, liquidity and reputation. customers seek to contain their costs, and customers may elect to reduce benefits in order to constrain increases in their benefit costs. The Company’s pharmacy benefit management business would also Such an election may result in lower premiums for the Company’s be adversely affected by an inability to contract on favorable terms products, and even though it may also reduce Cigna’s costs, it could with pharmaceutical manufacturers and could suffer claims and still adversely affect Cigna’s financial results. Alternatively, the reputational harm in connection with purported errors by Cigna’s Company’s customers may purchase different types of products that mail order or retail pharmacy businesses. Disruptions at any of the are less profitable, or move to a competitor to obtain more favorable Company’s pharmacy business facilities due to failure of technology or premiums. any other failure or disruption to these systems or to the infrastructure due to fire, electrical outage, natural disaster, acts of terrorism or some Factors such as business consolidations, strategic alliances, legislative other catastrophic event could reduce Cigna’s ability to process and reform and marketing practices create pressure to contain premium dispense prescriptions and provide products and services to customers, price increases, despite increasing medical costs. For example, the that could have a material adverse effect on Cigna’s business, results of Gramm-Leach-Bliley Act gives banks and other financial institutions operations, financial condition and liquidity. the ability to be affiliated with insurance companies that may lead to new competitors with significant financial resources in the insurance and health benefits fields. The Company’s product margins and 24 CIGNA CORPORATION - 2012 Form 10-K


  • Page 47

    PART I ITEM 1A Risk Factors growth depend, in part, on its ability to compete effectively in its Substantially all of the Company’s investment assets are in fixed markets, set rates appropriately in highly competitive markets to keep interest-yielding debt securities of varying maturities, fixed or increase its market share, increase membership as planned, and redeemable preferred securities and commercial mortgage loans. The avoid losing accounts with favorable medical cost experience while value of these investment assets can fluctuate significantly with retaining or increasing membership in accounts with unfavorable changes in market conditions. A rise in interest rates could reduce the medical cost experience. value of the Company’s investment portfolio and increase interest expense if Cigna were to access its available lines of credit. Cigna’s profitability depends, in part, on its ability to accurately predict and control future health care costs through underwriting The Company is also exposed to interest rate and equity risk criteria, provider contracting, utilization management and product associated with the Company’s pension and other post-retirement design. Premiums in the health care business are generally fixed for obligations. Sustained declines in interest rates could have an adverse one-year periods. Accordingly, future cost increases in excess of impact on the funded status of the Company’s pension plans and the medical cost projections reflected in pricing cannot generally be Company’s reinvestment yield on new investments. recovered in the current contract year through higher premiums. Although Cigna bases the premiums it charges on its estimate of future health care costs over the fixed premium period, actual costs A downgrade in the financial strength ratings of may exceed what was estimated and reflected in premiums. Factors Cigna’s insurance subsidiaries could adversely affect that may cause actual costs to exceed premiums include: medical cost new sales and retention of current business, and a inflation; higher than expected utilization of medical services; the downgrade in Cigna’s debt ratings would increase the introduction of new or costly treatments and technology; and cost of borrowed funds and affect the Company’s membership mix. ability to access capital. Cigna records medical claims reserves for estimated future payments. Financial strength, claims paying ability and debt ratings by The Company continually reviews estimates of future payments recognized rating organizations are an important factor in establishing relating to medical claims costs for services incurred in the current and the competitive position of insurance companies and health benefits prior periods and makes necessary adjustments to its reserves. companies. Ratings information by nationally recognized ratings However, actual health care costs may exceed what was estimated. agencies is broadly disseminated and generally used throughout the industry. Cigna believes the claims paying ability and financial Significant stock market declines could result in strength ratings of its principal insurance subsidiaries are an important factor in marketing its products to certain of Cigna’s customers. In additional pension obligations, increased funding for addition, Cigna Corporation’s debt ratings impact both the cost and those obligations, and increased pension plan availability of future borrowings, and accordingly, its cost of capital. expenses. Each of the rating agencies reviews Cigna’s ratings periodically and Cigna currently has unfunded obligations in its frozen pension plans. there can be no assurance that current ratings will be maintained in A significant decline in the value of the plan’s equity and fixed income the future. In addition, a downgrade of these ratings could make it investments or unfavorable changes in applicable laws or regulations more difficult to raise capital and to support business growth at could materially increase Cigna’s expenses and change the timing and Cigna’s insurance subsidiaries. amount of required plan funding that could reduce the cash available Insurance ratings represent the opinions of the rating agencies on the to Cigna, including its subsidiaries. See Note 10 to Cigna’s financial strength of a company and its capacity to meet the Consolidated Financial Statements for more information on the obligations of insurance policies. The principal agencies that rate Company’s obligations under the pension plan. Cigna’s insurance subsidiaries characterize their insurance rating scales as follows: Significant changes in market interest rates affect the • A.M. Best Company, Inc. (‘‘A.M. Best’’), A++ to S (‘‘Superior’’ to value of Cigna’s financial instruments that promise a ‘‘Suspended’’); fixed return or benefit and the value of particular • Moody’s Investors Service (‘‘Moody’s’’), Aaa to C (‘‘Exceptional’’ to assets and liabilities. ‘‘Lowest’’); As an insurer, Cigna has substantial investment assets that support • Standard & Poor’s Corp. (‘‘S&P’’), AAA to R (‘‘Extremely Strong’’ insurance and contractholder deposit liabilities. Generally low levels to ‘‘Regulatory Action’’); and of interest rates on investments, such as those experienced in United States and foreign financial markets during recent years, have • Fitch, Inc. (‘‘Fitch’’), AAA to D (‘‘Exceptionally Strong’’ to ‘‘Order negatively impacted the level of investment income earned by the of Liquidation’’). Company in recent periods, and such lower levels of investment income would continue if these lower interest rates were to continue. CIGNA CORPORATION - 2012 Form 10-K 25


  • Page 48

    PART I ITEM 1A Risk Factors As of February 28, 2013, the insurance financial strength ratings were as follows for the Cigna subsidiaries, Connecticut General Life Insurance Company (‘‘CGLIC’’), Life Insurance Company of North America (‘‘LINA’’) and Cigna Health & Life Insurance Company (‘‘CHLIC’’): CGLIC LINA CHLIC Insurance Ratings (1) Insurance Ratings (1) Insurance Ratings (1) A.M. Best A A A (‘‘Excellent,’’ 3rd of 16) (‘‘Excellent,’’ 3rd of 16) (‘‘Excellent,’’ 3rd of 16) Moody’s A2 A2 A2 (‘‘Good,’’ 6th of 21) (‘‘Good,’’ 6th of 21) (‘‘Good,’’ 6th of 21) S&P A A (‘‘Strong,’’ 6th of 21) (Not Rated) (‘‘Strong,’’ 6th of 21) Fitch A A (‘‘Strong,’’ 6th of 19) (‘‘Strong,’’ 6th of 19) (Not Rated) (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., CGLIC’s rating by A.M. Best is the 3rd highest rating awarded in its scale of 16). Global market, economic and geopolitical and uncertainty regarding the U.S. fiscal position, geopolitical issues, conditions may cause fluctuations in equity market the availability and cost of credit and other capital, consumer spending and other factors continue to negatively impact expectations prices, interest rates and credit spreads, which for the U.S. and global economy. Unfavorable economic conditions could impact the Company’s ability to raise or could cause lower enrollment in our plans and negatively impact the deploy capital as well as affect the Company’s demand for certain of our products and services as employers try to overall liquidity. reduce their operating costs. As a result, they may modify, delay or If the equity markets and credit market experience extreme volatility cancel plans to purchase the Company’s products, may make changes and disruption, there could be downward pressure on stock prices and in the mix of products purchased that are unfavorable to the credit capacity for certain issuers without regard to those issuers’ Company, or may be forced to reduce their workforces. Specifically, underlying financial strength. Extreme disruption in the credit higher unemployment rates as a result of an economic downturn markets could adversely impact the Company’s availability and cost of could lead to lower enrollment in the Company’s employer group credit in the future. In addition, unpredictable or unstable market plans, lower enrollment in our non-employer individual plans and a conditions or continued pressure in the global or U.S. economy, such higher number of employees opting out of Cigna’s employer group as the sovereign debt crisis in the European Union and uncertainty plans. The adverse economic conditions could also cause employers to regarding the U.S. fiscal position, including with respect to the federal stop offering certain health care coverage as an employee benefit or debt ceiling, could result in reduced opportunities to find suitable elect to offer this coverage on a voluntary, employee-funded basis as a opportunities to raise capital. means to reduce their operating costs. All of these developments could lead to a decrease in Cigna’s membership levels and premium and fee In November 2011, Cigna issued $2.1 billion in aggregate principal revenues. Additionally, Cigna’s previous disability claim experience amount of senior notes to finance part of the cost for the and industry data indicate that submitted disability claims rise under HealthSpring acquisition. As of December 31, 2012, the Company’s adverse economic conditions, although the impact of the current outstanding long-term debt totaled $5.0 billion. Cigna’s increased adverse economic conditions is not clear. Further, if customers are not debt obligations could make the Company more vulnerable to general successful in generating sufficient revenue or are precluded from adverse economic and industry conditions and require the Company securing financing, they may not be able to pay, or may delay payment to dedicate increased cash flow from operations to the payment of of, accounts receivable that are owed to the Company. Further, our principal and interest on its debt, thereby reducing the funds it has customers or potential customers may force us to compete more available for other purposes, such as investments in ongoing vigorously on factors such as price and service to retain or obtain their businesses, acquisitions, dividends and stock repurchases. In these business. All of these could lead to a decrease in our membership levels circumstances, the Company’s ability to execute on its strategy may be and revenues, and could materially and adversely affect our business, limited, its flexibility in planning for or reacting to changes in its results of operations and financial condition. In addition, a prolonged business and market conditions may be reduced, or its access to capital unfavorable economic environment could adversely impact the markets may be limited such that additional capital may not be financial position of hospitals and other care providers, which could available or may only be available on unfavorable terms. increase our medical costs as hospitals and other care providers attempt to maintain revenue levels in their efforts to adjust to their own economic challenges. The same conditions that may affect Unfavorable developments in economic conditions Cigna’s customers and network also could adversely affect its vendors, may adversely affect our business, results of causing them to significantly and quickly increase their prices or operations and financial condition. reduce their output. Cigna’s business depends on its ability to perform The economic conditions in the U.S. and globally continue to be its necessary business functions in an efficient and uninterrupted challenging. Continued concerns about slow economic growth, high fashion. unemployment rates, the sovereign debt crisis in the European Union 26 CIGNA CORPORATION - 2012 Form 10-K


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    PART I ITEM 1A Risk Factors During a prolonged unfavorable economic environment, state and reinsured by Berkshire Hathaway Life Insurance Company of federal budgets could be materially and adversely affected, resulting in Nebraska on February 4, 2013. reduced reimbursements or payments in federal and state government Under all reinsurance arrangements, reinsurers assume insured losses, coverage programs, such as Medicare and social security. In addition, subject to certain limitations or exceptions that may include a loss the state and federal budgetary pressures could cause the government limit. These arrangements also subject Cigna to various obligations, to impose new or a higher level of taxes or assessments on us, such as representations and warranties with the reinsurers. Reinsurance does premium taxes on insurance companies and health maintenance not relieve the Company of liability as the originating insurer. Cigna organizations and surcharges or fees on select fee-for-service and remains liable to the underlying policyholders if a reinsurer defaults capitated medical claims. Although we could attempt to mitigate or on obligations under the reinsurance arrangement. Although the cover our exposure from such increased costs through, among other Company regularly evaluates the financial condition of reinsurers to things, increases in premiums, there can be no assurance that we will minimize exposure to significant losses from reinsurer insolvencies, be able to mitigate or cover all of such costs which may have a material reinsurers may become financially unsound. If a reinsurer fails to meet adverse effect on our business, results of operations, financial its obligations under the reinsurance contract or if the liabilities condition and liquidity. exceed any applicable loss limit, the Company will be forced to cover the claims on the reinsured policies. Cigna is subject to the credit risk of its reinsurers. The collectability of amounts due from reinsurers is subject to Cigna enters into reinsurance arrangements with other insurance uncertainty arising from a number of factors, including whether the companies, primarily to limit losses from large exposures or to permit insured losses meet the qualifying conditions of the reinsurance recovery of a portion of direct losses. The Company may also enter contract, whether reinsurers or their affiliates have the financial into reinsurance arrangements in connection with acquisition or capacity and willingness to make payments under the terms of the divestiture transactions where the underwriting company is not being reinsurance contract, and the magnitude and type of collateral acquired or sold. The run-off businesses that Cigna has effectively supporting the Company’s reinsurance recoverable, such as by exited through reinsurance include, among others: the retirement sufficient qualifying assets in trusts or letters of credit issued. benefit business reinsured by Prudential Retirement Insurance and Although a portion of the Company’s reinsurance exposures are Annuity Company; the individual life insurance and annuity business secured, the inability to collect a material recovery from a reinsurer reinsured by Lincoln National Life Insurance Company and Lincoln could have a material adverse effect on the Company’s results of Life and Annuity of New York; and the VADBe and GMIB businesses operations, financial condition and liquidity. CIGNA CORPORATION - 2012 Form 10-K 27


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    PART I ITEM 1B Unresolved Staff Comments ITEM 1B Unresolved Staff Comments None. ITEM 2 Properties Cigna’s global real estate portfolio consists of approximately Services, Core Medical and Service Operations and the domestic 8.1 million square feet of owned and leased properties. Our domestic office of Cigna’s Global Supplemental Benefits business are the Wilde portfolio has approximately 6.7 million square feet in 40 states, the Building located at 900 Cottage Grove Road in Bloomfield, District of Columbia, and Puerto Rico. Our International properties Connecticut (Cigna’s corporate headquarters) and Two Liberty Place contain approximately 1.4 million square feet located throughout the located at 1601 Chestnut Street in Philadelphia, Pennsylvania. The following countries: Belgium, Canada, China, France, Germany, Wilde Building measures approximately 833,000 square feet and is Hong Kong, India, Indonesia, Ireland, Italy, Malaysia, Netherlands, owned, while Two Liberty Place measures approximately 462,000 New Zealand, Singapore, South Korea, Spain, Sweden, Switzerland, square feet and is leased office space. Taiwan, Thailand, Turkey, United Arab Emirates, and the United Cigna believes its properties are adequate and suitable for its business Kingdom. as presently conducted. The foregoing does not include information Our principal, domestic office locations, including various support on investment properties. operations, along with Group Disability and Life Insurance, Health ITEM 3 Legal Proceedings The information contained under ‘‘Litigation and Other Legal Matters’’ in Note 24 to Cigna’s Financial Statements beginning on page 122 of this Form 10-K, is incorporated herein by reference. ITEM 4 Mine Safety Disclosures Not applicable. 28 CIGNA CORPORATION - 2012 Form 10-K

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