C I G N A 2 0 1 9 A N N U A L R E P O R T
The Power of We.
T H I S Y E A R
We invested in growth.
We capitalized on innovation.
We committed to the future.
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Shareholder Letter
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Cigna Foundation
Cigna Connects
Milestones, Awards & Recognitions
Cigna in Perspective
Corporate & Board of Directors
T A B L E O F C O N T E N T S
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A message from our President
and CEO, David Cordani
D R I V E N B Y T H E P O W E R O F W E
I often talk about the importance of partnerships to
deliver the best results for all of our stakeholders, which
is why one of Cigna’s key strategic imperatives is to be
the undisputed partner of choice for health care.
As one recent example of Cigna’s emphasis on
partnering, as well as our commitment to our customers,
clients and communities, I often share the details of a
partnership we formed with the city of San Diego this
past year to address the unique health needs of the
city’s first responders.
First responders – notably firefighters, police,
emergency medical teams and 911 dispatchers – are on the
front lines serving their neighbors and communities at their
moments of greatest need. Given the unique pressures
they face, it’s unsurprising that 85% of them have reported
symptoms related to behavioral health issues.1
Through our partnership in San Diego, we’re giving
them access to behavioral wellness treatment and other
resources that help them better cope with traumatic
and high-stress situations while on the job.
This initiative, and so many others like it, reflects
the values and attributes Cigna’s colleagues around the
world aspire to every day, including empathy, partnership
and an unwavering belief in what’s possible.
At Cigna, we call this the “Power of We.” Through the
Power of We, Cigna’s colleagues are bound by a shared
mission, values and strategy. It reminds and inspires us
on a daily basis that we are far more powerful when we
work together, in close partnership with each other, as
well as with our customers, patients and clients; with
health care professionals; with government agencies;
and with the communities where we live and work. The
Power of We magnifies and unleashes the impact we
can have on society and for those we serve, makes our
solutions available to more people, and fuels our ability
to continue investing and delivering outstanding results
for our shareholders.
C U S T O M E R S A T T H E C E N T E R O F A L L W E D O
Above all, the Power of We drives Cigna to continue
putting our customers at the center of all we do, each
and every day.
One of the first things Cigna and Express Scripts did
after coming together was to update our mission, which
is to improve the health, well-being and peace of mind
of those we serve.
We embody this mission through a global workforce
which embraces its collective role as champions for our
customers – providing the right services and solutions, at
the right time, to contribute to the diverse health needs
of our customers in a highly personalized way.
This means customers like Bryan Ott, who developed
diabetes at age 30 – and didn’t even realize it until Cigna-
provided data identified his elevated A1C level, and
associated risk for other diseases. Bryan attributed a mix
of medical intervention and health coaching to putting
him back on track, remarking that “I’m adding time onto
my life instead of subtracting it from my life.”
It also includes customers like Kerry Petryck, who
lost 44 pounds through her participation in a well-being
program conceived by Cigna and her employer, our
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S H A R E H O L D E R L E T T E R
The Power of We magnifies the impact we can have
on society and fuels our ability to continue delivering
outstanding results for our shareholders.
client American Eagle Outfitters. Kerry remarks that she
doesn’t know if “I’d be the healthy person I am now”
without the benefit of this program.
in pharmacy cost savings.4 Today, everyone we serve
now has access to these pharmacy services, including
our industry-leading Accredo specialty pharmacy.
These are only a couple of the millions of individual
healthy lives we help shape every day.
Our commitment extends to our innovative online
tools and digital apps to help make the health care system
easier to navigate, and is why Cigna offers a customer
support line that makes a live operator available to all
of our customers, 24 hours a day, seven days a week,
every day of the year.2
That’s the Power of We – more than 70,000
colleagues2 who focus on how we can help our customers
live better lives.
T R A N S F O R M I N G H E A L T H C A R E
By leveraging the resources of our combined company,
we’re positioned with leading capabilities to drive transform-
ational change in health care and to deliver whole person
health – meaning treating each person holistically, both
mind and body.
Our market-leading medical and behavioral
capabilities take a research-based approach to improve
connectivity and deliver whole person solutions for
better physical and mental health outcomes. A three-year
study, released last year, of more than 210,000 customers,
found that Cigna’s health engagement incentive programs
improve health outcomes and lower total medical costs
an average of 10%.3
Our improved pharmacy capabilities through Express
Scripts play a pivotal role in our ability to deliver excellent
service and clinical support. In 2019, Express Scripts
saved its clients and customers more than $50 billion
Our specialist pharmacists have deep expertise in
21 disease states5 – bringing tailored, personalized care to
millions of people. And in 2019 alone, 550 Accredo nurses6
traveled more than nine million miles to reach patients
throughout the United States.7
We’ve also added Express Scripts’ home delivery
pharmacy to our Cigna network, which ensures our clients’
employees get the clinical support they need – when and
how they want it.
Further, our combination has accelerated our ability
to bring an array of innovative health care solutions
to the marketplace. A handful of our 2019 highlights
included our:
› Patient Assurance Program, capping the 30-day
out-of-pocket cost of insulin at $25;
› Embarc Benefit ProtectionSM Program, which will
put life-saving gene therapy in reach of those
who need it;
› Digital Health Formulary, the industry’s first, to
help customers and clients make better decisions
from 300,000 digital health tools; and,
› Health Connect 360, our innovative tool that
generates deep personalized insights at the
clinical level and enables better health outcomes.
S H A R E H O L D E R L E T T E R
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B U I L D I N G P A R T N E R S H I P S T O D R I V E I N N O VA T I O N
We continued to embrace partnering as a key point of
differentiation and a growth driver for Cigna in 2019,
and will continue to do so in 2020 and beyond.
For example, beginning in April 2020, we are making
pharmacy care more affordable by enhancing pharmacy
networks and pharmaceutical manufacturer value for
Prime Therapeutics’ 28 million members who are covered
by 23 health plans, plus employer and government
programs such as Medicare and Medicaid.
Other recent examples are our partnerships
with, and investments in, emerging companies such as
Oscar Health. With Oscar, we can do more to give small
businesses access to affordable, fully insured health plans
that broaden choice and prioritize whole person health.
Cigna will focus on four geographies with Oscar in 2020,
and will test, learn and look to expand over time.
Outside of the United States, Cigna also announced
the formation of a new partnership with Australia-listed
nib Group, to create a health care data science venture.
This joint venture will analyze and interpret underlying
individual disease risks, and provide guidance on
how risks can be best prevented, mitigated, managed
or treated.
Another example of the premium Cigna places on
partnerships is our long history of innovative, value-
based arrangements with health care professionals
in our U.S. Commercial and Government businesses.
Across our top 40 markets in the United States and all
of our Medicare business, more than 65% of Cigna’s
medical payments are now in value-based arrangements.8
Importantly, 92% of the health care providers in our
programs are delivering a differentiated level of quality
of care and 90% believe that Cigna is the industry leader
in this area.9
This provides meaningful opportunity for our
Medicare Advantage business, whose growth is anchor-
ed in the geographies where we have deep health
care provider partnerships. We already capitalized
on this growth opportunity in 2019 by accelerating
our geographic expansion in Medicare Advantage and
bringing new solutions to market – all of which has
contributed to our high Medicare Advantage customer
NPS levels, averaging approximately 70 across our
markets. We are excited about our opportunities for
future customer growth in this business, which is
projected to be 10% to 15% on an annualized basis over
the next five years.10
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S H A R E H O L D E R L E T T E R
The Lab is our state-of-the-art research facility where diverse experts collaborate on cutting-edge solutions.
S H A R E H O L D E R L E T T E R
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A D V A N C I N G O U R S O C I A L
R E S P O N S I B I L I T Y P L A T F O R M
The Power of We extends to our emphasis on fostering
diversity and inclusion in our organization, as well as
healthy and vibrant communities where we live and work.
We’re especially proud of our efforts to ensure a
workplace that respects the diversity and inclusion of
our colleagues’ cultures, beliefs and values. Cigna is
committed to respecting and protecting the rights of
every employee. In recognition of our endeavors to
celebrate our colleagues’ differences and contributions,
Cigna achieved “Best of the Best” workplace awards
in 2019 from Professional Woman’s Magazine, Hispanic
Network Magazine and Black EOE Journal, as well
as recognition from Diversity, Inc. as a top company
for LGBT employees and people with disabilities.
And, reflecting our commitment to veterans, we were
once again named a Military Times “Best for Veterans”
employer for 2019.
In 2019, Cigna invested even more in the communities
where we live and work. Through a five-year, $25 million
global initiative called Healthier Kids For Our Future, we
began fighting childhood hunger and food insecurity to
help today’s children grow into tomorrow’s healthy
adults. And, we extended our efforts by addressing the
emerging challenge of mental illness among children.
Cigna’s research shows that loneliness, in addition to
stress and depression, takes a toll on people of all ages,
but is having a particularly profound impact on our
young people.
This is all a part of Cigna’s commitment to advocate for
the next generation. We believe that all Americans need
and deserve a sustainable (and therefore affordable)
health care system that helps bring them health and
vitality. We believe that the essential elements of this
system require:
› Employers, individuals and the government to remain
highly engaged and motivated to drive and adopt
solutions that advance the transformation of our
health care system, and contribute to its financing;
› Partnership between the private sector (to drive
innovation, personalized solutions and coordination
of individual care across the health care ecosystem)
and government (to provide funding and a reliable
safety net for our most vulnerable and underserved
populations, and set standards that encourage and
enable competition, innovation and choice); and,
› The power of what Cigna refers to as micro
communities.
A micro community can range in size from a tight-
knit group of two, three or more people coming together
for a finite period of time, to a larger community-based
program intent on creating positive health care out-
comes for a broader population. The key elements of
micro communities are a shared goal, and the support
surrounding individuals to help them reach that goal.
One of the most effective, and certainly the most
scaled, micro communities is the employer community.
Approximately 180 million people obtain health coverage
through their employers.11 Within this system, people have
access to plans that have flexibility, choice, engagement
tools, and relevancy with health care professionals and –
as a result – the United States has a healthier and more
productive workforce.
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S H A R E H O L D E R L E T T E R
We believe all Americans need and deserve
a sustainable health care system that helps
bring them health and vitality.
S E C T I O N N A M E
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S H A R E H O L D E R L E T T E R
Partnerships underscore a critical point: The most
effective solutions are not simply national in
scope – they're highly localized.
Another micro community that’s special to everyone
at Cigna is our partnership with the fearless and proud
athletes from Achilles International. Achilles is dedicated
to helping wounded veterans and people with disabilities
compete in long-distance races. At the heart of our
partnership with Achilles is a shared committment to
helping people be their healthiest, be their best, and
achieve their most important personal goals.
In 2019:
› The Cigna Foundation sponsored 50 athletes
from Achilles International to participate in
the 2019 Marine Corps Marathon, with Cigna
employees serving as guides to help them cross
the finish line.
› Cigna was also privileged to play a part in
helping Achilles raise $1.7 million at its annual
fundraising event.
› At the latest Walt Disney World® Marathon
Weekend, Cigna sponsored 31 athletes, and
nearly 25 Team Cigna members helped to guide
those athletes in a variety of races.
› And, we’re especially proud to now be the
official sponsor of the Achilles Freedom Team
of Wounded Veterans.
As a global health service company, our partnership with
Achilles helps champion our brand, supports our mission,
and expresses our gratitude to the heroes who served,
and continue to serve, in the United States military –
including the more than 2,500 veterans we employ
at Cigna.12
Micro communities can also help those in
disadvantaged neighborhoods overcome the social
determinants of health. That’s why partnerships between
corporate or private foundations, hospitals, schools,
houses of worship, neighborhoods and more underscore
a critical point: The most effective solutions are not simply
national in scope – they’re highly localized.
One such example is Cigna’s work with Chicago’s
highly at-risk Bronzeville community to address trauma
among victims of violence. The Cigna Foundation
awarded a $450,000 grant to the Bright Star Community
Outreach program to address this critical issue, and Cigna
participated in the community’s 4th Ward Festival last
year to screen residents for four key numbers – blood
sugar, blood pressure, cholesterol and Body Mass Index –
which collectively can indicate the majority of chronic,
treatable illnesses such as diabetes and heart disease.
Whether it’s an employer with 1,000 employees or an
organization supporting hundreds of disabled athletes,
micro communities are powerful tools to encourage
individuals to be their best and healthiest selves.
S H A R E H O L D E R L E T T E R
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S E C T I O N N A M E
Cigna’s 2019 performance gives us considerable
momentum to drive attractive growth in 2020 and
beyond. We remain well positioned to achieve our
2021 EPS target of $20–$21.
A N T I C I P A T I N G W H A T ’ S N E X T
Going forward, we are confident that our collective drive
to do even more will keep us successful.
In 2020, Cigna will remain focused on bringing
forward the best market-driven health care solutions
as we deliver increased value for our stakeholders, and
affordable, predictable and simple health care for our
customers and clients.
We’ll build on our momentum to drive attractive
growth in the near term, as evidenced by our 2020 out-
look and 2021 EPS target. We’ll also drive growth in the
long term, including 6% to 8% revenue growth and 10%
to 13% EPS growth on an average annual basis, delivered
through a capital-light framework, with exceptional cash
flows that enhance our strategic and financial flexibility.
And we’ll continue to leverage the Power of We,
with a firm belief that maximizing the positive impact
we make for our customers, patients, clients, health
care professional partners, communities and employees
positions us to best deliver for the shareholders who
invest in us.
Thank you for your continued belief and investment
in Cigna, so we can continue to improve the health, well-
being and peace of mind for our 170 million customer
relationships around the world.
David M. Cordani
P R E S I D E N T A N D C H I E F E X E C U T I V E O F F I C E R
B U I L D I N G O N O U R T R A C K R E C O R D O F
O U T S T A N D I N G R E S U L T S
All of this led to a landmark 2019 for our company. We
extended our decade-long track record of delivering
outstanding financial performance. And, our first full year
as a combined company with Express Scripts greatly
accelerated our ability to expand choice, and address
our customers’ whole person health needs – both mind
and body – in a way that is affordable, predictable
and simple.
By delivering on and advancing our key priorities
throughout the year, Cigna delivered outstanding financial
performance in 2019 for the benefit of our shareholders.
This included:
› Adjusted revenue of $140 billion;
› Earnings of $6.5 billion after tax;
› Adjusted income from operations per share
growth of 20%, to $17.05; and,
› Outstanding operating cash flow that more
than doubled, to $9.5 billion.13
As a result, we exceeded our guidance that we
had already raised each quarter for revenue, earnings
and earnings per share, as well as for cash flow from
operations – with exceptional execution across our four
core business platforms of Health Services, Commercial,
Government and International Markets.
Several factors contributed to Cigna’s robust 2019
results. In Health Services, we delivered market-leading
customer and client retention, including 97% retention
for the 2020 selling season.14 We achieved continued
strong organic growth in prescriptions, and saved
our customers and clients $50 billion on annual
prescription costs.15
In our Commercial business, we again delivered
industry-leading medical cost trend, and we grew our
commercial medical customers for the 10th consecutive
year – led by another year of double-digit growth in the
Select segment.16
And, in our Government Business, The Centers
for Medicare and Medicaid Services’ most recent
Star ratings position us to have 87% of our Medicare
Advantage customers in 4-Star or higher plans for 2021 –
a reinforcement of our strong customer satisfaction and
high levels of clinical quality.16
S H A R E H O L D E R L E T T E R
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Through Healthier Kids For Our Future, we’ve committed $25 million to combat childhood hunger.
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C I G N A F O U N D A T I O N
C I G N A F O U N D A T I O N
We’re committed to creating
brighter futures in our communities.
In 2019, we continued to advance our Healthier Kids For
Our FutureSM initiative. Healthier Kids For Our Future is
our five-year, $25 million commitment to improve the
health and well-being of children worldwide to tackle the
challenges affecting their health today so that they can
grow into healthy adults tomorrow. We are a company
focused on preventive care, and regular access to
nutritious and sufficient food is the starting point for a
healthier, more productive life. As such, we began our
Healthier Kids initiative by targeting childhood hunger
and food insecurity.
The Cigna Foundation awarded Healthier Kids
grants to more than 40 organizations in 2019. As part
of this effort, we collaborated with some of our grant
partners to develop shared targets supporting United
Nations Sustainable Development Goal 2: Zero hunger
and Goal 3: Good health and well-being. An example
is the landmark $1 million Cigna Foundation grant to
Feeding Children Everywhere (FCE). With this funding,
FCE will be able to fully launch their Full Cart program
which delivers free groceries for a small shipping cost
to the doorsteps of hard-working, struggling families
across America. In collaboration with FCE, our grant
funding will help create zero hunger by 2030 by providing
access to safe, nutritious and sufficient food year-round
for families with children in grades K through eight in
14 selected locations in the United States.
As we look toward our future work with Healthier
Kids For Our Future, we will be addressing other pressing
health challenges, including the mental health of our youth.
Beyond Healthier Kids For Our Future, the Cigna
Foundation continues its ongoing commitment to
addressing health equity. Our World of Difference grants
support nonprofit organizations whose work helps
underserved groups overcome barriers to health and
improves access to essential health services. From
health navigation programs supporting veterans in
urban New York to Native Americans in rural Montana,
we continue to make a world of difference for
communities everywhere.
C I G N A F O U N D A T I O N
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C I G N A C O N N E C T S
Our commitment to corporate responsibility.
Cigna Connects, our approach to corporate responsibility,
supports Cigna’s mission to help improve the health,
well-being and peace of mind for the people we serve
by making powerful connections that positively impact
the health of people, communities and the environment.
Through Cigna Connects we aim to serve as a catalyst
of action and a convener of stakeholders who, together,
can make a difference around critical health topics. We
recognize social and environmental sustainability issues
not only as problems to be solved, but as opportunities
to create meaningful improvements for our stakeholders
and for society. By applying our expertise and innovative
thinking to social issues, we can fully realize the potential
of understanding how interconnectedness creates value.
O U R T H R E E S T R A T E G I C F O C U S A R E A S
Our Cigna Connects corporate responsibility platform is
focused on three key focus areas: Health and Well-being,
Environment, and Inclusive and Responsible Business.
Within each focus area, we aim to apply our global
health service expertise, resources and innovative thinking
to help solve complex challenges globally and within
key markets.
As we move through 2020, with the inclusion
of Express Scripts and continued focus on future
opportunities for advancing the work of Cigna Connects,
we’ll be setting new targets and objectives to guide our
efforts. You can learn more about these key focus areas
and our aligned initiatives in our annual Cigna Connects
Corporate Responsibility Report which communicates
our progress toward our environmental, social and
governance objectives.
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C I G N A C O N N E C T S
H E A L T H A N D W E L L - B E I N G
I N C L U S I V E A N D R E S P O N S I B L E B U S I N E S S
E N V I R O N M E N T
C I G N A C O N N E C T S
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S E C T I O N N A M E
M I L E S T O N E S , A W A R D S & R E C O G N I T I O N S
We’re making a meaningful impact
on the world around us.
In November, Express Scripts opened its newly updated
and expanded Lab – a reimagined, technologically
advanced research and solution center where a diverse
team of experts work to create a better health care
experience for the people we serve. In 2019, our clinical
solutions, born in the Lab, saved plans $49.5 billion.17
In 2019, Cigna was named to the Dow Jones
Sustainability World and North America Indices for the
third year in a row with the leading score for the health
care providers and services industry sector. The Dow Jones
Sustainability Indices are among the most important
global indicators of sustainability leadership.
Cigna was also named to Corporate Responsibility
Magazine’s 100 Best Corporate Citizen’s List for the fifth
consecutive year. This ranking recognizes outstanding
environmental, social and governance transparency
and performance among the 1,000 largest U.S.
public companies.
In addition, Cigna ranked second on the new list of
Top 100 U.S. Companies Supporting Health Communities
and Families compiled by JUST Capital with support
from the Robert Wood Johnson Foundation. Cigna took
the top spot among health care industry companies
that made the list.
In our efforts to better understand our workforce
and customers, we take an active, strategic approach to
appreciate our individual and collective experience
and different ways of thinking. At Cigna, we strive for
an inclusive environment which values all aspects of
diversity. In 2019, noteworthy organizations continued
to recognize Cigna for its commitment to diversity
and inclusion.
› Cigna scored 100% on the Disability Equality
Index and was designated as a Best Place
to Work for Disability Inclusion for the fifth
consecutive year.
› Cigna was recognized by Victory Media as
a Military Friendly® Employer and Military
Friendly® Spouse Employer.
› The Human Rights Campaign Foundation
(HRC) identified Cigna as one of the "Best
Places to Work for LGBTQ Equality." Cigna
also scored 100 on the HRC's Corporate
Equality Index (CEI).
› Cigna received multiple “Best of the Best”
recognitions: U.S. Veterans Magazine, Black
EOE Journal, Hispanic Network Magazine,
Professional Woman’s Magazine, DIVERSEability
Magazine; and,
› Express Scripts was identified by Diversity Inc.
as a Top 50 Company for Diversity.
Also in 2019, the National Business Group on Health
(NBGH) awarded Cigna with an Innovation in Advancing
Health Equity Award. This national award recognized
Cigna for its ongoing commitment to advancing health
equity through innovative initiatives and effective practices
that impact the environments in which individuals live,
learn, work and play.
M I L E S T O N E S , AW A R D S & R E C O G N I T I O N S
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C I G N A I N P E R S P E C T I V E
We’re moving forward to set
the standards of health.
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C I G N A I N P E R S P E C T I V E
S E C T I O N N A M E
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Medicare offerings for seniors and individual insurance
offerings both on and off the public health insurance
exchanges. We differentiate ourselves by providing
innovative, personalized and affordable health care benefit
solutions based on the unique needs of the individuals
and clients we serve.
I N T E R N A T I O N A L M A R K E T S has operations in over
30 countries and jurisdictions, providing a full range of
comprehensive medical and supplemental health, life
and accident benefits to individuals and employers.
Products and services include comprehensive health
coverage, hospitalization, dental, critical illness, personal
accident, term life and variable universal life.
G R O U P D I S A B I L I T Y A N D O T H E R consists of our
Group Disability and Life operating segment, along
with Corporate-owned Life Insurance and certain run-
off businesses. In December 2019, Cigna entered into a
definitive agreement to sell the Group Disability and Life
business to New York Life Insurance Company for $6.3
billion. The sale is expected to close in the third quarter
of 2020 subject to applicable regulatory approvals and
other customary closing conditions. Until the transaction
is closed, we will continue to operate our business as
usual and serve our customers.
Cigna in Perspective
Cigna’s combination with Express Scripts in December
2018 created an enterprise uniquely capable of delivering
affordability, predictability and simplicity of health care
to those we serve. Cigna offers a differentiated set of
pharmacy, medical, behavioral, dental, disability, life and
accident insurance and related products and services.
We present the financial results of our businesses
in the following segments: Health Services, Integrated
Medical, International Markets, and Group Disability and
Other. Detailed descriptions of product offerings can be
found on page four of our Annual Report on Form 10-K.
Summarized below is a brief description of each business,
along with high-level financial information.
H E A L T H S E R V I C E S consists of pharmacy benefit
management, supply chain administration and
management, clinical solutions to drive better health
outcomes at a lower cost, value programs to assist
customers with chronic conditions and certain medical
management services. We focus our solutions to align
with our clients’ challenges across care, cost and service.
As a result, we believe we deliver better outcomes, higher
customer satisfaction and a more affordable prescription
drug benefit.
I N T E G R A T E D M E D I C A L offers a mix of core health
insurance products and services to employers, other
groups and individuals, along with specialty products and
services designed to improve the quality of care, lower
cost and help customers achieve better health outcomes.
This business consists of a Commercial operating segment
which includes our employer-sponsored medical coverage
and a Government operating segment which includes
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C I G N A I N P E R S P E C T I V E
H E A LT H S E R V I C E S
$96.4B Adjusted Revenues18
45% Network
5% Other
50% Home Delivery and Specialty
I N T E G R A T E D M E D I C A L
$36.5B Adjusted Revenues18
33% Government
67% Commercial
I N T E R N A T I O N A L M A R K E T S
$5.6B Adjusted Revenues18
14% Other
4% Hong Kong
8% Middle East
37% Korea
17% North America
5% Taiwan
15% Europe
G R O U P D I S A B I L I T Y A N D O T H E R
$5.2B Adjusted Revenues18
53% Disability
33% Life
14% Other
C I G N A I N P E R S P E C T I V E
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C O R P O R A T E & B O A R D O F D I R E C T O R S
We believe that different points
of view lead to stronger results.
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C O R P O R A T E & B O A R D O F D I R E C T O R S
S E C T I O N N A M E
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2019 Corporate & Board of Directors
B O A R D O F D I R E C T O R S
Isaiah Harris, Jr.
Independent Chairman of the Board
Former President and Chief Executive Officer
AT&T Advertising and Publishing – East,
a communications services company
David M. Cordani
President and Chief Executive Officer
Cigna Corporation
William J. DeLaney
Former Chief Executive Officer
Sysco Corporation, a food marketing and
distribution company
Eric J. Foss
Former Chairman, President
and Chief Executive Officer
ARAMARK Corporation, a provider of food services,
facilities management and uniform services
Elder Granger, MD, MG, USA (Retired)
Chief Executive Officer
The 5Ps LLC, a healthcare, education, and
leadership consulting firm
Roman Martinez IV
Private Investor
Kathleen M. Mazzarella
Chairman, President and Chief Executive Officer
Graybar Electric Company, Inc., a distributor of
electrical, communications and data networking
products and provider of related supply chain
management and logistics services
Mark B. McClellan, MD, PhD
Director, Duke-Robert J. Margolis, MD
Center for Health Policy
John M. Partridge
Former President
Visa Inc., a consumer credit company
William L. Roper, MD, MPH
Interim President
The University of North Carolina System
Eric C. Wiseman
Former Executive Chairman,
President and Chief Executive Officer
VF Corporation, an apparel and
footwear company
Donna F. Zarcone
President and Chief Executive Officer
The Economic Club of Chicago, a civic
and business leadership organization
E X E C U T I V E C O M M I T T E E
Isaiah Harris, Jr., Chair
David M. Cordani
Roman Martinez IV
John M. Partridge
William L. Roper, MD, MPH
Eric C. Wiseman
Donna F. Zarcone
A U D I T C O M M I T T E E
Roman Martinez IV, Chair
William J. DeLaney
John M. Partridge
C O M P L I A N C E C O M M I T T E E
William L. Roper, MD, MPH, Chair
Eric J. Foss
Elder Granger, MD, MG, USA
Donna F. Zarcone
24
C O R P O R A T E & B O A R D O F D I R E C T O R S
Steven B. Miller, MD
Executive Vice President
and Chief Clinical Officer
John M. Murabito
Executive Vice President,
Human Resources and Services
Eric Palmer
Executive Vice President
and Chief Financial Officer
Jason D. Sadler
President, International Markets
Michael Triplett
President, U.S. Markets
Timothy C. Wentworth
President, Health Services
O T H E R O F F I C E R S
Julia Brncic
Senior Vice President,
Chief Counsel and Corporate Secretary
Timothy D. Buckley
Vice President and Treasurer
Mary T. Agoglia Hoeltzel
Senior Vice President,
Tax and Chief Accounting Officer
C O R P O R A T E G O V E R N A N C E C O M M I T T E E
Donna F. Zarcone, Chair
William J. DeLaney
Eric J. Foss
Elder Granger, MD, MG, USA
Mark B. McClellan, MD, PhD
F I N A N C E C O M M I T T E E
John M. Partridge, Chair
Roman Martinez IV
Kathleen M. Mazzarella
William L. Roper, MD, MPH
Eric C. Wiseman
P E O P L E R E S O U R C E S C O M M I T T E E
Eric C. Wiseman, Chair
Kathleen M. Mazzarella
Mark B. McClellan, MD, PhD
E X E C U T I V E O F F I C E R S
David M. Cordani
President and Chief Executive Officer
Mark L. Boxer
Executive Vice President
and Chief Information Officer
Brian Evanko
President,
Government Business
Nicole S. Jones
Executive Vice President
and General Counsel
Matt Manders
President,
Strategy and Solutions
C O R P O R A T E & B O A R D O F D I R E C T O R S
25
2 0 2 0 A N N U A L M E E T I N G
S H A R E H O L D E R A C C O U N T A C C E S S
Wednesday, April 22 at 8:00 am
Windsor Marriott Hotel,
Ballroom IV
28 Day Hill Road
Windsor, CT 06095
Proxies and proxy statements have been made
available to shareholders of record as of February
24, 2020. On December 31, 2019, there were 35,727
common shareholders of record.
F I N A N C I A L I N F O R M A T I O N
Cigna’s Form 10-K is available online at Cigna.com. For
a copy of Cigna’s quarterly earnings’ news releases,
go to Cigna.com/about-us and open Newsroom.
O F F I C E S
900 Cottage Grove Road
Bloomfield, CT 06002
860.226.6000
One Express Way
St. Louis, MO 63121
314.996.0900
Two Liberty Place
1601 Chestnut Street
Philadelphia, PA 19192-1550
215.761.1000
D I R E C T S T O C K P U R C H A S E P L A N
Shareholders can automatically reinvest their annual
dividends and make optional cash purchases of common
shares. For information on these services, please contact:
Computershare
PO Box 505000
Louisville, KY 40233-5000
Toll-free: 800.760.8864
You can access your Cigna shareholder account
online through the Computershare website:
www.computershare.com/investor, or by calling
800.760.8864.
D I R E C T D E P O S I T O F D I V I D E N D S
Direct deposit of dividends provides a prompt, efficient
way to have your dividends electronically deposited into
your checking or savings account. It avoids the possibility
of lost or delayed dividend checks. The deposit is made
electronically on the payment date.
For more information and an enrollment authorization
form, contact Computershare at 800.760.8864, or
outside the United States, U.S. territories and Canada
at 201.680.6578. You can access your account online
through the Computershare website:
www.computershare.com/investor.
S T O C K L I S T I N G
Cigna’s common shares are listed on the New York
Stock Exchange. The ticker symbol is CI.
T R A N S F E R A G E N C Y
By regular mail:
Computershare
PO Box 505000
Louisville, KY 40233-5000
By overnight delivery:
Computershare
462 South 4th Street
Suite 1600
Louisville, KY 40202
Toll-free: 800.760.8864
Outside United States, U.S. territories and Canada:
201.680.6578
TDD: 800.952.9245
Website: www.computershare.com/investor
Outside the United States, U.S. territories and Canada:
201.680.6578
TDD: 800.952.9245
C I G N A O N L I N E
Website: www.computershare.com/investor
To access online information about Cigna, our products
and services, visit Cigna.com.
26
C O R P O R A T E & B O A R D O F D I R E C T O R S
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FORM 10-K
For the transition period from ______________ to ______________
Commission file number 001-38769
Cigna Corporation
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
900 Cottage Grove Road, Bloomfield, Connecticut
(Address of principal executive offices)
82-4991898
(I.R.S. Employer Identification No.)
06002
(Zip Code)
(860) 226-6000
Registrant’s telephone number, including area code
Title of each class
Common Stock, Par Value $0.01
Securities registered pursuant to Section 12(b) of the Act:
Trading Symbol(s)
CI
Name of each exchange on which registered
New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act:
NONE
if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act
Indicate by check mark
•
•
• whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days
• whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files)
Yes
No
• whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging
growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth
company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Smaller reporting company
Non-accelerated filer
Emerging growth company
•
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended
transition period for complying with any new or revised financial accounting standards provided pursuant to
Section 13(a) of the Exchange Act.
• whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 28, 2019 was approximately $59.4 billion.
As of January 31, 2020, 372,043,094 shares of the registrant’s Common Stock were outstanding.
Part III of this Form 10-K incorporates by reference information from the registrant’s definitive proxy statement related to the 2020 annual meeting
of shareholders.
DOCUMENTS INCORPORATED BY REFERENCE
TABLE OF CONTENTS
FREQUENTLY REQUESTED 10-K INFORMATION
Risk Factors .......................................................................................................................
Executive Overview ...........................................................................................................
Industry Developments and Other Matters ........................................................................
Liquidity and Capital Resources ........................................................................................
Critical Accounting Estimates ............................................................................................
Segment Information ..........................................................................................................
Revenues by Product Type ................................................................................................
Page
31
52
56
58
63
143
145
Page
Cautionary Statement
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Business
. Overview ........................................................................................................................
. Health Services ...............................................................................................................
Integrated Medical ..........................................................................................................
.
.
International Markets ......................................................................................................
. Group Disability and Other ............................................................................................
.
Investment Management .................................................................................................
. Miscellaneous .................................................................................................................
. Regulation.......................................................................................................................
Risk Factors ..........................................................................................................................
Unresolved Staff Comments .................................................................................................
Properties ...............................................................................................................................
Legal Proceedings .................................................................................................................
Mine Safety Disclosures ........................................................................................................
Information about our Executive Officers ...................................................................................................
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities ..............................................................................................
Selected Financial Data ............................................................................................................
Management’s Discussion and Analysis of Financial Condition and Results of
Operations (“MD&A”) ........................................................................................................
Quantitative and Qualitative Disclosures about Market Risk ...................................................
Financial Statements and Supplementary Data ........................................................................
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure ............................................................................................................................. 148
Controls and Procedures ........................................................................................................... 148
Other Information ..................................................................................................................... 148
Directors, Executive Officers and Corporate Governance. ...................................................... 149
A. Directors of the Registrant ................................................................................................. 149
B. Executive Officers of the Registrant ................................................................................. 149
C. Code of Ethics and Other Corporate Governance Disclosures .......................................... 149
D. Delinquent Section 16(a) Reports ...................................................................................... 149
Executive Compensation .......................................................................................................... 149
Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters .................................................................................................... 150
Certain Relationships and Related Transactions, and Director Independence ......................... 150
Principal Accountant Fees and Services ................................................................................... 150
Exhibits and Financial Statement Schedules ............................................................................ 151
1
3
8
13
16
20
20
20
31
46
46
46
46
47
48
50
51
76
77
Item 16.
Form 10-K Summary ............................................................................................................... 162
Signatures ....................................................................................................................................................... 163
Index to Financial Statement Schedules ......................................................................................................... FS-1
Exhibits .......................................................................................................................................................... E-1
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995. Forward-looking statements are based on Cigna’s current expectations and projections about future trends,
events and uncertainties. These statements are not historical facts. Forward-looking statements may include, among others,
statements concerning future financial or operating performance, including our ability to deliver affordable, personalized and
innovative solutions for our customers and clients; future growth, business strategy, strategic or operational initiatives, including our
organizational efficiency plan; economic, regulatory or competitive environments, particularly with respect to the pace and extent of
change in these areas; financing or capital deployment plans and amounts available for future deployment; our prospects for growth in
the coming years; strategic transactions, including the merger (“Merger”) with Express Scripts Holding Company and the sale of our
Group Disability and Life business; and other statements regarding Cigna’s future beliefs, expectations, plans, intentions, financial
condition or performance. You may identify forward-looking statements by the use of words such as “believe,” “expect,” “plan,”
“intend,” “anticipate,” “estimate,” “predict,” “potential,” “may,” “should,” “will” or other words or expressions of similar meaning,
although not all forward-looking statements contain such terms.
Forward-looking statements are subject to risks and uncertainties, both known and unknown, that could cause actual results to differ
materially from those expressed or implied in forward-looking statements. Such risks and uncertainties include, but are not limited to:
our ability to achieve our financial, strategic and operational plans or initiatives; our ability to predict and manage medical and
pharmacy costs and price effectively; our ability to adapt to changes or trends in an evolving and rapidly changing industry; our ability
to effectively differentiate our products and services from those of our competitors and maintain or increase market share; our ability
to develop and maintain good relationships with physicians, hospitals, other health care providers, producers, consultants and
pharmaceutical manufacturers; changes in the pharmacy provider marketplace or pharmacy networks; changes in drug pricing; the
impact of modifications to our operations and processes; our ability to identify potential strategic acquisitions or transactions and
realize the expected benefits (including anticipated synergies) of such transactions in full or within the anticipated time frame,
including with respect to the Merger and sale of our Group Disability and Life business, as well as our ability to integrate or separate
operations, resources and systems; the substantial level of government regulation over our business and the potential effects of new
laws or regulations or changes in existing laws or regulations; the outcome of litigation, regulatory audits, investigations, actions or
guaranty fund assessments; uncertainties surrounding participation in government-sponsored programs such as Medicare; the
effectiveness and security of our information technology and other business systems and those of our key suppliers or other third
parties; the impact of our debt service obligations on the availability of funds for other business purposes; unfavorable industry,
economic or political conditions, including foreign currency movements; acts of civil unrest, war, terrorism, natural disasters or
pandemics; reinsurance credit risk; as well as more specific risks and uncertainties discussed in Part I, Item 1A – Risk Factors and Part
II, Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Form 10-K and as
described from time to time in our future reports filed with the Securities and Exchange Commission (the “SEC”).
You should not place undue reliance on forward-looking statements, which speak only as of the date they are made, are not guarantees
of future performance or results, and are subject to risks, uncertainties and assumptions that are difficult to predict or quantify. Cigna
undertakes no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or
otherwise, except as may be required by law.
Item 1. BUSINESS
OVERVIEW
PART I
Cigna Corporation, together with its subsidiaries (either individually or collectively referred to as “Cigna,” the “Company,” “we,”
“our” or “us”) is a global health service organization.
Our Mission
To improve the health, well-being and peace of mind of those we serve
Our Strategy
Go Deeper: To expand and deepen our customer, client and partner relationships and create depth in
targeted sub-segments and geographies
Go Local: To ensure our solution suite and services meet customer, client and partner needs at a
local market level
Go Beyond: To innovate and further differentiate our businesses, the experiences we deliver and our
overall social impact
How We Win
Address Whole
Person Health
Be the Undisputed
Partner of Choice
Accelerate Innovation
Affordable
Predictable
Simple
Greater
Customer
Value
Cigna is an enterprise uniquely capable of delivering affordability, predictability and simplicity of health care to those we serve. We
have broad and deep capabilities that accelerate our strategy to achieve our mission of improving the health, well-being and peace of
mind of those we serve. Cigna’s employees are champions for the people we serve and over the past decade, our focus has shifted to
helping people thrive by offering solutions to prevent and better manage health challenges. When sickness or disability do occur, we
support our customers’ ability to have broad choices in how they best access high quality, affordable care. We see three primary ways
to help individuals maintain, improve or recover their physical or mental health: 1) behavioral and lifestyle changes – with over 1,000
health coaches helping individuals set and meet health goals; 2) pharmaceutical interventions – with our leading pharmacy services
improving health and driving affordability; and 3) medical and surgical interventions – with a clear and proven strategy around
partnerships and value-based care programs, powered by applied informatics and aligned incentives. We maximize use of evidence-
based care, while delivering best-in-class quality of care for our customers with acute and chronic conditions through enhanced real-
time data across an expanded platform with industry-leading solutions to support care decisions.
We offer a differentiated set of pharmacy, medical, behavioral, dental, disability, life and accident insurance and related products and
services. Our capabilities include: 1) a broad portfolio of specialty services, some of which can be offered on a stand-alone basis; 2)
integrated behavioral, medical and pharmacy management services; 3) leading specialty pharmacy expertise; and 4) advanced
analytics that help us engage more meaningfully with individuals, plan sponsors we serve and our provider partners. These
capabilities enhance Cigna’s ability to drive improved cost affordability, quality of care and predictability.
We put medicine within reach for patients and help providers improve access to prescription drugs by making them more affordable.
We improve patient outcomes and better manage the cost of the pharmacy benefit by:
• Identifying products and offering innovative solutions that improve patient outcomes and control costs
• Evaluating medicines for efficacy, value and price to assist clients in selecting a cost-effective formulary
1
• Offering home delivery and specialty services that save money for clients and customers while providing better and
specialized clinical care
• Leveraging purchasing volume to deliver discounts drive risk-sharing and value-based care across the pharmaceutical supply
chain
• Promoting the use of generics and lowest cost, clinically effective brands of medications
We work with key stakeholders across the health care system to improve health outcomes and patient satisfaction, increase efficiency
in drug distribution and manage costs of the pharmacy benefit. In 2019, we launched three major initiatives: 1) the Patient
AssuranceSM program that offers diabetic customers a low, fixed monthly out-of-pocket cost for insulin; 2) the Embarc Benefit
ProtectionSM program that improves care, access and affordability for potentially life-changing medicines that are extremely costly and
3) our Digital Health Formulary that helps clients and customers get the most value from innovative digital health products. Plan
sponsors and participants can achieve the best health and financial outcomes when they use our comprehensive set of solutions to
manage drug spend.
We present the financial results of our businesses in the following segments:
Health Services includes pharmacy benefits management, specialty pharmacy services, clinical solutions, home delivery and health
management services.
Integrated Medical offers a variety of health care solutions to employers and individuals.
• The Commercial operating segment serves employers (also referred to as “clients”) and their employees (also referred to as
“customers”) and other groups. This segment provides deeply integrated medical and specialty offerings including medical,
pharmacy, behavioral health, dental, vision, health advocacy programs and other products and services to insured and self-
insured clients.
• The Government operating segment offers Medicare Advantage, Medicare Supplement, and Medicare Part D plans
(including the acquired Express Scripts’ Medicare Part D business) for seniors, Medicaid plans and individual health
insurance coverage both on and off the public exchanges.
International Markets includes supplemental health, life and accident insurance products and health care coverage in our international
markets as well as health care benefits to globally mobile employees of multinational organizations.
Group Disability and Other contains the remainder of our business operations, consisting of the following:
• Group Disability and Life provides group long-term and short-term disability, group life, accident, voluntary and specialty
insurance products and related services.
• Corporate-Owned Life Insurance (“COLI”) offers permanent insurance contracts sold to corporations to provide coverage
on the lives of certain employees for financing employer-paid future benefit obligations.
• Run-off businesses:
• Reinsurance: predominantly comprised of guaranteed minimum death benefit (“GMDB”) and guaranteed
minimum income benefit (“GMIB”) business effectively exited through reinsurance with Berkshire Hathaway Life
Insurance Company of Nebraska (“Berkshire”) in 2013.
• Settlement Annuity business in run-off.
•
Individual Life Insurance and Annuity and Retirement Benefits Businesses: comprised of deferred gains from the
sales of these businesses.
Other Information
The financial information included in this Form 10-K for the fiscal year ended December 31, 2019 is in conformity with accounting
principles generally accepted in the United States of America (“GAAP”) unless otherwise indicated. In the segment discussions that
follow, we use the terms “adjusted revenues” and “pre-tax adjusted income from operations” to describe segment results. See the
introduction to the Management Discussion and Analysis section of this Form 10-K for definitions of those terms. Industry rankings
and percentages set forth herein are for the year ended December 31, 2019 unless otherwise indicated. In addition, statements set forth
in this document concerning our rank or position in an industry or particular line of business have been developed internally based on
publicly available information unless otherwise noted.
2
Cigna Holding Company (formerly Cigna Corporation) was incorporated in Delaware in 1981. Halfmoon Parent, Inc. was
incorporated in Delaware in March 2018. Halfmoon Parent, Inc. was renamed Cigna Corporation concurrent with the consummation
of the combination with Express Scripts on December 20, 2018.
You can access our website at http://www.cigna.com to learn more about our company. We make annual, quarterly and current
reports and proxy statements and amendments to those reports available, free of charge through our website (http://www.cigna.com,
under the “Investors—Quarterly Reports and SEC Filings” captions) as soon as reasonably practicable after we electronically file
these materials with, or furnish them to, the Securities and Exchange Commission (the “SEC”). We also use our website as a means
of disclosing material information and for complying with our disclosure obligations under the SEC’s Regulation FD (Fair
Disclosure). Important information, including news releases, analyst presentations and financial information regarding Cigna is
routinely posted on and accessible at http://www.cigna.com. Accordingly, investors should monitor the Investor Relations portion of
our website, in addition to following our press releases, SEC filings and public conference calls and webcasts. The information
contained on, or that may be accessed through, our website is neither incorporated by reference into nor a part of this report. See also
“Code of Ethics and Other Corporate Governance Disclosures” in Part III, Item 10 of this Form 10-K for additional information
regarding the availability of our Codes of Ethics on our website.
HEALTH SERVICES
This segment consists of pharmacy benefit management, home delivery and specialty pharmacy and certain health management
services. In 2019, Health Services reported adjusted revenues of $96.4 billion and pre-tax adjusted income from operations of $5.1
billion.
HOW WE WIN
• Creating innovative solutions that improve patient outcomes and control costs
• Evaluating medicines for efficacy, value and price to assist clients in selecting a cost-effective formulary
• Offering home delivery and specialty services that save money for clients and customers, while providing better
and specialized clinical care
• Leveraging purchasing volume to deliver discounts and drive risk-sharing and value-based care across the
pharmaceutical supply chain
• Promoting the use of generics and lowest-cost, clinically effective brands of medications
3
The following chart depicts a high-level summary of our principal products and services in this segment with definitions on
subsequent pages.
Principal Products &
Services
Pharmacy Dispensing
Brands/
Subsidiaries
Accredo®, Therapeutic
Resource Centers®, Express
Scripts Pharmacy SM, Cigna
Home Delivery Pharmacy
Supply Chain
Administration and
Management
Express Scripts, Smart90®,
SmartShareRx®, Ascent
Health Services, Econdisc
Clinical Solutions
Value-Based
Programs
Health Connect 360SM,
Advanced Utilization
Management, Express Scripts
Digital Health Formulary,
Fraud, Waste & Abuse
SafeGuardRx®, Express
Scripts Patient
AssuranceSM,Embarc Benefit
Protection SM
Key Relationships
Primary Competitors
Clients, Customers, Providers
Clients, Customers
Clients, Customers
Independent Pharmacy Benefit
Managers (“PBMs”), Managed Care
PBMs, Retail Pharmacies, Specialty
Pharmacies
Independent PBMs, Managed Care
PBMs, Third Party Benefit
Administrators, Group Purchasing
Organizations
Independent PBMs, Managed Care
PBMs, Third-Party Benefit
Administrators
Clients, Customers
Independent PBMs, Managed Care
PBMs
Provider Services
CuraScript SD®
Health Care Providers, Clinics,
Hospitals
Health Benefit
Management Services
eviCore
Health Plans, Commercial and
Government Payors
Specialty Drug Distributors
Health Plans, Third-Party Benefits
Administrators, Clinical Solutions
and Health Care Data Analytics
Companies
Principal Products & Services
Pharmacy Benefit Management Services: Our services drive high-quality, cost-effective care through prescription drug utilization and
cost management. We support our clients’ plan design selections to deliver balanced affordability, choice, simplicity and
convenience. We focus our solutions to align with our clients’ needs across care, cost and service. As a result, we believe we deliver
better outcomes, higher customer satisfaction and a more affordable prescription drug benefit. The home delivery pharmacy
operations of our Health Services segment consist of eight order processing pharmacies, eight patient contact centers and four high-
volume automated home delivery dispensing pharmacies located throughout the United States. Health Services’ home delivery
dispensing pharmacies are located in Arizona, Indiana, Missouri and New Jersey. Health Services also has seven specialty home
delivery pharmacies and 38 specialty branch pharmacies.
• Pharmacy Dispensing:
o Home Delivery Pharmacy Services: In addition to the order processing that occurs at our home delivery pharmacies, we
operate several non-dispensing prescription processing facilities and customer contact centers. Our pharmacies provide
greater safety and accuracy than retail pharmacies, convenient access to maintenance medications and better
management of our clients’ drug costs through operating efficiencies. We are directly involved with the prescriber and
customer through our home delivery pharmacies and our research shows that we achieve a higher level of generic
substitutions, therapeutic interventions and better adherence than is achieved through retail pharmacy networks.
o Specialty Pharmacy Services: Specialty medications are used primarily for the treatment of complex diseases. These
medications are broadly characterized to include those with frequent dosing adjustments, intensive clinical monitoring,
the need for customer training, specialized product administration requirements or medications limited to certain
specialty pharmacy networks by manufacturers. Through a combination of assets and capabilities, we provide an
enhanced level of predictable care and therapy management for customers taking specialty medications and increased
visibility and improved outcomes for payors, as well as custom programs for biopharmaceutical manufacturers. Accredo
Health Group (“Accredo”) is focused on dispensing injectable, infused, oral or inhaled drugs that require a higher level
of clinical service and support than traditional pharmacies typically offer. Accredo supports successful outcomes for
4
customers and reduces waste for clients through specialty trained clinicians, a nationwide footprint, and a network of in-
home nursing services, reimbursement and customer assistance programs and biopharmaceutical services.
o Drug Claim Adjudication: We process drug claims for home delivery, specialty, or retail networks by integrating retail
network pharmacy administration, benefit design consultation, drug utilization review, drug formulary management and
pharmacy fulfillment services. We administer payments to retail networks and bill benefits costs to our clients through
our end-to-end adjudication services.
o Drug Utilization Review program: When pharmacies submit claims for prescription drugs to us, we review them
electronically in real time for health and safety. We then alert the dispensing pharmacy of any detected issues. Clients
may also choose to enroll in programs that result in communications about potential therapy concerns being sent to
prescribers after the initial claim submission.
•
Supply Chain Administration and Management:
o Retail Network Pharmacy Administration: We contract with retail pharmacies to provide prescription drugs to
customers of the pharmacy benefit plans we manage. In the United States, Puerto Rico and the Virgin Islands, we
negotiate with pharmacies to discount drug prices provided to customers and manage national and regional networks
responsive to client preferences related to cost containment, convenience of access for customers and network
performance. We also manage networks of pharmacies customized for or under direct contract with specific clients and
have contracted with pharmacy provider networks to comply with the Center for Medicare and Medicaid Services
(“CMS”) access requirements for the federal Medicare Part D prescription drug program (“Medicare Part D”). All retail
pharmacies in our network communicate with us online and in real-time to process prescription drug claims. When a
plan customer presents their identification card at a network pharmacy, the pharmacy sends specific customer, prescriber
and prescription information in an industry-standard format through our systems, which process the claim and respond to
the pharmacy with relevant information to process the prescription.
o Benefits Design Consultation: We consult with our clients on how best to structure and leverage the pharmacy benefit to
meet plan objectives for affordable access to the prescription medications people need to stay healthy, and ensure the
safe and effective use of those medications.
o Drug Formulary Management: Formularies are lists of drugs with designations that may be used to determine drug
coverage, customer out-of-pocket costs and communicate plan preferences in competitive drug categories. Our
formulary management services support clients in establishing formularies that assist customers and physicians in
choosing clinically-appropriate, cost-effective drugs and prioritize access, safety and affordability. We administer
specific formularies on behalf of our clients, including standard formularies developed and offered by Express Scripts
and custom formularies in which we play a more limited role. Most of our clients select standard formularies, governed
by our National Pharmacy & Therapeutics Committee comprised of a panel of independent physicians and pharmacists
in active clinical practice representing a variety of specialties and practice settings, typically with major academic
affiliations. In making formulary recommendations, this committee considers only the drug’s safety and efficacy and not
the cost of the drug, including any negotiated manufacturer discount or rebate arrangement. This process is designed to
ensure the clinical recommendation is not affected by our financial arrangements. We fully comply with this
committee’s clinical recommendations regarding drugs that must be included or excluded from the formulary based on
their assessment of safety and efficacy.
o Administration of Group Purchasing Organizations: Express Scripts operates various group purchasing organizations
that negotiate pricing for the purchase of pharmaceuticals, fees and formulary rebates with pharmaceutical manufacturers
on behalf of their participants. They also provide various administrative services to their participants including
management and reporting.
• Clinical Solutions: We offer innovative clinical programs to help our clients drive better health outcomes at a lower cost by
identifying and addressing potentially unsafe or wasteful prescribing, dispensing and use of prescription drugs and
communicating with, or supporting communications with, physicians, pharmacies and customers.
o Our Health Connect 360 SM offering is a transformational, outcomes based clinical management program that bridges
pharmacy, medical, lab and patient engagement data to develop insights and deliver personalized health care
interventions. Clinical outcomes and quality metrics are tailored to client needs and guaranteed.
o Through the Express Scripts Digital Health FormularySM offering, we evaluate digital health solutions available on
the market, providing a list to clients of solutions that provide clinical effectiveness, data security, user-friendly
experience and financial value.
o Advanced Utilization Management programs are the number-one tool for decreasing client spend on pharmacy.
These include prior authorization, drug quantity management, step therapy and preferred specialty management.
o Enhanced Fraud, Waste & Abuse is an investigative service program that helps plan sponsors identify potential
problem customers and prescribers with unusual or excessive utilization patterns. The program is designed to help
identify outliers and situations of abnormal use or prescribing patterns by analyzing types of prescriptions, refill
patterns and pharmacy utilization.
5
Other solutions include RationalMed®, ScreenRx®, ExpressAlliance®, Advanced Opioid Management®, and OnePASM
offerings, as well as Medication Therapy and Medical Benefit Drug Management.
• Value-Based Programs:
o SafeGuardRx®: We offer a solution platform aimed at therapy classes that pose significant budgetary threats and clinical
challenges to patients. Our solutions are designed to keep our clients ahead of the cost curve while providing customers
the personalized care and access they need. These solutions are offered throughout our pharmacy benefit management
services and include, but are not limited to care for: cardiovascular, diabetes, hepatitis, inflammatory conditions,
migraine, multiple sclerosis, oncology, pulmonary, and rare conditions. Innovative programs, such as our SafeGuardRx
program, combine utilization management controls with formulary management, the specialized care model of our
Therapeutic Resource Center® program and comprehensive guarantees, and help us to change the market in key
categories. Through our Therapeutic Resource Center® offering, we provide caring for customers with the most complex
and costly chronic conditions including cardiovascular disease, diabetes, cancer, HIV, asthma, depression and other rare
and specialty conditions. These services optimize the safe and appropriate dispensing of therapeutic agents, minimize
waste and improve clinical and financial outcomes. Through these services, specialist pharmacists provide the expert,
personalized care that customers increasingly demand. Notably, our programs covering oncology and inflammatory
conditions have introduced a value-based contracting approach with payments now tied to a product’s effectiveness.
o Patient Assurance ProgramSM: This program addresses the need for greater affordability and access to insulin by
providing a fixed out-of-pocket cost to customers in non-government funded benefit plans.
o Embarc Benefit ProtectionSM: This program combines health benefit management, health services and specialty
pharmacy capabilities to make emerging gene therapy treatments more affordable for the payor, the employer and the
patient.
• Provider Services: CuraScript SD is a specialty distributor of pharmaceuticals and medical supplies (including injectable and
infusible pharmaceuticals and medications to treat specialty and rare or orphan diseases) directly to health care providers,
clinics and hospitals in the United States for office or clinic administration. Through this business, we provide distribution
services primarily to office and clinic-based physicians who treat customers with chronic diseases and regularly order costly
specialty pharmaceuticals. This business provides competitive pricing on pharmaceuticals and medical supplies, operates
three distribution centers and ships most products overnight within the United States; it also provides distribution capabilities
to Puerto Rico and Guam. It is a contracted supplier with most major group purchasing organizations and leverages our
distribution platform to operate as a third-party logistics provider for several pharmaceutical companies.
• Health Benefit Management Services: eviCore is a leading provider of integrated health benefit management solutions that
focus on driving adherence to evidence-based guidelines, improving the quality of patient outcomes and reducing the cost of
care for our clients. eviCore manages: diagnostic imaging, comprehensive musculoskeletal disorders, sleep disorders, post-
acute care, genetic lab, specialty pharmacy and medical oncology. eviCore contracts with health plans and other commercial
and government payors to promote the appropriate use of health care services by the customers they serve. In certain
instances, this occurs through capitated risk arrangements, when we assume the financial obligation for the cost of health care
services provided to eligible customers covered by eviCore health care management programs.
Customers
• Clients: We provide services to managed care organizations, health insurers, third-party administrators, employers, union-
sponsored benefit plans, workers’ compensation plans, government health programs, providers, clinics, hospitals and others.
• Patients: Prescription drugs are dispensed to patients connected to the service offerings we provide to clients. Prescription
drugs are dispensed primarily through networks of retail pharmacies under non-exclusive contracts with us and through our
home delivery and specialty drug fulfillment pharmacies.
The Department of Defense’s TRICARE® Pharmacy Program is the military health care program serving active-duty service
customers, National Guard and Reserve customers and retirees, as well as their dependents. Under this contract, we provide online
claims adjudication, home delivery services, specialty pharmacy clinical services, claims processing and contact center support and
other services critical to managing pharmacy trend. In 2019, revenues from this contract were significant to the segment.
On January 30, 2019, Anthem, Inc. (“Anthem”) exercised its right to early termination of its pharmacy benefit management services
agreement, effective March 1, 2019. As of December 31, 2019, the transition of customers is substantially complete. For further
discussion of our Anthem relationship, see the “Executive Summary – Key Transactions and Business Developments” section of our
MD&A located in Part II, Item 7 of the Form 10-K. In 2019, Anthem revenues were significant to the segment.
In December 2019, Express Scripts and Prime Therapeutics LLC (“Prime”) announced a three-year agreement designed to deliver care
for Prime’s clients and their patients by enhancing pharmacy networks and pharmaceutical manufacturer value.
6
Competition
The health care industry has undergone periods of substantial consolidation and may continue to consolidate in the future. We believe
the primary competitive factors in the industry include the ability to: negotiate with retail pharmacies to ensure our retail pharmacy
networks meet the needs of our clients and customers; provide home delivery and specialty pharmacy services; negotiate discounts
and rebates on prescription drugs with drug manufacturers; navigate the complexities of government-reimbursed business including
Medicare, Medicaid and the public exchanges; manage cost and quality of specialty drugs; use the information we obtain about drug
utilization patterns and consumer behavior to reduce costs for our clients and customers and the level of service we provide.
• Managed Care PBMs: CVS Caremark (owned by CVS Health Corporation), Envision Rx (owned by Rite Aid Corporation),
Humana, IngenioRx (owned by Anthem), Optum (owned by UnitedHealth Group Inc.) and Prime Therapeutics (owned by a
collection of Blue Cross / Blue Shield Plans) compete with us on a variety of products and in various regions throughout the
United States.
Independent PBMs: MedImpact and Navitus Health Solutions compete with us on a variety of products and in various
regions throughout the United States.
•
• Retail Pharmacies: CVS Caremark, Walgreens Boots Alliance, Inc. and WalMart, Inc.
• Third-Party Benefits Administrators: Third parties that specialize in claim adjudication and benefit administration, such as
Argus, are direct competitors. With the emergence of alternative benefit models through Private Exchanges, the competitive
landscape also includes brokers, health plans and consultants. Some of these competitors may deploy greater financial,
marketing and technological resources than we do and new market entrants, including strategic alliances aimed at modifying
the current health care delivery models or entering the prescription drug sector from another sector of the health care
industry, may increase competition as barriers to entry are relatively low.
• Clinical Solutions and Health Care Data Analytics Companies: OptumRx (owned by UnitedHealth Group Inc.), Anthem,
Magellan Health, HealthHelp, Cotiviti, and Inovalon are among the companies that compete with us in this market.
Operations
•
•
Sales and Account Management: Our sales and account management teams market and sell pharmacy benefit management
solutions and are supported by client service representatives, clinical pharmacy managers and benefit analysis consultants.
These teams work with clients to develop innovative strategies that put medicine within reach of customers while helping
health benefit providers improve access to and affordability of prescription drugs.
Supply Chain: Our supply chain contracting and strategy teams negotiate and manage pharmacy network contracts,
pharmaceutical and wholesaler purchasing contracts and manufacturer rebate contracts. As our clients continue to experience
increased cost trends, our supply chain teams develop innovative solutions such as our SafeGuardRx program and narrow
networks to combat these cost increases. In addition, our Formulary Consulting team, consisting of pharmacists and financial
analysts, provides services to our clients to support formulary decisions, benefit design consultation and utilization
management programs.
• Clinical Support: Our staff of highly trained health care professionals provides clinical support for our pharmacy benefit
management and health benefit management services, including more specialized care for customers with select chronic and
complex conditions. We operate condition-specific Therapeutic Resource Center facilities staffed with specialist
pharmacists, nurses and other clinicians who provide personal and specialized customer care. Our clinical solutions staff of
pharmacists and physicians provides clinical development and operational support for our pharmacy benefit management
services. These health care providers conduct a wide range of activities including identifying emerging medication-related
safety issues and alerting physicians, clients, and customers (as appropriate); providing drug information services; managing
formulary; and developing utilization management, safety (drug utilization review) and other clinical interventions.
Suppliers
We maintain an inventory of brand-name and generic pharmaceuticals in our home delivery and specialty pharmacies. Our specialty
pharmacies also carry biopharmaceutical products to meet the needs of our customers, including pharmaceuticals for the treatment of
rare or chronic diseases; if a drug is not in our inventory, we can generally obtain it from a supplier within one business day.
We purchase pharmaceuticals either directly from manufacturers or through authorized wholesalers. Health Services uses one
wholesaler more than others in the industry, but holds contracts with other wholesalers if needs for an alternate source arise. Generic
pharmaceuticals are generally purchased directly from manufacturers.
7
Industry Developments
See the “Industry Developments” section of the MD&A in this Form 10-K for discussion of key industry developments impacting this
segment.
Intellectual Property Rights
Our Company’s Health Services-related trademark and service marks include, but are not limited to, the following: EXPRESS
SCRIPTS®, MEDCO®, ACCREDO®, CURASCRIPTSD®, EVICORE HEALTHCARE®, FREEDOM FERTILITY
PHARMACY®, RATIONALMED®, SCREENRX®, EXPRESSALLIANCE®, THERAPEUTIC RESOURCE CENTER®,
ADVANCED OPIOID MANAGEMENT®, SAFEGUARDRX®, CARDIOVASCULAR CARE VALUESM, HEPATITIS CURE
VALUESM, MARKET EVENTS PROTECTIONSM, ONCOLOGY CARE VALUESM, DIABETES CARE VALUESM,
INFLAMMATORY CONDITIONS CARE VALUESM, INFLATION PROTECTIONSM, PULMONARY CARE VALUESM,
MULTIPLE SCLEROSIS CARE VALUESM, HEALTH CONNECT 360SM, EMBARC BENEFIT PROTECTIONSM, EXPRESS
SCRIPTS PATIENT ASSURANCESM and INSIDE RX®. We, or our affiliated companies, own trademark registrations for these and
other company marks. Other names and marks referenced herein are the property of their respective owners.
We also hold a portfolio of patents and pending patent applications. We are not substantially dependent on any single patent or group
of related patents.
INTEGRATED MEDICAL
Integrated Medical consists of a Commercial operating segment that includes our employer-sponsored medical coverage and a
Government operating segment that includes Medicare offerings for seniors and individual insurance offerings both on and off the
public health insurance exchanges. In 2019, Integrated Medical reported adjusted revenues of $36.5 billion and pre-tax adjusted
income from operations of $3.8 billion.
HOW WE WIN
• Broad and deep portfolio of solutions across Commercial and Government operating segments
• Commitment to highest-quality health outcomes and customer experiences
• Collaborative physician engagement models emphasizing value over volume of services
•
Integrated benefit solutions that deliver value for our customers, clients and partners
• Technology and data analytics powering actionable insights and affordable, predictable solutions
• Talented and caring people embracing change and putting customers at the center of all we do
We differentiate ourselves by providing innovative, personalized, and affordable health care benefit solutions based on the unique
needs of the individuals and clients we serve. We increase value through our integrated approach and use of technology and data
analytics to enhance patient engagement and health care outcomes, underscoring our strategic focus on delivering an industry-leading
customer experience. We continue to strengthen our collaborative relationships with providers as we accelerate our transition to a
value-based reimbursement system.
We offer a mix of core health insurance products and services to employers, other groups and individuals along with specialty
products and services designed to improve the quality of care, lower cost and help customers achieve better health outcomes. Many of
these products are available on a standalone basis, but we believe they create additional value when integrated with a Cigna-
administered health plan. Our products are available through several distribution channels including brokers, direct sales and public
and private exchanges. Our three funding solutions (i.e., insured – experience-rated (“ER”), insured – guaranteed cost (“GC”), and
administrative services only (“ASO”) arrangements) enable us to customize the amount of risk taken by, and lower costs for, our
customers and clients.
8
The following chart depicts a high-level summary of our principal products and services in this segment, with definitions on
subsequent pages.
Principal
Products &
Services
Major
Brand(s)
Geography
Funding
Solution(s)
Market
Segment(s)
Primary
Distribution
Channel(s)
Primary
Competitors
Commercial Medical
Managed Care
Cigna
HealthCare
Nationwide
National Insurers,
Local Healthplans,
Third-Party
Administrators
(“TPAs”)
Cigna
Nationwide
GC, ER, ASO
Commercial
Brokers, Private
Exchanges, Direct
National Insurers,
TPAs
Preferred
Provider
Organization
(“PPO”)
Consumer-
Driven
Individual and
Family Plans
Medicare
Advantage
Stop-Loss
Cost-
Containment
Consumer
Health
Engagement
Pharmacy
Management
National Insurers,
Local Health
Maintenance
Organizations
(“HMOs”)
Local Healthplans,
Start-ups, National
Insurers
National Insurers,
Local Healthplans
National Insurers,
Specialty Companies
National Insurers,
Specialty Companies
National Insurers,
Specialty Companies
Cigna
Nationwide
Government Medical
Cigna Connect
9 states(1)
GC
Individual
Public and Private
Exchanges
Cigna
Government
Direct, Brokers
Medicare Stand
–Alone PDPs
Cigna, Express
Scripts
Medicare
Supplement
Cigna
16 states(2) &
District of
Columbia
Nationwide
48 states(3) &
District of
Columbia
GC
GC
GC
Government
Direct, Brokers
National Insurers
Government
Brokers, Direct,
Private Exchanges
National Insurers
Specialty Products and Services
Cigna
Nationwide
GC
Commercial
Brokers, Direct
Cigna
Nationwide
GC, ER, ASO
Commercial
Direct
Cigna
Nationwide
GC, ER, ASO
Cigna
Nationwide
GC, ER, ASO
Commercial,
Government
Commercial,
Government
Brokers, Direct
Brokers, Direct
National PBMs
Behavioral
Health
Cigna
Behavioral
Health
Cigna Dental
HealthCare
(1) AZ, CO, FL, IL, MO, NC, TN, TX, VA
(2) AL, AZ, AR, DE, FL, GA, IL, KS, MD, MS, MO, NC, PA, SC, TN, TX
(3) All states except MA and NY
Nationwide
Nationwide
Dental
GC, ER, ASO
Commercial
Brokers, Direct
National Insurers,
Specialty Companies
GC, ER, ASO
Commercial,
Government
Brokers, Direct
Dental Insurers,
National Insurers
9
Principal Products & Services
Commercial Medical
• Managed Care Plans are offered through our insurance companies, HMOs and TPA companies. HMO, LocalPlus®,
Network Open Access and Open Access Plus plans use meaningful cost-sharing incentives to encourage the use of “in-
network” versus “out-of-network” health care providers. The national provider network for Managed Care Plans is
somewhat smaller than the national network used with the PPO plan product line.
• PPO Plans feature a network with broader provider access than the Managed Care Plans.
• Consumer-Driven Products are typically paired with a high-deductible medical plan and offer customers a tax-advantaged
way to pay for eligible health care expenses. These products, consisting of health savings accounts, health reimbursement
accounts and flexible spending accounts, encourage customers to play an active role in managing their health and health care
costs.
Government Medical
•
Individual and Family Plans feature an insurance policy coupled with a network of health care providers in a geographic area
who have been selected with cost and quality in mind.
• Medicare Advantage Plans allow Medicare-eligible beneficiaries to receive health care benefits, including prescription drugs,
through a managed care health plan such as our coordinated care plans. Our Medicare Advantage Plans are primarily HMO
plans marketed to individuals. A significant portion of our Medicare Advantage customers receive medical care from our
value-based models that focus on developing highly engaged physician networks, aligning payment incentives to improved
health outcomes and using timely and transparent data sharing.
• Medicare Stand-Alone Prescription Drug Products provide a number of prescription drug plan options, as well as service and
information support, to Medicare and Medicaid eligible customers. Our stand-alone plans offer the savings of Medicare
combined with the flexibility to provide enhanced benefits and a drug list tailored to an individual’s specific needs. Eligible
beneficiaries benefit from broad network access and value-added services intended to promote wellness and affordability for
our eligible beneficiaries.
• Medicare Supplement Plans provide Medicare-eligible beneficiaries with federally standardized Medigap-style plans.
Beneficiaries may select among the various plans with specific plan options to meet their unique needs and may visit, without
the need for a referral, any health care provider or facility that accepts Medicare throughout the United States.
Specialty Products and Services
•
Stop-Loss insurance coverage is offered to self-insured clients whose group health plans are administered by Cigna. Stop-
loss insurance provides reimbursement for claims in excess of a predetermined amount for individuals, the entire group, or
both.
• Cost-Containment Programs are designed to contain the cost of covered health care services and supplies. These programs
reduce out-of-network utilization and costs, protect customers from balance billing and educate customers regarding the
availability of lower cost in-network services. In addition, under these programs we negotiate discounts with out-of-network
providers, review provider bills and recover overpayments. We charge fees for providing or arranging for these services.
These programs may be administered by third-party vendors that have contracted with Cigna.
• Consumer Health Engagement services are offered to customers covered under plans administered by Cigna or by third-party
administrators. These services consist of an array of health management, disease management and wellness services. Our
Medical Management programs include case, specialty and utilization management and a Health Information line. Our
Health Advocacy program services include early intervention in the treatment of chronic conditions and an array of health
and wellness coaching. Additionally, we administer incentives programs designed to encourage customers to engage in
health improvement activities.
• Pharmacy Management services and benefits can be combined with our medical offerings. The comprehensive suite of
pharmacy management services available to clients and customers includes benefits management, specialty pharmacy
services, clinical solutions, home delivery and certain health management services.
• Behavioral Health services consist of behavioral health care case management, employee assistance programs (“EAP”) and
work/life programs. We focus on integrating our programs and services with medical, pharmacy and disability programs to
facilitate customized, holistic care.
10
• Dental solutions include dental health maintenance organization plans, dental preferred provider organization plans,
exclusive dental provider organization plans, traditional dental indemnity plans and a dental discount program. Employers
and other groups can purchase our products on either an insured or self-insured basis as standalone products or in conjunction
with medical products. Additionally, individual customers can purchase insured dental preferred provider organization plans
as standalone products or in conjunction with individual medical policies.
Funding Solutions
• ASO. Plan sponsors (i.e., employers, unions and other groups) self-fund all claims, but may purchase stop-loss insurance to
limit exposure. We collect fees from plan sponsors for providing access to our participating provider network and for other
services and programs including: claims administration; behavioral health services; disease management; utilization
management; cost containment; dental and pharmacy benefit management. Approximately 85% of our commercial medical
customers are in ASO arrangements.
• Experience-rated Insurance. Premium rates are established at the beginning of a policy period and are typically based on
prior claim experience of the policyholder. When claims and expenses are less than the premium charged (an “experience
surplus” or “margin”), the policyholder may be credited for a portion of this experience surplus or margin. If claims and
expenses exceed the premium charged (an “experience deficit”), we bear these costs. In certain cases, experience deficits
incurred while the policy is in effect are accumulated and may be recovered through future policy year experience surpluses
or margins. Approximately 6% of commercial medical customers are in experience-rated arrangements.
• Guaranteed Cost Insurance. Premium rates are established at the beginning of a policy period and, depending on group size,
may be based in whole or in part on prior experience of the policyholder or on a pool of similar policyholders. We generally
cannot subsequently adjust premiums to reflect actual claim experience until the next annual renewal. The policyholder does
not participate, or share in, actual claim experience. We keep any experience surplus or margin if costs are less than the
premium charged (subject to minimum medical loss ratio rebate requirements discussed below) and bear the risk for actual
costs in excess of the premium charged. Approximately 9% of commercial medical customers are in guaranteed cost
arrangements.
In most states, individual and group insurance premium rates must be approved by the applicable state regulatory agency
(typically department of insurance) and state or federal laws may restrict or limit the use of rating methods. Premium rates for
groups and individuals are subject to state review to determine whether they are adequate, not excessive and not unfairly
discriminatory. In addition, the Patient Protection and Affordable Care Act (“ACA”) subjects individual and small group policy
rate increases above an identified threshold to review by the United States Department of Health and Human Services (“HHS”)
and requires payment of premium refunds on individual and group medical insurance products if minimum medical loss ratio
(“MLR”) requirements are not met. The MLR represents the percentage of premiums used to pay medical claims and expenses
for activities that improve the quality of care. In our individual business, premiums may also be adjusted as a result of the
government risk adjustment program that accounts for the relative health status of our customers. See the “Business -
Regulation” section of this Form 10-K for additional information about commercial MLR requirements and risk mitigation
programs of the ACA.
Market Segments
• Commercial comprises employers from the following market segments:
o National. Multistate employers with 5,000 or more U.S.-based, full-time employees. We offer primarily ASO
funding solutions in this market segment.
o Middle Market. Employers generally with 500 to 4,999 U.S.-based, full-time employees. This segment also
includes single-site employers with more than 5,000 employees and Taft-Hartley plans and other groups. We offer
ASO, experience-rated and guaranteed cost insured funding solutions in this market segment.
o Select. Employers generally with 51-499 eligible employees. We usually offer ASO with stop-loss insurance
coverage and guaranteed cost insured funding solutions in this market segment.
o Small Group Employers generally with 2-50 eligible employees. Pending regulatory approvals, we expect to launch
a small group offering in select markets in 2020 with a strategic partner.
•
Individual. Consistent with the regulations for Individual ACA compliant plans, we offer only guaranteed cost plans in this
market segment.
• Government includes individuals who are Medicare-eligible beneficiaries, as well as employer group sponsored pre- and
post-65 retirees. We also have dual-eligible customers who receive both Medicare and Medicaid benefits. We receive
revenue from the Centers for Medicare and Medicaid Services (“CMS”) based on customer demographic data and health risk
factors. In 2019, revenues from CMS were significant to the segment.
11
Primary Distribution Channels
• Brokers. Sales representatives distribute our products and services to a broad group of insurance brokers and consultants
across the United States.
• Direct. Cigna sales representatives distribute our products and services directly to employers, unions and other groups or
individuals across the United States. Various products may also be sold directly to insurance companies, HMOs and third-
party administrators. This may take the form of in-person contact, telephone or group selling venues.
• Private Exchanges. We partner with select companies that have created private exchanges where individuals and
organizations can acquire health insurance. We actively evaluate private exchange participation opportunities as they emerge
in the market and target our participation to those models that best align with our mission and value proposition.
• Public Exchanges. Public health insurance exchanges for ACA compliant plans on which Cigna may offer individual
policies.
Competition
The primary competitive factors affecting our business are quality and cost effectiveness of service and provider networks;
effectiveness of medical care management; products that meet the needs of employers and their employees; total cost management;
technology; and effectiveness of marketing and sales. Financial strength, as indicated by ratings issued by nationally recognized
rating agencies, is also a competitive factor. Our health advocacy capabilities, holistic approach to consumer engagement, breadth of
product offerings, clinical care and health management capabilities and array of product funding options are competitive advantages.
We believe our focus on improving the health, well-being and peace of mind of those we serve, and how we deliver better
affordability, predictability and simplicity in health care will allow us to further differentiate ourselves.
• National Insurers. United HealthGroup Inc., Aetna Inc. (owned by CVS Health Corporation), Anthem, Humana and Blue
Cross Blue Shield plans compete with us in a variety of products and regions throughout the United States.
• Local Healthplans. Blue Cross Blue Shield plans, local affiliates of major insurance companies and hospitals and regional
stand-alone managed care and specialty companies compete with us in the states in which we offer managed care products.
Additionally, plan sponsors may contract directly with providers.
• TPAs. Third-party administrators compete with us for ASO business.
•
Start-ups. Emerging participants including alternative health service models, consortiums and other health plans seeking to
disrupt, often through competitive technology.
• Dental Insurers. Various companies offering primarily dental insurance compete with us on these products.
•
Specialty Companies. Specialty insurance or service companies that offer niche products and services compete with us.
Partnering to Deliver on the Promise of More Affordable, Predictable, Simple Health Care
Cigna’s Connected Care strategy engages customers in their health, collaborates with providers to help them improve their
performance, and connects customers and providers through aligned health goals, incentives and actionable information to enable
better decisions and outcomes. Our delivery strategy is designed to ensure our customers have access to the right care and in the
preferred and appropriate setting at the right time. Fueled by advanced insights and predictive analytics, Cigna is committed to
developing innovative solutions that span the health care delivery system and can be applied to different types of providers. Currently
we have numerous collaborative arrangements with our participating health care providers that reach 3.9 million customers and are
actively developing new arrangements to support our Connected Care strategy.
• Accountable Care Program. We have 257 collaborative care arrangements with primary care groups built on the patient-centered
medical home and accountable care organization (“ACO”) models. Our arrangements span more than 34 states and reach over 3
million customers. We are committed to increasing the number of groups over the next several years, as well as deepening
existing relationships, with a goal of reaching over 270 programs by the end of 2020.
• Hospital Quality Program. We have contracts with over 500 hospitals with reimbursements tied to quality metrics. We expect to
•
•
grow this number to over 600 hospitals by the end of 2020.
Specialist Programs. We have 290 arrangements with specialist groups in value-based reimbursement arrangements. Our goal is
to reach approximately 380 arrangements by the end of 2020. Programs include nationwide arrangements with several types of
specialist groups including orthopedics, obstetrics and gynecology, cardiology, gastroenterology, oncology, nephrology and
neurology. Arrangements include care coordination and episodes of care reimbursements for meeting cost and quality goals.
Independent Practice Associations. We have value-based physician engagement models in our Medicare Advantage business that
allow physician groups to share financial outcomes with us. This clinical model also includes outreach to new and at-risk patients
to ensure they are accessing their primary care physician.
12
• Participating Provider Network. We provide our customers with an extensive network of participating health care providers,
hospitals and other facilities, pharmacies and providers of health care services and supplies. In most instances, we contract with
them directly; however, in some instances, we contract with third parties for access to their provider networks and care
management services. In addition, we have entered into strategic alliances with several regional managed care organizations
(e.g., Tufts Health Plan, HealthPartners, Inc., Health Alliance Plan and MVP Health Plan) to gain access to their provider
networks and discounts.
INTERNATIONAL MARKETS
Cigna’s International Markets segment has operations in over 30 countries or jurisdictions providing a full range of comprehensive
medical and supplemental health, life, and accident benefits to individuals and employers. Products and services include
comprehensive health coverage, hospitalization, dental, critical illness, personal accident, term life, and variable universal life. In
2019, International Markets reported adjusted revenues of $5.6 billion and pre-tax adjusted income from operations of $762 million.
HOW WE WIN
• Offering a broad range of health and protection-related solutions to meet the needs of the growing middle class
and globally mobile
• Leveraging deep consumer insights to drive product and service innovation
• Maintaining leading innovative, direct-to-consumer distribution capabilities
• Providing access to quality, affordable care through one of the largest global provider networks
•
Implementing locally-licensed and compliant solutions managed by strong, locally-developed talent
Demand for our products and services is driven by the growing global middle class, aging populations, increasing prevalence of
chronic conditions and rising global health care costs. Our focus on product and service innovation means we continue to deliver
solutions that meet the evolving needs of individual and group customers. Our products, distribution channels and funding sources
range by customer and geography.
13
International Markets is well positioned to address the growing demand for access to quality, affordable care and supplemental health
and life protection that fill gaps in public and private care. We distinguish ourselves through differentiated direct-to-consumer
distribution, customer insights, product innovation, a leading provider network and compliant solutions. We identify and pursue
attractive market opportunities to bring health and protection solutions and tailor those solutions to the market and customer needs.
Over the past several years, we have extended our product offerings and geographic reach. The chart below provides a high-level
summary of our principal products and services in this segment with definitions on subsequent pages.
Principal Products
& Services
Major
Brand(s)
Geography
Funding
Solution(s)
Key Relationships
Worldwide
(except as limited
by applicable
law)
United Kingdom,
Spain, Hong
Kong, India,
China, Singapore
ER, GC, ASO
ER, GC, ASO
Multinational
Companies, Inter-
governmental and
Non-governmental
Organizations
Globally mobile
individuals
Employer Groups
Individuals
Asia Pacific,
India, Turkey
GC
Individuals
Global Health
Care
Local Health
Care
Supplemental
Health, Life, &
Accident
Cigna Global
Health
Benefits
Cigna Global
IPMI
Cigna
ManipalCigna
CignaCMB
Cigna
LINA Korea
CignaCMB
ManipalCigna
CignaFinans
Principal Products & Services
Primary
Distribution
Channel(s)
Primary
Competitors
Brokers,
Agents, Direct-
to-Consumer
Global insurers
Brokers,
Agents, Direct-
to-Consumer
Global insurers and
local non-U.S.
insurers
Affinity,
Bancassurance,
Brokers,
Agents, Direct-
to-Consumer
Global insurers and
local non-U.S.
insurers
Global Health Care products and services include insurance and administrative services for medical, dental, pharmacy, vision and life,
accidental death and dismemberment and disability risks. We are leading providers of products and services that meet the needs of
multinational employers, intergovernmental and nongovernmental organizations and globally mobile individuals with a focus on
keeping employees healthy and productive. The employer benefits products and services are offered through guaranteed cost,
experience-rated and administrative services only funding solutions, while individuals purchase guaranteed cost coverage. For
definitions of funding solutions, see “Funding Solutions” in the “Integrated Medical” description of business section of this
Form 10-K.
Local Health Care products and services include medical, dental, pharmacy and vision as well as life coverage. The customers of
local health care businesses are employers and individuals located in specific countries where the products and services are purchased.
These employer services can similarly be funded through a range of options; individuals purchase on a guaranteed cost basis.
Supplemental Health, Life and Accident Insurance products and services generally provide simple, affordable coverage of risks for the
health and financial security of individuals. Supplemental health products provide stated benefit payments for certain specified health
risks and include personal accident, accidental death, critical illness, hospitalization, travel, dental, dementia, cancer and other dread
disease coverages. We also offer customers term and variable universal life insurance and certain savings products in select markets.
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Competition
We anticipate that the competitive environment will intensify as insurance and financial services providers more aggressively pursue
expansion opportunities across geographies, particularly Asia. We believe competitive factors will include speed-to-market, customer
insights, branding, product, distribution and service innovation, underwriting and pricing, efficient management of marketing and
operating processes, commission levels paid to distribution partners, the quality of compliance functions, claims, network coverage
and medical cost management, and talent acquisition and retention. Additionally, in most overseas markets, perception of
commitment to the market and financial strength will likely be an important competitive factor.
Pricing and Reinsurance
Premium rates and fees for our global and local health care products reflect assumptions about future claims, expenses, customer
demographics, investment returns and profit margins. For products using networks of contracted health care providers and facilities,
premiums reflect assumptions about the impact of these contracts and utilization management on future claims. Most contracts permit
rate changes at least annually.
The profitability of health care products is dependent upon the accuracy of projections for health care inflation (unit cost, location of
delivery of care, currency of incurral and utilization), customer demographics, the adequacy of fees charged for administration and
effective medical cost management.
Premium rates for our supplemental benefits products are based on assumptions about mortality, morbidity, customer acquisition and
retention, customer demographics, expenses and capital requirements, as well as interest rates. Variable universal life insurance
products fees consist of mortality, administrative, asset management and surrender charges assessed against the contractholder’s fund
balance. Mortality charges on variable universal life may be adjusted prospectively to reflect expected mortality experience. Most
contracts permit premium rate changes at least annually.
A global approach to underwriting risk management allows each local business to underwrite and accept risk within specified limits.
Retentions are centrally managed through cost-effective use of external reinsurance to limit our liability on per life, per risk and per
event (catastrophe) bases.
Industry Developments and Other Items Affecting International Markets
South Korea represents our single largest geographic market for International Markets. For information on this concentration of risk
for the International Markets segment's business in South Korea, see "Other Items Affecting Results of International Markets" in the
International Markets section of the MD&A of this Form 10-K.
Pressure on social health care systems, a rapidly aging population and increased wealth and education in developing insurance markets
are leading to higher demand for health insurance and financial security products. In the supplemental health, life and accident
business, direct marketing channels continue to grow and attract new competitors with industry consolidation among financial
institutions and other affinity partners.
Data privacy regulation has tightened in all markets in the wake of high-profile data privacy incidents, impacting affinity partner and
customer attitudes toward direct marketing of insurance and other financial services. It has also placed an added emphasis on the
importance of operational compliance.
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GROUP DISABILITY AND OTHER
As explained further in the introduction to this Form 10-K, Group Disability and Other consists of our Group Disability and Life
operating segment, along with COLI and certain run-off businesses reported together in Other Operations. In 2019, Group Disability
and Other reported adjusted revenues of $5.2 billion and pre-tax adjusted income from operations of $501 million.
In December 2019, Cigna entered into a definitive agreement to sell the Group Disability and Life business to New York Life
Insurance Company for $6.3 billion. The sale is expected to close in the third quarter of 2020 subject to applicable regulatory
approvals and other customary closing conditions. Until the transaction is finalized, we continue to operate our business as usual and
serve our customers.
HOW WE WIN
• Disability absence management model that reduces overall costs to employers
•
Integration of disability products with medical and specialty offerings, promoting health and wellness
and optimizing employee productivity
• Complementary portfolio of group disability, life and accident offerings
• Disciplined underwriting, pricing and investment strategies supporting profitable long-term growth
Group Disability and Life
Our Group Disability and Life operating segment includes our commercial long- and short-term disability products and our term life
group insurance products. We also offer personal accident insurance and voluntary products and services. These products and
services are distributed through brokers and direct sales and are available in guaranteed cost, experience-rated and ASO arrangements.
The following chart depicts a high-level summary of our Principal Products and Services in this segment with definitions on
subsequent pages.
Principal Products
& Services
Payor
Premium
Rates
Long-term
Disability
Short-term
Disability
Term Life
Employer,
Employee
Employer,
Employee
Preset,
guaranteed
Preset,
guaranteed
Employer,
Employee
Preset,
guaranteed
Personal Accident
Insurance
Voluntary
Products and
Services
Employer,
Employee
Preset,
guaranteed
Employee
Preset,
guaranteed
Principal Products & Services
Group Disability
Funding Solution(s)
Group Disability
Market
Segment(s)
Primary
Distribution
Channel(s)
Primary
Competitors
ER, GC, ASO
Commercial Brokers, Direct
ER, GC, ASO
Commercial Brokers, Direct
Group Life
ER, GC
Commercial Brokers, Direct
Group Accident and Voluntary
ER, GC
Commercial Brokers, Direct
GC
Commercial Brokers, Direct
National Insurers,
Regional Insurers
National Insurers,
Regional Insurers
National Insurers,
Regional Insurers
National Insurers,
Regional Insurers
National Insurers,
Regional Insurers
• Group Long-term and Short-term Disability insurance products generally provide a fixed level of income to replace a portion
of wages lost due to disability. As part of our group disability insurance products, we also assist employees in returning to
work and employers with resources to manage the cost of employee disability
• Leave Administration solutions help customers effectively manage workforce absence and provide coverage for paid leave.
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Group Life Insurance
• Group Term Life insurance may be employer-paid basic life insurance, employee-paid supplemental life insurance or a
combination thereof.
Group Accident and Voluntary
• Personal Accident Insurance coverage consists primarily of accidental death and dismemberment and travel accident
insurance to employers.
• Voluntary Products and Services include plans that provide employers with administrative solutions designed to provide a
complete and simple way to manage their benefits program. These voluntary offerings include accidental injury insurance,
critical illness coverage and hospital care coverage, and provide additional dollar payouts to employees for unexpected
accidents, hospitalization or more serious illnesses.
Pricing
Premiums charged for disability and term life insurance products are usually established in advance of the policy period and are
generally guaranteed for one to three years, but selectively guaranteed for up to five years. Policies are generally subject to
termination by the policyholder or by the insurance company annually. Premium rates reflect assumptions about future claims,
expenses, credit risk, investment returns and profit margins. These assumptions may be based in whole or in part on prior experience
of the account or on a pool of accounts, depending on the group size and the statistical credibility of the experience that varies by
product.
Market Segments
• Commercial. Commercial market segments are as follows:
o National. Multistate employers with 5,000 or more U.S.-based, full-time employees.
o Middle Market. Employers generally with 250 to 4,999 U.S.-based, full-time employees.
o Select. Employers generally with up to 249 eligible employees.
Primary Distribution Channels
•
Insurance Broker and Consultants. Sales representatives distribute our products and services to a broad group of insurance
brokers and consultants across the United States.
• Direct. Sales representatives distribute our products and services directly to employers, unions and other groups or
individuals across the United States. This may take the form of in-person contact, telephone or group selling venues.
Competition
The principal competitive factors that affect the Group Disability and Life segment are underwriting and pricing, the quality and
effectiveness of claims management, relative operating efficiency, investment and risk management, distribution methodologies and
producer relations, the breadth and variety of products and services offered, the quality of customer service and, more importantly, the
state of the tools and technology available for customers, clients, consultants and producers. For certain products with longer-term
liabilities, such as group long-term disability insurance, the financial strength of the insurer, as indicated by ratings issued by
nationally recognized rating agencies, is also a competitive factor.
• National Insurers. Unum, The Hartford, Prudential Financial, Lincoln Financial Group and MetLife compete with us on a
variety of products and regions throughout the United States.
Industry Developments
Employers have expressed a growing interest in employee wellness, absence management and productivity and recognize a strong link
between employee health productivity and profitability.
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The group insurance market remains highly competitive as the rising cost of medical coverage has forced companies to re-evaluate
their overall employee benefit spending, resulting in lower volumes of group disability and life insurance business and more
competitive pricing.
Over the past few years, there has been heightened review by state regulators of the claims handling practices within the disability and
life insurance industry. This has resulted in an increase in coordinated, multistate examinations that target specific market practices in
addition to regularly recurring examinations of an insurer’s overall operations conducted by an individual state’s regulators. We have
been subject to such an examination over the past several years.
The lower level of interest rates in the United States over the last several years has constrained earnings growth in this segment due to
lower yields on our fixed-income investments and higher benefit expenses resulting from the discounting of future claim payments at
lower interest rates.
Other Operations
Other Operations includes the following:
Corporate-owned Life Insurance
The principal products of the COLI business are permanent insurance contracts sold to corporations to provide coverage on the lives
of certain employees for financing employer-paid future benefit obligations. Permanent life insurance provides coverage that, when
adequately funded, does not expire after a term of years. The contracts are primarily non-participating universal life policies. Fees for
universal life insurance products consist primarily of mortality and administrative charges assessed against the policyholder’s fund
balance. Interest credited and mortality charges for universal life and mortality charges on variable universal life may be adjusted
prospectively to reflect expected interest and mortality experience. To reduce our exposure to large individual and catastrophe losses,
we purchase reinsurance from unaffiliated reinsurers.
Run-off Settlement Annuity Business
Our settlement annuity business is a closed, run-off block of single premium annuity contracts. These contracts are primarily liability
settlements with approximately 20% of the liabilities associated with guaranteed payments not contingent on survivorship. Non-
guaranteed payments are contingent on the survival of one or more parties involved in the settlement.
Run-off Reinsurance
Our reinsurance operations are an inactive business in run-off.
In February 2013, we effectively exited the guaranteed minimum death benefit (“GMDB”) and guaranteed minimum income benefit
(“GMIB”) business by reinsuring 100% of our future exposures, net of retrocessional arrangements in place at that time, up to a
specified limit. For additional information regarding this reinsurance transaction and the arrangements that secure our reinsurance
recoverables, see Note 10 to the Consolidated Financial Statements.
Individual Life Insurance and Annuity and Retirement Benefits Businesses
This business includes deferred gains recognized from the 1998 sale of the individual life insurance and annuity business and the 2004
sale of the retirement benefits business. For more information regarding the arrangements that secure our reinsurance recoverables for
the retirement benefits business, see Note 10 to the Consolidated Financial Statements.
TECHNOLOGY
Cigna Technology Services supports our business strategy by focusing first and foremost on strong foundational technology services,
delivery of a business-aligned technology project portfolio and focused strategic innovation that creates technology solutions to
differentiate us in the market. Our innovation continues to focus on three strategic areas: insights and analytics; digital health and
care delivery and management. Our technology strategy drives improved customer experience, increases engagement and advances
population health with data driven insights and using advanced analytics and predictive intelligence to provide key areas of
competitive advantage. Innovation is core to the way we do business and will be a critical factor to our success in the highly dynamic
health care industry. Our business strategy is based upon providing customers with differentiated, easy-to-use, seamless and secure
products and solutions that use insights from advanced analytics to exceed their expectations.
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Our technology team, powered by approximately 7,000 employees and several thousand external resources contracted with our
partners, supports the various information systems essential to our operations including the health benefit claims processing systems
and specialty and home delivery pharmacy systems. Uninterrupted point-of-sale electronic retail pharmacy claims processing is a
significant operational requirement for our business. We believe we have substantial capacity for growth in our United States claims
processing facilities. Our pharmacy technology platform allows us to safely, rapidly and accurately adjudicate over one billion
adjusted prescriptions annually. Our technology helps retail pharmacies focus on patient care and our real-time safety checks help
avoid hundreds of thousands of medication errors annually.
We anticipate needs and meet customers where they are, from predicting and preventing chronic diseases, to using data to reduce
payment and claims fraud, optimizing whole person health and leveraging the data from wearable devices and the Internet of Things
to optimize population health status. Innovation is at the center of what differentiates Cigna. Cigna innovations improve patient
outcomes while eliminating waste in the health care system. The Cigna companies hold more than 190 United States patents. We use
these patents to protect our proprietary technological advances and to differentiate ourselves in the market.
We continue to bring new technology-enabled products and services to the market, including biometric stress prediction and focused
insights in spaces such as women’s health and opioid addiction. Our digital health focus has shown value across the enterprise by
creating engaging experiences that give customers the right information at the right time. This includes an enhanced MyCigna.com
experience with new features, including refill and payment options, without leaving the mobile application. Cybersecurity protections,
such as multi-factor authentication, have been launched across Cigna’s digital offerings providing better peace of mind and a stronger
sense of security.
During 2019, significant technology integration, including with the acquired Express Scripts platform, delivered cost synergies, drove
differentiated innovation and facilitated the transition to Express Scripts capabilities in areas such as supply chain, specialty pharmacy
and retail networks. In the future, we expect continued integration and value realization with focus on customer-facing system
integration and opportunities for enhanced value in specialty, claims and retail. With the combined strengths and capabilities of Cigna
and Express Scripts, we see greater opportunities to create novel, highly-tailored customer insights as we mine data and use
sophisticated advanced analytics and predictive intelligence to build better models that help us find solutions to complex questions and
improve health care outcomes.
ANALYTICS
Cigna’s investments in data and analytics enable affordability, simplicity, predictability and growth across all of our business
platforms. We create value for our customers and stakeholders by enabling better insights and actionable intelligence, developing new
solutions and digitally-enabled value propositions and creating innovative data and analytics driven services. We leverage advanced
analytics and predictive intelligence to design more affordable benefit plans and services, serve our customers and clients, and
improve care costs and health outcomes.
Our teams conduct timely, rigorous and objective research and analysis that informs evidence-based medical and pharmacy benefit
management and evaluates the clinical, economic and individual impact of enhanced benefit designs and programs.
Our commitment to innovation generates new and more effective ways to close care gaps, optimize treatment and improve outcomes.
Our data and analytics talent empowers these capabilities through deep expertise in data management, business analysis, intelligence
and data science, with ongoing investments in talent development, analytic and big data technologies, as well as innovative third party
partnerships while ensuring controls are in place to protect sensitive client and customer information.
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INVESTMENT MANAGEMENT
Our investment operations provide investment management and related services for our various businesses, including the
insurance-related invested assets in our General Account (“General Account Invested Assets”). We acquire or originate, directly or
through intermediaries, a broad range of investments including private placement and public securities, commercial mortgage loans,
real estate, mezzanine, private equity partnerships and short-term investments. Invested assets also include policy loans that are fully
collateralized by insurance policy cash values. We also enter into derivative financial instruments, primarily to minimize the risk of
changes in foreign currency exchange rates on our investments. Invested assets are managed primarily by our subsidiaries and, to a
lesser extent, external managers with whom our subsidiaries contract. Net investment income is included as a component of adjusted
income from operations for each of our segments and Corporate. Realized investment gains (losses) are reported by segment but
excluded from adjusted income from operations. For additional information about invested assets, see the “Investment Assets” section
of the MD&A and Notes 11 and 12 to the Consolidated Financial Statements.
We manage our investment portfolios to reflect the underlying characteristics of related insurance and contractholder liabilities and
capital requirements, as well as regulatory and tax considerations pertaining to those liabilities and state investment laws. Insurance
and contractholder liabilities range from short duration health care products to longer-term obligations associated with disability and
life insurance products and the run-off settlement annuity business. Assets supporting these liabilities are managed in segregated
investment portfolios to facilitate matching of asset durations and cash flows to those of corresponding liabilities. Investment results
are affected by the amount and timing of cash available for investment, economic and market conditions and asset allocation
decisions. We routinely monitor and evaluate the status of our investments, obtaining and analyzing relevant investment-specific
information and assessing current economic conditions, trends in capital markets and other factors such as industry sector, geographic
and property-specific information.
Separate Accounts
Our subsidiaries or external advisors manage invested assets of Separate Accounts on behalf of contractholders, including the Cigna
Pension Plan, variable universal life products sold through our corporate-owned life insurance business and other life insurance
products. These assets are legally segregated from our other businesses and are not included in General Account Invested Assets.
Income, gains and losses generally accrue directly to the contractholders.
Investing in Innovation
In addition to the portfolio investments in our general and separate accounts discussed above that support our insurance operations, we
do targeted investing within the health care industry specifically. Our Cigna Ventures unit has been allotted $250 million to invest in
promising startups and growth-stage companies that create new growth possibilities in health care. These targeted investments bring
improved care quality, affordability, choice and greater simplicity to customers, patients and clients by harnessing transformative
ideas in: 1) insights and analytics; 2) digital health and retail and 3) care delivery and management.
MISCELLANEOUS
We are not dependent on business from one or a few clients. No one client accounted for 10% or more of our consolidated revenues
in 2019. We are not dependent on business from one or a few brokers or agents. In addition, our insurance businesses are generally
not committed to accept a fixed portion of the business submitted by independent brokers and agents and generally all such business is
subject to approval and acceptance.
We had approximately 73,700 employees as of December 31, 2019.
REGULATION
The laws and regulations governing our business continue to increase each year and are subject to frequent change. We are regulated
by federal, state and international legislative bodies and agencies, which generally have discretion to issue regulations and interpret
and enforce laws and rules. These regulations can vary significantly from jurisdiction to jurisdiction, and the interpretation of existing
laws and rules also may change periodically. Domestic and international governments continue to enact and consider various
legislative and regulatory proposals, which could materially impact the health care system. The U.S. 2020 presidential and state
elections likely will fuel continued legislative and regulatory debate of issues related to our businesses.
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Many aspects of our business are directly regulated by federal and state laws and administrative agencies, such as the Department of
Health and Human Services (“HHS”), Centers for Medicare and Medicaid Services (“CMS”), the Internal Revenue Service (“IRS”),
the U.S. Departments of Labor (“DOL”), the Office of Personnel Management (“OPM”) Treasury and Justice (“DOJ”), the Federal
Trade Commission (“FTC”), the U.S. Securities and Exchange Commission (“SEC”), the Office of the National Coordinator for
Health Information Technology, state departments of insurance and state boards of pharmacy. Our business practices may also be
shaped by judicial decisions.
In addition, aspects of our business are subject to indirect regulation. The self-funded benefit plans sponsored by our U.S. employer
clients are regulated under federal law. These self-funded clients expect us to assure that our administration of their plans complies
with the regulatory requirements applicable to them.
Our business operations and the books and records of our regulated businesses are routinely subject to examination and audit at
regular intervals by state insurance and HMO regulatory agencies, state boards of pharmacy, CMS, DOL, IRS, OPM and comparable
international regulators to assess compliance with applicable laws and regulations. Our operations are also subject to nonroutine
examinations, audits and investigations by various state and federal regulatory agencies, generally as the result of a complaint. In
addition, we may be implicated in investigations of our clients whose group benefit plans we administer on their behalf. As a result,
we routinely receive subpoenas and other demands or requests for information from various state insurance and HMO regulatory
agencies, state attorneys general, the Office of Inspector General (“OIG”), the DOJ, the DOL and other state, federal and international
authorities. We may also be called upon by members of the U.S. Congress to provide information, including testifying before
congressional committees and subcommittees, regarding certain of our business practices. If Cigna is determined to have failed to
comply with applicable laws or regulations, these examinations, investigations, reviews, subpoenas and demands may:
•
•
•
•
•
result in fines, penalties, injunctions, consent orders or loss of licensure;
suspend or exclude from participation in government programs or limit our ability to sell or market our products;
require changes in business practices;
damage relationships with the agencies that regulate us and affect our ability to secure regulatory approvals necessary for the
operation of our business; or
damage our brand and reputation.
Our international subsidiaries are subject to regulations in international jurisdictions, including in certain case many regulations
similar to the federal and state regulations described below, which are complex and where foreign insurers may face more rigorous
regulations than their domestic competitors and may also be affected by geopolitical developments or tensions.
The laws and regulations governing our business, as well as the related interpretations, are subject to frequent change and can be
inconsistent or in conflict with each other. Changes in our business environment are likely to continue as elected and appointed
officials at the national and state levels continue to propose and enact significant modifications to existing laws and regulations. Even
where we believe that we are in compliance with the various laws and regulations, any enforcement actions by federal, state or
international government officials alleging non-compliance with these rules and regulations could subject us to penalties or
restructuring or reorganization of our business. For a discussion of the risks related to our compliance with these laws and regulations
see the Risk Factors section located in Part 1, Item 1A of this Form 10-K. Management continues to be actively engaged with
regulators and policymakers with respect to legislation and rulemaking. See the “Executive Overview – Health Care Industry
Developments and Other Matters Affecting our Integrated Medical and Health Services Segments” section of our MD&A located in
Part II, Item 7 of this Form 10-K for a discussion of the anticipated impact of certain recent industry developments.
Patient Protection and the Affordable Care Act (“ACA”)
The Patient Protection and Affordable Care Act (“ACA”) mandated broad changes to the U.S. health care system, including insured
and self-insured health benefit plans and pharmacy benefit managers. Our business model is impacted by the ACA, including our
relationships with current and future producers and health care providers, products, service providers and technologies. Key
provisions of the ACA include the imposition of a non-tax deductible health insurance industry fee and other assessments on health
insurers, and the creation of health insurance exchanges for individuals and small group employers to purchase insurance coverage.
The ACA also implemented minimum medical loss ratios (“MLRs”) for our Medicare and commercial businesses. Certain states have
adopted MLR requirements applicable to our commercial businesses that are more stringent than those established by the ACA. Other
provisions of the ACA in effect include reduced Medicare Advantage premium rates, the requirement to cover preventive services
with no enrollee cost-sharing, banning the use of lifetime and annual limits on the dollar amount of essential health benefits,
increasing restrictions on rescinding coverage, extending coverage of dependents up to age 26, restrictions on differential pricing,
enforcement mechanisms and rules related to health care fraud and abuse enforcement activities and certain pharmacy benefit
transparency requirements. The employer mandate requires employers with 50 or more full-time employees to offer affordable health
insurance that provides minimum value (each as defined under the ACA) to full-time employees and their dependents, including
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children up to age 26, or be subject to penalties based on employer size. The ACA also changed certain tax laws to effectively limit
tax deductions for certain employee compensation paid by health insurers. In December 2019, the federal government repealed the
non-deductible health insurance industry fee effective for 2021, as well as repealing the enacted but never implemented 40% excise
tax on certain employer-sponsored coverage (known as the “Cadillac Tax”) and the medical device tax.
Since its adoption, there have been several attempts to repeal or limit the utility of the ACA. Certain insurers have sued the federal
government for failure to pay cost-sharing subsidies under the ACA. The matter remains unresolved and we continue to monitor
developments. In December 2017, U.S. tax reform legislation was signed into law that, among other things, reduced the “individual
mandate” penalty for individuals without health insurance to zero dollars, effective January 1, 2019. As a result of this change, a
federal district court has ruled that the “individual mandate” is unconstitutional. On appeal, the Court of Appeals for the Fifth Circuit
agreed that the “individual mandate” is unconstitutional but ordered the district court to reexamine whether the other provisions of the
ACA can remain in effect, thereby leaving in doubt whether the entire ACA is unconstitutional until there is a final judicial
determination on appeal.
Additionally, in 2017, the current administration issued an executive order asking the DOL to revise the Employee Retirement Income
Security Act of 1974, as amended (“ERISA”) regulations to make it easier for employers, particularly small employers, to associate
for the purpose of sponsoring large group health plans and thereby avoid the ACA’s small group market reform (e.g., community-
rating and mandated coverage of essential health benefits) that impaired the affordability of providing health coverage to their
employees. In the spring of 2018, the DOL issued final rules that revised the definition of “employer” in the ERISA rules to make it
easier for employers, including self-employed individuals, to form bona fide employer groups, all of whose employees would be
counted in determining whether they were small or large groups for purposes of the ACA. While the regulation of these groupings by
state insurance departments is not affected by the DOL’s final association health plan rules, the final rules have resulted in an increase
in interest among employers, associations, producers and benefit consultants in forming new groupings for purposes of offering
insured or self-funded group health plans.
See also the “Executive Overview” section of our MD&A of this Form 10-K for more information. Additionally, see Note 2 to the
Consolidated Financial Statements for more information regarding accounting policies around the risk mitigation programs under the
ACA.
Medicare and Medicaid Regulations
Through our subsidiaries, we offer individual and group Medicare Advantage, Medicare Pharmacy (“Part D”) and Medicare
Supplement products. We also provide Medicare Part D-related products and services to other Medicare Part D sponsors, Medicare
Advantage Prescription Drug Plans and employers and clients offering Medicare Part D benefits to Medicare Part D eligible
beneficiaries. As part of our Medicare Advantage and Medicare Part D business, we contract with CMS to provide services to
Medicare beneficiaries. As a result, our ability to obtain payment (and the determination of the amount of such payments), market to,
enroll and retain customers and expand into new service areas is subject to compliance with CMS’ numerous and complex regulations
and requirements that are frequently modified and subject to administrative discretion, review and enforcement. We offer Medicaid
and dual-eligible products and participate in state Medicaid programs directly or indirectly through our clients who are Medicaid
managed care contractors. We also perform certain Medicaid subrogation services and certain delegated services, including utilization
management, for clients, which are regulated by federal and state laws. Our Medicaid and dual-eligible products are regulated by CMS
and state Medicaid agencies audit our performance to determine compliance with contracts and regulations.
CMS evaluates Medicare Advantage plans and Part D plans under its “Star Rating” system. The Star Rating system considers various
measures adopted by CMS, including, for example, quality of care, preventive services, chronic illness management, coverage
determinations and appeals and customer satisfaction. A plan’s Star Rating affects its image in the market and plans that perform very
well are able to offer enhanced benefits and market more effectively and for longer periods of time than other plans. Medicare
Advantage plans’ quality-bonus payments are determined by the Star Rating, with plans receiving a rating of four or more stars
eligible for such payments. The Star Rating system is subject to change annually by CMS, which may make it more difficult to
achieve and maintain four stars or greater.
CMS uses a risk-adjustment model which adjusts premiums paid to Medicare Advantage plans according to customers’ health status.
The risk-adjustment model generally pays more where a plan's membership has higher than expected costs. Under this model, rates
paid to Medicare Advantage plans are based on actuarially determined bids, which include a process whereby our prospective
payments are based on our estimated cost of providing standard Medicare-covered benefits to an enrollee with a “national average risk
profile.” That baseline payment amount is adjusted to reflect the health status of our enrolled membership. Under the risk-adjustment
methodology, Medicare Advantage plans must collect and submit the necessary diagnosis code information from hospital inpatient,
hospital outpatient, and physician providers to CMS within prescribed deadlines. We generally rely on providers, including certain
providers in our network who are employees, to code their claim submission with appropriate diagnoses which we send to CMS as the
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basis for our payments received under the actuarial risk-adjustment model. The CMS risk-adjustment model uses the diagnosis data to
calculate the risk-adjusted premium payment to the plans, which CMS adjusts for coding pattern differences between the health plans
and the government fee-for-service program. In 2012, CMS released a payment methodology that provided for sample audit error
rates to be extrapolated to the entire Medicare Advantage contract after comparing audit results with a similar audit of Medicare Fee
for Service (the “FFS Adjuster”) and applying an FFS Adjuster to establish actuarial equivalency in payment rates as required by the
Medicare statute. However, a methodology to calculate the FFS Adjuster was not finalized and CMS has, to date, not completed any
Risk Adjustment Data Validation (“RADV”) audits using extrapolation. See below under “Federal and State Oversight of
Government-Sponsored Health Care Programs” for a discussion of RADV audits.
On November 1, 2018, CMS released a proposed rule titled “Proposed Rule on Changes to MA and Part D Programs for CY 2020 and
2021” that would revise its RADV methodology for RADV audits of contract year 2011 and all subsequent years by, among other
things, extrapolating RADV results at the contract level without applying the FFS Adjuster. The Company, along with other Medicare
Advantage organizations and additional interested parties, submitted comments to CMS on the proposed rule as part of the notice-and-
comment rulemaking process. The comment period concluded on August 28, 2019. It is uncertain whether CMS will finalize the rule
as proposed.
Coverage of prescription drugs under Medicare Part D is also regulated by CMS and our contracts with CMS contain provisions for
risk sharing and certain payments for prescription drug costs for which we are not at risk. These provisions affect our ultimate
payments from CMS. For example, premiums from CMS are subject to risk corridor payments which compare costs targeted in our
annual bids with actual prescription costs, limited to actual costs that would have been incurred under the standard coverage as defined
by CMS. Variances exceeding certain thresholds may result in CMS making additional payments to us or require us to refund to CMS
a portion of the payments we received (known as a risk corridor).
In February 2019, CMS proposed rules to support the seamless and secure access, exchange and use of electronic health information.
In the proposed rules, CMS proposes requirements that Medicaid, the Children’s Health Insurance Program, Medicare Advantage
plans and qualified health plans in the federally-facilitated exchanges provide enrollees with immediate electronic access to medical
claims and other health information electronically by 2020. This proposed rule is subject to revision through a comment process. The
Company submitted comments to CMS on the proposed rule as part of the notice-and-comment rulemaking process and the comment
period concluded on June 3, 2019.
On February 5, 2020, CMS released a proposed rule titled “Medicare and Medicaid Programs: Contract Year 2021 and 2022 Policy
and Technical Changes to the Medicare Advantage Program, Medicare Prescription Drug Benefit Program, Medicaid Program,
Medicare Cost Plan Program, and Programs of All-Inclusive Care for the Elderly” that proposes changes to special needs plans,
flexibility in the use of specialty tiers in Medicare Part D, creation of a beneficiary real-time benefit tool, and modification of certain
network adequacy rules. The proposed rule also includes several changes to the Stars Rating system, including creation of several new
measures, retirement of one existing measure, changes to the relative measure weighting, and revision of the methodology for
assigning individual measure ratings. The proposed rule is subject to revision through the comment process.
We expect CMS, OIG, DOJ and other federal agencies to continue to closely scrutinize each component of the Medicare Advantage
program and modify the terms and requirements of the program. Noncompliance with these laws and regulations may result in
significant consequences, including fines and penalties, enrollment sanctions, exclusion from the Medicare and Medicaid programs,
limitations on expansion, and criminal penalties.
See also the “Executive Overview” section of our MD&A of this Form 10-K for more information.
False Claims Act and Anti-Kickback Laws
Our products and services are also subject to the federal False Claims Act (the “False Claims Act”) and federal and state anti-kickback
laws. Additionally, the federal government has made investigating and prosecuting health care fraud, waste and abuse a priority.
Fraud, waste and abuse prohibitions encompass a wide range of activities, including kickbacks in return for customer referrals, billing
for unnecessary medical services, upcoding and improper marketing. The regulations and contractual requirements in this area are
complex, frequently modified, and subject to administrative discretion and judicial interpretation.
False Claims Act and Related Criminal Provisions. The False Claims Act imposes civil penalties on any person who makes or causes
to be made claims or records or statements that he or she knows or should know are false with respect to governmental programs, such
as Medicare and Medicaid, to obtain reimbursement or for failure to return overpayments. Private individuals may bring qui tam or
“whistleblower” suits against providers under the False Claims Act, which authorizes the payment of a portion of any recovery to the
individual bringing suit. The ACA amended the federal anti-kickback laws to state any claim submitted to a federal or state health
care program that violates the anti-kickback laws is also a false claim under the False Claims Act. The False Claims Act generally
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provides for the imposition of civil penalties and for treble damages, creating the possibility of substantial financial liabilities.
Criminal statutes similar to the False Claims Act provide that if a corporation is convicted of presenting a claim or making a statement
it knows to be false, fictitious or fraudulent to any federal agency, the corporation may be fined. Conviction under these statutes may
also result in exclusion from participation in federal and state health care programs. Many states have also enacted laws similar to the
False Claims Act, some of which may include criminal penalties, substantial fines and treble damages.
Anti-Kickback and Referral Laws. Subject to certain exceptions and “safe harbors,” the federal anti-kickback statute generally
prohibits, among other things, knowingly and willfully paying, receiving or offering any payment or other remuneration to induce a
person to purchase, lease, order or arrange for items (including prescription drugs) or services reimbursable in whole or in part under
Medicare, Medicaid or another federal health care program. Many states have similar laws, some of which are not limited to items or
services paid for with government funds. Sanctions for violating these federal and state anti-kickback laws may include criminal and
civil fines and exclusion from participation in federal and state health care programs.
Anti-kickback laws have been cited as a partial basis, along with state consumer protection laws described below, for investigations
and multistate settlements relating to financial incentives provided by drug manufacturers to pharmacies or payors in connection with
“product conversion” or promotion programs. Other anti-kickback laws may be applicable to arrangements with pharmaceutical
manufacturers, such as the Public Contracts Anti-Kickback Act, the ERISA Health Plan Anti-Kickback Statute, the federal “Stark
Law” and various state anti-kickback restrictions.
Federal Civil Monetary Penalties Law. The federal civil monetary penalty statute provides for civil monetary penalties against any
person who gives something of value to a Medicare or Medicaid program beneficiary that the person knows or should know is likely
to influence the beneficiary’s selection of a particular provider for Medicare or Medicaid items or services. Under this law, our
wholly-owned home delivery pharmacies, specialty pharmacies and home health providers are restricted from offering certain items of
value to influence a Medicare or Medicaid patient’s use of services. The ACA also includes several civil monetary provisions, such as
penalties for the failure to report and return a known overpayment and failure to grant timely access to the OIG under certain
circumstances.
Federal and State Oversight of Government-Sponsored Health Care Programs
Participation in government-sponsored health care programs subjects us to a variety of federal and state laws and regulations and risks
associated with audits conducted under these programs. These audits may occur years after the provision of services. Risks include
potential fines and penalties, restrictions on our ability to participate or expand our presence in certain programs and restrictions on
marketing our plans. For example, with respect to our Medicare Advantage business, CMS and the OIG perform audits to determine a
health plan’s compliance with federal regulations and contractual obligations, including program audits and Risk Adjustment Data
Validation Audits (or “RADV audits”), which focus on compliance with proper coding practices. Certain of our contracts are
currently subject to RADV audits by CMS and the OIG. CMS has announced its intent to use third-party auditors to audit all Medicare
Advantage contracts by either a comprehensive or a targeted RADV review for each contract year. The DOJ is also currently
conducting an industry-wide investigation of the risk adjustment data submission practices and business processes, including review
of medical charts, of Cigna and a number of other Medicare Advantage organizations under Medicare Parts C and D. See Note 22 to
the Consolidated Financial Statements for more information.
For our Medicare Part D business, compliance with fraud and abuse enforcement practices is monitored through Recovery Audit
Contractor audits in which third-party contractors conduct post-payment reviews on a contingency fee basis to detect and correct
improper payments.
Government Procurement Regulations
We have a contract with the U.S. Department of Defense (“DoD”), which subjects us to applicable Federal Acquisition Regulations
(“FAR”) and the DoD FAR Supplement, which govern federal government contracts. Further, there are other federal and state laws
applicable to our DoD arrangement and our arrangements with other clients that may be subject to government procurement
regulations. In addition, certain of our clients participate as contracting carriers in the Federal Employees Health Benefits Program
administered by the Office of Personnel Management, which includes various pharmacy benefit management standards.
Employee Retirement Income Security Act
Our domestic subsidiaries sell most of their products and services to sponsors of employee benefit plans that are governed by ERISA.
ERISA is a complex set of federal laws and regulations enforced by the IRS and the DOL, as well as the courts. ERISA regulates
certain aspects of the relationship between us, the employers that maintain employee welfare benefit plans subject to ERISA and
participants in such plans. Certain of our domestic subsidiaries are also subject to requirements imposed by ERISA affecting claim
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payment and appeals procedures for individual health insurance and insured and self-insured group health plans and for the insured
dental, disability, life and accident plans we administer. Certain of our domestic subsidiaries also may contractually agree to comply
with these requirements on behalf of the self-insured dental, disability, life and accident plans they administer. We believe the
conduct of our pharmacy benefit management business is not generally subject to the fiduciary obligations of ERISA. However, there
can be no assurances that the DOL may not assert that pharmacy benefit managers are fiduciaries. From time to time, states have
considered legislation to declare a pharmacy benefit manager or health benefit manager a fiduciary with respect to its clients.
Plans subject to ERISA can also be subject to state laws and the legal question of whether and to what extent ERISA preempts a state
law will continue to be subject to court interpretation.
Privacy, Security and Data Standards Regulations
Many of our activities involve the receipt or use of confidential health and other personal information. In addition, we use aggregated
and de-identified data for our own research and analysis purposes and, in some cases, provide access to such data to pharmaceutical
manufacturers and third-party data aggregators. There are also industry standards for handling credit card data known as the Payment
Card Industry Data Security Standard, which are a set of requirements designed to help ensure that entities that process, store or
transmit credit card information maintain a secure environment. Certain states have incorporated these requirements into state laws or
enacted other requirements for using and disclosing personal information.
The federal Health Insurance Portability and Accountability Act of 1996 and its implementing regulations (“HIPAA”) impose
minimum standards on health insurers, pharmacy benefit managers, HMOs, health plans, health care providers and clearinghouses for
the privacy and security of protected health information. HIPAA regulations may also hold us liable for violations by our business
associates (e.g., entities that provide services to health plans and providers). HIPAA also established rules that standardize the format
and content of certain electronic transactions, including, but not limited to, eligibility and claims.
The Health Information Technology for Economic and Clinical Health Act (“HITECH”) imposes additional contracting requirements
for covered entities, the extension of privacy and security provisions to business associates, the requirement to provide notification to
various parties in the event of a data breach of protected health information, and enhanced financial penalties for HIPAA violations,
including potential criminal penalties for individuals. In the conduct of our business, depending on the circumstances, we may act as
either a covered entity or a business associate.
The federal Gramm-Leach-Bliley Act and its implementing regulations generally places restrictions on the disclosure of nonpublic
information to nonaffiliated third parties, and requires financial institutions, including insurers, to provide customers with notice
regarding how their nonpublic personal information is used, including an opportunity to “opt out” of certain disclosures. State
departments of insurance and certain federal agencies adopted implementing regulations as required by federal law.
State and local authorities are increasingly focused on protecting individuals from identity theft and a number of states have adopted
data security laws and regulations requiring certain minimum data security standards and security breach notifications that may apply
to us in certain circumstances. Neither HIPAA nor the Gramm-Leach-Bliley privacy regulations preempt more stringent state laws
and regulations. The California Consumer Privacy Act (“CCPA”), which went into effect in January 2020, provides additional
privacy rights for California residents although it generally does not apply to certain regulated data such as information covered by
HIPAA.
The Cybersecurity Information Sharing Act of 2015 (“CISA”) encourages organizations to share cyber threat indicators with the
federal government and, among other things, directs HHS to develop a set of voluntary cybersecurity best practices for organizations
in the health care industry. States have also begun to issue regulations specifically related to cybersecurity, which may differ or
conflict from state to state. In October 2017, the National Association of Insurance Commissioners (“NAIC”), an organization of state
insurance regulators, adopted the Insurance Data Security Model Law that creates rules for insurers and other covered entities
addressing data security, investigation and notification of breaches. This includes maintaining an information security program based
on ongoing risk assessment, overseeing third-party service providers, investigating data breaches and notifying regulators of a
cybersecurity event. As the model law is intended to serve as model legislation only, states will need to enact legislation for the model
law to become mandatory and enforceable. We will continue to monitor states’ activity regarding cybersecurity regulation.
In addition, international laws, rules and regulations governing the use and disclosure of personal information can be more stringent
than in the United States, and they vary from jurisdiction to jurisdiction. The European Union’s General Data Protection Regulation
(“GDPR”), which became effective May 2018, enhanced or created obligations regarding the handling of personal data relating to
European residents, such as regarding notices, data protection impact assessments, and individual rights, and provides for greater
penalties for noncompliance than the previous European Directive or laws. In addition, many countries outside of Europe where we
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conduct business have implemented or may implement data protection laws and regulations, some of which include requirements
modeled after those in the GDPR.
See Part 1. Item 1A, “Risk Factors” for a discussion of the risks related to compliance with privacy and security regulations.
Consumer Protection Laws
We engage in direct-to-consumer activities and are increasingly offering mobile and web-based solutions to our customers. We are
therefore subject to federal and state regulations applicable to electronic communications and other consumer protection laws and
regulations, such as the Telephone Consumer Protection Act and the CAN-SPAM Act. The FTC is also increasingly exercising its
enforcement authority in the areas of consumer privacy and data security, with a focus on web-based, mobile data and “big data.”
Federal consumer protection laws may also apply in some instances to privacy and security practices related to personally identifiable
information.
Most states have consumer protection laws that have been the basis for investigations and multistate settlements relating to financial
incentives provided by drug manufacturers to retail pharmacies in connection with product conversion programs. Such statutes have
also been cited as the basis for claims or investigations by state attorneys general relative to privacy and data security.
Office of Foreign Assets Control Sanctions and Anti-Money Laundering
We are also subject to regulation by the Office of Foreign Assets Control of the U.S. Department of the Treasury that administers and
enforces economic and trade sanctions against targeted foreign countries and regimes based on U.S. foreign policy and national
security goals. Certain of our products are subject to the Department of the Treasury anti-money laundering regulations under the
Bank Secrecy Act. In addition, we are subject to similar regulations in non-U.S. jurisdictions in which we operate.
Corporate Practice of Medicine and Other Laws
Many states in which our subsidiaries operate limit the practice of medicine to licensed individuals or professional organizations
comprised of licensed individuals, and business corporations generally may not exercise control over the medical decisions of
physicians. Statutes and regulations relating to the practice of medicine, fee-splitting between physicians and referral sources, and
similar issues vary widely from state to state. Under management agreements between certain of our subsidiaries and physician-
owned professional groups, these groups retain sole responsibility for all medical decisions, as well as for hiring and managing
physicians and other licensed health care providers, developing operating policies and procedures, implementing professional
standards and controls, and maintaining malpractice insurance. We believe that our health services operations comply with applicable
state statutes regarding corporate practice of medicine, fee-splitting, and similar issues. However, any enforcement actions by
governmental officials alleging noncompliance with these statutes could subject us to penalties or restructuring or reorganization of
our business.
Laws and Legislation Affecting Plan Design and Pharmacy Network Access
Some states have enacted laws that prohibit managed care plan sponsors from implementing certain restrictive benefit plan design
features, and many states have laws or have introduced legislation to regulate various aspects of managed care plans, including
provisions relating to the pharmacy benefit. For example, some states, under so-called “freedom of choice” legislation, provide
customers of the plan may not be required to use network providers, but must instead be provided with benefits even if they choose to
use non-network providers. Some states have also enacted legislation that can negatively impact the use of cost-saving network
configurations for plan sponsors. Other states have enacted legislation purporting to prohibit health plans from offering customers
financial incentives for use of home delivery pharmacies. Medicare and some states have issued guidance and regulations that limit
our ability to fill or refill prescriptions electronically submitted by a physician to our home delivery pharmacy without first obtaining
consent from the patient. Such restrictions generate additional costs and limit our ability to maximize efficiencies, which could
otherwise be gained through the electronic prescription and automatic refill processes. Legislation has been introduced in some states
to prohibit or restrict therapeutic intervention, or to require coverage of all Food and Drug Administration approved drugs. Other
states mandate coverage of certain benefits or conditions, and require health plan coverage of specific drugs if deemed medically
necessary by the prescribing physician. States are also standardizing the process for, and restricting the use of, utilization management
rules and shortening the time frames within which prescription drug prior authorization determinations must be made. Even where
states do not regulate pharmacy benefit or utilization management companies directly, these laws will apply to many of our clients,
including managed care organizations and health insurers.
Additionally, Medicare Part D and a majority of states now have laws, regulations or some form of legislation affecting our ability, or
our clients’ ability, to limit access to a pharmacy provider network or remove a provider from a network. Such laws, regulations or
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legislation may require us or our clients to admit any retail pharmacy or provider willing to meet the plan’s terms and conditions for
network participation (“any willing provider”) or may direct that a provider may not be removed from a network except in compliance
with certain procedures (“due process”).
Certain states have laws prohibiting certain pharmacy benefit management clients from imposing additional co-payments, deductibles,
limitations on benefits, or other conditions on covered individuals utilizing a retail pharmacy when the same conditions are not
otherwise imposed on covered individuals utilizing home delivery pharmacies. However, the laws require the retail pharmacy to agree
to the same reimbursement amounts and terms and conditions as are imposed on the home delivery pharmacies. An increase in the
number of prescriptions filled at retail pharmacies may have a negative impact on the number of prescriptions filled through home
delivery.
Pharmacy Benefit Management and Drug Pricing Regulation
Our pharmacy benefit management services are subject to numerous laws and regulations. These laws and regulations govern, and
proposed legislation and regulations may govern, critical practices, including disclosure, receipt and retention of rebates and other
payments received from pharmaceutical manufacturers; the receipt and retention of transmission fees from contracted pharmacies; use
of, administration of, or changes to drug formularies, the use and disclosure of maximum allowable cost pricing, or clinical programs;
“most favored nation” pricing, which provides that a pharmacy participating in a specific government program must give the program
the best price the pharmacy makes available to any third-party plan; disclosure of data to third parties; drug utilization management
practices; the level of duty a pharmacy benefit manager owes its clients or customers; configuration of pharmacy networks; the
operations of our subsidiary pharmacies; disclosure of negotiated provider reimbursement rates; disclosure of negotiated drug rebates,
calculation of customer cost-share for prescription drug claims; pricing that includes differential or spread (i.e., a difference between
the drug price charged to the plan sponsor by a pharmacy benefit manager and the price paid by the manager to the dispensing
provider); disclosure of fees associated with administrative service agreements and patient care programs that are attributable to
customers’ drug utilization; and registration or licensing of pharmacy benefit managers.
The U.S. Congress, current administration, and states will continue to prioritize, means of addressing out-of-pocket costs for
consumers, particularly related to prescription drug costs. Policy proposals vary broadly in their approaches to achieve that goal, and
range from proposing the creation of an international pricing index to which U.S. drug pricing would be benchmarked; reforming the
U.S. Food and Drug Administration regulatory processes and patent laws in order to accelerate the arrival of generics, biosimilars and
clinically equivalent competition to the market; enabling states to import lower priced prescription drugs into the United States; or
expanding the role of the federal or state governments to negotiate pricing of prescription drugs directly with manufacturers.
Additionally, proposals at the federal and state levels consider increased regulation of pharmacy benefit managers and health plans as
a means to limit consumer out of pocket costs, including proposing to limit the use of various pharmacy benefit management tools;
mandating the treatment of fees, discounts or financing mechanisms that otherwise are set in private contractual terms; increasing
supply chain transparency; expanding regulatory requirements or definitions of fiduciaries; or mandating plan benefit designs that cap
consumer out-of-pocket expense.
Prescription drug pricing and the role of pharmacy benefit managers have been a focus of the current administration. In May 2018,
the current administration announced a blueprint, titled “American Patients First,” which outlines a variety of approaches that could be
adopted to lower prescription drug costs in the United States. Proposed rules regarding revisions to the federal anti-kickback safe
harbor were rescinded in July 2019. In October 2018, Congress enacted laws that prohibited pharmacy benefit managers and insurers
from restricting pharmacies from providing drug pricing information to a plan enrollee when there is a difference between the cost of
the drug under insurance and the cost of the drug when purchased without insurance. While the other issues raised in the blueprint
continue to be the subject of legislative and regulatory discussion, formal policies and requirements have not been finalized in any
form.
Some states have enacted statutes regulating the use of maximum allowable cost (“MAC”) pricing. These statutes, referred to as
“MAC Transparency Laws,” generally require pharmacy benefit managers to disclose specific information related to MAC pricing to
pharmacies and provide certain appeal rights for pharmacies. MAC Transparency Laws also restrict the application of MAC and may
require operational changes to maintain compliance with the law. Some states have also enacted laws regulating pharmacy pricing
and protecting the profitability of pharmacies for dispensing certain MAC-priced drugs. Some states have enacted laws requiring that
the customer cost-share for a prescription drug claim not exceed certain price points, such as the pharmacy’s usual and customary
charge or its contracted reimbursement for the drug.
In March 2018, the NAIC adopted changes to the Health Carrier Prescription Drug Benefit Management Model Act. The changes
address issues relating to (i) transparency, accuracy and disclosure regarding prescription drug formularies and formulary changes
during a policy year; (ii) accessibility of prescription drug benefits using a variety of pharmacy options; and (iii) tiered prescription
drug formularies and discriminatory benefit design. While the actions of the NAIC do not have the force of law, they are used as a
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template to influence states to adopt laws based on the model legislation. We are expecting an enhanced NAIC model act on
pharmacy benefit manager licensure and regulation to be adopted by the NAIC in late 2020.
The federal Medicaid Drug Rebate Program requires participating drug manufacturers to provide rebates on all drugs reimbursed
through state Medicaid programs, including through Medicaid managed care organizations. Manufacturers of brand-name products
must provide a rebate equivalent to the greater of (a) 23.1% of the average manufacturer price (“AMP”) paid by retail community
pharmacies or by wholesalers for certain drugs distributed to retail community pharmacies, or (b) the difference between AMP and the
“best price” available to essentially any customer other than the Medicaid program and certain other government programs, with
certain exceptions. We negotiate rebates with drug manufacturers and, in certain circumstances, sell services to drug manufacturers.
Investigations are being and have been conducted by certain government entities which call into question whether a drug’s “best
price” was properly calculated and reported with respect to rebates paid by the manufacturers to the Medicaid programs. We are not
responsible for such calculations, reports or payments.
Pharmacy Regulation
Our home delivery and specialty pharmacies also subject us to extensive federal, state and local regulation. The practice of pharmacy
is generally regulated at the state level by state boards of pharmacy. We are licensed to do business as a pharmacy in the states in
which our pharmacies are located. Most of the states into which we deliver pharmaceuticals have laws that require out-of-state home
delivery pharmacies to register with, or be licensed by, the board of pharmacy or a similar regulatory body in the state. These states
generally permit the pharmacy to follow the laws of the state where the pharmacy is located, although some states require compliance
with certain laws in that state as it impacts or relates to drugs distributed or dispensed into those states.
Our various pharmacy facilities also provide services under certain Medicare and state Medicaid programs. Participation in these
programs requires our pharmacies to comply with the applicable Medicare and Medicaid provider rules and regulations, and exposes
the pharmacies to various changes the federal and state governments may impose regarding reimbursement methodologies and
amounts to be paid to participating providers under these programs. In addition, several of our pharmacy facilities are participating
providers under Medicare Part D and are required to adhere to certain requirements applicable to Medicare Part D. Additionally, we
are subject to CMS rules regarding the administration of our Medicare plans and intercompany pricing between our plans and our
pharmacy business.
Other statutes and regulations affect our home delivery and specialty pharmacy operations, including the federal and state anti-
kickback laws and the federal civil monetary penalty law described above. Federal and state statutes and regulations govern the
labeling, packaging, advertising, adulteration and security of prescription drugs and the dispensing of controlled substances and
certain of our pharmacies must register with the U.S. Drug Enforcement Administration and individual state controlled substance
authorities. The FTC requires mail order sellers of goods generally to engage in truthful advertising, to stock a reasonable supply of
the product to be sold, to fill mail orders within thirty days and to provide clients with refunds when appropriate. The United States
Postal Service also has significant statutory authority to restrict the delivery of drugs and medicines through the mail.
Financial Reporting, Internal Control and Corporate Governance
Regulators closely monitor the financial condition of licensed insurance companies and HMOs. States regulate the form and content
of statutory financial statements, the type and concentration of permitted investments, and corporate governance over financial
reporting. Our insurance and HMO subsidiaries are required to file periodic financial reports and schedules with regulators in most of
the jurisdictions in which they do business as well as annual financial statements audited by independent registered public accounting
firms. Certain insurance and HMO subsidiaries are required to file an annual report of internal control over financial reporting with
most jurisdictions in which they do business. Insurance and HMO subsidiaries’ operations and financial statements are subject to
examination by such agencies. Many states have expanded regulations relating to corporate governance and internal control activities
of insurance and HMO subsidiaries as a result of model regulations adopted by the NAIC with elements similar to corporate
governance and risk oversight disclosure requirements under federal securities laws.
Guaranty Associations, Indemnity Funds, Risk Pools and Administrative Funds
Most states and certain non-U.S. jurisdictions require insurance companies to support guaranty associations or indemnity funds that
are established to pay claims on behalf of insolvent insurance companies. Some states have similar laws relating to HMOs and other
payors, such as consumer operated and oriented plans (co-ops) established under the ACA. In the United States, these associations
levy assessments on member insurers licensed in a particular state to pay such claims. Certain states require HMOs to participate in
guaranty funds, special risk pools and administrative funds. For additional information about guaranty funds and other assessments,
see Note 22 to the Consolidated Financial Statements.
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Certain states continue to require health insurers and HMOs to participate in assigned risk plans, joint underwriting authorities, pools
or other residual market mechanisms to cover risks not acceptable under normal underwriting standards, although some states have
eliminated these requirements as a result of the ACA.
Solvency and Capital Requirements
Many states have adopted some form of the NAIC model solvency-related laws and risk-based capital (“RBC”) rules for life and
health insurance companies and HMOs. The RBC rules recommend a minimum level of capital depending on the types and quality of
investments held, the types of business written and the types of liabilities incurred. If the ratio of the insurer’s adjusted surplus to its
RBC falls below statutorily required minimums, the insurer could be subject to regulatory actions ranging from increased scrutiny to
conservatorship.
In addition, various non-U.S. jurisdictions prescribe minimum surplus requirements that are based upon solvency, liquidity and
reserve coverage measures. Our HMOs and life and health insurance subsidiaries, as well as non-U.S. insurance subsidiaries, are
compliant with applicable RBC and non-U.S. surplus rules.
The Risk Management and Own Risk and Solvency Assessment Model Act (“ORSA”), adopted by the NAIC, provides requirements
and principles for maintaining a group solvency assessment and a risk management framework and reflects a broader approach to U.S.
insurance regulation. ORSA includes a requirement to file an annual ORSA Summary Report in the lead state of domicile. To date,
an overwhelming majority of the states have adopted the same or similar versions of ORSA. We file our ORSA report annually as
required.
Holding Company Laws
Our domestic insurance companies and certain of our HMOs are subject to state laws regulating subsidiaries of insurance holding
companies. Under such laws, certain dividends, distributions and other transactions between an insurance company or an HMO
subsidiary and its affiliates may require notification to, or approval by, one or more state insurance commissioners. In addition, the
holding company acts of states in which our subsidiaries are domiciled restrict the ability of any person to obtain control of an
insurance company or HMO subsidiary without prior regulatory approval. State holding company laws and regulations also subject
our insurance companies and certain HMO subsidiaries to additional regulatory scrutiny related to their oversight of affiliates
performing regulated services on behalf of the insurance company or HMO and require the Company to file an annual Enterprise Risk
Report, which summarizes material risks that could pose enterprise risk to the insurance company subsidiaries.
Marketing, Advertising and Products
In most states, our insurance companies and HMO subsidiaries are required to certify compliance with applicable advertising
regulations on an annual basis. Our insurance companies and HMO subsidiaries are also required by most states to file and secure
regulatory approval of products prior to the marketing, advertising, and sale of such products.
Licensing and Registration Requirements
Our insurance companies and HMO subsidiaries must be licensed by the jurisdictions in which they conduct business. Additionally,
certain subsidiaries contract to provide claim administration, utilization management and other related services for the administration
of self-insured benefit plans. These subsidiaries may be subject to state third-party administration and other licensing requirements
and regulation, as well as third-party accreditation requirements.
We have received full accreditation for Utilization Review Accreditation Commission Pharmacy Benefit Management version 2.2
Standards, which includes quality standards for drug utilization management, and select subsidiaries have received full accreditation
for Utilization Review Accreditation Commission for Health Utilization Management version 7.2, which includes quality standards
for medical utilization management.
Certain states have adopted pharmacy benefit management registration or disclosure laws. In addition to registration laws, some states
have adopted legislation mandating disclosure of various aspects of our financial practices, including those concerning pharmaceutical
company revenue, as well as prescribing processes for prescription switching programs and client and provider audit terms.
Our international subsidiaries are often required to be licensed when entering new markets or starting new operations in certain
jurisdictions. The licensure requirements for these subsidiaries vary by country and are subject to change.
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International Regulations
Our operations outside the United States expose us to laws of multiple jurisdictions and the rules and regulations of various governing
bodies and regulators, including those related to the provision of insurance, financial and other disclosures, the provision of health
care-related services, corporate governance, privacy, data protection, data mining, data transfer, intellectual property, labor and
employment, consumer protection, direct-to-consumer communications activities, tax, anti-corruption and anti-money laundering.
Foreign laws and rules may include requirements that are different from, or more stringent than, similar requirements in the United
States.
Our operations in countries outside the United States:
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are subject to local regulations of the jurisdictions where we operate;
in some cases, are subject to regulations in the jurisdictions where customers reside; and
in all cases, are subject to the Foreign Corrupt Practices Act (“FCPA”).
In particular, in South Korea, regulators are focused on protecting the rights of individual customers by enforcing “Treating Customers
Fairly” concepts. This regulatory focus has resulted in rigorous data localization requirements, network separation obligations, and
system monitoring restrictions, as well as obligations to closely monitor marketing communications and sales scripts. Anti-money
laundering requirements in South Korea and other countries where we do business also may impose obligations to collect certain
information about each customer at time of sale or to risk rank each customer to determine possible future money laundering risk.
The FCPA prohibits offering, promising, providing or authorizing others to give anything of value to a foreign government official or
employee to obtain or retain business or otherwise secure a business advantage. Outside of the United States, we may interact with
government officials in several different capacities: as regulators of our insurance business; as clients or partners who are state-owned
or partially state-owned; as health care providers who are employed by the government; as hospitals that are state-owned; and as
officials issuing permits in connection with real estate transactions. Violations of the FCPA and other anti-corruption laws may result
in severe criminal and civil sanctions as well as other penalties, and the SEC and DOJ have increased their enforcement activities with
respect to FCPA. The UK Bribery Act of 2010 applies to all companies with a nexus to the United Kingdom. Under this act, any
voluntary disclosures of FCPA violations may be shared with United Kingdom authorities, thus potentially exposing companies to
liability and potential penalties in multiple jurisdictions.
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Item 1A. RISK FACTORS
As a large global health service company operating in a complex industry, we encounter a variety of risks and uncertainties, which
could have a material adverse effect on our business, liquidity, results of operations, financial condition or the trading price of our
securities. You should carefully consider each of the risks and uncertainties discussed below, together with other information
contained in this Annual Report on Form 10-K, including Management’s Discussion and Analysis of Results of Operations and
Financial Condition. These risks and uncertainties are not the only ones we face. Additional risks and uncertainties not presently
known to us or that we currently believe to be immaterial may also adversely affect us. The following risk factors have been
organized by category for ease of use; however many of the risks may have impacts in more than one category. These categories,
therefore, should be viewed as a starting point for understanding the significant risks facing us and not as a limitation on the potential
impact of the matters discussed. Risk factors are not necessarily listed in order of importance.
Strategic and Operational Risks
Future performance of our business will depend on our ability to execute our strategic and operational initiatives effectively.
The future performance of our business will depend in large part on our ability to effectively implement and execute our strategic and
operational initiatives. Successfully executing on these initiatives depends on a number of factors, including our ability to:
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differentiate our products and services from those of our competitors;
develop and introduce new and innovative products, solutions or programs that focus on improving patient outcomes and
assist in controlling costs or are in response to government regulation and the increased focus on consumer-directed products;
grow our product portfolio and identify and introduce the proper mix or integration of products that will be accepted by the
marketplace;
evaluate drugs for efficacy, value and price to assist clients in selecting a cost-effective formulary;
offer cost-effective home delivery pharmacy and specialty services;
access or continue accessing key drugs and successfully penetrate key treatment categories in our specialty business;
leverage purchase volume to deliver discounts to health benefit providers;
attract and retain sufficient numbers of qualified employees;
attract, develop and maintain collaborative relationships with a sufficient number of qualified partners;
attract new and maintain existing customer and client relationships;
transition health care providers from volume-based fee-for-service arrangements to a value-based system;
improve medical cost competitiveness in our targeted markets;
manage our medical, pharmacy, administrative, and other operating costs effectively; and
contract with pharmaceutical manufacturers and pharmacy providers on favorable terms.
For our strategic initiatives to succeed, we must effectively integrate our operations, including with Express Scripts and other acquired
businesses, actively work to ensure consistency throughout the organization, and promote a global mind-set along with a focus on
individual customers and clients. If we fail to do so, our business may be unable to grow as planned, or the result of expansion may be
unsatisfactory. We will be unable to rapidly respond to competitive, economic and regulatory changes if we do not make important
strategic and operational decisions quickly, define our appetite for risk, implement new governance, managerial and organizational
processes smoothly and communicate roles and responsibilities clearly. If these initiatives fail or are not executed effectively, our
consolidated financial position and results of operations could be negatively affected.
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We operate in a highly competitive, evolving and rapidly changing industry and our failure to adapt could negatively impact our
business.
The health service industry continues to be dynamic and rapidly evolving. Any significant shifts in the structure of the industry could
alter industry dynamics and adversely affect our ability to attract or retain clients and customers. Industry shifts could result (and have
resulted) from, among other things:
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a large intra- or inter-industry merger or industry consolidation;
strategic alliances;
new or alternative business models;
continuing consolidation among physicians, hospitals and other health care providers, as well as changes in the organizational
structures chosen by physicians, hospitals and health care providers;
new market entrants, including those not traditionally in the health service industry;
the ability of larger employers and clients to contract directly with providers;
technological changes and rapid shifts in the use of technology, such as telemedicine;
the impact or consequences of legislation or regulatory changes;
changes in the United States Postal Service or the consolidation of shipping carriers;
increased drug acquisition cost or unexpected changes to drug pricing trend;
change in the generic drug market or the failure of new generic drugs to come to market;
a change in drug utilization; or
a change in utilization under risk-based contracts in the health benefit management market.
Our failure to anticipate or appropriately adapt to changes in the industry could negatively impact our competitive position and
adversely affect our business and results of operations.
Our failure to compete effectively to differentiate our products and services from those of our competitors and maintain or increase
market share could materially adversely affect our results of operations, financial position and cash flows.
We operate in a highly competitive environment and an industry subject to significant market pressures brought about by customer
and client needs, legislative and regulatory developments and other market factors. In particular markets, our competitors may have
greater, better or more established capabilities, resources, market share, reputation or business relationships, or lower profit margin or
financial return expectations. Our clients are well informed and organized and can easily move between our competitors and us. Our
Express Scripts client contracts generally have three-year terms. As described in greater detail in the description of our business in
Item 1 of this Form 10-K, one of our key clients in the Health Services segment is the United States Department of Defense. If one or
more of our large clients terminates or does not renew a contract for any reason, including as a result of being acquired, or if the
provisions of a contract with a large client are modified, renewed or otherwise changed with terms less favorable to us, our results of
operations could be adversely affected and we could experience a negative reaction in the investment community resulting in
decreases in the trading price of our securities or other adverse effects.
Our success depends, in part, on our ability to compete effectively in our markets, set prices appropriately in highly competitive
markets to keep or increase our market share, increase customers as planned, differentiate our business offerings by innovating and
delivering products and services that provide enhanced value to our customers, provide quality and satisfactory levels of service, and
retain accounts with favorable medical cost experience or more profitable products versus retaining or increasing our customer base in
accounts with unfavorable medical cost experience or less profitable products.
We must remain competitive to attract new customers, retain existing customers, and further integrate additional product and service
offerings. To succeed in this highly competitive marketplace, it is imperative that we maintain a strong reputation. The negative
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reputational impact of a significant event, including a failure to execute on customer or client contracts or strategic or operational
initiatives, failure to comply with applicable laws or regulations, or failure to innovate and deliver products and services that
demonstrate greater value to our customers, could affect our ability to grow and retain profitable arrangements, which could have a
material adverse effect on our business, results of operations, financial position and cash flows.
We face price competition and other pressures that could compress our margins or result in premiums that are insufficient to cover
the cost of services delivered to our customers.
While we compete on the basis of many service and quality-related factors, we expect that price will continue to be a significant basis
of competition. Our client contracts are subject to negotiation as clients seek to contain their costs, including by reducing benefits
offered. Increasingly, our clients seek to negotiate performance guarantees that require us to pay penalties if the guaranteed
performance standard is not met. Clients can easily move between our competitors and us. Our clients are well informed and
typically have knowledgeable consultants that seek competing bids from our competitors before contract renewal. In addition, as
brokers and benefit consultants seek to enhance their revenue streams, they look to take on services that we typically provide. Each of
these events could negatively impact our financial results.
Further, federal and state regulatory agencies may restrict our ability to implement changes in premium rates. Fiscal or other concerns
related to the government-sponsored programs in which we participate, such as Medicare, may cause decreasing reimbursement rates,
delays in premium payments, restrictions on implementing changes in premium rates or insufficient increases in reimbursement rates.
Any limitation on our ability to maintain or increase our premium or reimbursement levels, or a significant loss of customers or clients
resulting from our need to increase or maintain premium or reimbursement levels, could adversely affect our business, cash flows,
financial condition and results of operations.
Premiums in the Integrated Medical segment are generally set for one-year periods and are priced well in advance of the date on which
the contract commences or renews. Our revenue on Individual and Family Plans (“IFP”) and Medicare policies is based on bids
submitted midyear in the year before the contract year. Although we base the premiums we charge and our IFP and Medicare bids on
our estimate of future health care costs over the contract period, actual costs may exceed what we estimate in setting premiums. Our
health care costs also are affected by external events that we cannot forecast or project and over which we have little or no control, as
well as changes in customers’ health care utilization patterns and provider billing practices. Our profitability depends, in part, on our
ability to accurately predict, price for and effectively manage future health care costs. Relatively small differences between predicted
and actual medical costs or utilization rates as a percentage of revenue can result in significant changes in our financial results.
Strong competition within the pharmacy benefit business has also generated greater demand for lower product and service pricing,
increased revenue sharing and enhanced product and service offerings. These competitive factors have historically applied pressure
on our operating margins and caused many companies, including us, to reduce the prices charged for products and services while
sharing with clients a greater portion of the formulary fees and related rebates received from pharmaceutical manufacturers. Our
inability to maintain positive trends, or failure to identify and implement new ways to mitigate pricing pressures, could negatively
impact our ability to attract or retain clients or sell additional services, which could negatively impact our margins and have a material
adverse effect on our business and results of operations.
The reserves we hold for expected medical claims are based on estimates that involve an extensive degree of judgment and are
inherently variable. If actual claims exceed our estimates, our operating results could be materially adversely affected, and our
ability to take timely corrective actions to contain future costs may be limited.
We maintain and record medical claims reserves on our balance sheet for estimated future payments. Our estimates of health care
costs payable are based on a number of factors, including historical claim experience, but this estimation process requires extensive
judgment. Considerable variability is inherent in such estimates, and the accuracy of the estimates is highly sensitive to changes in
medical claims submission and processing patterns or procedures, changes in customer base and product mix, changes in the
utilization of prescription drugs, medical or other covered items or services, changes in medical cost trends, changes in our health
management practices and the introduction of new benefits and products. If we are not able to accurately and promptly anticipate and
detect medical cost trends, our ability to take timely corrective actions to limit future costs and reflect our current benefit cost
experience in our pricing process may be limited. Additionally, we must estimate the amount of rebates payable by us under the
ACA’s and CMS’s minimum loss ratio rules and the amounts payable by us to, and receivable by us from, the United States federal
government under the ACA’s remaining premium stabilization program. Because establishing reserves is an inherently uncertain
process involving estimates of future losses, there can be no certainty that ultimate losses will not exceed existing reserves.
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If we fail to develop and maintain satisfactory relationships with physicians, hospitals and other health service providers and with
producers and consultants, our business and results of operations may be adversely affected.
We contract with or employ physicians, hospitals and other health service providers and facilities to provide health services to our
customers. Our results of operations are substantially dependent on our ability to contract for these services at competitive prices. In
any particular market, physicians, hospitals and health service providers may enter into exclusive arrangements with competitors or
simply refuse to contract with us, demand higher payments or take other actions that could result in higher medical costs or less
desirable products or services for our customers. In some markets, certain providers, particularly hospitals, physician/hospital
organizations and multispecialty physician groups, may have significant or controlling market positions that could result in a
diminished bargaining position for us. If providers refuse to contract with us, use their market position to negotiate more favorable
contracts or place us at a competitive disadvantage, our ability to market products or to be profitable in those areas could be materially
adversely affected. Establishing collaborative arrangements with physician groups, specialist groups, independent practice
associations, hospitals and health care delivery systems is key to our strategic focus to transition from volume-based fee-for-service
arrangements to a value-based health care system. If such collaborative arrangements do not result in the lower medical costs that we
project or if we fail to attract health care providers to such arrangements, or are less successful at implementing such arrangements
than our competitors, our attractiveness to customers may be reduced and our ability to profitably grow our business may be adversely
affected.
Our ability to develop and maintain satisfactory relationships with providers may also be negatively impacted by other factors not
associated with us, such as changes in Medicare or Medicaid reimbursement levels, increasing pressure on revenue and other pressures
on health care providers and increasing consolidation activity among hospitals, physician groups and providers. Continuing
consolidation among physicians, hospitals and other providers, the emergence of accountable care organizations, vertical integration
of providers and other entities, changes in the organizational structures chosen by physicians, hospitals and providers and new market
entrants, including those not traditionally in the health care industry, may affect the way providers interact with us and may change the
competitive landscape in which we operate. In some instances, these organizations may compete directly with us, potentially affecting
the way we price our products and services or causing us to incur increased costs if we change our operations to be more competitive.
Out-of-network providers are not limited by any agreement with us in the amounts they bill. While benefit plans place limits on the
amount of charges that will be considered for reimbursement and state regulations seek to establish methodologies and dispute
resolution processes, out-of-network providers are increasingly sophisticated and aggressive. As a result, the outcome of disputes
where we do not have a provider contract may cause us to pay higher medical or other benefit costs than we projected.
Additionally, certain of our products and services are sold in part through nonexclusive producers and consultants for whose services
and allegiance we compete. Our sales could be materially adversely affected if we were are unable to attract, retain and support such
independent producers and consultants or if our sales strategy is not appropriately aligned across distribution channels.
If we lose our relationship with one or more key pharmaceutical manufacturers, or if the payments made or discounts provided by
pharmaceutical manufacturers decline, our business and results of operations could be adversely affected.
We maintain contractual relationships with numerous pharmaceutical manufacturers, which provide us with, among other things:
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discounts for drugs we purchase to be dispensed from our home delivery and specialty pharmacies;
discounts, in the form of rebates, for drug utilization;
fees for administering rebate programs, including invoicing, allocating and collecting rebates;
fees for services provided to pharmaceutical manufacturers by our specialty pharmacies; and
access to limited distribution specialty pharmaceuticals by our specialty pharmacies.
Our contracts with pharmaceutical manufacturers are typically nonexclusive and terminable on relatively short notice by either party.
The consolidation of pharmaceutical manufacturers, the termination or material alteration of our contractual relationships, or our
failure to renew such contracts on favorable terms could have a material adverse effect on our business and results of operations. In
addition, arrangements between payors and pharmaceutical manufacturers have been the subject of debate in federal and state
legislatures and various other public and governmental forums. Adoption of new laws, rules or regulations or changes in, or new
interpretations of, existing laws, rules or regulations, relating to any of these programs could materially adversely affect our business
and results of operations.
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If significant changes occur within the pharmacy provider marketplace, or if other issues arise with respect to our pharmacy
networks, including the loss of or adverse change in our relationship with one or more key pharmacy providers, our business and
financial results could be impaired.
More than 67,700 retail pharmacies, which represent over 99% of all United States retail pharmacies, participated in one or more of
our networks as of December 31, 2019. The ten largest retail pharmacy chains represent approximately 65% of the total number of
stores in our largest network. In certain geographic areas of the United States, our networks may be comprised of higher
concentrations of one or more large pharmacy chains. Contracts with retail pharmacies are generally nonexclusive and are terminable
on relatively short notice by either party. If one or more of the larger pharmacy chains terminates its relationship with us, or is able to
renegotiate terms substantially less favorable to us, our customers’ access to retail pharmacies or our business could be materially
adversely affected. The entry of one or more additional large pharmacy chains into the pharmacy benefit management business, the
consolidation of existing pharmacy chains or increased leverage or market share by the largest pharmacy providers could increase the
likelihood of negative changes in our relationship with such pharmacies. Changes in the overall composition of our pharmacy
networks, or reduced pharmacy access under our networks, could have a negative impact on our claims volume or our competitiveness
in the marketplace, which could cause us to fall short of certain guarantees in our contracts with clients or otherwise impair our
business or results of operations.
Changes in drug pricing or industry pricing benchmarks could materially impact our financial performance.
Contracts in the prescription drug industry, including our contracts with retail pharmacy networks and our pharmacy and specialty
pharmacy clients, generally use pricing metrics published by third parties as benchmarks to establish pricing for prescription drugs. If
these benchmarks are no longer published by third parties, we, or our contractual partners, adopt other pricing benchmarks for
establishing prices within the industry, legislation or regulation requires the use of other pricing benchmarks, or future changes in drug
prices substantially deviate from our expectations, the short- or long-term impacts may have a material adverse effect on our business
and results of operations.
As a global company, we face political, legal, operational, regulatory, economic and other risks that present challenges and could
negatively affect our multinational operations or our long-term growth.
As a global company, our business is increasingly exposed to risks inherent in foreign operations. These risks can vary substantially
by market, and include political, legal, operational, regulatory, economic and other risks, including government intervention that we
do not face in our U.S. operations. The global nature of our business and operations may present challenges including, but not limited
to, those arising from:
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geopolitical business conditions and demands, including the United Kingdom’s withdrawal from the European Union;
regulation that may discriminate against U.S. companies, favor nationalization or expropriate assets;
price controls or other pricing issues and exchange controls; restrictions that prevent us from transferring funds out of the
countries in which we operate; foreign currency exchange rates and fluctuations and restrictions on converting currencies
from foreign operations into other currencies; uncertainty with respect to the interpretation of tax positions;
reliance on local employees and interpretations of labor laws in foreign jurisdictions;
managing our partner relationships in countries outside of the United States;
providing data protection on a global basis and sufficient levels of technical support in different locations;
the global trend for companies to enact local data residency requirements;
acts of civil unrest, war, terrorism, natural disasters or pandemics, such as the recent coronavirus outbreak, in locations where
we operate; and
general economic and political conditions.
These factors may increase in significance as we continue to expand globally and operating in new foreign markets may require
considerable management time before operations generate any significant revenues and earnings. Any one of these challenges could
negatively affect our operations or long-term growth. For example, due to the concentration of our international business in South
Korea, the International Markets segment is exposed to potential losses resulting from economic and regulatory changes in that
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country and the geopolitical climate in the Korean Peninsula, as well as foreign currency movements affecting the South Korean
currency, that could have a significant impact on the segment’s results and our consolidated financial results.
International operations also require us to devote significant resources to implement controls and systems in new markets to comply
with, and to ensure that our vendors and partners comply with, U.S. and foreign laws prohibiting bribery, corruption and money
laundering, in addition to other regulations regarding, among other things, our products, direct-to-consumer communications,
customer privacy, data protection and data residency. Violations of these laws and regulations could result in fines, criminal sanctions
against us, our officers or employees, restrictions or outright prohibitions on the conduct of our business and significant reputational
harm. Our success depends, in part, on our ability to anticipate these risks and manage these challenges. Our failure to comply with
laws and regulations governing our conduct outside the United States or to establish constructive relations with non-U.S. regulators
could have a material adverse effect on our business, results of operations, financial condition, liquidity and long-term growth.
Strategic transactions, including our acquisition of Express Scripts, involve risks and we may not realize the expected benefits
because of integration difficulties, underperformance relative to our expectations and other challenges.
As part of our strategy, we regularly consider and enter into strategic transactions, including mergers, acquisitions, joint ventures,
licensing arrangements, divestitures and other relationships (collectively referred to as “strategic transactions”). There is significant
competition for attractive targets and opportunities and we may be unable to identify and successfully complete strategic transactions
in the future. In addition, from time to time, we evaluate alternatives for our businesses that do not meet our strategic, growth or
profitability objectives, and we may divest or wind down such businesses. We may be unable to complete any such divestiture on
terms favorable to us, within the expected timeframes, or at all. We may have continued financial exposure to divested businesses
following the completion of any such transaction, including increased costs due to potential litigation, contingent liabilities and
indemnification of the buyer related to, among other things, lawsuits, regulatory matters or tax liabilities.
Our ability to achieve the anticipated benefits of strategic transactions is subject to numerous uncertainties and risks, including our
ability to integrate or separate operations, resources and systems, including data security systems, in an efficient and effective manner.
For example, the continued success of the Express Scripts acquisition will depend, in part, on our ability to continue to successfully
combine the businesses of Cigna and Express Scripts and realize the anticipated benefits, including synergies, cost savings, innovation
and operational efficiencies, from the combination.
Key risks of the Express Scripts integration include, but are not limited to, retaining existing clients and attracting new clients on
profitable terms; maintaining employee morale and retaining key management and other employees; consolidating corporate and
administrative infrastructures and realizing operational synergies; integrating information technology, communications programs,
financial procedures and operations, and other systems, procedures and policies; coordinating geographically separate organizations;
and on-going modifications to internal financial control standards.
Integration and separation activities may result in additional and unforeseen expenses, and the anticipated benefits, including with
respect to the Express Scripts integration, may not be fully realized or may take longer to realize than expected. These activities are
complex, costly and time-consuming and may divert management’s attention from ongoing business concerns. Delays or issues
encountered in these activities could have a material adverse effect on the revenues, expenses, operating results and financial condition
of the combined company.
Strategic transactions could result in increased costs, including facilities and systems consolidation costs and costs to retain key
employees, decreases in expected revenues, earnings or cash flows, and goodwill or other intangible asset impairment charges.
Additional unanticipated costs may be incurred in the integration of Express Scripts’ businesses. Although we expect that the
elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of those businesses, should
allow us to more than offset incremental transaction and merger-related costs over time, this net benefit may not be achieved in the
near term, or at all. As of December 31, 2019, our goodwill and other intangible assets had a carrying value of approximately $81
billion, representing 52% of our total consolidated assets. The value of our goodwill may be materially and adversely impacted if the
businesses we acquire do not perform in a manner consistent with our assumptions. Future evaluations requiring an impairment to
goodwill and other intangible assets could materially affect our results of operations and shareholders’ equity in the period in which
the impairment occurs. A material decrease in shareholders’ equity could negatively impact our debt ratings or potentially impact our
compliance with existing debt covenants. In addition, the trading price of our securities may decline if, among other things, we are
unable to achieve our estimates of earnings growth and operational cost savings, or the transaction costs related to the acquisition and
integration are greater than expected. The trading price also may decline if we do not achieve the perceived benefits of the acquisition
as rapidly or to the extent anticipated by financial or industry analysts.
Additionally, joint ventures and equity investments present risks that are different from acquisitions, including risks related to:
specific operations and finances of the businesses we invest in, selection of appropriate parties, differing objectives of the various
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parties, competition between and among parties, compliance activities (including compliance with applicable CMS requirements),
growing the business in a manner acceptable to all the parties, maintaining positive relationships among the parties, clients and
customers, initial and ongoing governance of joint ventures, and customer and business disruption that may occur upon a joint venture
termination.
Further, we may finance strategic transactions by issuing common stock for some or all of the purchase price that could dilute the
ownership interests of our shareholders, or by incurring additional debt that could increase costs and impact our ability to access
capital in the future.
In addition, effective internal controls are necessary to provide reliable and accurate financial reports and to mitigate the risk of fraud.
The integration of businesses is likely to cause increasing complexity in our systems and internal controls and make them more
difficult to manage. Any difficulties in assimilating businesses into our control system could cause us to fail to meet our financial
reporting obligations. We also rely on the internal controls and financial reporting controls of joint venture entities and other entities
in which we invest and their failure to maintain effectiveness or comply with applicable standards may materially and adversely affect
us. Ineffective internal controls could also cause investors to lose confidence in our reported financial information that could
negatively impact the trading price of our securities and our access to capital.
We are dependent on the success of our relationships with third parties for various services and functions.
To improve operating costs, productivity and efficiencies, we contract with third parties for the provision of specific services. Our
operations may be adversely affected if a third party fails to satisfy its obligations to us, if the arrangement is terminated in whole or in
part or if there is a contractual dispute between us and the third party. Even though contracts are intended to provide certain
protections, we have limited control over the actions of third parties. For example, noncompliance with any privacy or security laws
and regulations, any security breach involving one of our third-party vendors or a dispute between us and a third-party vendor related
to our arrangement could have a material adverse effect on our business, results of operations, financial condition, liquidity and
reputation.
Outsourcing also may require us to change our existing operations, adopt new processes for managing these service providers or
redistribute responsibilities to realize the potential productivity and operational efficiencies. If there are delays or difficulties in
changing business processes or our third-party vendors do not perform as expected, we may not realize, or not realize on a timely
basis, the anticipated economic and other benefits of these relationships. This could result in additional costs or regulatory compliance
issues or create other operational or financial problems for us. Terminating or transitioning, in whole or in part, arrangements with
key vendors could result in additional costs or penalties, risks of operational delays or potential errors and control issues during the
termination or transition phase. We may not be able to find an alternative vendor in a timely manner or on acceptable terms. If there
is an interruption in business or loss of access to data resulting from a security breach, termination or transition in services, we may
not be able to meet the demands of our customers and, in turn, our business and results of operations could be adversely impacted.
A significant disruption in service within our operations or among our key suppliers or other third parties could materially
adversely affect our business and results of operations.
Our business is highly dependent upon our ability to perform, in an efficient and uninterrupted fashion, necessary business functions,
such as claims processing and payment, internet support and customer call centers, data centers and corporate facilities, processing
new and renewal business, maintaining appropriate shipment and storage conditions for prescriptions (such as temperature and
protection from contamination) and home delivery processing. In some instances, our ability to provide services or products
(including processing and dispensing prescriptions) depends on the availability of services and products provided by suppliers,
pharmaceutical manufacturers, vendors or shipping carriers. A disruption in our supply chain, including, as a result of the recent
coronavirus outbreak, or inability to access or deliver products that meet requisite quality safety standards in a timely and efficient
manner could adversely impact our business. Additionally, any failure or disruption of our performance of, or our ability to perform,
key business functions, including through unavailability or cyberattack of our information technology systems or those of third parties,
could cause slower response times, decreased levels of service satisfaction and harm to our reputation. Our information technology
and other systems interface with and depend on third-party systems and we could experience service denials if demand for such
service exceeds capacity or a third-party system fails or experiences an interruption. Our failure to implement adequate business
continuity and disaster recovery strategies could significantly reduce our ability to provide products and services to our customers and
clients, which could have material adverse effects on our business and results of operations.
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Our business depends on our ability to effectively invest in, implement improvements to and properly maintain the uninterrupted
operation and data integrity of our information technology and other business systems.
Our business is highly dependent on maintaining effective information systems as well as the integrity and timeliness of the data we
use to serve our customers and health care providers and to operate our business. If our data were found to be inaccurate or unreliable
due to fraud or other error, or if we, or any of the third-party service providers we engage, were to fail to maintain information systems
and data integrity effectively, we could experience operational disruptions that may impact our clients, customers and health care
providers and hinder our ability to provide services and products, establish appropriate pricing for products and services, retain and
attract clients and customers, establish reserves and report financial results timely and accurately and maintain regulatory compliance,
among other things.
Our information technology strategy and execution are critical to our continued success. We must continue to invest in long-term
solutions that will enable us to anticipate customer needs and expectations, enhance the customer experience, act as a differentiator in
the market and protect against cybersecurity risks and threats. Our success is dependent, in large part, on maintaining the
effectiveness of existing technology systems and continuing to deliver and enhance technology systems that support our business
processes in a cost-efficient and resource-efficient manner. Increasing regulatory and legislative changes will place additional
demands on our information technology infrastructure that could have a direct impact on resources available for other projects tied to
our strategic initiatives. In addition, recent trends toward greater consumer engagement in health care require new and enhanced
technologies, including more sophisticated applications for mobile devices. Connectivity among technologies is becoming
increasingly important. We must also develop new systems to meet current market standards and keep pace with continuing changes
in information processing technology, evolving industry and regulatory standards and customer needs. Failure to do so may present
compliance challenges and impede our ability to deliver services in a competitive manner. Further, because system development
projects are long term in nature, they may be more costly than expected to complete and may not deliver the expected benefits upon
completion. Our failure to effectively invest in, implement improvements to and properly maintain the uninterrupted operation and
data integrity of our information technology and other business systems could adversely affect our results of operations, financial
position and cash flow.
As a large health service company, we are subject to cyberattacks or other privacy or data security incidents. If we are unable to
prevent or contain the effects of any such attacks, we may suffer exposure to substantial liability, reputational harm, loss of
revenue or other damages.
Our business depends on our clients’ and customers’ willingness to entrust us with their health-related and other sensitive personal
information. Computer systems may be vulnerable to physical break-ins, computer viruses or malware, programming errors, attacks
by third parties or similar disruptive problems. We have been, and will likely continue to be, the target of computer viruses or other
malicious codes, unauthorized access, cyberattacks or other computer-related penetrations. There have been, and will likely continue
to be, large scale cyberattacks within the health service industry. Additionally, hardware, software or applications we develop or
procure from third parties may contain defects in design, manufacturer defects or other problems that could unexpectedly compromise
information technology. Human or technological error has and could in the future result in, for example, unauthorized access to,
disclosure, modification, misuse, loss, or destruction of company, customer, or other third-party data or systems; theft of sensitive,
regulated, or confidential data including personal information and intellectual property; the loss of access to critical data or systems
through ransomware, destructive attacks or other means; and business delays, service or system disruptions or denials of service.
As we increase the amount of personal information that we store and share digitally, our exposure to unintended disclosures, data
security and related cybersecurity risks increases, including the risk of undetected attacks, damage, loss or unauthorized access or
misappropriation of proprietary or personal information, and the cost of attempting to protect against these risks also increases. If
disruptions, disclosures or breaches are not detected quickly, their effect could be compounded. We have implemented security
technologies, processes and procedures to protect consumer identity and provide employee awareness training around phishing,
malware and other cyber risks; however, there are no assurances that such measures will be effective against all types of breaches.
Cybersecurity threats are rapidly evolving and those threats and the means for obtaining access to our proprietary systems are
becoming increasingly sophisticated. Cyberattacks can originate from a wide variety of sources including third parties, such as
external service providers, and the techniques used change frequently or are often not recognized until after they have been launched.
Those parties may also attempt to fraudulently induce employees, customers or other users of our systems to disclose sensitive
information in order to gain access to our data or that of our customers. In addition, while we have certain standards for all vendors
that provide us services, our vendors, and in turn, their own service providers, may become subject to the same types of security
breaches. Finally, our offices may be vulnerable to security incidents or security attacks, acts of vandalism or theft, misplaced or lost
data, human error or similar events that could negatively affect our systems and our customers’ and clients’ data.
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The costs to eliminate or address security threats and vulnerabilities before or after a cyber-incident could be significant. Our
remediation efforts may not be successful and could result in interruptions, delays, or cessation of service and loss of existing or
potential customers.
In addition, breaches of our security measures and the unauthorized dissemination of sensitive personal information, proprietary
information or confidential information about us, our customers or other third parties could expose our customers' private information
and our customers to the risk of financial or medical identity theft. Unauthorized dissemination of confidential and proprietary
information about our business and strategy could also negatively affect the achievement of our strategic initiatives. Such events
could cause us to breach our contractual confidentiality obligations and violate applicable laws. These events would negatively affect
our ability to compete, others’ trust in us, our reputation, customer base and revenues and expose us to mandatory disclosure
requirements, litigation and other enforcement proceedings, material fines, penalties or remediation costs, and compensatory, special,
punitive and statutory damages, consent orders and other adverse actions, any of which could adversely affect our business, results of
operations, financial condition or liquidity.
In managing medical practices and operating pharmacies, onsite clinics and other types of medical facilities, we may be subject to
additional liability that could result in significant time and expense.
In addition to contracting with physicians and other health care providers for services, we employ physicians, pharmacists, nurses and
other health care providers at our home delivery and specialty pharmacies, onsite low acuity and primary care practices and infusion
clinics that we manage and operate for our customers, as well as certain clinics for our employees. We also provide in-home care
through health care providers that we employ, as well as, through third-party contractors. As such, we may be subject to liability for
certain acts, omissions, or injuries caused by our employees or agents, or occurring at one of these practices, pharmacies or clinics.
The defense of any actions may result in significant expenses that could have a material adverse effect on our business, results of
operations, financial condition, liquidity and reputation.
Legal and Compliance Risks
Our business is subject to substantial government regulation, as well as new laws or regulations or changes in existing laws or
regulations that could have a material adverse effect on our business, results of operations, financial condition and liquidity.
Our business is regulated at the federal, state, local and international levels. The laws and rules governing our business and related
interpretations are increasing in number and complexity, are subject to frequent change and can be inconsistent or in conflict with each
other. Noncompliance with applicable regulations by us or our third-party vendors could have material adverse effects on our
business, results of operations, financial condition, liquidity and reputation.
We must identify, assess and respond to new trends in the legislative and regulatory environment, as well as comply with the various
existing regulations applicable to our business. There are currently pending, and in the future there will likely be, legislative or
regulatory proposals which seek to manage the health care industry, including managing prescription drug costs and health records, as
well as regulating drug distribution. We expect federal and state governments to continue to enact and seriously consider many broad-
based legislative and regulatory proposals that will or could materially impact various aspects of the health care and related benefits
system. The trading price of our securities may react to the announcement of such proposals. We are unable to predict whether any
such proposals will be enacted, or the specific terms thereof, including their effect on our operations; however, certain of these
proposals could, if enacted, adversely impact our business and results of operations.
Existing or future laws, rules, regulatory interpretations or judgments could force us to change how we conduct our business, affect
the products and services we offer, restrict revenue and enrollment growth, increase our costs, including operating, health care
technology and administrative costs, and require enhancements to our compliance infrastructure and internal controls environment.
For example, a decision invalidating the ACA or portions thereof could result in material changes to the way we conduct our business,
as well as the loss of subsidies related to our IFP offerings. We are required to obtain and maintain insurance and other regulatory
approvals to, among other things, market many of our products, expand into additional geographic or product markets, increase prices
for certain regulated products and consummate some of our acquisitions and dispositions. Delays in obtaining or failure to obtain or
maintain these approvals could reduce our revenue or increase our costs. Existing or future laws and rules could also require or lead
us to take other actions such as changing our business practices, and could increase our liability.
Further, failure to effectively implement or adjust our strategic and operational initiatives, such as by reducing operating costs,
adjusting premium pricing or benefit design or transforming our business model in response to regulatory changes may have a
material adverse effect on our results of operations, financial condition and cash flows, including, but not limited to, our ability to
maintain the value of our goodwill and other intangible assets.
39
For more information on regulations affecting our business, see “Business – Regulation” in Part I, Item 1 of this Form 10-K.
There are various risks associated with participating in government-sponsored programs, such as Medicare, including dependence
upon government funding, compliance with government contracts and increased regulatory oversight and enforcement.
Through our Government business, we contract with CMS and various state governmental agencies to provide managed health care
services including Medicare Advantage plans and Medicare Part D plans. Additionally, our Health Services business provides
services to government entities and payers participating in government health care programs.
Our revenues from government funded programs, including our Medicare programs and our government clients, are dependent, in
whole or in part, upon annual funding from the federal government or applicable state or local governments. Funding for these
programs is dependent on many factors outside our control, including general economic conditions, continuing government efforts to
contain health care costs and budgetary constraints at the federal or applicable state or local level and general political issues and
priorities. These entities generally have the right to not renew or cancel their contracts with us on short notice without cause or if
funds are not available. Unanticipated changes in funding, such as the application of sequestration by the federal or state governments
or the failure to provide for continued appropriations or regular ongoing scheduled payments to us, could substantially reduce our
revenues and profitability.
The Medicare program has been the subject of regulatory reform initiatives. The premium rates paid to Medicare Advantage plans
and Medicare Part D plans are established by contract, although the rates differ depending on a combination of factors, some of which
are outside our control. For example, a portion of each Medicare Advantage plan’s reimbursement is tied to the plan’s Star Rating,
with those plans receiving a rating of four or more stars eligible for quality-based bonus payments. A plan’s Star Rating affects its
image in the market and plans that perform well are able to offer enhanced benefits, market more effectively and for longer periods of
time than other plans. The Star Rating system is subject to change annually by CMS, which may make it more difficult to achieve
four stars or greater. Our Medicare Advantage plans’ and Medicare Part D plans’ operating results, premium revenue and benefit
offerings are likely to continue to be significantly determined by their Star Ratings. There can be no assurances that we will be
successful in maintaining or improving our Star Ratings in future years. In addition, audits of our performance for past or future
periods may result in downgrades to our Star Ratings. Accordingly, our plans may not be eligible for full level quality bonuses, which
could adversely affect the benefits such plans can offer, reduce membership or impact our financial performance. See Part II, Item 7 –
Management’s Discussion and Analysis of Financial Condition and Results of Information – Industry Developments and Other
Matters Affecting our Health Services and Integrated Medical Segments for additional information on our Star Ratings.
Additionally, if we fail to comply with CMS’s contractual requirements, including data submission, enrollment and marketing,
provider network adequacy, provider directory accuracy, quality measures, claims payment, continuity of care and call center
performance, we may be subject to administrative actions, including enrollment sanctions or contract termination, fines or other
penalties that could impact our profitability. As described under “Business – Regulation” in Part I, Item 1 of this Form 10-K, on
November 1, 2018, CMS released a proposed rule that would revise its RADV methodology by, among other things, excluding an
adjustment for underlying fee-for-service data errors and extrapolating RADV results at the contract level for RADV audits of contract
year 2011 and all subsequent years. If adopted in its current form, the rule could result in some combination of degraded plan
benefits, higher monthly premiums or reduced choice for the population served by all Medicare Advantage insurers. The Company,
along with other Medicare Advantage organizations and additional interested parties, submitted comments to CMS on the proposed
rule as part of the notice-and-comment rulemaking process. The comment period concluded on August 28, 2019. While it is uncertain
that CMS will finalize the rule as proposed, if adopted, it could have a material impact on the Company’s future results of operations.
Our participation in health insurance exchanges for individuals and small employers through our IFP offerings involves uncertainties
associated with mix and volume of business and could adversely affect our results of operations, financial position and cash flows.
The executive order signed in October 2017 that halted payment of the cost-sharing reduction subsidies under the ACA has created
additional uncertainty regarding the future of public health insurance exchanges.
Any failure to comply with various state and federal health care laws and regulations, including those directed at preventing fraud and
abuse in government funded programs, could result in investigations or litigation, such as actions under the federal False Claims Act
and similar whistleblower statutes under state laws. This could subject us to damage awards, including treble damages, fines,
penalties or other enforcement actions, restrictions on our ability to market or enroll new customers, limits on expansion, restrictions
or exclusions from programs or other agreements with federal or state governmental agencies, which could adversely impact our
business, cash flows, financial condition, results of operations and reputation.
40
We face risks related to litigation, regulatory audits and investigations.
We are routinely involved in numerous claims, lawsuits, regulatory audits, investigations and other legal matters arising, for the most
part, in the ordinary course of business. These legal matters could include benefit claims, breach of contract actions, tort claims,
claims arising from consumer protection laws, false claims act laws, claims disputes under federal or state laws and disputes regarding
reinsurance arrangements, employment and employment discrimination-related suits, antitrust claims, employee benefit claims, wage
and hour claims, tax, privacy, intellectual property and whistleblower claims, shareholder suits and other securities law claims, real
estate disputes, claims related to disclosure of certain business practices and claims arising from customer audits and contract
performance, including government contracts. In addition, we have incurred and likely will continue to incur liability for practices
and claims related to our health care business, such as marketing misconduct, failure to timely or appropriately pay for or provide
health care, provider network structure, poor outcomes for care delivered or arranged, provider disputes including disputes over
compensation or contractual provisions, ERISA claims, allegations related to calculations of cost sharing and claims related to our
administration of self-funded business. We are also routinely involved in legal matters arising from our health services business,
including without limitation claims related to the dispensing of pharmaceutical products by our home delivery and specialty
pharmacies, pharmacy benefit management services, such as formulary management services, health benefit management services and
provider services. There are currently, and may be in the future, attempts to bring class action lawsuits against the company and other
companies in our industry; individual plaintiffs also may bring multiple claims regarding the same subject matter against us and other
companies in our industry.
Court decisions and legislative activity may increase our exposure for any of these types of claims. In some cases, substantial
noneconomic or punitive damages may be sought. We seek to procure insurance coverage to cover some of these potential liabilities.
However, certain potential liabilities may not be covered by insurance, insurers may dispute coverage or the amount of insurance may
be insufficient to cover the entire damages awarded. In addition, certain types of damages, such as punitive damages, may not be
covered by insurance, and insurance coverage for all or certain forms of liability may become unavailable or prohibitively expensive
in the future. Resolving disputes is often expensive and disruptive, regardless of the outcome. Additionally, it is possible that the
resolution of current or future legal matters and claims could result in changes to our industry and business practices, losses material to
our results of operations, financial condition and liquidity or damage to our reputation.
We are frequently the subject of regulatory market conduct and other reviews, audits and investigations by state insurance and health
and welfare and pharmacy departments, attorneys general, CMS, DOL and the OIG and comparable authorities in foreign
jurisdictions. With respect to our Medicare Advantage and Medicare Part D businesses, CMS and OIG perform audits to determine a
health plan's compliance with federal regulations and contractual obligations, including compliance with proper coding practices and
fraud and abuse enforcement practices through audits designed to detect and correct improper payments. Certain of our contracts are
currently subject to RADV audits by CMS and the OIG. The DOJ is conducting an industry-wide investigation of the risk adjustment
data submission practices and business processes, including review of medical charts, of Cigna and a number of other Medicare
Advantage organizations under Medicare Parts C and D. There also continues to be heightened review by federal and state regulators
of business and reporting practices within the health service, disability and life insurance industries, including with respect to claims
payment and related escheat practices, and increased scrutiny by other federal and state governmental agencies (such as state attorneys
general) empowered to bring criminal actions in circumstances that could have previously given rise only to civil or administrative
proceedings.
In addition, various government agencies have conducted investigations and audits into certain pharmacy benefit management
practices. Many of these investigations and audits have resulted in other companies agreeing to civil penalties, including the payment
of money and corporate integrity agreements. We cannot predict what effect, if any, such government investigations and audits may
ultimately have on us or on the industry in general. However, we will likely continue to experience government scrutiny and audit
activity, which has and may in the future result in civil penalties.
Regulatory audits, investigations or reviews or actions by other government agencies could result in changes to our business practices,
retroactive adjustments to certain premiums, significant fines, penalties, civil liabilities, criminal liabilities or other sanctions,
including corporate integrity agreements, restrictions on our ability to participate in government programs, market certain products or
engage in business-related activities, that could have a material adverse effect on our business, results of operation, financial condition
and liquidity. In addition, disclosure of an adverse investigation or audit or the imposition of fines or other sanctions could negatively
affect our reputation in certain markets and make it more difficult for us to sell our products and services.
A description of material pending legal actions and other legal and regulatory matters is included in Note 22 to the Consolidated
Financial Statements included in this Form 10-K. The outcome of litigation and other legal or regulatory matters is always uncertain.
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If we fail to comply with applicable privacy, security and data laws, regulations and standards, our business and reputation could
be materially adversely affected.
Most of our activities involve the receipt, use, storage or transmission of a substantial amount of individuals’ protected health
information and personally identifiable information. We also use aggregated and anonymized data for research and analysis purposes,
and in some cases, provide access to such data to pharmaceutical manufacturers and third-party data aggregators and analysts. The
collection, maintenance, protection, use, transmission, disclosure and disposal of sensitive personal information are regulated at the
federal, state, international and industry levels and requirements are imposed on us by contracts with clients. In some cases, such
laws, rules, regulations and contractual requirements also apply to our vendors and require us to obtain written assurances of their
compliance with such requirements. We are also subject to various other consumer protection laws that regulate our communications
with customers. Certain of our businesses are also subject to the Payment Card Industry Data Security Standard, which is designed to
protect credit card account data as mandated by payment card industry entities. International laws, rules and regulations governing the
use and disclosure of such information, such as the GDPR, can be more stringent than in the United States, and they vary across
jurisdictions. In addition, more jurisdictions are regulating the transfer of data across borders and domestic privacy and data
protection laws are generally becoming more onerous.
These laws, rules and contractual requirements are subject to change and the regulatory environment surrounding data security and
privacy is increasingly demanding. Compliance with new privacy, security and data laws, regulations and requirements may result in
increased operating costs, and may constrain or require us to alter our business model or operations. For more information on privacy
regulations to which we are subject, see “Business – Regulation” in Part I, Item 1 of this Form 10-K.
HIPAA requires covered entities to comply with the HIPAA privacy, security and breach rules. In addition, business associates must
comply with the HIPAA security and breach requirements. While we endeavor to provide appropriate protections through our
contracts with our third-party service providers and in certain cases assess their security controls, we have limited oversight or control
over their actions and practices. Several of our businesses act as business associates to their covered entity customers and, as a result,
collect, use, disclose and maintain sensitive personal information in order to provide services to these customers. HHS has continued
its audit program to assess HIPAA compliance efforts by covered entities and has expanded it to include business associates. In
addition, HHS continues to exercise its enforcement authority, such as enforcement actions resulting from investigations brought on
by notification to HHS of a breach. An audit resulting in findings or allegations of noncompliance or the implementation of an
enforcement action could have an adverse effect on our results of operations, financial position, cash flows and reputation.
Noncompliance or findings of noncompliance with applicable laws, regulations or requirements, or the occurrence of any privacy or
security breach involving the misappropriation, loss or other unauthorized disclosure of protected personal information, whether by us
or by one of our third-party service providers, could materially adversely affect our business and reputation, including our results of
operations, financial position, and cash flows.
Effective prevention, detection and control systems are critical to maintain regulatory compliance and prevent fraud and failure of
these systems could adversely affect us.
Federal and state governments have made investigating and prosecuting health care and other insurance fraud and abuse a priority.
Fraud and abuse prohibitions encompass a wide range of activities including kickbacks for referral of customers, billing for
unnecessary medical services, improper marketing and violations of patient privacy rights. The regulations and contractual
requirements applicable to us are complex and subject to change. In addition, ongoing vigorous law enforcement, a highly technical
regulatory scheme and the Dodd-Frank Act and related regulations enhance regulators’ enforcement powers and whistleblower
incentives and protections. Our compliance efforts in this area will continue to require significant resources. Failure of our
prevention, detection or control systems related to regulatory compliance or the failure of employees to comply with our internal
policies including data systems security or unethical conduct by managers and employees, could adversely affect our reputation and
also expose us to litigation and other proceedings, fines and penalties.
In addition, provider or customer fraud that is not prevented or detected could impact our medical costs or those of our self-insured
clients. Further, during an economic downturn, we may experience increased fraudulent claims volume that may lead to additional
costs due to an increase in disputed claims and litigation.
Economic Risks
Economic and market conditions affect the value of our financial instruments and the value of particular assets and liabilities.
As an insurer, we have substantial investment assets that support insurance and contractholder deposit liabilities. The market value of
our investments vary depending on economic and market conditions. For example, generally low levels of interest rates on
42
investments, such as those experienced in U.S. and foreign financial markets during recent years, have negatively impacted our level
of investment income earned in recent periods.
A substantial portion of our investment assets are in fixed interest-yielding debt securities of varying maturities, fixed redeemable
preferred securities and commercial mortgage loans. The value of these investment assets can fluctuate significantly with changes in
market conditions. A rise in interest rates would likely reduce the value of our investment portfolio and increase interest expense if
we were to access our available lines of credit. In addition, a delay in payment of principal or interest by issuers, or defaults by
issuers, could reduce our investment income and require us to write down the value of our investments.
Significant stock market or interest rate declines could result in additional unfunded pension obligations resulting in the need for
additional plan funding by us and increased pension expenses.
We currently have unfunded obligations in our frozen pension plans. A significant decline in the value of the plans’ equity and fixed
income investments or unfavorable changes in applicable laws or regulations could materially increase our expenses and change the
timing and amount of required plan funding. This could reduce the cash available to us, including our subsidiaries. We are also
exposed to interest rate and equity risk associated with our pension obligations. Sustained declines in interest rates could have an
adverse impact on the funded status of our pension plans and our reinvestment yield on new investments. See Note 16 to the
Consolidated Financial Statements for more information on our obligations under the pension plans.
A downgrade in the financial strength ratings of our insurance subsidiaries could adversely affect new sales and retention of
current business, and a downgrade in our debt ratings would increase the cost of borrowed funds and could negatively affect our
ability to access capital.
Financial strength, claims paying ability and debt ratings by recognized rating organizations are each important factors in establishing
the competitive position of insurance and health benefits companies. Ratings information by nationally recognized ratings agencies is
broadly disseminated and generally used throughout the industry. We believe that the claims paying ability and financial strength
ratings of our principal insurance subsidiaries are important factors in marketing our products to certain customers. Our debt ratings
impact both the cost and availability of future borrowings and, accordingly, our cost of capital. Each of the rating agencies reviews
ratings periodically and there can be no assurance that current ratings will be maintained in the future. A downgrade of any of these
ratings in the future could make it more difficult to either market our products successfully or raise capital to support business growth
within our insurance subsidiaries.
Global market, economic and geopolitical conditions may cause fluctuations in equity market prices, interest rates and credit
spreads that could impact our ability to raise or deploy capital and affect our overall liquidity.
If the equity and credit markets experience extreme volatility and disruption, there could be downward pressure on stock prices and
restricted access to capital for certain issuers without regard to those issuers’ underlying financial strength. Extreme disruption in the
credit markets could adversely impact our access to, and cost of, capital in the future.
In the event of adverse economic and industry conditions, we may be required to dedicate a greater percentage of our cash flow from
operations to the payment of principal and interest on our debt, thereby reducing the funds we have available for other purposes, such
as investments and other expenditures in ongoing businesses, acquisitions, dividends and stock repurchases. In these circumstances,
our ability to execute our strategy may be limited, our flexibility in planning for or reacting to changes in business and market
conditions may be reduced, or our access to capital markets may be limited such that additional capital may not be available or may be
available only on unfavorable terms.
In connection with the combination with Express Scripts, we have considerably higher levels of indebtedness than Cigna and
Express Scripts previously carried, which will result in higher relative debt service costs and less cash flow from operations
available to fund growth, stock repurchases and other corporate purposes.
The long-term indebtedness of Cigna was approximately $ 31.9 billion as of December 31, 2019. This level of indebtedness:
•
•
requires us to dedicate a greater percentage of our cash flow from operations to debt payments, thereby reducing the
availability of cash flow to fund capital expenditures, pursue other acquisitions or investments in new technologies, make
stock repurchases, pay dividends and for general corporate purposes;
increases our vulnerability to general adverse economic conditions, including increases in interest rates for our borrowings
that bear interest at variable rates and are in a greater amount than floating rate assets held, or if such indebtedness is
refinanced at a time when interest rates are higher; and
43
•
limits our flexibility in planning for, or reacting to, changes in or challenges relating to our business and industry.
The covenants to which we have agreed in connection with the financing, and our indebtedness and higher debt-to-equity ratio in
comparison with that of Cigna or Express Scripts on a recent historical basis, may have the effect, among other things, of restricting
our financial and operating flexibility to respond to changing business and economic conditions, creating competitive disadvantages
compared with other competitors with lower debt levels during the deleveraging process. If our cash flow and capital resources are
insufficient to service our debt obligations, we may be forced to seek additional dividends from our subsidiaries, sell assets, seek
additional equity or debt capital or restructure our debt.
Unfavorable developments in economic conditions may adversely affect our business, results of operations and financial condition.
Many factors, including geopolitical issues, future economic downturns, availability and cost of credit and other capital and consumer
spending can negatively impact the U.S. and global economies. Our results of operations could be materially adversely affected by
the impact of unfavorable economic conditions on our clients and customers (both employers and individuals), health care providers,
pharmacy manufacturers, pharmacy providers and third-party vendors. For example:
•
•
•
•
•
•
•
•
•
Employers may take action to reduce their operating costs by modifying, delaying or canceling plans to purchase our
products or making changes in the mix of products purchased that are unfavorable to us.
Higher unemployment rates and workforce reductions could result in lower enrollment in our employer-based plans
(including an increase in the number of employees who opt out of employer-based plans) or our individual plans.
Because of unfavorable economic conditions or the ACA, employers may stop offering health care coverage to employees or
elect to offer this coverage on a voluntary, employee-funded basis as a means to reduce their operating costs.
Our historical disability claim experience and industry data indicate that submitted disability claims rise under adverse
economic conditions.
If clients are not successful in generating sufficient funds or are precluded from securing financing, they may not be able to
pay, or may delay payment of, accounts receivable that are owed to us.
Our clients or potential clients may force us to compete more vigorously on factors such as price and service to retain or
obtain their business.
Our clients may be acquired, consolidated, or otherwise fail to successfully maintain or grow their business or workforce,
which could reduce the number of customers we serve or otherwise result in lower than anticipated utilization of our services.
A prolonged unfavorable economic environment could adversely impact the financial position of hospitals and other health
care providers, potentially increasing our medical costs as these providers attempt to maintain revenue levels in their efforts
to adjust to their own economic challenges.
Our third-party vendors could significantly and quickly increase their prices or reduce their output to reduce their operating
costs. Our business depends on our ability to perform necessary business functions in an efficient and uninterrupted fashion.
These factors could lead to a decrease in our customer base, revenues or margins or an increase in our operating costs.
In addition, during and following a prolonged unfavorable economic environment, federal and state budgets could be materially
adversely affected, resulting in reduced or delayed reimbursements or payments in federal and state government programs such as
Medicare and Social Security or under contracts with government entities. These federal and state budgetary pressures also could
cause the government to impose new or a higher level of taxes or assessments on us, such as premium taxes on insurance companies
and HMOs and surcharges or fees on select fee-for-service and capitated medical claims. Although we could attempt to mitigate or
cover our exposure from such increased costs through, among other things, increases in premiums, there can be no assurance that we
will be able to mitigate or cover all of such costs, which may have a material adverse effect on our business, results of operations,
financial condition and liquidity.
44
We are subject to the credit risk of our reinsurers.
We enter into reinsurance arrangements with other insurance companies, primarily to limit losses from large exposures or to permit
recovery of a portion of direct losses. We also may enter into reinsurance arrangements in connection with acquisition or divestiture
transactions when the underwriting company is not being acquired or sold.
Under all reinsurance arrangements, reinsurers assume insured losses, subject to certain limitations or exceptions that may include a
loss limit. These arrangements also subject us to various obligations, representations and warranties with the reinsurers. Reinsurance
does not relieve us of liability as the originating insurer. We remain liable to the underlying policyholders if a reinsurer defaults on
obligations under the reinsurance arrangement. Although we regularly evaluate the financial condition of reinsurers to minimize
exposure to significant losses from reinsurer insolvencies, reinsurers may become financially unsound. If a reinsurer fails to meet its
obligations under the reinsurance contract or if the liabilities exceed any applicable loss limit, we will be forced to cover the claims on
the reinsured policies.
The collectability of amounts due from reinsurers is subject to uncertainty arising from a number of factors, including whether the
insured losses meet the qualifying conditions of the reinsurance contract, whether reinsurers or their affiliates have the financial
capacity and willingness to make payments under the terms of the reinsurance contract and the magnitude and type of collateral
supporting our reinsurance recoverable, such as holding sufficient qualifying assets in trusts or letters of credit issued. Although a
portion of our reinsurance exposures are secured, the inability to collect a material recovery from a reinsurer could have a material
adverse effect on our results of operations, financial condition and liquidity.
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Item 1B. UNRESOLVED STAFF COMMENTS
None.
Item 2. PROPERTIES
Our global real estate portfolio consists of approximately 12.9 million square feet of owned and leased properties. Our domestic
portfolio has approximately 10.9 million square feet in 43 states, the District of Columbia, Puerto Rico and the U.S. Virgin Islands.
Our international properties contain approximately 2.0 million square feet located throughout the following countries: Australia,
Bahrain, Belgium, Canada, China, France, Germany, Hong Kong, India, Indonesia, Kenya, Kuwait, Lebanon, Malaysia, New Zealand,
Oman, Singapore, South Korea, Spain, Switzerland, Taiwan, Thailand, Turkey, United Arab Emirates, and the United Kingdom.
Our principal domestic office locations include the Wilde Building located at 900 Cottage Grove Road in Bloomfield, Connecticut
(our corporate headquarters), Two Liberty Place located at 1601 Chestnut Street in Philadelphia, Pennsylvania, and Express Scripts’
corporate offices located at and around One Express Way in St. Louis, Missouri. The Wilde Building measures approximately
893,000 square feet and is owned. Express Scripts’ campus measures approximately 1.2 million square feet of leased space and Two
Liberty Place measures approximately 322,000 square feet and is leased space.
The home delivery pharmacy operations of our Health Services segment consist of eight order processing pharmacies, eight patient
contact centers and four high-volume automated home delivery dispensing pharmacies located throughout the United States. Health
Services’ home delivery dispensing pharmacies are located in Arizona, Indiana, Missouri and New Jersey. Health Services also has
seven specialty home delivery pharmacies and 38 specialty branch pharmacies.
We believe our properties are adequate and suitable for our business as presently conducted. The foregoing does not include
information on investment properties.
Item 3. LEGAL PROCEEDINGS
The information contained under Litigation Matters and Regulatory Matters in Note 22 to the Financial Statements of this Form
10-K, is incorporated herein by reference.
Item 4. MINE SAFETY DISCLOSURES
Not Applicable.
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Information about our Executive Officers
All officers are elected to serve for a one-year term or until their successors are elected. Principal occupations and employment
histories are listed below.
MARK L. BOXER, 60, Executive Vice President and Chief Information Officer of Cigna beginning April 2011; Deputy Chief
Information Officer, Xerox Corporation; and Group President, Government Health Care, for Xerox Corporation/Affiliated Computer
Services from March 2009 until April 2011.
DAVID M. CORDANI, 54, Chief Executive Officer of Cigna beginning December 2009; Director since October 2009; President
beginning June 2008; and Chief Operating Officer from June 2008 until December 2009.
BRIAN C. EVANKO, 43, President, Government Business beginning November 2017; President, U.S. Individual Business from
August 2013 to November 2017; Business Financial Officer, Cigna Global Individual, Health, Life and Accident from September
2012 to August 2013; Chief Actuary, Cigna Global Individual, Health, Life and Accident from December 2008 to September 2012.
NICOLE S. JONES, 49, Executive Vice President and General Counsel of Cigna beginning June 2011; Senior Vice President and
General Counsel of Lincoln Financial Group from May 2010 until June 2011; Vice President and Deputy General Counsel of Cigna
from April 2008 until May 2010; and Corporate Secretary of Cigna from September 2006 until April 2010.
MATTHEW G. MANDERS, 58, President, Strategy and Solutions beginning November 2018; President, Government & Individual
Programs and Group Insurance from February 2017 through November 2017; President, U.S. Markets from June 2014 until February
2017; President, Regional and Operations from November 2011 until June 2014; President, U.S. Service, Clinical and Specialty from
January 2010 until November 2011; and President, Cigna HealthCare, Total Health, Productivity, Network & Middle Market from
June 2009 until January 2010.
STEVEN B. MILLER, MD, 62, Executive Vice President and Chief Clinical Officer beginning December 2018; Senior Vice
President and Chief Medical Officer, of Express Scripts from October 2007 through December 2018.
JOHN M. MURABITO, 61, Executive Vice President, Human Resources and Services of Cigna beginning August 2003.
ERIC P. PALMER, 43, Executive Vice President and Chief Financial Officer beginning June 2017; Deputy Chief Financial Officer
from February 2017 until June 2017; Senior Vice President, Chief Business Financial Officer from November 2015 to February 2017;
Vice President, Business Financial Officer, Health Care from April 2012 to November 2015; and Vice President, Business Financial
Officer, U.S. Commercial Markets from June 2010 to April 2012.
JASON D. SADLER, 51, President, International Markets beginning June 2014; President, Global Individual Health, Life and
Accident from July 2010 until June 2014; and Managing Director Insurance Business Hong Kong, HSBC Insurance Asia Limited
from January 2007 until July 2010.
MICHAEL W. TRIPLETT, 58, President, U.S. Markets beginning February 2017; Regional Segment Lead from June 2009 to
February 2017.
TIMOTHY C. WENTWORTH, 59, President, Health Services beginning February 2020; President, Express Scripts and Cigna
Services from December 2018 until February 2020; Chief Executive Officer of Express Scripts from May 2016 until December 2018;
President from February 2014 through December 2018; and Senior Vice President and President, Sales and Account Management
from April 2012 until February 2014.
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
The information under the caption “Quarterly Financial Data – Stock and Dividend Data” appears on page 147 of this Form 10-K. As
of December 31, 2019, the number of shareholders of record was 35,727. Cigna’s common stock is listed with, and trades on, the
New York Stock Exchange under the symbol “CI”.
Issuer Purchases of Equity Securities
The following table provides information about Cigna’s share repurchase activity for the quarter ended December 31, 2019:
Period
October 1-31, 2019
November 1-30, 2019
December 1-31, 2019
Total
Total # of shares
purchased (1)
Average price
paid per share
Total # of shares purchased as part of
publicly announced program (2)
Approximate dollar value of shares
that may yet be purchased as part
of publicly announced program (3)
1,542,086 $
522,214 $
488,296 $
2,552,596 $
157.84
192.32
202.16
173.37
1,540,917 $
519,770 $
482,318 $
2,543,005
1,159,327,593
1,059,361,992
3,961,834,531
N/A
(1) Represents shares tendered by employees under the Company’s equity compensation plans as follows: 1) payment of taxes on vesting of restricted stock (grants
and units) and strategic performance shares and 2) payment of the exercise price and taxes for certain stock options exercised. Employees tendered 1,169 shares in
October, 2,444 shares in November and 5,978 shares in December 2019.
(2) Additionally, the Company maintains a share repurchase program, authorized by the Board of Directors. Under this program, the Company may repurchase shares
from time to time, depending on market conditions and alternate uses of capital. The timing and actual number of shares repurchased will depend on a variety of
factors, including price, general business and market conditions and alternate uses of capital. The share repurchase program may be effected through Rule 10b5-1
plans, open market purchases or privately negotiated transactions, each in compliance with Rule 10b-18 under the Exchange Act. The program may be suspended or
discontinued at any time. In the fourth quarter of 2019, the Board increased repurchase authority by an additional $4.0 billion. The program does not have an
expiration date. From January 1, 2020 through February 26, 2020, the Company repurchased 2.0 million shares for approximately $425 million, leaving repurchase
authority at $3.5 billion as of February 26, 2020.
(3) Approximate dollar value of shares is as of the last date of the applicable month.
48
Stock Price Performance Graph
The graph below compares the cumulative total shareholder return on our common stock for the five years ended December 31, 2019
with the cumulative total return of the Standard & Poor’s 500 Index, the Standard & Poor’s 500 Health Care Providers & Services
Index and the Standard & Poor’s Managed Health Care, Life & Health Insurance Indexes. The stock performance shown in the graph
is not intended to forecast or be indicative of future performance.
Five Year Cumulative Total Shareholder Return*
December 31, 2014 - December 31, 2019
$300
$250
$200
$150
$100
$50
$0
Cigna
S&P 500
S&P 500 Health Care Providers & Services Index
S&P Managed Health Care, Life & Health Ins.
Indexes**
12/30/14
$100
$100
$100
$100
12/31/15
$142
$101
$112
$115
12/31/16
$130
$114
$116
$138
12/31/17
$198
$138
$150
$191
12/31/18
$185
$132
$160
$201
12/31/19
$199
$174
$190
$243
* Assumes that the value of the investment in Cigna common stock and each index was $100 on December 31, 2014 and that all dividends were reinvested.
** Weighted average of S&P Managed Health Care (75%) and Life and Health Insurance (25%) Indexes.
49
Item 6. SELECTED FINANCIAL DATA
The selected financial data should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and
Results of Operations and the Consolidated Financial Statements and accompanying notes included elsewhere herein.
Highlights
(Dollars in millions, except per share amounts)
Total revenues
Shareholders' net income
Net income
Shareholders’ net income per share
Basic
Diluted
Common dividends declared per share
Cash and investments
Total assets
Long-term debt
Total liabilities
Shareholders’ equity
2019
153,566
5,104
5,120
13.58
13.44
0.04
27,098
155,774
31,893
110,395
45,338
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2018
2017
2016
2015
48,650
2,637
2,646
10.69
10.54
0.04
32,829
153,226
39,523
112,154
41,028
$
$
$
$
$
$
$
$
$
$
$
41,806
2,237
2,232
8.92
8.77
0.04
31,591
61,759
5,199
47,999
13,711
$
$
$
$
$
$
$
$
$
$
$
39,838
1,867
1,843
7.31
7.19
0.04
30,000
59,366
4,756
45,605
13,699
$
$
$
$
$
$
$
$
$
$
$
38,098
2,094
2,077
8.17
8.04
0.04
26,681
57,094
5,020
45,005
12,011
50
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Executive Overview ........................................................................................................................................
Liquidity and Capital Resources ....................................................................................................................
Critical Accounting Estimates .......................................................................................................................
Segment Reporting .........................................................................................................................................
Health Services ...........................................................................................................................................
Integrated Medical .....................................................................................................................................
International Markets .................................................................................................................................
Group Disability and Other .......................................................................................................................
Corporate ...................................................................................................................................................
Investment Assets ...........................................................................................................................................
PAGE
52
58
63
67
67
69
70
71
72
72
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide
information to assist you in better understanding and evaluating our financial condition as of December 31, 2019 compared with
December 31, 2018 and our results of operations for the year ended December 31, 2019 compared with 2018 and 2017. We
encourage you to read this MD&A in conjunction with our Consolidated Financial Statements included in Part II, Item 8 of this
Annual Report on Form 10-K (“Form 10-K”) and the Risk Factors contained in Part 1A of this Form 10-K. For comparisons of our
results of operations for the year ended December 31, 2018 with 2017 please refer to the previously filed MD&A included in Part II,
Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.
Unless otherwise indicated, financial information in the MD&A is presented in accordance with accounting principles generally
accepted in the United States of America (“GAAP”). See Note 2 to the Consolidated Financial Statements included in this Form 10-K
for additional information regarding the Company’s significant accounting policies. In some of our financial tables in this MD&A, we
present either percentage changes or “N/M” when those changes are so large as to become not meaningful. Changes in percentages
are expressed in basis points (“bps”).
In this MD&A, our consolidated measures “adjusted income from operations,” earnings per share on that same basis, and “adjusted
revenues” are not determined in accordance with GAAP and should not be viewed as substitutes for the most directly comparable
GAAP measures of “shareholders’ net income,” “earnings per share” and “total revenues.” We also use pre-tax adjusted income
from operations and adjusted revenues to measure the results of our segments.
We use adjusted income from operations as our principal financial measure of operating performance because management believes
it best reflects the underlying results of our business operations and permits analysis of trends in underlying revenue, expenses and
profitability. We define adjusted income from operations as shareholders’ net income (or income before taxes for the segment metric)
excluding realized investment gains and losses, amortization of acquired intangible assets, results of Anthem and Coventry Health
Care Inc. (“Coventry”) (collectively, the “transitioning clients”) (see the “Key Transactions and Developments” section of the
MD&A for further discussion of transitioning clients) and special items. Cigna’s share of certain realized investment results of its
joint ventures reported in the International Markets segment using the equity method of accounting are also excluded. Income or
expense amounts excluded from adjusted income from operations because they are not indicative of underlying performance or the
responsibility of operating segment management include:
• Realized investment gains (losses) including changes in market values of certain financial instruments between balance sheet
dates, as well as gains and losses associated with invested asset sales.
• Amortization of acquired intangible assets because these relate to costs incurred for acquisitions.
• Results of transitioning clients because those results are not indicative of ongoing results.
•
Special items, if any, that management believes are not representative of the underlying results of operations due to the
nature or size of these matters. See Note 23 to the Consolidated Financial Statements for descriptions of special items.
The term “Adjusted revenues” is defined as total revenues excluding the following adjustments: revenue contributions from
transitioning clients, special items and Cigna’s share of certain realized investment results of its joint ventures reported in the
International Markets segment using the equity method of accounting. We exclude these items from this measure because
management believes they are not indicative of past or future underlying performance of the business.
51
EXECUTIVE OVERVIEW
Cigna Corporation, together with its subsidiaries (either individually or collectively referred to as “Cigna,” the “Company,” “we,”
“our” or “us”) is a global health service organization dedicated to a mission of helping those we serve improve their health, well-being
and peace of mind. Our evolved strategy in support of our mission is Go Deeper, Go Local, Go Beyond using a differentiated set of
pharmacy, medical, dental, disability, life and accident insurance and related products and services offered by our subsidiaries. For
further information on our business and strategy, see Item 1, “Business” in this Form 10-K.
Results for the year ended December 31, 2019 included the results of Express Scripts’ business, whereas results for 2018 only
reflected Express Scripts’ results for the period following the acquisition on December 20, 2018 and were not included in 2017. As
discussed in Note 23 to the Consolidated Financial Statements, effective in the first quarter of 2019, compensation cost for stock
options is now recorded by our segments. Prior year segment information has not been restated for this change.
Financial Summary
Summarized below are certain key measures of our performance for the years ended December 31:
(Dollars in millions, except per share amounts)
Revenues
Adjusted revenues by segment
Health Services
Integrated Medical
International Markets
Group Disability and Other
Corporate, net eliminations
Adjusted revenues
Revenue contributions from transitioning
clients
Net realized investment results from certain
equity method investments
Special items reported in integration and
transaction-related costs (1)
Total revenues
Shareholders’ net income
Adjusted income from operations
Earnings per share (diluted)
Shareholders’ net income
Adjusted income from operations
$
$
$
$
$
$
Pre-tax adjusted income from operations by segment
$
Health Services
Integrated Medical
International Markets
Group Disability and Other
Corporate, net eliminations
Consolidated pre-tax adjusted income from
operations
Adjustment for transitioning clients
Income (loss) attributable to noncontrolling
interests
Realized investment gains (losses)
Amortization of acquired intangible assets
Special items
For the Years Ended December 31,
2019
2018
96,447
36,519
5,615
5,182
(3,588)
140,175
13,347
44
-
153,566
5,104
6,476
13.44
17.05
5,092
3,831
762
501
(1,824)
8,362
1,726
20
221
(2,949)
(810)
$
6,606
$
$
$
$
$
$
$
32,791
5,366
5,061
(1,713)
48,111
459
(43)
123
48,650
2,637
3,557
10.54
14.22
$
$
$
$
$
380
$
3,502
735
529
(403)
4,743
62
14
(124)
(235)
(879)
Income before income taxes
$
6,570
$
3,581
$
2017
4,241
29,035
4,901
5,075
(1,446)
41,806
-
-
-
41,806
2,237
2,668
8.77
10.46
288
2,922
654
517
(375)
4,006
-
(2)
237
(115)
(520)
3,606
Increase
(Decrease)
2019 vs. 2018
Increase
(Decrease)
2018 vs. 2017
N/M
11 %
5
2
(109)
191
N/M
N/M
N/M
216 %
94 %
82 %
28 %
20 %
N/M
9 %
4
(5)
N/M
76
N/M
43
N/M
N/M
8
83 %
56 %
13
9
-
(18)
15
N/M
N/M
N/M
16 %
18 %
33 %
20 %
36 %
32 %
20
12
2
(7)
18
N/M
N/M
(152)
(104)
(69)
(1) %
(1) Comprised of net investment income included in integration and transaction-related costs; please refer to Note 4 to the Consolidated Financial Statements in this
Form 10-K for additional information.
52
Consolidated Results of Operations (GAAP Basis)
(in millions)
Pharmacy revenues
Premiums
Fees and other revenues
Net investment income
Total revenues
Pharmacy and other service costs
Medical costs and other benefit expenses
Selling, general and administrative expenses
Amortization of acquired intangible assets
Total benefits and expenses
Income from operations
Interest expense and other
Debt extinguishment costs
Net realized investment gains (losses)
Income before income taxes
Income taxes
Net income
Less: net income (loss) attributable to
noncontrolling interests
Shareholders’ net income
Consolidated effective tax rate
Medical customers (in thousands)
Integrated Medical
International Markets
Total
$
$
103,099 $
39,714
9,363
1,390
153,566
97,668
30,819
14,053
2,949
145,489
8,077
(1,682)
(2)
177
6,570
1,450
5,120
16
5,104 $
22.1%
15,548
1,597
17,145
For the Years Ended December 31,
2018
2019
2017
$
5,479 $
36,113
5,578
1,480
48,650
4,793
27,528
11,934
235
44,490
4,160
(498)
-
(81)
3,581
935
2,646
2,979
32,491
5,110
1,226
41,806
2,456
25,263
10,030
115
37,864
3,942
(252)
(321)
237
3,606
1,374
2,232
N/M
Increase (Decrease)
2019 vs. 2018
97,620
3,601
3,785
(90)
104,916
92,875
3,291
2,119
2,714
100,999
3,917
(1,184)
(2)
258
2,989
515
2,474
10 %
68
(6)
216
N/M
12
18
N/M
227
94
(238)
N/M
N/M
83
55
93
$
Increase (Decrease)
2018 vs. 2017
2,500
3,622
468
254
6,844
2,337
2,265
1,904
120
6,626
218
(246)
321
(318)
(25)
(439)
414
84 %
11
9
21
16
95
9
19
104
17
6
(98)
100
(134)
(1)
(32)
19
9
2,637 $
26.1%
(5)
2,237
38.1%
$
7
2,467
(400) bps
78
94 %
$
14
400
280
18 %
(1,200) bps
15,389
1,572
16,961
14,828
1,549
16,377
159
25
184
1 %
2
1 %
561
23
584
4 %
1
4 %
Reconciliation of Shareholders’ Net Income (GAAP) to Adjusted Income from Operations (non-GAAP):
Dollars in Millions
For the Years Ended December 31,
Diluted Earnings Per Share
For the Years Ended December 31,
2019
2018
2017
2019
2018
2017
Shareholders’ net income
$
- Adjustment for transitioning clients
- Net realized investment (gains) losses
- Amortization of acquired intangible assets
Special items
- Integration and transaction-related costs
- Charge for organizational efficiency plan
- Charges associated with litigation matters
- Charges (benefits) associated with U.S. tax
reform
- Debt extinguishment costs
- Long-term care guaranty fund assessment
Adjusted income from operations
$
5,104 $
(1,316)
(190)
2,248
427
162
41
-
-
-
6,476 $
2,637 $
(47)
104
177
669
-
19
(2)
-
-
3,557 $
2,237
-
(156)
66
33
-
-
196
209
83
2,668
$
$
$
13.44
(3.46)
(0.50)
5.92
$
10.54
(0.19)
0.42
0.71
1.11
0.43
0.11
-
-
-
17.05
$
2.67
-
0.08
(0.01)
-
-
14.22
8.77
-
(0.61)
0.26
0.13
-
-
0.77
0.82
0.32
10.46
53
Commentary: 2019 versus 2018
Unless indicated otherwise, the commentary presented below, and in the segment discussions that follow, compare results for the year
ended December 31, 2019 with results for the year ended December 31, 2018.
Earnings and Revenue
Shareholders’ net income increased, primarily driven by the earnings contribution from Express Scripts and improved results in the
Integrated Medical segment partially offset by interest expense on debt issued to finance the Express Scripts acquisition. Earnings per
share also increased, but at a significantly lower rate, reflecting dilution from the shares issued in connection with the Express Scripts
acquisition.
Adjusted income from operations increased, primarily driven by earnings from Express Scripts’ pharmacy benefits and health
management businesses reported in the Health Services segment and improved results in Integrated Medical. These favorable results
were partially offset by higher interest expense reported in Corporate from both debt issued to finance the acquisition and debt
assumed from Express Scripts. Adjusted income from operations per share also increased, but at a significantly lower rate, reflecting
dilution from the shares issued to acquire Express Scripts.
Medical customers increased, primarily attributable to growth in the Select and Middle Market segments, partially offset by a decline
in the National Accounts and Individual market segments.
Revenue growth primarily reflected the addition of Express Scripts and, to a lesser extent, business growth in the Integrated Medical
segment. Detailed revenue items are discussed further below.
o Pharmacy revenues in 2019 reflected the Express Scripts pharmacy benefit management business. In 2018, we reported
pharmacy revenues from Express Scripts for the period following the acquisition on December 20, 2018. See the Health
Services Segment section of this MD&A for further discussion of pharmacy revenues.
o Premiums increased, primarily resulting from: 1) customer growth across all segments, predominantly Integrated
Medical 2) rate increases in Integrated Medical reflecting underlying medical cost trends and 3) the addition of Express
Scripts’ Medicare Part D business.
o Fees and other revenues increased primarily driven by contributions from Express Scripts’ health management business
reported in the Health Services segment. Higher fees in our Integrated Medical segment primarily driven by growth in
our specialty businesses also contributed to the increase.
o Net investment income decreased, primarily reflecting the absence of investment income earned in the fourth quarter of
2018 on debt proceeds used to acquire Express Scripts in December 2018.
Other Components of Consolidated Results of Operations
• Pharmacy and other service costs. In 2019, this amount was primarily comprised of the Express Scripts’ pharmacy benefits and
health management businesses reported in the Health Services segment. In 2018, we reported activity from Express Scripts for the
period following the acquisition on December 20, 2018.
• Medical costs and other benefit expenses increased, primarily due to medical cost inflation in Integrated Medical, customer
growth in the insured business and the addition of Express Scripts’ Medicare Part D business.
• Selling, general and administrative expenses increased, primarily due to the addition of Express Scripts and, to a lesser extent,
volume-related expenses in Integrated Medical. These increases were partially offset by suspension of the health insurance
industry tax in 2019.
• Amortization of acquired intangible assets in 2019 primarily reflected the impact of the Express Scripts acquisition.
•
Interest expense and other increased significantly, primarily due to interest incurred on debt issued in the third quarter of 2018 to
finance the Express Scripts acquisition and interest incurred on Express Scripts’ debt assumed upon closing of the acquisition.
• Realized investment gains (losses). We reported realized investment gains in 2019, compared with losses in 2018. The
improvement primarily resulted from gains on sales of real estate joint ventures, higher gains on sales of debt securities and
favorable market value adjustments on equity securities.
54
• The consolidated effective tax rate declined, primarily due to suspension of the nondeductible health insurance industry tax in
2019 and recognition of incremental state tax benefits in the second quarter of 2019.
Key Transactions and Business Developments
Merger with Express Scripts
As discussed in Note 4 to the Consolidated Financial Statements, Cigna acquired Express Scripts on December 20, 2018 in a cash and
stock transaction valued at $52.8 billion. The “Liquidity” section of this MD&A provides further discussion of the impact of the
acquisition on our liquidity and capital resources.
We continue to incur costs related to this transaction, including costs to integrate the Cigna and Express Scripts operations. These
costs are being reported in “integration and transaction-related costs” as a special item and excluded from adjusted income from
operations because they are not indicative of future underlying performance of the business.
On January 30, 2019, Anthem exercised its early termination right and terminated their pharmacy benefit management services
agreement with us, effective March 1, 2019. There is a twelve-month transition period ending March 1, 2020. The transition of
Anthem’s customers occurred at various dates, as informed by Anthem’s technology platform migration schedule. In 2019 and 2018,
we excluded the results of Express Scripts’ contract with Anthem (and also Coventry) from our non-GAAP reporting metrics
“adjusted revenues” and “adjusted income from operations” and referred to these clients as “transitioning clients.” As of December
31, 2019, the transition of customers was substantially complete; therefore, beginning in 2020, we will no longer exclude results of
transitioning clients from our reported adjusted revenues and adjusted income from operations.
Agreement to sell Group Disability and Life business
As discussed in Note 5 to the Consolidated Financial Statements, in December 2019, Cigna entered into a definitive agreement to sell
the Group Disability and Life business to New York Life Insurance Company for $6.3 billion. The “Liquidity” section of this MD&A
provides further discussion of the impact of the pending divestiture on our liquidity and capital resources.
Organizational Efficiency Plan
As discussed in Note 15 to the Consolidated Financial Statements, during the fourth quarter of 2019 the Company committed to a plan
to increase our organizational alignment and operational efficiency and reduce costs. As a result we recognized a charge in selling,
general and administrative expenses of $207 million, pre-tax ($162 million, after-tax) in the fourth quarter of 2019. We expect to
realize annualized after-tax savings of approximately $180 million. A substantial portion of the savings is expected to be realized in
2020.
55
Industry Developments and Other Matters
The “Business - Regulation” section of this Form 10-K provides a detailed description of The Patient Protection and Affordable Care
Act (“ACA”) provisions and other legislative initiatives that impact our health care and pharmacy services businesses, including
regulations issued by the Centers for Medicare & Medicaid Services (“CMS”) and the Departments of the Treasury and Health and
Human Services (“HHS”). The health care and pharmacy services businesses continue to operate in a dynamic environment, and the
laws and regulations applicable to these businesses, including the ACA, continue to be subject to legislative, regulatory and judicial
challenges. The table presented below provides an update on the expected impact of these items and other matters as of December 31,
2019.
Item
Medicare
Advantage
Description
Medicare Star Quality Ratings (“Star Ratings”): CMS uses a Star Rating system to measure how well
Medicare Advantage (“MA”) plans perform, scoring how well plans perform in several categories, including
quality of care and customer service. Star Ratings range from one to five stars. CMS recognizes plans with
Star Ratings of four stars or greater with quality bonus payments and the ability to offer enhanced
benefits. Approximately 73% of our MA customers were in four star or greater plans for bonus payments
received in 2019. We expect this percentage to increase to 77% for bonus payments to be received in 2020
and 87% for bonus payments to be received in 2021.
MA Rates: Final MA reimbursement rates for 2020 were published by CMS in April 2019. Preliminary MA
reimbursement rates for 2021 were published by CMS in February 2020. We do not expect the new rates to
have a material impact on our consolidated results of operations in 2020 and 2021.
Risk Adjustment: As discussed in the “Regulation” and “Risk Factors” sections of this Form 10-K, our MA
business is subject to reviews, including risk adjustment data validation (“RADV”) audits by CMS and the
Office of the Inspector General (“OIG”). We expect that CMS, OIG and other federal agencies will continue
to closely scrutinize components of the Medicare program.
The “Regulation” section of this Form 10-K also discusses a proposed rule issued by CMS in 2018 for RADV
audits of contract year 2011 and all subsequent years that included, among other things, extrapolation of the
error rate related to RADV audit findings without applying the adjustment for underlying fee-for-service data
errors as currently contemplated by CMS’s RADV audit methodology. RADV audits for our contract years
2011 through 2015 are currently in process. CMS has announced its intent to use third-party auditors to audit
all Medicare Advantage contracts by either a comprehensive or a targeted RADV review for each contract
year. If the proposed rule is adopted in its current form, it could result in some combination of degraded plan
benefits, higher monthly premiums or reduced choice for the population served by all MA insurers. The
Company, along with other MA organizations and additional interested parties, submitted comments to CMS
on the proposed rule as part of the notice-and-comment rulemaking process. The comment period concluded
on August 28, 2019. If CMS adopts the rule as proposed, there could be a material impact on the Company’s
future results of operations, though we expect the rule would be subject to legal challenges.
In addition, the Company is subject to OIG RADV audits that are in process. The U.S. Department of Justice
also is currently conducting an industry-wide investigation of risk adjustment data submission practices and
business processes, as described in Note 22 to the Consolidated Financial Statements.
56
Item
Health Insurance
Industry Tax
Description
Health Insurance Industry Tax: Federal legislation suspended the health insurance industry tax for 2019
and our premium rates for 2019 reflect this suspension. We recorded $370 million in taxes related to the
health insurance industry tax in 2018. Under current legislation, the industry tax is reinstated in 2020 and we
expect to incur approximately $460 million for this tax in 2020. The reinstatement of the industry tax in 2020
is contemplated in our premium rates and benefits for the affected products and will increase our effective tax
rate in 2020. In addition, as a result of the passage of the Further Consolidated Appropriations Act of 2020 in
December 2019, the health insurance industry tax will be repealed effective 2021.
Public Health
Exchanges
Market Participation: In 2019, we offered individual coverage on the public health insurance exchanges in
Arizona, Colorado, Illinois, Missouri, North Carolina, Tennessee and Virginia. For 2020, we are expanding
individual exchange offerings into Kansas, Utah and Florida, as well as new counties in Tennessee and
Virginia.
Affordable Care
Act
ACA Cost-Sharing Reduction Subsidies: The ACA provides for cost-sharing reductions that offset the
amount that qualifying customers pay for deductibles, copays and coinsurance. The federal government
stopped funding insurers for the cost-sharing reduction subsidies in 2017. Certain insurers have sued the
federal government for failure to pay cost-sharing reduction subsidies and the matter remains unresolved. To
date, judges in six of those actions have ruled in favor of the insurers, five of which are presently under appeal.
The Court of Appeals for the Federal Circuit heard oral argument in the first set of consolidated appeals on
January 9, 2020. We will continue to monitor developments. Our premium rates for the 2019 and 2020 plan
years reflected a lack of government funding for cost-sharing reduction subsidies.
As described in the “Business - Regulation” section of this Form 10-K, a federal district court ruled that the
“individual mandate” in the ACA is unconstitutional. On appeal, the Court of Appeals for the Fifth Circuit
agreed that the “individual mandate” is unconstitutional but ordered the district court to reexamine whether the
other provisions of the ACA can remain in effect, thereby leaving in doubt whether the entire ACA is
unconstitutional until there is a final judicial determination on appeal. The U.S. Supreme Court issued an
order denying motions from the California-led states’ and the U.S. House of Representatives’ seeking fast-
track review of the appellate court decision. The Supreme Court order is not a ruling on the parties’ petitions
seeking the Supreme Court’s review of the case. Those petitions remain under consideration and are subject to
briefing under the Supreme Court’s normal schedule. As a result, if the Supreme Court decides to review the
case, it may not be able to hear and decide the case until its next term, which begins in October 2020.
57
Risk Mitigation Programs – Individual ACA Business
In 2016, we recorded an allowance for the entire balance of our ACA risk corridor receivable based on court decisions and the large
program deficit. During 2018, the U.S. Court of Appeals for the Federal Circuit ruled that health insurers are not entitled to receive
amounts due under the risk corridor program that have been withheld by Congress. The plaintiffs petitioned the U.S. Supreme Court
to review this unfavorable decision. During the second quarter of 2019, the U.S. Supreme Court agreed to review the unfavorable
lower court rulings in the risk corridor cases, and heard oral arguments on December 10, 2019. We now await a decision, which is
expected by June 2020. We continue to carry an allowance for the balance of our ACA risk corridor receivables of $109 million. No
other significant updates occurred in 2019 related to the risk corridor legal matters.
Risk adjustment balances are subject to audit adjustment by CMS following each program year. In April 2019, CMS published the
final Notice of Benefit and Payment Parameters for the 2020 plan year that clarified the 2017 benefit year RADV program. CMS
released the 2017 benefit year data validation error rates in May and published the preliminary RADV transfers in August
2019. Based on the information currently available, we adjusted our risk adjustment balance to reflect the expected outcome of the
RADV program.
The following table presents our balances associated with the risk adjustment program as of December 31, 2019 and December 31,
2018, inclusive of the RADV adjustments recorded in 2019.
(In millions)
Risk Adjustment
Receivables (1)
Payables (2)
Total risk adjustment balance
December 31,
2019
December 31,
2018
$
$
47
(213)
(166)
$
$
32
(187)
(155)
(1) Receivables, net of allowances, are reported in accounts receivable in the Consolidated Balance Sheets.
(2) Payables are reported in accrued expenses and other liabilities (current) in the Consolidated Balance Sheets.
Charges for the ongoing risk adjustment program and RADV audit adjustments were $162 million pre-tax ($126 million after-tax) in
2019, $147 million pre-tax ($116 million after-tax) in 2018 and $162 million ($105 million after-tax) in 2017.
LIQUIDITY AND CAPITAL RESOURCES
(In millions)
Financial Summary
Short-term investments
Cash and cash equivalents
Short-term debt
Long-term debt
Shareholders’ equity
Liquidity
2019
2018
2017
$
$
$
$
$
423
4,619
5,514
31,893
45,338
$
$
$
$
$
316
3,855
2,955
39,523
41,028
$
$
$
$
$
199
2,972
240
5,199
13,711
We maintain liquidity at two levels: the subsidiary level and the parent company level.
Liquidity requirements at the subsidiary level generally consist of:
• medical costs, pharmacy and other benefit payments;
•
•
•
expense requirements, primarily for employee compensation and benefits, information technology and facilities costs;
income taxes; and
debt service.
58
Our subsidiaries normally meet their liquidity requirements by:
using cash flows from operating activities;
• maintaining appropriate levels of cash, cash equivalents and short-term investments;
•
• matching investment durations to those estimated for the related insurance and contractholder liabilities;
•
•
selling investments; and
borrowing from affiliates, subject to applicable regulatory limits.
Liquidity requirements at the parent company level generally consist of:
•
•
•
debt service and dividend payments to shareholders;
lending to subsidiaries as needed; and
pension plan funding.
The parent company normally meets its liquidity requirements by:
• maintaining appropriate levels of cash and various types of marketable investments;
•
•
•
collecting dividends from its subsidiaries;
using proceeds from issuance of debt and common stock; and
borrowing from its subsidiaries, subject to applicable regulatory limits.
Dividends from our insurance, Health Maintenance Organization (“HMO”) and foreign subsidiaries are subject to regulatory
restrictions. See Note 20 to the Consolidated Financial Statements for additional discussion of these restrictions. Most of Express
Scripts’ subsidiaries provide significant financial flexibility to Cigna because they are not subject to regulatory restrictions on paying
dividends.
Cash flows for the years ended December 31, were as follows
(In millions)
Net cash provided by operating activities
Net cash (used in) investing activities:
Cash used to acquire Express Scripts, net of cash acquired
Other acquisitions
Net investment sales (purchases)
Purchases of property and equipment and other
Net investing activities
Net cash (used in) provided by financing activities
Debt (repayments) issuances
Stock repurchase
Other, net
Net financing activities
Foreign currency effect on cash
Change in cash, cash equivalents and restricted cash (1)
2019
2018
2017
$
9,485
$
3,770
$
4,086
-
(153)
480
(1,061)
(734)
(5,175)
(1,987)
(25)
(7,187)
(8)
(24,062)
(393)
(1,383)
(540)
(26,378)
24,212
(342)
(355)
23,515
(24)
$
1,556
$
883
$
-
(209)
(1,023)
(471)
(1,703)
98
(2,725)
(24)
(2,651)
55
(213)
(1) Includes restricted cash of $26 million reported in Other noncurrent assets and $23 million reported in Long-term investments as of December 31, 2019.
The following discussion explains variances in the various categories of cash flows in 2019 compared with 2018.
Operating activities
Cash flows from operating activities consist principally of cash receipts and disbursements for pharmacy revenues and costs,
premiums, fees, investment income, taxes, benefit costs and other expenses.
Cash flows from operating activities increased, primarily driven by higher net income adjusted for depreciation and amortization and
the settlement timing of payables and accrued liabilities. These increases were partially offset by the timing of accounts receivable
collections.
59
Investing and Financing activities
Our most significant investing and financing activities in 2018 related to acquiring Express Scripts. See Note 4 to the Consolidated
Financial Statements for additional information on the acquisition. Cigna financed a portion of the acquisition in cash, primarily with
debt financing as shown above and described more fully in Note 7 to the Consolidated Financial Statements, with the remaining
required cash coming from cash on hand. In 2018, Cigna also acquired OnePath Life for approximately $480 million, largely with
cash held in our foreign operations.
Cash used for investing activities decreased, primarily due to the absence of cash paid to acquire Express Scripts in 2018 and lower
net investment purchases, partially offset by higher property and equipment purchases.
Cash used for financing activities increased, primarily due to the absence of the Express Scripts acquisition debt financing activities in
2018, higher repayments of long-term debt and share repurchases.
We maintain a share repurchase program authorized by our Board of Directors. Under this program, we may repurchase shares from
time to time, depending on market conditions and alternate uses of capital. The timing and actual number of shares repurchased will
depend on a variety of factors including price, general business and market conditions and alternate uses of capital. The share
repurchase program may be effected through open market purchases or privately negotiated transactions in compliance with Rule 10b-
18 under the Securities Exchange Act of 1934, as amended, including through Rule 10b5-1 trading plans. The program may be
suspended or discontinued at any time.
In 2019, we repurchased 11.8 million shares for approximately $2.0 billion. From January 1, 2020 through February 26, 2020 we
repurchased 2.0 million shares for approximately $425 million. Share repurchase authority was $3.5 billion as of February 26, 2020.
Capital Resources
Our capital resources (primarily cash flows from operating activities and proceeds from the issuance of debt and equity securities)
provide protection for policyholders, furnish the financial strength to underwrite insurance risks and facilitate continued business
growth.
Our acquisition of Express Scripts increased our debt and shareholders’ equity in 2018 as follows:
• Stock. Express Scripts’ shareholders received 0.2434 of a share of common stock of Cigna for every one share of Express
Scripts’ common stock. Cigna issued 137.6 million additional shares to Express Scripts’ shareholders.
• Debt. See Note 7 to the Consolidated Financial Statements for further description of the debt issued to finance the acquisition.
• Assumption of Express Scripts’ Senior Notes. See Note 7 to the Consolidated Financial Statements for further description of the
notes assumed in the acquisition of Express Scripts.
At December 31, 2019, our debt-to-capitalization ratio was 45.2%, a decline from 50.9% at December 31, 2018. We have a near-term
focus on accelerated debt repayment and expect to continue to deleverage into the upper 30%s by the end of 2020 using cash flows
from operating activities.
In December 2019, Cigna entered into a definitive agreement to sell the Group Disability and Life business to New York Life
Insurance Company for $6.3 billion. The sale is expected to close by the third quarter of 2020 subject to applicable regulatory
approvals and other customary closing conditions. Cigna estimates to receive approximately $5.3 billion of net after-tax proceeds from
this transaction and expects to use these proceeds for share repurchase and repayment of debt in 2020.
In 2018, Cigna entered into a new Revolving Credit Agreement and Term Loan Credit Agreement in financing the Express Scripts
acquisition. Cigna had $10 million of letters of credit outstanding under the Revolving Credit Agreement as of December 31, 2019.
In 2019, Cigna entered into an additional 364-day revolving credit agreement that matures in October 2020. See Note 7 to the
Consolidated Financial Statements for further information on our revolving credit agreements.
Management, guided by regulatory requirements and rating agency capital guidelines, determines the amount of capital resources that
we maintain. Management allocates resources to new long-term business commitments when returns, considering the risks, look
promising and when the resources available to support existing business are adequate.
60
We prioritize our use of capital resources to:
•
•
•
provide the capital necessary to support growth and maintain or improve the financial strength ratings of subsidiaries and to fund
pension obligations;
consider acquisitions that are strategically and economically advantageous; and
return capital to investors primarily through share repurchases.
Our capital management strategy to support the liquidity and regulatory capital requirements of our foreign operations and certain
international growth initiatives is to retain overseas a significant portion of the earnings generated by our foreign operations. This
strategy does not materially limit our ability to meet our liquidity and capital needs in the United States.
Liquidity and Capital Resources Outlook
We maintain sufficient liquidity to meet our cash needs through our cash and cash equivalents balances, cash flows from operations,
commercial paper program, credit agreements, and the issuance of long-term debt. As of December 31, 2019, we had approximately
$5 billion in cash and short-term investments, approximately $1.1 billion of which was held by the parent company or nonregulated
subsidiaries. We actively monitor our debt obligations and engage in issuance or redemption activities as needed in accordance with
our capital management strategy. A description of our outstanding debt can be found in Note 7 to the Consolidated Financial
Statements.
As of December 31, 2019, our unfunded pension liability was $873 million, reflecting an increase of $ 283 million from December 31,
2018, primarily attributable to a decrease in discount rates of approximately 90 basis points and an update to mortality assumptions.
We currently expect 2020 and 2021 required contributions to be immaterial. See Note 16 to the Consolidated Financial Statements for
additional information regarding our pension plans.
Our cash projections may not be realized and the demand for funds could exceed available cash if our ongoing businesses experience
unexpected shortfalls in earnings or we experience material adverse effects from one or more risks or uncertainties described more
fully in the Risk Factors section in this Form 10-K. Though we believe we have adequate sources of liquidity, significant disruption
or volatility in the capital and credit markets could increase costs or affect our ability to access those markets for additional
borrowings. In addition to the sources of liquidity discussed above, the parent company can borrow an additional $1.0 billion from its
insurance subsidiaries without further state approval.
Guarantees and Contractual Obligations
We are contingently liable for various contractual obligations entered into in the ordinary course of business. See the “Liquidity and
Capital Resources” section of this MD&A for additional background on how we manage our liquidity requirements related to these
obligations. The maturities of our primary contractual cash obligations are as follows as of December 31, 2019:
(In millions, on an undiscounted basis)
Total
Less than 1
year
1-3
years
4-5
years
After 5
years
On-Balance Sheet
Insurance liabilities
Contractholder deposit funds
$
6,608
$
Future policy benefits
Health Care Medical claims payable
Unpaid claims and claim expenses
Long-term debt
Other noncurrent liabilities
Operating leases
Off-Balance Sheet
Purchase obligations
Total
11,552
2,741
6,777
52,261
575
695
2,858
516
553
2,741
2,591
6,025
149
177
1,093
$
730
$
598
$
1,046
1,211
9,104
89
292
1,295
1,012
782
7,893
91
152
334
$
84,067
$
13,845
$
13,767
$
10,862
$
4,764
8,941
2,193
29,239
246
74
136
45,593
The table above includes commitments associated with the Group Disability and Life business.
61
On balance sheet:
•
Insurance liabilities. Excluded from the table above are $4 billion of insurance liabilities ($3 billion in contractholder deposit
funds; $1 billion in future policy benefits) associated with the sold retirement benefits and individual life insurance and annuity
businesses, as well as the reinsured workers’ compensation, personal accident and supplemental benefits businesses as their
related net cash flows are not expected to impact our cash flows. Excluding these amounts, the sum of the obligations presented
above exceeds the corresponding insurance and contractholder liabilities of $23 billion recorded on the balance sheet (including
$6 billion reported in liabilities held for sale) because some of the recorded insurance liabilities reflect discounting for interest and
the recorded contractholder liabilities exclude future interest crediting, charges and fees. The timing and amount of actual future
cash flows may differ from those presented above.
o Contractholder deposit funds: see Note 9 to the Consolidated Financial Statements for our accounting policy for
this liability. Expected future cash flows presented above also include estimated future interest crediting on current
fund balances based on current investment yields less the estimated cost of insurance charges and mortality and
administrative fees for universal life policies.
o Future policy benefits and unpaid claims and claim expenses: see Note 9 to the Consolidated Financial
Statements for our accounting policies for these liabilities. Expected future cash flows for these liabilities presented
in the table above are undiscounted. The expected future cash flows for guaranteed minimum death benefit
(“GMDB,” reported in future policy benefits) do not consider any of the related reinsurance arrangements.
• Long-term debt includes scheduled interest payments and current maturities of long-term debt. See Note 7 to the Consolidated
Financial Statements for information regarding long-term debt. Finance leases are included in long-term debt and primarily
represent obligations for information technology network storage, servers and equipment. See Note 19 to the Consolidated
Financial Statements for information regarding finance leases.
• Operating leases: See Note 19 to the Consolidated Financial Statements for additional information.
• Other noncurrent liabilities include estimated payments for guaranteed minimum income benefit (“GMIB”) contracts (without
considering any related reinsurance arrangements), pension and other postretirement and postemployment benefit obligations,
supplemental and deferred compensation plans, interest rate and foreign currency swap contracts and reinsurance liabilities.
Estimated payments of $91 million for deferred compensation, non-qualified and international pension plans and other
postretirement and postemployment benefit plans are expected to be paid in less than one year and are included in the table above.
We expect to make immaterial contributions to the qualified domestic pension plans during 2020 and they are reflected in the
above table. We expect to make payments subsequent to 2020 for these obligations; however, subsequent payments have been
excluded from the table as their timing is based on plan assumptions that may materially differ from actual activities. See Note 16
to the Consolidated Financial Statements for further information on pension obligations.
The table above excludes the liabilities for uncertain tax positions because we cannot reasonably estimate the timing of such future
payments. In the event we are unable to sustain all of our $1 billion of uncertain tax positions it could result in future tax payments of
approximately $760 million. See Note 21 to the Consolidated Financial Statements for additional information on uncertain tax
positions.
Off-Balance Sheet:
• Purchase obligations. As of December 31, 2019, purchase obligations consisted of estimated payments required under
contractual arrangements for future services and investment commitments as follows:
(In millions)
Debt Securities
Commercial mortgage loans
Limited liability entities (other long-term investments) (1)
Total investment commitments
Future service commitments
Total purchase obligations
(1) See Note 11 to the Consolidated Financial Statements for additional information.
62
$
$
98
10
1,954
2,062
796
2,858
Our estimated future service commitments primarily represent contracts for certain outsourced business processes and information
technology maintenance and support. We generally have the ability to terminate these agreements, but do not anticipate doing so at
this time. Purchase obligations exclude contracts that are cancelable without penalty and those that do not contractually require
minimum levels of goods or services to be purchased.
Guarantees
We are contingently liable for various financial and other guarantees provided in the ordinary course of business. See Note 22 to the
Consolidated Financial Statements for additional information on guarantees.
CRITICAL ACCOUNTING ESTIMATES
The preparation of Consolidated Financial Statements in accordance with GAAP requires management to make estimates and
assumptions that affect reported amounts and related disclosures in the Consolidated Financial Statements. Management considers an
accounting estimate to be critical if:
•
•
it requires assumptions to be made that were uncertain at the time the estimate was made; and
changes in the estimate or different estimates that could have been selected could have a material effect on our consolidated
results of operations or financial condition.
Management has discussed how critical accounting estimates are developed and selected with the Audit Committee of our Board of
Directors and the Audit Committee has reviewed the disclosures presented below. We regularly evaluate items that may impact
critical accounting estimates.
In addition to the estimates presented in the following tables, there are other accounting estimates used in preparing our Consolidated
Financial Statements, including estimates of liabilities for future policy benefits, as well as estimates with respect to pension and
postretirement benefits other than pensions and certain compensation accruals.
Management believes the current assumptions used to estimate amounts reflected in our Consolidated Financial Statements are
appropriate. However, if actual experience significantly differs from the assumptions used in estimating amounts reflected in our
Consolidated Financial Statements, the resulting changes could have a material adverse effect on our consolidated results of operations
and in certain situations, could have a material adverse effect on liquidity and our financial condition. The tables below present the
adverse impacts of certain possible changes in assumptions. The effect of assumption changes in the opposite direction would be a
positive impact to our consolidated results of operations, liquidity or financial condition, except for assessing impairment of goodwill
and debt securities carried at fair value below cost.
63
Balance Sheet Caption /
Nature of Critical Accounting Estimate
Goodwill and other intangible assets
Goodwill represents the excess of the cost of businesses acquired over the
fair value of their net assets at the acquisition date. Intangible assets
primarily reflect the value of customer relationships and other intangibles
acquired in business combinations.
Fair values of reporting units are estimated using models and assumptions
that we believe a hypothetical market participant would use to determine
a current transaction price. The significant assumptions and estimates
used in determining fair value include the discount rate and future cash
flows. A discount rate is selected to correspond with each reporting
unit’s weighted average cost of capital, consistent with that used for
investment decisions considering the specific and detailed operating plans
and strategies within each reporting unit. Projections of future cash flows
for each reporting unit are consistent with our annual planning process for
revenues, pharmacy costs, benefits expenses, operating expenses, taxes,
capital levels and long-term growth rates. In addition to these
assumptions, we consider market data to evaluate the fair value of each
reporting unit. The fair value of intangibles and the amortization method
were determined using an income approach that relies on projected future
cash flows including key assumptions for customer attrition and discount
rates. Management revises amortization periods if it believes there has
been a change in the length of time that an intangible asset will continue
to have value.
We completed our normal annual evaluations for impairment of goodwill
and intangible assets during the third quarter of 2019. The evaluations
indicated that the fair value estimates of our reporting units exceed their
carrying values by sufficient margins and no impairments were required.
Goodwill and other intangibles as of December 31 were as follows (in
millions):
•
•
2019 – Goodwill $44,602; Other intangible assets $36,562
2018 – Goodwill $44,505; Other intangible assets $39,003
See Note 18 to the Consolidated Financial Statements for additional
discussion of our goodwill and other intangible assets.
Balance Sheet Caption /
Nature of Critical Accounting Estimate
Income taxes – uncertain tax positions
We evaluate tax positions to determine whether the benefits are more
likely than not to be sustained on audit based on their technical merits. If
not, we establish a liability for unrecognized tax benefits. These amounts
primarily relate to federal and state uncertain positions of the value and
timing of deductions and uncertain positions of attributing taxable income
to states. Balances that are included in the Consolidated Balance Sheets
are as follows:
•
•
2019 – $1.0 billion
2018 – $928 million
See Note 21 to the Consolidated Financial Statements for additional
discussion around uncertain tax positions and the Liquidity and Capital
Resources section of this MD&A for a discussion of their potential
impact on liquidity.
Effect if Different Assumptions Used
If we do not achieve our earnings and cash flow projections or our cost of
capital rises significantly, the assumptions and estimates underlying the
goodwill and intangible asset impairment evaluations could be adversely
affected and result in future impairment charges that would negatively
impact our operating results and financial position.
Specific to the Government reporting unit, future changes in the funding
for our Medicare programs by the federal government could materially
reduce revenues and profitability and have a significant impact on its fair
value.
Effect if Different Assumptions Used
The factors that could impact our estimates of uncertain tax positions
include the likelihood of being sustained upon audit based on the technical
merits of the tax position and related assumed interest and penalties. If our
positions are upheld upon audit, our net income would increase.
64
Balance Sheet Caption /
Nature of Critical Accounting Estimate
Effect if Different Assumptions Used
Based on studies of our claim experience, it is reasonably possible that a
100 basis point change in the medical cost trend and a 50 basis point
change in completion factors could occur in the near term.
A 100 basis point increase in the medical cost trend rate would increase
this liability by approximately $40 million, resulting in a decrease in net
income of approximately $35 million after-tax, and a 50 basis point
decrease in completion factors would increase this liability by
approximately $85 million, resulting in a decrease in net income of
approximately $70 million after-tax.
Unpaid claims and claim expenses – Integrated Medical
Unpaid claims and claim expenses include both reported claims and
estimates for losses incurred but not yet reported.
Unpaid claims and claim expenses in Integrated Medical are primarily
impacted by assumptions related to completion factors and medical cost
trend. Variation of actual results from either assumption could impact the
unpaid claims balance as noted below. A large number of factors may
cause the medical cost trend to vary from the Company’s estimates,
including: changes in health management practices, changes in the level
and mix of benefits offered and services utilized, and changes in medical
practices. Completion factors may be affected if actual claims
submission rates from providers differ from estimates (that can be
influenced by a number of factors, including provider mix and electronic
versus manual submissions), or if changes to the Company’s internal
claims processing patterns occur.
Unpaid claims and claim expenses for the Integrated Medical segment as
of December 31 were as follows (in millions):
•
•
2019 – gross $2,892; net $2,589
2018 – gross $2,697; net $2,433
These liabilities are presented above both gross and net of reinsurance
and other recoverables.
See Note 9 to the Consolidated Financial Statements for additional
information regarding assumptions and methods used to estimate this
liability.
Balance Sheet Caption /
Nature of Critical Accounting Estimate
Effect if Different Assumptions Used
Based on recent and historical resolution rate patterns and changes in
investment portfolio yields, it is reasonably possible that a five percent
change in claim resolution rates and a 25 basis point change in the discount
rate could occur.
A five percent decrease in the claim resolution rate would increase long-
term disability reserves by approximately $95 million and decrease net
income by approximately $75 million after-tax.
A 25 basis point decrease in the discount rate would increase long-term
disability reserves by approximately $45 million and decrease net income
by approximately $35 million after-tax.
Unpaid claims and claim expenses – long-term disability reserves
The liability for long-term disability reserves is the present value of
estimated future benefits payments over the expected disability period
and includes estimates for both reported claims and for claims incurred
but not yet reported.
Key assumptions in the calculation of long-term disability reserves
include the discount rate and claim resolution rates, both of which are
reviewed annually and updated when experience or future expectations
would indicate a necessary change. The discount rate is the interest rate
used to discount the projected future benefit payments to their present
value. The discount rate assumption is based on the projected investment
yield of the assets supporting the reserves. Claim resolution rate
assumptions involve many factors including claimant demographics, the
type of contractual benefit provided and the time since initially becoming
disabled. The Company uses its own historical experience to develop its
claim resolution rates.
Long-term disability reserves as of December 31 were as follows (in
millions):
•
•
2019 – gross $4,308; net $4,191
2018 – gross $4,069; net $3,975
These liabilities are presented above both gross and net of reinsurance
recoverables and are included in liabilities held for sale in the
Consolidated Balance Sheet.
See Note 9C. to the Consolidated Financial Statements for additional
information regarding assumptions and methods used to estimate this
liability.
65
Effect if Different Assumptions Used
If the derived interest rates used to calculate fair value increased by 100 basis
points, the fair value of the total debt security portfolio of $24 billion
would decrease by approximately $1.5 billion, resulting in an after-tax
decrease to shareholders’ equity of approximately $0.9 billion.
Balance Sheet Caption /
Nature of Critical Accounting Estimate
Valuation of debt security investments
Most debt securities are classified as available for sale and are carried at fair
value with changes in fair value recorded in accumulated other comprehensive
income (loss) within shareholders’ equity.
Fair value is defined as the price at which an asset could be exchanged in an
orderly transaction between market participants at the balance sheet date.
Determining fair value for a financial instrument requires management
judgment. The degree of judgment involved generally correlates to the level of
pricing readily observable in the markets. Financial instruments with quoted
prices in active markets or with market observable inputs to determine fair
value, such as public securities, generally require less judgment. Conversely,
private placements including more complex securities that are traded
infrequently are typically measured using pricing models that require more
judgment as to the inputs and assumptions used to estimate fair value. There
may be a number of alternative inputs to select based on an understanding of
the issuer, the structure of the security and overall market conditions. In
addition, these factors are inherently variable in nature as they change
frequently in response to market conditions. Approximately two-thirds of our
debt securities are public securities, and one-third are private placement
securities.
Typically, the most significant input in the measurement of fair value is the
market interest rate used to discount the estimated future cash flows of the
instrument. Such market rates are derived by calculating the appropriate
spreads over comparable U.S. Treasury securities, based on the credit quality,
industry and structure of the asset.
See Notes 11A. and 12 to the Consolidated Financial Statements for a
discussion of our fair value measurements, the procedures performed by
management to determine that the amounts represent appropriate estimates and
our accounting policy regarding unrealized appreciation on debt securities.
Balance Sheet Caption /
Nature of Critical Accounting Estimate
Effect if Different Assumptions Used
If we subsequently determine that the excess of amortized cost over fair value
is other-than-temporary for any or all of these debt securities, the amount
recorded in accumulated other comprehensive income would be reclassified
to shareholders’ net income as an impairment loss.
Assessment of “other-than-temporary” impairments on debt securities
Certain debt securities with a fair value below amortized cost are carried at fair
value with changes in fair value recorded in accumulated other comprehensive
income. For these investments, we have determined that the decline in fair
value below its amortized cost is temporary. To make this determination, we
evaluate the expected recovery in value and our intent to sell or the likelihood
of a required sale of the debt security prior to an expected recovery. In making
this evaluation, we consider a number of general and specific factors including
the regulatory, economic and market environments, length of time and severity
of the decline, and the financial health and specific near term prospects of the
issuer.
The after-tax amounts as of December 31 in accumulated other comprehensive
income for debt securities in an unrealized loss position were as follows (in
millions):
•
•
2019 – ($25)
2018 – ($370)
See Note 11 to the Consolidated Financial Statements for additional discussion
of our review of declines in fair value, including information regarding our
accounting policies for debt securities.
66
SEGMENT REPORTING
The following section of this MD&A discusses the results of each of our segments. See Note 1 to the Consolidated Financial
Statements for a description of our segments.
In segment discussions, we present adjusted revenues and “pre-tax adjusted income from operations,” defined as income before taxes
excluding realized investment gains (losses), amortization of acquired intangible assets, results of transitioning clients, (income) loss
attributable to noncontrolling interests and special items. Ratios presented in this segment discussion exclude the same items as pre-
tax adjusted income from operations. See Note 23 to the Consolidated Financial Statements for additional discussion of these metrics
and a reconciliation of income before income taxes to pre-tax adjusted income from operations, as well as a reconciliation of total
revenues to adjusted revenues. Note 23 to the Consolidated Financial Statements also explains two additional items that are important
in understanding our segment results: 1) segment revenues include both external revenues and sales between segments that are
eliminated in Corporate and 2) beginning in the first quarter of 2019, compensation cost for stock options is recorded by the segments.
Prior year segment information was not restated for this change in stock option reporting.
In these segment discussions, we also present “pre-tax adjusted margin,” defined as pre-tax adjusted income from operations divided
by adjusted revenues.
See the MD&A Executive Overview for summarized financial results of each of our segments.
Health Services Segment
The Health Services segment includes pharmacy benefits management, specialty pharmacy services, clinical solutions, home delivery
and health management services. This segment includes Express Scripts’ business from the December 20, 2018 date of acquisition
except for Express Scripts’ Medicare Part D business that is reported in the Government operating segment of our Integrated Medical
segment. This segment also includes Cigna’s legacy home delivery pharmacy business. Due to the timing of the acquisition, results
of operations in 2018 only included results from the Express Scripts’ business for the period following the acquisition on December
20, 2018. The main driver of period over period increases in the financial information presented below was the results from the
Express Scripts’ business in 2019. As described in the introduction to Segment Reporting, performance of the Health Services
segment is measured using pre-tax adjusted income from operations.
The key factors that impact Health Services revenues and costs of revenues are volume, mix and price. These key factors are
discussed further below. See Note 2 to the Consolidated Financial Statements for additional information on revenue and cost
recognition policies for this segment.
• As our clients’ claim volumes increase or decrease, our resulting revenues and cost of revenues correspondingly increase or
decrease. Our gross profit could also increase or decrease as a result of changes in purchasing discounts.
• The mix of claims generally considers the type of drug and distribution method used for dispensing and fulfilling. As our
mix of drugs changes, our resulting pharmacy revenues and cost of revenues correspondingly may increase or decrease. The
primary driver of fluctuations within our mix of claims is the generic fill rate. Generally, higher generic fill rates reduce
revenues, as generic drugs are typically priced lower than the branded drugs they replace. However, as ingredient cost paid
to pharmacies on generic drugs is incrementally lower than the price charged to our clients, higher generic fill rates generally
have a favorable impact on our gross profit. The home delivery generic fill rate is currently lower than the network generic
fill rate as fewer generic substitutions are available among maintenance medications (such as therapies for chronic
conditions) commonly dispensed from home delivery pharmacies as compared to acute medications that are primarily
dispensed by pharmacies in our retail networks.
• Our client contract pricing is impacted by our ability to negotiate supply chain contracts for pharmacy network,
pharmaceutical and wholesaler purchasing and manufacturer rebates. As we seek to improve the effectiveness of our
integrated solutions for the benefit of our clients, we are continuously innovating and optimizing the supply chain. Our gross
profit could also increase or decrease as a result of supply chain initiatives implemented. Inflation also impacts our pricing
because most of our contracts provide that we bill clients and pay pharmacies based on a generally recognized price index for
pharmaceuticals. Therefore, the rate of inflation for prescription drugs and our efforts to manage this inflation for our clients
can affect our revenues and cost of revenues.
In this MD&A, we present revenues and gross profit “excluding transitioning clients” in addition to those metrics including
transitioning clients. Pre-tax adjusted income from operations and pre-tax adjusted margin exclude contributions from transitioning
67
clients. See the “Key Transactions and Business Developments” section of this MD&A for further discussion of transitioning clients
and why we present this information.
Results of Operations
Financial Summary
(In millions)
Total revenues
For the Years Ended December 31,
Change
Favorable (Unfavorable)
Change
Favorable (Unfavorable)
2019
2018
2017
2019 vs. 2018
2018 vs. 2017
$
109,794
$
7,065
$
4,241
$ 102,729
N/M %
$
2,824
67
%
Less: revenue contributions from transitioning
clients
Adjusted revenues
Gross profit
Gross profit excluding transitioning clients
Pre-tax adjusted income from operations
(13,347)
96,447
8,908
6,984
5,092
$
$
$
$
(459)
6,606
604
531
380
$
$
$
$
-
4,241
371
371
288
$
$
$
$
$
$
$
$
(12,888)
89,841
N/M
N/M
(459)
N/M
$
2,365
8,304
6,453
4,712
N/M
$
$
N/M
N/M % $
233
160
92
56
63
43
32 %
Pre-tax adjusted margin
5.3 %
5.8 %
6.8
%
(50) bps
(100) bps
(Dollars and adjusted scripts in millions)
Selected Financial Information(1)
Pharmacy revenue by distribution channel
Network revenues
Home delivery and specialty revenues
Other revenues
Total pharmacy revenues
Pharmacy script volume
Adjusted network scripts(2)
Adjusted home delivery and specialty scripts(2)
Total adjusted scripts(2)
Generic fill rate
Network
Home delivery
Overall generic fill rate
$
$
Year Ended
December 31,
2019
41,483
45,836
4,900
92,219
941
283
1,224
87.1%
84.3%
86.8%
(1) Amounts exclude contributions from transitioning clients.
(2) Non-specialty network scripts filled through 90-day programs and home delivery scripts are multiplied by three. All other network and specialty scripts are
counted as one script.
2019 versus 2018
This segment includes Express Scripts’ business from the date of acquisition by the Company on December 20, 2018 with the
exception of Express Scripts’ Medicare Part D business that is reported in the Government operating segment. In the third quarter of
2019, Integrated Medical’s Commercial customers transitioned to Express Scripts’ retail pharmacy network. Results of operations for
2018 reflected the results for the period following the acquisition of Express Scripts on December 20, 2018 along with the legacy
Cigna home delivery business.
Adjusted revenues. The increase reflected a full year of results from the Express Scripts’ business in 2019. Adjusted revenues in 2019
for the Health Services segment reflected strong performance, including customer growth, adjusted pharmacy scripts volume,
specialty pharmacy care and management of supply chain.
Pre-tax adjusted income from operations. The increase reflected a full year of results from the Express Scripts’ business in 2019.
Results in the Health Services segment in 2019 reflected strong performance, including customer growth, adjusted pharmacy scripts
volumes and benefits from the effective management of the supply chain.
68
Integrated Medical Segment
The business section of this Form 10-K (see the “Integrated Medical” section) describes the various products and funding solutions
offered by this segment, including the various revenue sources. As described in the introduction to Segment Reporting, performance
of the Integrated Medical segment is measured using pre-tax adjusted income from operations. Key factors affecting profitability for
this segment include:
•
•
•
•
•
customer growth;
revenues from integrated specialty products, including pharmacy services sold to clients and customers across all funding
solutions;
percentage of Medicare Advantage customers in plans eligible for quality bonus payments;
benefit expenses as a percentage of premiums (medical care ratio or “MCR”) for our insured commercial and government
businesses; and
selling, general and administrative expense as a percentage of adjusted revenues (expense ratio).
Results of Operations
Financial Summary
(In millions)
Adjusted revenues
Pre-tax adjusted income from operations
Pre-tax adjusted margin
Medical care ratio
Expense ratio
(Dollars in millions, customers in thousands)
Unpaid claims and claim expenses – Integrated
Medical
Integrated Medical Customers
Commercial
Government
Insured
Service
Total
2019 versus 2018
For the Years Ended December 31,
Change
Favorable (Unfavorable)
Change
Favorable (Unfavorable)
2019
2018
2017
2019 vs. 2018
2018 vs. 2017
$
$
36,519
3,831
$
$
32,791
3,502
$
$
29,035
2,922
$
$
3,728
329
11 %
9 %
$
$
3,756
580
13 %
20 %
10.5%
80.8%
22.9%
10.7%
78.9%
24.7%
10.1%
81.0%
24.1%
(20)bps
(190)bps
180 bps
60 bps
210 bps
(60)bps
As of December 31,
Increase (Decrease)
Increase (Decrease)
2019
2018
2017
2019 vs. 2018
2018 vs. 2017
$
2,892
$
2,697
$
2,420
$
195
7 %
$
277
11 %
2,114
1,361
3,475
12,073
15,548
1,911
1,407
3,318
12,071
15,389
1,792
1,235
3,027
11,801
14,828
203
(46)
157
2
159
11 %
(3)%
5 %
- %
1 %
119
172
291
270
561
7 %
14 %
10 %
2 %
4 %
Adjusted revenues. The increase reflected Commercial customer growth in our insured business as well as higher premium rates due
to underlying medical cost trend and the addition of Express Scripts’ Medicare Part D business.
Pre-tax adjusted income from operations. The increase reflected strong ongoing performance in our Commercial segment, including
increased contributions from our commercial health insurance business and specialty products, partially offset by lower margins in our
Individual business.
Medical care ratio. As expected, the medical care ratio increased, reflecting a reduction in premiums from the pricing impact of the
suspension of the health insurance industry tax in 2019 and business mix related to the addition of Express Scripts’ Medicare Part D
business, as well as a higher Individual medical care ratio.
Expense ratio. The expense ratio decreased primarily reflecting higher revenues in our insurance business and the suspension of the
health insurance industry tax in 2019.
69
Other Items Affecting Integrated Medical Results
Unpaid Claims and Claim Expenses
Our unpaid claims and claim expenses liability was higher as of December 31, 2019 compared with December 31, 2018, primarily due
to customer growth.
Medical Customers
Our medical customer base was higher at December 31, 2019 compared with the same period in 2018, primarily reflecting growth in
our Select and Middle Market segments partially offset by a lower customer base in our National Accounts and Individual market
segments.
A medical customer is defined as a person meeting any one of the following criteria:
•
•
•
is covered under a medical insurance policy, managed care arrangement or service agreement issued by us;
has access to our provider network for covered services under their medical plan; or
has medical claims that are administered by us.
International Markets Segment
As described in the introduction to Segment Reporting, performance of the International Markets segment is measured using pre-tax
adjusted income from operations. Key factors affecting pre-tax adjusted income from operations for this segment are:
•
•
•
•
premium growth, including new business and customer retention;
benefit expenses as a percentage of premiums (loss ratio);
selling, general and administrative expense and acquisition expense as a percentage of revenues (expense ratio and acquisition
cost ratio); and
the impact of foreign currency movements.
Results of Operations
Financial Summary
(In millions)
Adjusted revenues
Pre-tax adjusted income from operations
Pre-tax adjusted margin
Loss ratio
Acquisition cost ratio
Expense ratio (excluding acquisition costs)
For the Years Ended December 31,
Change
Favorable (Unfavorable)
Change
Favorable (Unfavorable)
2019
2018
2017
2019 vs. 2018
2018 vs. 2017
$
$
5,615
762
$
$
5,366
735
$
$
4,901
654
$
$
13.6 %
57.3 %
12.9 %
19.5 %
13.7
%
57.4 %
13.1
%
18.9 %
13.3
%
57.5 %
12.8
%
19.7 %
249
27
(10) bps
10 bps
20 bps
(60) bps
5 %
4 %
$
$
465
81
9 %
12 %
40 bps
10 bps
(30) bps
80 bps
70
2019 versus 2018
Adjusted revenues. The increase reflected business growth in Asia, Europe, and the Middle East and the acquisition of OnePath Life
in New Zealand in the fourth quarter of 2018. These increases were partially offset by unfavorable foreign currency movements.
Pre-tax adjusted income from operations. The increase reflected business growth in Asia and the acquisition of OnePath Life,
partially offset by unfavorable foreign currency movements.
The segment’s loss ratio was essentially flat.
The acquisition cost ratio decreased due to lower spending in certain markets and the acquisition of OnePath Life, partially offset by
higher acquisition expenses in South Korea and Taiwan.
The increase in the expense ratio (excluding acquisition costs) was driven primarily by strategic investments for long-term growth and
integration of OnePath Life.
Other Items Affecting International Markets Results
South Korea is the single largest geographic market for our International Markets segment. In 2019, South Korea generated 37% of
the segment’s adjusted revenues and 63% of the segment’s pre-tax adjusted income from operations.
Group Disability and Other
As described in the introduction of Segment Reporting, performance of Group Disability and Other is measured using pre-tax adjusted
income from operations. Key factors affecting pre-tax adjusted income from operations are:
•
•
•
•
premium growth, including new business and customer retention;
net investment income;
benefit expenses as a percentage of premiums (loss ratio); and
selling, general and administrative expense as a percentage of revenues excluding net investment income (expense ratio).
Results of Operations
Financial Summary
(In millions)
Adjusted revenues
Pre-tax adjusted income from operations
For the Years Ended December 31,
Change
Favorable (Unfavorable)
Change
Favorable (Unfavorable)
2019
2018
2017
2019 vs. 2018
2018 vs. 2017
$
$
5,182
501
$
$
5,061
529
$
$
5,075
517
$
$
121
(28)
2 %
(5)%
$
$
(14)
12
30 bps
- %
2 %
Pre-tax adjusted margin
9.7 %
10.5
%
10.2 %
(80)bps
2019 versus 2018
Adjusted revenues. The increase reflected business growth in the group disability, life and voluntary businesses, partially offset by the
continued run-off of international business and lower investment income.
Pre-tax adjusted income from operations and Pre-tax adjusted margin. The decreases resulted from unfavorable disability claims
experience.
71
Corporate
Corporate reflects amounts not allocated to operating segments, including net interest expense (defined as interest on corporate debt
less net investment income on investments not supporting segment and other operations), certain litigation matters, expense associated
with our frozen pension plans, charitable contributions, severance, certain overhead and project costs and intersegment eliminations
for products and services sold between segments. As discussed in the introduction to Segment Reporting, beginning in the first
quarter of 2019, compensation cost for stock options is now recorded by the segments. Prior year results for Corporate were not
restated to reflect this change.
Financial Summary
(In millions)
For the Years Ended December 31,
Change
Favorable (Unfavorable)
Change
Favorable (Unfavorable)
2019
2018
2017
2019 vs. 2018
2018 vs. 2017
Pre-tax adjusted loss from operations
$
(1,824) $
(403) $
(375)
$
(1,421)
(353) %
$
(28)
(7) %
2019 versus 2018
Pre-tax adjusted loss from operations. The increase reflected higher interest expense on debt issued in the third quarter of 2018 to
finance the Express Scripts acquisition and debt assumed from Express Scripts.
INVESTMENT ASSETS
The following table presents our investment asset portfolio excluding separate account assets as of December 31, 2019 and 2018.
Additional information regarding our investment assets is included in Notes 11, 12, 13 and 14 to the Consolidated Financial
Statements.
(In millions)
Debt securities
Equity securities
Commercial mortgage loans
Policy loans
Other long-term investments
Short-term investments
Total
Investments classified as assets held for sale
Investments per Consolidated Balance Sheets
December 31,
2019 (1)
December 31,
2018
$
$
23,755
303
1,947
1,357
2,403
423
30,188
(7,709)
22,479
$
$
22,928
548
1,858
1,423
1,901
316
28,974
-
28,974
(1) The table above includes $7.7 billion of investments associated with the Group Disability and Life business that is held for sale to New York Life. Under the terms
of the definitive agreement, some of the assets currently associated with the Group Disability and Life business can be substituted for other assets. The assets that
will transfer to New York Life will be primarily debt securities and to a lesser extent commercial mortgage loans and short-term investments.
Debt Securities
Investments in debt securities include publicly-traded and privately-placed bonds, mortgage and other asset-backed securities and
preferred stocks redeemable by the investor. These investments are classified as available for sale and are carried at fair value on our
balance sheet. Additional information regarding valuation methodologies, key inputs and controls is included in Note 12 to the
Consolidated Financial Statements. More detailed information about debt securities by type of issuer and maturity dates is included in
Note 11 to the Consolidated Financial Statements.
72
The following table reflects our portfolio of debt securities by type of issuer as of December 31, 2019 and 2018. The table below
includes investments held for sale as of December 31, 2019.
(In millions)
Federal government and agency
State and local government
Foreign government
Corporate
Mortgage and other asset-backed
Total
December 31,
December 31,
2019
2018
$
$
$
733
810
2,256
19,420
536
23,755
$
710
985
2,362
18,361
510
22,928
Our debt securities portfolio increased during 2019 reflecting increased valuations due to decreases in market yields, partially offset
by net sales and maturities. As of December 31, 2019, $21.2 billion, or 90% of the debt securities in our investment portfolio were
investment grade (Baa and above, or equivalent) and the remaining $2.5 billion were below investment grade. The majority of the
bonds that are below investment grade are rated at the higher end of the non-investment grade spectrum. These quality characteristics
have not materially changed from the prior year and are consistent with our investment strategy. Investments in debt securities are
diversified by issuer, geography and industry as appropriate.
Foreign government obligations are concentrated in Asia, primarily South Korea, consistent with our risk management practice and
local regulatory requirements of our international business operations. Corporate debt securities include private placement assets of
$7.5 billion. These investments are generally less marketable than publicly-traded bonds; however yields on these investments tend to
be higher than yields on publicly-traded bonds with comparable credit risk. We perform a credit analysis of each issuer and require
financial and other covenants that allow us to monitor issuers for deteriorating financial strength and pursue remedial actions, if
warranted.
In addition to amounts classified as debt securities in our Consolidated Balance Sheets, we participate in an insurance joint venture in
China with a 50% ownership interest. This entity had an investment portfolio of approximately $8.1 billion supporting its business
that is primarily invested in Chinese corporate and government debt securities. We account for this joint venture on the equity method
of accounting and report it in other assets. There were no investments with a material unrealized loss as of December 31, 2019.
Commercial Mortgage Loans
Our commercial mortgage loans are fixed rate loans, diversified by property type, location and borrower. Loans are secured by high
quality commercial properties and are generally made at less than 70% of the property’s value at origination of the loan. Property
value, debt service coverage, quality, building tenancy and stability of cash flows are all important financial underwriting
considerations. We hold no direct residential mortgage loans and do not originate or service securitized mortgage loans.
Commercial real estate capital markets remain very active for well-leased, quality commercial real estate located in strong institutional
investment markets. The vast majority of properties securing the mortgages in our mortgage loan portfolio possess these
characteristics.
As of December 31, 2019, the $1.9 billion commercial mortgage loan portfolio consisted of approximately 65 loans that are in good
standing. Given the quality and diversity of the underlying real estate, positive debt service coverage and significant borrower cash
investment generally ranging between 30 and 40%, we remain confident that borrowers will continue to perform as expected under
their contract terms.
Other Long-term Investments
Other long-term investments of $ 2.4 billion as of December 31, 2019 included investments in securities limited partnerships and real
estate limited partnerships as well as direct investments in real estate joint ventures. These entities typically invest in mezzanine debt
or equity of privately-held companies (securities partnerships) and equity real estate. Given our subordinate position in the capital
structure of these underlying entities, we assume a higher level of risk for higher expected returns. To mitigate risk, these investments
are diversified across approximately 160 separate partnerships and approximately 80 general partners who manage one or more of
these partnerships. Also, the underlying investments are diversified by industry sector or property type and geographic region. No
single partnership investment exceeded 5% of our securities and real estate partnership portfolio.
73
Problem and Potential Problem Investments
“Problem” bonds and commercial mortgage loans are either delinquent by 60 days or more or have been restructured as to terms,
including concessions by us for modification of interest rate, principal payment or maturity date. “Potential problem” bonds and
commercial mortgage loans are considered current (no payment is more than 59 days past due), but management believes they have
certain characteristics that increase the likelihood that they may become problems.
The amount of problem or potential problem investments as of December 31, 2019 and 2018 was not material.
Investment Outlook
Public equity markets rallied during 2019, reflecting the continued strength of the U.S. economy. However, concerns related to trade
and tariffs continue to contribute to financial market volatility. We continue to closely monitor global macroeconomic conditions and
trends, including uncertainty caused by the United Kingdom’s process of exiting the European Union, and their potential impact on
our investment portfolio. We expect continued volatility in certain sectors, such as retail, energy and natural gas. Future realized and
unrealized investment results will be driven largely by market conditions that exist when a transaction occurs or at the reporting date.
These future conditions are not reasonably predictable; however, we believe that the vast majority of our investments will continue to
perform under their contractual terms. Based on our strategy to match the duration of invested assets to the duration of insurance and
contractholder liabilities, we expect to hold a significant portion of these assets for the long term. Although future impairment losses
resulting from interest rate movements and credit deterioration due to both investment-specific and the global economic uncertainties
discussed above remain possible, we do not expect these losses to have a material adverse effect on our financial condition or
liquidity.
MARKET RISK
Financial Instruments
Our assets and liabilities include financial instruments subject to the risk of potential losses from adverse changes in market rates and
prices. Consistent with disclosure requirements, the following items have been excluded from this consideration of market risk for
financial instruments:
•
•
•
changes in the fair values of insurance-related assets and liabilities because their primary risks are insurance rather than market
risk;
changes in the fair values of investments recorded using the equity method of accounting and liabilities for pension and other
postretirement and postemployment benefit plans (and related assets); and
changes in the fair values of other significant assets and liabilities such as goodwill, deferred policy acquisition costs, taxes, and
various accrued liabilities. Because they are not financial instruments, their primary risks are other than market risk.
Excluding these items, our primary market risk exposures from financial instruments are:
•
Interest-rate risk on fixed-rate, medium-term instruments. Changes in market interest rates affect the value of instruments that
promise a fixed return.
• Foreign currency exchange rate risk of the U.S. dollar primarily to the South Korean won, Chinese yuan renminbi, New Zealand
dollar, and Taiwan dollar. An unfavorable change in exchange rates reduces the carrying value of net assets denominated in
foreign currencies.
Our Management of Market Risks
We predominantly rely on three techniques to manage our exposure to market risk:
•
Investment/liability matching. We generally select investment assets with characteristics (such as duration, yield, currency and
liquidity) that correspond to the underlying characteristics of our related insurance and contractholder liabilities so that we can
match the investments to our obligations. Shorter-term investments generally support shorter-term life and health liabilities.
Medium-term, fixed-rate investments support interest-sensitive and health liabilities. Longer-term investments generally support
products with longer pay out periods such as annuities and long-term disability liabilities.
• Use of local currencies for foreign operations. We generally conduct our international business through foreign operating
entities that maintain assets and liabilities in local currencies. This technique limits exchange rate risk to our net assets.
• Use of derivatives. We use derivative financial instruments to reduce our primary market risks. See Note 11 to the Consolidated
Financial Statements for additional information about derivative financial instruments.
74
Effect of Market Fluctuations
Assuming a 100 basis point increase in interest rates and 10% strengthening in the U.S. dollar to foreign currencies, the effect of
hypothetical changes in market rates or prices on the fair value of certain financial instruments, subject to the exclusions noted above
(particularly insurance liabilities), would have been as follows as of December 31:
Market scenario for certain non-insurance financial instruments
(in billions)
100 basis point increase in interest rates (excluding long-term debt)
10% strengthening in U.S. dollar to foreign currencies
Loss in fair value
2019
$ 1.6
$ 0.3
2018
$ 1.6
$ 0.4
The effect of a hypothetical increase in interest rates, primarily on debt securities and commercial mortgage loans, was determined by
estimating the present value of future cash flows using various models, primarily duration modeling.
In the event of a hypothetical 100 basis point increase in interest rates, the fair value of the Company’s long-term debt would decrease
approximately $2.5 billion at December 31, 2019 and $2.4 billion at December 31, 2018. Changes in the fair value of our long-term
debt do not impact our financial position or operating results. See Note 7 to the Consolidated Financial Statements for additional
information about the Company’s debt.
The effect of a hypothetical strengthening of the U.S. dollar relative to the foreign currencies of certain financial instruments held by
us was estimated to be 10% of the U.S. dollar equivalent fair value. Our foreign operations hold investment assets, such as debt
securities, cash, and cash equivalents that are generally invested in the currency of the related liabilities.
75
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information contained under the caption “Market Risk” in the MD&A section of this Form 10-K is incorporated by reference.
76
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Cigna Corporation
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Cigna Corporation and its subsidiaries (the “Company”) as of
December 31, 2019 and 2018, and the related consolidated statements of income, comprehensive income, changes in total equity and
cash flows for each of the three years in the period ended December 31, 2019, including the related notes (collectively referred to as
the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December
31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of
the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the
period ended December 31, 2019 in conformity with accounting principles generally accepted in the United States of America. Also in
our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31,
2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s
Annual Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the
Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We
are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to
error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the
consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well
as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included
performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable
basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect
on the financial statements.
77
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial
statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or
disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or
complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial
statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the
critical audit matters or on the accounts or disclosures to which they relate.
Goodwill Impairment Assessment
As described in Note 18 to the consolidated financial statements, as of December 31, 2019, goodwill is primarily reported in the
Health Services segment ($33.7 billion), the Integrated Medical segment ($10.5 billion) and, to a lesser extent, the International
Markets segment ($0.4 billion). Management evaluates goodwill for impairment at least annually during the third quarter at the
reporting unit level and writes the goodwill balance down through shareholders’ net income if impaired. Fair value of a reporting unit
is generally estimated based on either a market approach or a discounted cash flow analysis using assumptions that management
believes a hypothetical market participant would use to determine a current transaction price. The significant assumptions and
estimates used in determining fair value include the discount rate and future cash flows. A discount rate is selected to correspond with
each reporting unit's weighted average cost of capital, consistent with that used for investment decisions considering the specific and
detailed operating plans and strategies within that reporting unit. Projections of future cash flows for each reporting unit are consistent
with management’s annual planning process for revenues, pharmacy costs, benefits expenses, operating expenses, taxes, capital levels
and long-term growth rates.
The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment is a
critical audit matter are there was significant judgment by management when determining the fair value measurement of the reporting
units. This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating
management’s estimate of the reporting units’ fair value including the assumptions for the discount rate and projection of future cash
flows. In addition, the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing these
procedures and evaluating the audit evidence obtained.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion
on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s
goodwill impairment assessment, including controls over management’s methodology, inputs and assumptions used in its goodwill
impairment assessment. These procedures also included, among others, testing management’s process for determining the fair value
estimate of the reporting units; evaluating the appropriateness of the discounted cash flow analysis; testing the completeness and
accuracy of underlying data used in the discounted cash flow analysis; and evaluating the key inputs and significant assumptions,
including the discount rate and the projections of future cash flows. The underlying inputs and assumptions used in the development
of the discount rate and the projections of future cash flows that were evaluated included the weighted average cost of capital,
revenues, pharmacy costs, benefits expenses, operating expenses, capital levels and long-term growth rates. Evaluating the
reasonableness of management’s inputs and assumptions involved considering (i) the current and past performance of the reporting
unit, (ii) the consistency of the discount rate and long-term growth rates with external market and industry data, and (iii) whether these
assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge
were used to assist in the evaluation of certain significant assumptions, including the discount rate.
Valuation of Long-term Disability Disabled Life Reserves
As described in Note 9 to the consolidated financial statements, the majority of the Company's liability for disability claims consists of
“disabled life reserves”, measured as the present value of estimated future benefit payments, including expected development, for each
reported claim that is currently receiving benefit payments over the expected disability period or pending a decision on eligibility for
benefits. As of December 31, 2019, the long-term disability disabled life reserves were $3.5 billion. Management projects the
expected disability period by using historical resolution rates combined with an analysis of current trends and operational factors to
develop current estimates of resolution rates. Expected claim resolution rates may vary based upon management’s experience for the
anticipated disability period, the covered benefit period, the cause of disability, the benefit design and the claimant’s age, gender and
income level. The gross monthly benefit is reduced (offset) by disability income received under other benefit programs, most
commonly Social Security Disability Income, workers' compensation, statutory disability or other group benefit plans. Management
78
estimates the probability and amount of future offset awards and lapses based on management’s experience for certain offsets not yet
finalized.
The principal considerations for our determination that performing procedures relating to the valuation of long-term disability disabled
life reserves is a critical audit matter are there was significant judgment by management when determining the reserves. This in turn
led to a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence relating to the
actuarial methodologies and assumptions including the discount rate, resolution rates, offset awards, and adequacy utilized to estimate
the reserves. In addition, the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing
these procedures and evaluating the audit evidence obtained.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion
on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the valuation of
long-term disability disabled life reserves, including controls over management’s actuarial methodologies and the development of
significant assumptions including the discount rate, resolution rates, offset awards, and adequacy. These procedures also included,
among others, the involvement of professionals with specialized skill and knowledge to assist in testing management’s process for
determining the reserves which included evaluating the appropriateness of management’s actuarial methodologies and the
reasonableness of the aforementioned assumptions utilized in determining the reserves balances and recalculating the reserves for a
sample of long-term disability disabled life reserves utilizing management’s actuarial methodologies and assumptions. The
professionals with specialized skill and knowledge also recalculated a sample of long-term disability disabled life reserves utilizing an
independent model and management’s assumptions. Performing these procedures involved testing the completeness and accuracy of
the data provided by management.
/s/ PricewaterhouseCoopers LLP
Hartford, Connecticut
February 27, 2020
We have served as the Company’s auditor since 1983.
79
Cigna Corporation
Consolidated Statements of Income
(In millions, except per share amounts)
Revenues
Pharmacy revenues
Premiums
Fees and other revenues
Net investment income
TOTAL REVENUES
Benefits and expenses
Pharmacy and other service costs
Medical costs and other benefit expenses
Selling, general and administrative expenses
Amortization of acquired intangible assets
TOTAL BENEFITS AND EXPENSES
Income from operations
Interest expense and other
Debt extinguishment costs
Net realized investment gains (losses)
Income before income taxes
TOTAL INCOME TAXES
Net income
Less: net income (loss) attributable to noncontrolling interests
SHAREHOLDERS’ NET INCOME
Shareholders’ net income per share
Basic
Diluted
The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.
For the years ended December 31,
2019
2018
2017
$
103,099
$
5,479
$
39,714
9,363
1,390
153,566
97,668
30,819
14,053
2,949
145,489
8,077
(1,682)
(2)
177
6,570
1,450
5,120
16
36,113
5,578
1,480
48,650
4,793
27,528
11,934
235
44,490
4,160
(498)
-
(81)
3,581
935
2,646
9
2,979
32,491
5,110
1,226
41,806
2,456
25,263
10,030
115
37,864
3,942
(252)
(321)
237
3,606
1,374
2,232
(5)
$
$
$
5,104
$
2,637
$
2,237
13.58
13.44
$
$
10.69
10.54
$
$
8.92
8.77
80
Cigna Corporation
Consolidated Statements of Comprehensive Income
(In millions)
Net Income
Other comprehensive income (loss), net of tax
Net unrealized appreciation (depreciation) on securities and derivatives
Net translation (losses) gains on foreign currencies
Postretirement benefits liability adjustment
Other comprehensive income (loss), net of tax
Total comprehensive income
Comprehensive income (loss) attributable to noncontrolling interests
Net income attributable to redeemable noncontrolling interest
Net income (loss) attributable to other noncontrolling interests
Other comprehensive (loss) attributable to redeemable noncontrolling interest
Total comprehensive income (loss) attributable to noncontrolling interests
For the years ended December 31,
2019
2018
2017
$
5,120
$
2,646
$
2,232
957
(59)
(133)
765
5,885
11
5
(5)
11
(365)
(167)
127
(405)
2,241
9
-
(15)
(6)
(37)
301
33
297
2,529
-
(5)
(3)
(8)
SHAREHOLDERS' COMPREHENSIVE INCOME
$
5,874
$
2,247
$
2,537
The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.
81
As of December 31,
2019
2018
$
$
$
$
$
$
4,619
937
10,716
2,661
1,400
9,512
29,845
21,542
5,100
2,958
4,417
44,602
36,562
2,283
8,465
155,774
4,921
10,454
5,090
7,347
5,514
6,812
40,138
16,052
9,387
4,460
31,893
8,465
3,855
2,045
10,473
2,821
1,236
-
20,430
26,929
5,507
2,821
4,562
44,505
39,003
1,630
7,839
153,226
6,801
10,702
4,366
7,071
2,955
-
31,895
19,974
9,453
3,470
39,523
7,839
112,154
-
37
4
27,751
(1,711)
15,088
(104)
41,028
7
41,035
153,226
Cigna Corporation
Consolidated Balance Sheets
(Dollars in millions)
Assets
Cash and cash equivalents
Investments
Accounts receivable, net
Inventories
Other current assets
Assets of business held for sale
Total current assets
Long-term investments
Reinsurance recoverables
Deferred policy acquisition costs
Property and equipment
Goodwill
Other intangible assets
Other assets
Separate account assets
TOTAL ASSETS
Liabilities
Current insurance and contractholder liabilities
Pharmacy and service costs payable
Accounts payable
Accrued expenses and other liabilities
Short-term debt
Liabilities of business held for sale
Total current liabilities
Non-current insurance and contractholder liabilities
Deferred tax liabilities, net
Other non-current liabilities
Long-term debt
Separate account liabilities
TOTAL LIABILITIES
Contingencies — Note 22
Redeemable noncontrolling interests
Shareholders’ equity
Common stock (1)
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings
Less: treasury stock, at cost
TOTAL SHAREHOLDERS’ EQUITY
Other noncontrolling interests
Total equity
Total liabilities and equity
(1) Par value per share, $0.01; shares issued, 386 million as of December 31, 2019 and 381 million as of December 31, 2018; authorized shares; 600 million.
4
28,306
(941)
20,162
(2,193)
45,338
6
45,344
155,774
110,395
-
35
$
$
The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.
82
Cigna Corporation
Consolidated Statements of Changes in Total Equity
(In millions, except per share amounts)
Common
Stock
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Loss
Retained
Earnings
Treasury
Stock
Shareholders’
Equity
Non-
controlling
Interests
Total
Equity
Redeemable
Non-
controlling
Interest
Balance at December 31, 2016
$
74 $
2,892
$
(1,382)
$ 13,831
$
(1,716)
$
13,699
$
4
$ 13,703
$
58
2017 Activity
Effect of issuing stock for employee
benefit plans
Other comprehensive income (loss)
Net income (loss)
Common dividends declared (per share:
$0.04)
Repurchase of common stock
Other transactions impacting
noncontrolling interests
51
(258)
455
300
2,237
(10)
248
300
2,237
(10)
(2,760)
(2,760)
248
300
(5)
2,232
(10)
(2,760)
(3)
(3)
1
(2)
Balance at December 31, 2017
74
2,940
(1,082)
15,800
(4,021)
13,711
-
13,711
2018 Activity
Cumulative effect of accounting for
financial instruments and hedging
Reclassification adjustment related to
U.S. tax reform legislation
Retirement of treasury stock
Exchange of Old Cigna common stock
Acquisition of Express Scripts (see Note
4)
Effect of issuing stock for employee
benefit plans
Other comprehensive (loss)
Net income
Common dividends declared (per share:
$0.04)
Repurchase of common stock
Other transactions impacting
noncontrolling interests
(10)
68
(229)
229
(3,498)
4,040
58
-
-
-
58
-
-
-
25,224
7
25,231
(13)
(58)
(529)
58
1
25,223
59
(138)
206
(390)
2,637
(10)
(329)
127
(390)
2,637
(10)
(329)
-
127
(390)
2,637
(10)
(329)
-
Balance at December 31, 2018
4
27,751
(1,711)
15,088
(104)
41,028
7
41,035
2019 Activity
Cumulative effect of adopting new lease
accounting guidance (ASU 2016-02) (1)
Effects of issuing stock for employee
benefit plans
Other comprehensive income (loss)
Net income
Common dividends declared (per share:
$0.04)
Repurchase of common stock
Other transactions impacting
noncontrolling interests
(15)
555
(104)
770
5,104
(15)
(15)
451
770
5,104
(15)
(1,985)
(1,985)
(15)
451
770
5
5,109
(15)
(1,985)
-
(6)
(6)
Balance at December 31, 2019
$
4 $ 28,306 $
(941) $ 20,162 $
(2,193) $
45,338 $
6 $ 45,344 $
(1) See Note 2 for further information about the Company's adoption of new lease accounting guidance (ASU 2016-02)
The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.
(3)
-
(6)
49
(15)
9
(6)
37
(5)
11
(8)
35
83
Cigna Corporation
Consolidated Statements of Cash Flows
(In millions)
For the years ended December 31,
2019
2018
2017
$
$
$
3,770
9,485
3,487
2,655
2,646
5,120
695
81
(101)
-
3,651
(177)
(313)
2
705
(107)
(237)
(234)
560
(842)
332
272
(713)
149
(242)
(277)
575
(192)
1,343
559
Cash Flows from Operating Activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Realized investment (gains) losses, net
Deferred income tax (benefit) expense
Debt extinguishment costs
Net changes in assets and liabilities, net of non-operating effects:
Accounts receivable
Inventories
Deferred policy acquisition costs
Reinsurance recoverable and Other assets
Insurance liabilities
Pharmacy and service costs payable
Accounts payable and Accrued expenses and other liabilities
Other, net
NET CASH PROVIDED BY OPERATING ACTIVITIES
Cash Flows from Investing Activities
Proceeds from investments sold:
Debt securities and equity securities
Investment maturities and repayments:
Debt securities and equity securities
Commercial mortgage loans
Other sales, maturities and repayments (primarily short-term and other long-term investments)
Investments purchased or originated:
Debt securities and equity securities
Commercial mortgage loans
Other (primarily short-term and other long-term investments)
Property and equipment purchases, net
Acquisitions, net of cash acquired
Other, net
NET CASH (USED IN) INVESTING ACTIVITIES
Cash Flows from Financing Activities
Deposits and interest credited to contractholder deposit funds
Withdrawals and benefit payments from contractholder deposit funds
Net change in short-term debt
Payments for debt extinguishment
Repayment of long-term debt
Net proceeds on issuance of long-term debt
Repurchase of common stock
Issuance of common stock
Other, net
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES
Effect of foreign currency rate changes on cash and cash equivalents
Net increase (decrease) in cash, cash equivalents, and restricted cash
Cash, cash equivalents, and restricted cash January 1,
Cash, cash equivalents, and restricted cash December 31,
Cash reclassified to assets held for sale
Cash, cash equivalents, and restricted cash December 31, per Consolidated Balance Sheets (1)
Supplemental Disclosure of Cash Information:
$
Income taxes paid, net of refunds
$
Interest paid
(1) Includes restricted cash of $26 million reported in Other noncurrent assets and $23 million reported in Long-term investments as of December 31, 2019.
1,040
(1,151)
1,487
-
(131)
22,856
(342)
68
(312)
23,515
(24)
955
(1,097)
(681)
(3)
(4,491)
-
(1,987)
224
(107)
(7,187)
(8)
(5,637)
(312)
(1,189)
(528)
(24,455)
(12)
(26,378)
(4,282)
(307)
(1,753)
(1,050)
(153)
(11)
(734)
1,556
3,855
5,411
(743)
4,668
883
2,972
3,855
-
3,855
1,825
199
1,311
2,151
215
734
1,776
1,645
1,019
267
$
$
$
$
$
$
$
The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.
84
2,232
566
(237)
242
321
(233)
(72)
(282)
115
506
35
696
197
4,086
2,012
2,051
335
1,702
(5,628)
(430)
(1,065)
(471)
(209)
-
(1,703)
1,230
(1,363)
80
(313)
(1,250)
1,581
(2,725)
131
(22)
(2,651)
55
(213)
3,185
2,972
-
2,972
1,036
240
Notes to the Consolidated Financial Statements
TABLE OF CONTENTS
Note
Number
Footnote
Description of Business ................................................................................
Summary of Significant Accounting Policies ..............................................
Accounts Receivable, Net ............................................................................
Mergers, Acquisitions and Dispositions .......................................................
Assets and Liabilities of Business Held for Sale ..........................................
Earnings Per Share .......................................................................................
Debt ..............................................................................................................
Common and Preferred Stock ......................................................................
BUSINESS AND CAPITAL STRUCTURE
1
2
3
4
5
6
7
8
INSURANCE INFORMATION
9
10
INVESTMENTS
11
12
13
14
WORKFORCE MANAGEMENT AND COMPENSATION
15
16
17
PROPERTY, LEASES AND OTHER ASSET BALANCES
18
19
COMPLIANCE, REGULATION AND CONTINGENCIES
20
21
22
RESULTS DETAILS
23
Insurance and Contractholder Liabilities ......................................................
Reinsurance ..................................................................................................
Investments, Investment Income and Gains and Losses ..............................
Fair Value Measurements .............................................................................
Variable Interest Entities ..............................................................................
Accumulated Other Comprehensive Income (Loss) .....................................
Organizational Efficiency Plan .....................................................................
Pension .........................................................................................................
Employee Incentive Plans ............................................................................
Goodwill, Other Intangibles and Property and Equipment...........................
Leases ...........................................................................................................
Shareholders’ Equity and Dividend Restrictions ..........................................
Income Taxes ...............................................................................................
Contingencies and Other Matters .................................................................
Segment Information ....................................................................................
Quarterly Financial Data ..............................................................................
Page
86
87
94
95
97
98
99
101
101
107
111
118
123
125
126
126
130
133
135
137
138
140
143
147
85
Note 1 – Description of Business
Cigna Corporation, together with its subsidiaries (either individually or collectively referred to as “Cigna,” the “Company,” “we,”
“our” or “us”) is a global health service organization dedicated to a mission of helping those we serve improve their health, well-being
and peace of mind. Our evolved strategy in support of our mission is Go Deeper, Go Local, Go Beyond using a differentiated set of
pharmacy, medical, dental, disability, life and accident insurance and related products and services offered by our subsidiaries.
The majority of these products are offered through employers and other groups such as governmental and non-governmental
organizations, unions and associations. Cigna also offers commercial health and dental insurance, Medicare and Medicaid products
and health, life and accident insurance coverages to individuals in the United States and selected international markets. In addition to
these ongoing operations, Cigna also has certain run-off operations.
The Company reports its results in the following segments.
Health Services includes pharmacy benefits management, specialty pharmacy services, clinical solutions, home delivery and health
management services.
Integrated Medical offers a variety of health care solutions to employers and individuals.
• The Commercial operating segment serves employers (also referred to as “clients”) and their employees (also referred to as
“customers”) and other groups. This segment provides deeply integrated medical and specialty offerings including medical,
pharmacy, dental, behavioral health, vision, health advocacy programs and other products and services to insured and self-
insured clients.
• The Government operating segment offers Medicare Advantage, Medicare Supplement and Medicare Part D plans (including
the acquired Express Scripts’ Medicare Part D business) for seniors, Medicaid plans, and individual health insurance
coverage both on and off the public exchanges.
International Markets includes supplemental health, life and accident insurance products and health care coverage in our international
markets as well as health care benefits to globally mobile employees of multinational organizations.
The remainder of our business operations are reported in Group Disability and Other, consisting of the following:
• Group Disability and Life provides group long-term and short-term disability, group life, accident, voluntary and specialty
insurance products and related services. In December 2019, Cigna entered into a definitive agreement to sell the Group
Disability and Life insurance business to New York Life Insurance Company. See Note 5 for further information on the
classification of this business as held for sale.
• Corporate-Owned Life Insurance (“COLI”) offers permanent insurance contracts sold to corporations to provide coverage
on the lives of certain employees for financing employer-paid future benefit obligations.
• Run-off businesses:
• Reinsurance: predominantly comprised of guaranteed minimum death benefit (“GMDB”) and guaranteed
minimum income benefit (“GMIB”) business effectively exited through reinsurance with Berkshire Hathaway Life
Insurance Company of Nebraska (“Berkshire”) in 2013.
• Settlement Annuity business in run-off.
•
Individual Life Insurance and Annuity and Retirement Benefits Businesses: deferred gains from the sales of
these businesses.
Corporate reflects amounts not allocated to operating segments, including interest expense, net investment income on investments not
supporting segment and other operations, interest on uncertain tax positions, certain litigation matters, expense associated with our
frozen pension plans, severance, certain enterprise-wide projects and intersegment eliminations for products and services sold between
segments. Prior to 2019, compensation cost for stock options was also included in Corporate. Beginning in the first quarter of 2019,
this cost is allocated and reported by the segments.
86
Note 2 – Summary of Significant Accounting Policies
Basis of Presentation
The Consolidated Financial Statements include the accounts of Cigna Corporation and its consolidated subsidiaries. Intercompany
transactions and accounts have been eliminated in consolidation. These Consolidated Financial Statements were prepared in
conformity with accounting principles generally accepted in the United States of America (“GAAP”).
Amounts recorded in the Consolidated Financial Statements necessarily reflect management’s estimates and assumptions about
medical costs, investment and receivable valuations, interest rates and other factors. Significant estimates are discussed throughout
these Notes; however, actual results could differ from those estimates. The impact of a change in estimate is generally included in
earnings in the period of adjustment.
Recently Adopted Accounting Guidance
The Company adopted Accounting Standards Update (“ASU”) 2016-02, Leases¸ as of January 1, 2019 (the adoption date) on a
modified retrospective basis for leases in effect as of and after the adoption date. This new guidance requires balance sheet
recognition of assets and liabilities arising from leases, as well as additional disclosures regarding the amount, timing and uncertainty
of cash flows from leases. We implemented a new lease system and corresponding internal controls to administer our leases and
facilitate compliance with this new standard.
The Company elected the practical expedient package, allowing us to carry forward the assessment of 1) whether our contracts contain
or are leases, 2) lease classification and 3) whether previously capitalized costs continue to qualify as initial direct costs. Upon
adoption, we recognized new right-of-use assets and lease liabilities related only to our operating leases, as finance (capital) leases
were already reflected on the Company’s Consolidated Balance Sheets. The impact of adoption on our net assets and retained
earnings was not material, nor was there a material impact on our Consolidated Statements of Income or Cash Flows. See Note 19 for
additional disclosures about the Company’s leases.
87
Accounting Guidance Not Yet Adopted
Accounting Standard and
Effective Date
Requires:
Requirements and Expected Effects of New Guidance Not Yet Adopted
Measurement of Credit Losses
on Financial Instruments (ASU
2016-13)
• A new approach using expected credit losses to estimate and recognize credit losses for certain
financial instruments (such as mortgage loans, reinsurance recoverables and other receivables)
when such instruments are first originated or acquired, compared with the incurred loss model
currently used. Upon adoption, the Company will record an allowance for estimated credit
losses on the balance sheet. Subsequent changes in the allowance will be reported in current
period earnings.
• Changes in the criteria for impairment of available-for-sale debt securities
• Adoption using a modified retrospective approach with a cumulative-effect adjustment recorded
Required as of January 1, 2020
in retained earnings
Expected effects:
• The Company has completed its evaluation of this new standard and its expected effects on our
financial statements and disclosures. We will adopt the standard as of January 1, 2020.
• An additional allowance for future expected credit losses under the new model of approximately
$50 million after-tax will be required, primarily for reinsurance recoverables.
Guidance:
•
Simplifies the accounting for goodwill impairment by eliminating the need to determine the fair
value of individual assets and liabilities of a reporting unit to measure a goodwill impairment
• Redefines the amount of goodwill impairment to equal the amount by which a reporting unit’s
carrying value exceeds its fair value, limited to the total amount of goodwill of the reporting unit
• Requires prospective adoption
Simplifying the Test for
Goodwill Impairment (ASU
2017-04)
Required as of January 1, 2020
Expected effects:
• The Company will adopt this new standard effective January 1, 2020, and we do not expect its
impact to be significant.
88
Accounting Standard and
Effective Date
Targeted Improvements to the
Accounting for Long-Duration
Contracts (ASU 2018-12)
Required as of January 1, 2022
(early adoption permitted)
Requirements and Expected Effects of New Guidance Not Yet Adopted
Requires (for insurance entities that issue long-duration contracts):
• Changes in measuring our future policy benefits liability for traditional and limited-pay
insurance contracts:
- Assumptions used to measure cash flows (such as mortality, morbidity and lapse
assumptions) to be updated at least annually with the effect of changes in those
assumptions remeasured retrospectively and reflected in current period net income.
- Discount rate assumptions to be updated quarterly based on an upper-medium grade
fixed-income instrument yield that maximizes the use of observable market inputs with
any changes reflected in other comprehensive income.
• Deferred policy acquisition costs (DAC) related to long-duration insurance contracts to be
amortized on a constant-level basis over the expected term of the contracts. Other related
deferred or capitalized balances (such as unearned revenue liability and value of business
acquired) may use this simplified amortization method.
• Market risk benefits (defined as protecting the contractholder from other-than-nominal capital
market risk and exposing the insurer to that risk) to be measured at fair value with changes in fair
value recognized in net income each period, except for the effect of changes in the insurance
entity’s credit risk to be recognized in other comprehensive income.
• Additional disclosures, including disaggregated rollforwards for the liability for future policy
benefits, market risk benefits, separate account liabilities and deferred acquisition costs, as well
as information about significant inputs, judgments, assumptions and methods used in
measurement.
• Transition methods at adoption vary:
- Changes to the liability for future policy benefits to use a modified retrospective approach
applied to all outstanding contracts on the basis of their carrying amounts as of the
beginning of the earliest period presented, with an option to elect a full retrospective
transition under certain criteria. Remeasuring the future policy benefits liability for the
discount rate to be recorded through accumulated other comprehensive income at
transition.
- Deferred policy acquisition costs to follow the transition method used for future
policyholder benefits.
- Market risk benefits to be transitioned retrospectively and measured at fair value at the
beginning of the earliest period presented. The difference between this fair value and
carrying value to be recognized in the opening balance of retained earnings, excluding the
effect of credit risk changes that are to be recognized in accumulated other comprehensive
income.
Expected effects:
• The new guidance will apply to our long-duration insurance products predominantly within the
International Markets and Group Disability and Other segments.
• The Company is evaluating the impact of this guidance and expects to have significant changes
to our processes, systems, controls, financial results and disclosures. We continue to monitor
developing implementation guidance, particularly with respect to reinsured blocks of business.
• Although we continue to evaluate the new requirements and model their impacts across various
products, we are not yet able to project or estimate the magnitude or frequency of expected
changes to our financial results. However, it is possible that the Company's income recognition
pattern could change for several reasons:
- Applying periodic assumption updates, versus the current locked-in model, may change
our timing of profit or loss recognition.
- Amortizing DAC on a constant-level basis over the expected term of the related contracts,
versus being tied to the emergence of profit for such contracts.
- Measuring market-risk benefit features, such as those provided in our GMDB product, at
fair value will subject these liabilities and related reinsurance recoverables to market
sensitivity, notably to interest rates.
89
Significant Accounting Policies
The Company’s accounting policies are described either in this Note or in the applicable Notes to the Consolidated Financial
Statements as listed in the table of contents.
A. Cash and Cash Equivalents
Cash and cash equivalents are carried at cost that approximates fair value. Cash equivalents consist of short-term investments with
maturities of three months or less from the time of purchase. The Company reclassifies cash overdraft positions to liabilities when the
legal right of offset does not exist.
B. Inventories
Inventories consist of prescription drugs and medical supplies and are stated at the lower of first-in-first-out cost or net realizable
value.
C. Reinsurance Recoverables
Reinsurance recoverables represent amounts due from reinsurers for both paid and unpaid claims of the Company’s insurance
businesses and are presented net of allowances for uncollectible reinsurance. The allowances were immaterial as of December 31,
2019 and December 31, 2018. Most reinsurance recoverables are classified as non-current assets. The current portion of reinsurance
recoverables is reported in other current assets and consists primarily of recoverables on paid claims expected to be settled within one
year.
D. Deferred Policy Acquisition Costs
Costs eligible for deferral include incremental, direct costs of acquiring new or renewal insurance and investment contracts and other
costs directly related to successful contract acquisition. Examples of deferrable costs include commissions, sales compensation and
benefits, policy issuance and underwriting costs. The Company records acquisition costs differently depending on the product line.
Acquisition costs for:
• Supplemental health, life and accident insurance products (primarily individual products) that comprise the majority of the
Company’s deferred policy acquisition costs and group health and accident insurance products are deferred and amortized,
generally in proportion to the ratio of periodic revenue to the estimated total revenues over the contract periods.
• Universal life products are deferred and amortized in proportion to the present value of total estimated gross profits over the
expected lives of the contracts.
• Other products are expensed as incurred.
Deferred policy acquisition costs also include the value of business acquired (“VOBA”) for certain acquisitions with material long-
duration insurance contracts. The Company recorded amortization of deferred policy acquisition costs of $483 million in 2019, $406
million in 2018 and $322 million in 2017 primarily in selling, general and administrative expenses.
Each year, deferred policy acquisition costs are tested for recoverability. For universal life and other individual products, management
estimates the present value of future revenues less expected payments. For group health and accident insurance products, management
estimates the sum of unearned premiums and anticipated net investment income less future expected claims and related costs. If
management’s estimates of these sums are less than the deferred costs, the Company reduces deferred policy acquisition costs and
records an additional expense.
E. Other Assets (Current and Non-Current)
Other current assets consist primarily of prepaid expenses, accrued investment income and the current portion of reinsurance
recoverables. Other non-current assets consist primarily of GMIB assets and various other insurance-related assets. See Note 10 for
the Company’s accounting policy for GMIB assets. Additionally, other non-current assets include the carrying value of our equity-
method investments in joint ventures in China, India, the U.S. and other foreign jurisdictions.
F. Redeemable Noncontrolling Interest
Products and services are offered in Turkey through our joint venture. The Company is the majority equity holder of this joint
venture, owning 51%, and accordingly, it is consolidated.
90
Redeemable noncontrolling interest on our Consolidated Balance Sheets represents the Turkey joint venture partner’s preferred and
common stock interests in the entity as of December 31, 2019 and 2018. Our joint venture partner may choose to require the
Company to purchase their redeemable noncontrolling interest. We also have the right to require our joint venture partner to sell their
redeemable noncontrolling interest to us. The redeemable noncontrolling interest was recorded at fair value as of the date of purchase.
When the estimated redemption value for a redeemable noncontrolling interest exceeds its carrying value, an adjustment to increase
the redeemable noncontrolling interest is recorded with an offsetting reduction to additional paid-in capital. When an adjustment is
made to the carrying value of the redeemable noncontrolling interest, the calculation of shareholders’ net income per share will be
adjusted if the redemption value exceeds the greater of the carrying value or fair value.
G. Accrued Expenses and Other Current and Non-Current Liabilities
Accrued expenses (current) includes financial and performance guarantee liabilities under pharmacy contracts (see section I),
management compensation and various insurance-related liabilities, including experience-rated refunds, reinsurance contracts and the
risk adjustment and minimum medical loss ratio rebate accruals under The Patient Protection and Affordable Care Act (the “ACA”).
Other non-current liabilities include obligations for pension (see Note 16), other postretirement and postemployment benefits, GMIB
contract liabilities (see Note 10) and self-insured exposures not expected to be settled within one year.
The Company accrues for legal and regulatory matters when a loss contingency is both probable and estimable. The estimated loss is
generally recorded in selling, general and administrative expenses and represents the Company’s best estimate of the loss contingency.
If the loss estimate is a range, the Company accrues the minimum amount in the range if no amount is better than any other estimated
amount in the range. Legal costs to defend the Company’s litigation and arbitration matters are expensed as incurred in cases that the
Company cannot reasonably estimate the ultimate cost to defend. If the Company can reasonably estimate the cost to defend, a
liability for these costs is accrued when the claim is reported. Litigation and legal or regulatory matters that the Company has
identified with a reasonable possibility of material loss are described in Note 22 to the Consolidated Financial Statements.
H. Translation of Foreign Currencies
The Company generally conducts its international business through foreign operating entities that maintain assets and liabilities in
local currencies that are their functional currencies. The Company uses exchange rates as of the balance sheet date to translate assets
and liabilities into U.S. dollars. Translation gains or losses on functional currencies, net of applicable taxes, are recorded in
accumulated other comprehensive income (loss). The Company uses average monthly exchange rates during the year to translate
revenues and expenses into U.S. dollars.
I. Pharmacy Revenues and Costs
Pharmacy revenues. Pharmacy revenues are primarily derived from providing pharmacy benefit management services to clients and
customers. Pharmacy revenues are recognized when control of the promised goods or services is transferred to clients and customers,
in an amount that reflects the consideration the Company expects to receive for those goods or services.
The Company provides or makes available various services supporting benefit management and claims administration and is generally
obligated to provide prescription drugs to clients’ members using multiple distribution methods including retail networks, home
delivery and specialty pharmacies. These goods and services are integrated into a single performance obligation to process claims,
dispense prescription drugs and provide other services over the contract period (generally three years). This performance obligation is
satisfied as the business stands ready to fulfill its obligation.
Revenues for dispensing prescription drugs through retail pharmacies are reported gross and consist of the prescription price
(ingredient cost and dispensing fee) contracted with clients, including the customer copayment, and any associated fees for services
because the Company acts as the principal in these arrangements. When a prescription is presented to a retail network pharmacy, the
Company is solely responsible for customer eligibility, drug utilization review, drug-to-drug interaction review, any required clinical
intervention, plan provision information, payment to the pharmacy and client billing. These revenues are recognized based on the full
prescription price when the pharmacy claim is processed and approved for payment. The Company also provides benefit design and
formulary consultation services to clients and negotiates separate contractual relationships with clients and network pharmacies.
These factors indicate that the Company has control over these transactions until the prescription is processed. Revenues are billed,
due and recognized at contract rates either on a periodic basis or as services are provided (such as based on volume of claims
processed). This recognition pattern aligns with the benefits from services provided.
Home delivery and specialty pharmacy revenues are due and recognized as each prescription is shipped, net of reserves for discounts
and contractual allowances estimated based on historical experience. Any differences between estimates and actual collections are
91
reflected in operations when payments are received. Historically, adjustments to original estimates and returns have not been material.
The Company has elected the practical expedient to account for shipping and handling as a fulfillment activity.
We may also provide certain financial and performance guarantees, including a minimum level of discounts a client may receive,
generic utilization rates and various service levels. Clients may be entitled to receive compensation if we fail to meet the guarantees.
Actual performance is compared to the contractual guarantee for each measure throughout the period and the Company defers revenue
for any estimated payouts within accrued expenses and other liabilities (current). These estimates are adjusted at the end of the
guarantee period. Historically, adjustments to original estimates have not been material. The performance guarantee liability was
$1.0 billion as of December 31, 2019 and $895 million as of December 31, 2018.
The Company administers programs through which we may receive rebates and other vendor consideration from pharmaceutical
manufacturers. The amounts of such rebates or other vendor consideration shared with pharmacy benefit management services clients
vary based on the contractual arrangement with the client and in some cases the type of consideration received from the
pharmaceutical manufacturer. Rebates and other vendor consideration payable to pharmacy benefit management services clients are
recorded as a reduction of pharmacy revenues. Estimated amounts payable to clients are based on sharing percentages in contractual
arrangements between the Company and the client, and are typically adjusted when amounts are collected from pharmaceutical
manufacturers. Historically, these adjustments have not been material.
Other pharmacy service revenues are earned by distributing specialty pharmaceuticals and medical supplies to providers, clinics and
hospitals and services to specialty pharmacy manufacturers. These revenues are recognized as prescriptions and supplies are shipped
and services are provided.
Pharmacy costs. Pharmacy costs include the cost of prescriptions sold, network pharmacy claim costs and copayments. Also
included are direct costs of dispensing prescriptions including supplies, shipping and handling, and direct costs associated with clinical
programs, such as drug utilization management and medication adherence counseling. Home delivery and specialty pharmacy costs
are recognized when the drug is shipped and retail network costs are recognized when the drug is processed and approved for
payment. Rebates and other vendor consideration received when providing pharmacy benefit management services are recorded as a
reduction of pharmacy costs. Rebates are recognized as prescriptions are shipped or processed and approved for payment. The
Company maintains reimbursement guarantees with certain retail network pharmacies. For each such guarantee, the Company records
a pharmacy and service costs payable or prepaid asset for applicable retail network claims based on our actual performance throughout
the period against the contractual reimbursement rate. The Company’s contracts with certain retail pharmacies give the Company the
right to adjust reimbursement rates during the annual guarantee period.
Other. Incremental costs of obtaining service and pharmacy contracts for short-term arrangements are expensed as incurred.
J. Premiums and Related Expenses
Premiums for group life, accident and health insurance and managed care coverages are recognized as revenue on a pro rata basis over
the contract period. Benefits and expenses are recognized when incurred and, for our Integrated Medical insured business, are
presented net of pharmaceutical manufacturer rebates. For experience-rated contracts, premium revenue includes an adjustment for
experience-rated refunds based on contract terms and calculated using the customer’s experience (including estimates of incurred but
not reported claims).
Premium revenue also includes an adjustment to reflect the estimated effect of rebates due to customers under the commercial
minimum medical loss ratio provisions of the ACA. These rebates are settled in the year following the policy year.
Premiums received for the Company’s Medicare Advantage plans and Medicare Part D products from the Centers for Medicare and
Medicaid Services (“CMS”) and customers are recognized as revenue ratably over the contract period. CMS provides risk-adjusted
premium payments for Medicare Advantage Plans and Medicare Part D products based on our customer demographics and wellness.
The Company recognizes periodic changes to risk-adjusted premiums as revenue when the amounts are determinable and collection is
reasonably assured. Additionally, Medicare Part D premiums include payments from CMS for risk-sharing adjustments. These
adjustments are estimated quarterly based on claim experience by comparing actual incurred drug benefit costs to estimated costs
submitted in original contracts. These adjustments may result in more or less revenue from CMS. Final revenue adjustments are
determined and settled with CMS in the year following the contract year. Premium revenue may also include an adjustment to reflect
the estimated effect of rebates due to CMS under the Medicare Advantage and Medicare Part D minimum medical loss ratio
provisions of the ACA.
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The ACA prescribed three programs to mitigate the risk for participating health insurance companies selling coverage on the public
exchanges: risk adjustment, reinsurance and risk corridor. The reinsurance and ACA risk corridor programs expired at the end of
2016, while the permanent risk-adjustment program continues.
The risk-adjustment program reallocates funds from insurers with lower risk populations to insurers with higher risk populations based
on the relative risk scores of participants in non-grandfathered plans in the individual and small group markets, both on and off the
exchanges. We estimate our receivable or payable based on the risk of our customers compared to the risk of other customers in the
same state and market, considering data obtained from industry studies and the United States Department of Health and Human
Services (“HHS”). Receivables or payables are recorded as adjustments to premium revenue based on our year-to-date experience
when the amounts are reasonably estimable and collection is reasonably assured. Final revenue adjustments are determined by HHS
in the year following the policy year.
Premiums for individual life, accident and supplemental health insurance and annuity products, excluding universal life and
investment-related products, are recognized as revenue when due. Benefits and expenses are matched with premiums.
Revenue for universal life products is recognized as follows:
Investment income on assets supporting universal life products is recognized in net investment income as earned.
•
• Charges for mortality, administration and policy surrender are recognized in premiums as earned. Administrative fees are
considered earned when services are provided.
Benefits and expenses for universal life products consist of benefit claims in excess of policyholder account balances and income
earned by policyholders. Expenses are recognized when claims are incurred, and income is credited to policyholders in accordance
with contract provisions.
The unrecognized portion of premiums received is recorded as unearned premiums included in insurance and contractholder liabilities
(see Note 9 for further information).
K. Fees and Related Expenses
The majority of the Company’s service fees are derived from administrative services only (“ASO”) arrangements, fee-for-service
clinical solutions and health benefit management services.
ASO arrangements allow plan sponsors to self-fund claims and assume the risk of medical or other benefit costs. Most of the
Company’s ASO arrangements are for medical and specialty services, including pharmacy benefits. Generally, the Company’s ASO
arrangements are short-term. Contract modifications typically occur on renewal and are prospective in nature.
In return for fees from these clients, the Company provides access to our participating provider networks and other services supporting
benefit management, including claims administration, behavioral health services, disease management, utilization management and
cost containment programs. In general, the Company considers these services to be a combined performance obligation to provide
cost effective administration of plan benefits over the contract period. Fees are billed, due and recognized monthly at contracted rates
based on current membership or utilization. This recognition pattern aligns with the benefits from services provided to clients. These
revenues are reported in fees and other revenues in the Consolidated Statements of Income.
The Company may also provide performance guarantees that provide potential refunds to clients if certain service standards, clinical
outcomes or financial metrics are not met. If these standards, outcomes and metrics are not met, the Company may be financially at
risk up to a stated percentage of the contracted fee or a stated dollar amount. The Company defers revenue by recording a liability for
estimated payouts associated with these guarantees within accrued expenses and other liabilities. The amount of revenue deferred is
estimated for each type of guarantee using either a most likely amount or expected value method depending on the nature of the
guarantee and the information available to estimate refunds. Estimates are refined each reporting period as additional information on
the Company’s performance becomes available and upon final reconciliation and settlement at the end of the guarantee period.
Amounts accrued and paid for these performance guarantees during the reporting periods were not material.
Rebates from pharmaceutical manufacturers for ASO client purchases at retail pharmacies, net of amounts payable to ASO clients,
were considered compensation for use of the manufacturer’s products and recorded in fees and other revenues prior to transitioning
Integrated Medical’s Commercial customers to Express Scripts’ retail pharmacy network in the third quarter of 2019. After this
transition, these rebates are reflected as a reduction to pharmacy costs (See “Pharmacy Costs” above).
93
Expenses associated with administrative programs and services are recognized as incurred in selling, general and administrative
expenses.
The Company also earns revenue, as part of its integrated pharmacy benefits performance obligation, by offering fee-for-service
clinical solutions to our clients, such as drug utilization management and medication adherence counseling. These clinical programs
help clients to drive better health outcomes at a lower cost by identifying and addressing potentially unsafe or wasteful prescribing,
dispensing and utilization of prescription drugs, and communicating with, or supporting communications with physicians, pharmacies
and patients. Fees are billed, due and recognized at contracted rates either on a periodic basis or as services are provided. This
recognition pattern aligns with the benefits from services provided. These revenues are reported in fees and other revenues in the
Consolidated Statements of Income. Direct costs associated with these programs are recognized in pharmacy and other service costs,
and other related expenses are recorded as incurred in selling, general and administrative expenses.
The Company also earns fees by providing health benefit management solutions that drive cost reductions and improve quality
outcomes. Clients are primarily sponsors of health benefit plans and fees may be stated as a per-member-per-month fee or as a per-
claim fee. The Company considers the services to be a single performance obligation to stand ready to provide utilization
management services over the contract period (generally three years). In certain arrangements, the Company assumes the financial
obligation for third-party provider costs for medical services provided to the health plan’s customers. Fees are recorded gross in fees
and other revenues in the Consolidated Statements of Income because the Company is acting as a principal in arranging for and
controlling the services provided by third-party network providers. Contractual fees vary based on enrollment and provider costs and
are billed, due and recognized monthly. Direct costs associated with these programs are recognized in pharmacy and other service
costs, and other related expenses are recorded in selling, general and administrative expenses as incurred.
Certain health benefit management contracts require the Company to share the results of medical cost experience that differ from
specified targets. This variable consideration is estimated at contract inception and adjusted through the contract period. The
estimated profits and costs are recognized net in fees and other revenues.
Note 3 - Accounts Receivable, Net
Accounting policy. The Company’s accounts receivable balances primarily include amounts due from clients, third-party payors,
customers and pharmaceutical manufacturers, and are presented net of allowances. Allowances for doubtful accounts are based on the
current status of each customer’s receivable balance as well as current economic and market conditions and a variety of other factors
including the length of time the receivables are past due, the financial health of customers and our past experience. We bill
pharmaceutical manufacturers based on management’s interpretation of contractual terms and estimate a contractual allowance at the
time a claim is processed based on the best information available. Contractual allowances for certain rebates receivable from
pharmaceutical manufacturers are determined by reviewing payment experience and specific known items that could be adjusted
under contract terms. The Company’s estimation process for contractual allowances for pharmaceutical manufacturer receivables
generally results in an allowance for balances outstanding greater than 90 days. Contractual allowances for certain receivables from
third-party payors are based on the contractual terms and are estimated based on the Company’s best information available at the time
revenue is recognized. Receivables are written off against allowances only when such amounts are determined unrecoverable and all
collection attempts have failed. We regularly review the adequacy of these allowances based on a variety of factors, including age of
the outstanding receivable and collection history. When circumstances related to specific collection patterns change, estimates of the
recoverability of receivables are adjusted.
The following amounts were included within accounts receivable, net:
(In millions)
Noninsurance customer receivables
Pharmaceutical manufacturers receivable (1)
Insurance customer receivables
Other receivables
Total
$
Accounts receivable, net classified as assets held for sale
Accounts receivable, net per Consolidated Balance Sheets
(1) Includes receivables from service contracts with customers of $285 million at December 31, 2019 and $406 million at December 31, 2018.
$
$
2019
2018
$
5,143
3,439
2,321
334
11,237
(521)
10,716
4,988
3,321
1,888
276
10,473
10,473
The receivable balances above are reported net of allowances of $778 million as of December 31, 2019 and $217 million as of
December 31, 2018. Reported within these allowances as of December 31, 2019 are contractual allowances for certain rebates
receivable from manufacturers of $343 million and contractual allowances from third-party payors of $135 million based upon the
contractual payment terms. See the “Pharmacy Revenues and Costs” section within Note 2 for more information regarding these
94
estimates that reduce revenue. The remaining allowances of $300 million include allowances for doubtful accounts based on the
factors described above in our Accounting Policy and discounts and claims adjustments issued to customers in the form of client
credits.
As part of purchase accounting, Express Scripts’ receivables were recorded at their estimated fair values with no allowances as of
December 31, 2018.
Note 4 – Mergers, Acquisitions and Dispositions
A. Acquisition of Express Scripts
On December 20, 2018, Cigna acquired Express Scripts through a series of mergers (collectively, the “Merger”). Cigna Holding
Company (formerly named Cigna Corporation and referred to as “Old Cigna”) and Express Scripts each merged with and into a
wholly-owned subsidiary of Cigna. As a result of these transactions, Cigna became the parent of the combined company. The
acquired Express Scripts business accelerates Cigna’s strategy by greatly increasing the Company’s ability to put medicine within
reach of customers and also making health care more affordable, predictable and simple.
Old Cigna shareholders received one share of Cigna common stock in exchange for each share of Old Cigna common stock held
immediately prior to the Merger. Express Scripts shareholders received (1) 0.2434 of a share of Cigna common stock and (2) cash of
$48.75, without interest, subject to applicable withholding taxes (the “Merger Consideration”), in exchange for each share of Express
Scripts common stock held immediately prior to the Merger. Cash consideration was funded primarily through a combination of cash
available and debt financing discussed further in Note 7. After completing the Merger, shares of Cigna common stock were listed for
trading on the New York Stock Exchange.
Merger consideration: Total merger consideration of $52.8 billion was calculated as follows:
(Dollars and shares in millions, except per share amounts)
Cash consideration
Express Scripts common stock outstanding
Cash consideration per share
Cash consideration paid to Express Scripts common stockholders
Cash paid in lieu of fractional shares
Cash consideration paid to Express Scripts performance shareholders
Total cash consideration
Stock consideration
Express Scripts common stock outstanding
Per share exchange ratio
Shares of Cigna issued to Express Scripts common stockholders
Shares of Cigna issued to Express Scripts performance shareholders and other equity holders
Shares of Cigna issued to Express Scripts shareholders
Closing price of Cigna common stock on December 20, 2018
Total stock consideration
Noncontrolling interest
Fair value of other share-based compensation awards
Total merger consideration
$
$
$
$
$
$
$
$
$
$
564.3
48.75
27,510
4
65
27,579
564.3
0.2434
137.3
0.3
137.6
179.80
24,745
7
479
52,810
Fair value of share-based compensation award. Express Scripts employees’ awards of options and restricted stock units of Express
Scripts stock were rolled over to Cigna stock options and restricted stock units on the date of the acquisition. Each holder of an
Express Scripts stock option or restricted stock unit received 0.4802 of a Cigna stock option or restricted stock award. The Cigna
stock option exercise price was determined using this same conversion ratio. Vesting periods and the remaining life of the options
remained consistent with the original Express Scripts awards.
The Company valued the restricted stock units at Cigna’s stock price and stock options using a Black-Scholes pricing model as of the
acquisition date. The assumptions used were generally consistent with the 2018 assumptions disclosed in Note 17, except the
expected life of these options averaged 4.3 years and the exercise price did not equal the market value at the date of grant.
95
The fair value of these options and restricted stock unit awards was included in the purchase price for services that had been provided
prior to the acquisition based on the grant date of the original Express Scripts award and vesting period. The remaining fair value not
included in the purchase price will be recorded as compensation expense in future periods over the remaining vesting periods. Most of
the expense was recognized in 2019 with the balance expected in 2020.
Purchase price allocation: In accordance with GAAP, the total purchase price has been allocated to the tangible and intangible net
assets acquired based on management’s final estimates of their fair values. During 2019 the Company made immaterial measurement
period adjustments to the preliminary purchase price allocation. The impact to any financial statement line item of these measurement
period adjustments was not material. The following table summarizes management’s final allocation of fair values of assets acquired
and liabilities assumed at the closing date.
(In millions)
Cash and cash equivalents
Receivables
Inventories
Other current assets
Property and equipment
Goodwill
Other identifiable intangible assets
Other assets acquired, non-current
Total assets acquired
Other current liabilities
Long-term debt, including current portion
Deferred income tax liabilities
Other liabilities, non-current
Total liabilities acquired
Net assets acquired
$
$
3,517
7,832
2,472
600
2,924
38,364
38,725
314
94,748
18,479
12,816
9,558
1,085
41,938
52,810
Most of the goodwill ($33.7 billion) is assigned to the Health Services segment, with the remainder to the Integrated Medical segment
and is not deductible for federal income tax purposes. In addition, a portion of the purchase price has been allocated to intangible
assets that are presented and discussed below.
(In millions)
Customer relationships
Internal-use software (1)
Trade name - Express Scripts
Trade name - Other
Total
(1) Reported in property and equipment.
Estimated
Fair Value
Estimated Useful
Amortization
Life in Years
Method
$
$
30,210
2,443
8,400
115
41,168
14-29
3-7
N/A
10
Cash flow trended
Straight Line
Indefinite
Straight Line
The fair value of the customer relationships and their amortization periods and method were determined using an income approach
that relied heavily on projected future net cash flows including key assumptions for customer attrition, margins, and discount rates.
The estimated useful lives reflect the time periods and pattern that Cigna expects to receive the benefits of the related cash flows.
The results of Express Scripts have been included in the Company’s Consolidated Financial Statements from the date of the
acquisition. Revenues of Express Scripts included in the Company’s results for 2018 approximated $2.6 billion and Express Scripts’
results of operations were immaterial to Cigna's net income.
96
Unaudited pro forma information. The following table presents selected unaudited pro forma information for the Company assuming
the acquisition of Express Scripts had occurred on January 1, 2017. The primary adjustments reflected in the pro forma results relate
to the interest expense on the debt issued to fund the Merger, the amortization of the acquired intangible assets and the presentation of
transaction related costs. Transaction related costs incurred by the Company and Express Scripts in 2018 have been presented as if
they had been incurred on January 1, 2017. The pro forma information does not purport to represent what the Company’s actual
results would have been if the acquisition had occurred as of the date indicated or what such results would be for any future periods.
(In millions)
Total revenues
Shareholders’ net income
Unaudited
Year Ended December 31,
2018
2017
$
$
149,544
5,632
$
$
143,288
4,435
Pro forma shareholders’ net income for the year ended December 31, 2017 includes $1.2 billion in integration and transaction-related
costs incurred in connection with the acquisition.
B. Integration and Transaction-related Costs
The Company has incurred costs detailed in the table below related to the acquisition and integration of Express Scripts, the
terminated merger with Anthem, Inc. (“Anthem”) and other transactions. These costs consisted primarily of certain projects to
integrate the Company’s systems, products and services, fees for legal, advisory and other professional services and certain
employment-related costs. Costs in 2018 also included charitable contributions and amortization of certain financing fees and interest
expense on the debt issued in the third quarter of 2018 to fund the Express Scripts merger, net of investment income earned on
proceeds of the debt issuance.
(In millions)
Integration costs
Interest expense on newly-issued debt
Net investment income on debt proceeds
Charitable contributions
Legal and advisory fees
Bridge facility fees
All other transaction-related costs
Tax (benefit) - previously non-deductible costs
Integration and transaction-related costs, net
2019
2018
2017
Before-tax
After-tax
Before-tax
After-tax
Before-tax
After-tax
$
$
$
$
$
$
-
-
-
53
-
499
-
-
-
41
-
386
-
227
(123)
200
204
140
204
$
552
$
427
$
852
$
179
(97)
158
185
111
133
-
669
-
-
-
36
-
90
$
126
$
-
-
-
23
-
69
(59)
33
Note 5 – Assets and Liabilities of Business Held for Sale
Accounting Policy. The Company classifies assets and liabilities as held for sale (“disposal group”) when management commits to a
plan to sell the disposal group, the sale is probable within one year and the disposal group is available for immediate sale in its present
condition. The Company considers various factors, particularly whether actions required to complete the plan indicate it is unlikely
that significant changes to the plan will be made or the plan will be withdrawn. Assets held for sale are measured at the lower of
carrying value or fair value less costs to sell. Any loss resulting from the measurement is recognized in the period the held-for-sale
criteria are met. Conversely, gains are not recognized until the date of the sale. When the disposal group is classified as held for sale,
depreciation and amortization ceases and the Company tests the assets for impairment.
97
In December 2019, Cigna entered into a definitive agreement to sell its Group Disability and Life insurance business to New York
Life Insurance Company for $6.3 billion. The sale is expected to close in the third quarter of 2020 following applicable regulatory
approvals and other customary closing conditions. The Company believes this sale is probable and has aggregated and classified the
assets and liabilities directly associated with the pending sale of its Group Disability and Life insurance business as held for sale and
has reported them separately on our Consolidated Balance Sheet as of December 31, 2019. The assets and liabilities held for sale were
as follows:
(In millions)
Cash and cash equivalents
Accounts receivable, net
Investments
Other assets
Total assets held for sale
Insurance and contractholder liabilities
Other liabilities
Total liabilities held for sale
December 31, 2019
$
$
$
$
743
521
7,709
539
9,512
6,308
504
6,812
The business did not meet the criteria to be classified as a discontinued operation as the sale of the business will not have a major
effect on the Company’s operations and financial results.
Note 6 – Earnings Per Share (“EPS”)
Accounting policy. The Company computes basic earnings per share using the weighted-average number of unrestricted common and
deferred shares outstanding. Diluted earnings per share also includes the dilutive effect of outstanding employee stock options and
restricted stock using the treasury stock method and the effect of strategic performance shares.
Basic and diluted earnings per share were computed as follows:
(Shares in thousands, dollars in
millions, except per share
amounts)
Shareholders’ net income
Shares
Weighted average
Common stock equivalents
Total shares
EPS
Basic
$
5,104
375,919
375,919
$
13.58 $
2019
Effect of
Dilution
Diluted
Basic
2018
Effect of
Dilution
Diluted
Basic
$
5,104 $
2,637 $
$
2,637 $
2,237
2017
Effect of
Dilution
Diluted
$
2,237
3,898
3,898
(0.14) $
375,919
3,898
379,817
246,652
246,652
13.44 $
10.69 $
3,573
3,573
(0.15) $
246,652
3,573
250,225
250,892
250,892
10.54 $
8.92 $
4,180
4,180
(0.15) $
250,892
4,180
255,072
8.77
The following outstanding employee stock options were not included in the computation of diluted earnings per share because their
effect was anti-dilutive.
(In millions)
Anti-dilutive options
2019
3.5
2018
0.9
2017
0.9
98
$
$
$
Note 7 – Debt
The outstanding amounts of debt and finance leases were as follows:
(In millions)
Short-term debt
Current maturities: $1,000 million, 2.25% Notes
Current maturities: $337 million, 7.25% Notes
Current maturities: $1,000 million, Floating Rate Notes
Current maturities: $300 million, 5.125% Notes
Current maturities: $1,750 million, 3.2% Notes
Current maturities: $349 million, 4.125% Notes
Current maturities: $500 million, 2.6% Notes
Current maturities: $400 million, Floating Rate Notes
Current maturities: $250 million, 4.375% Notes
Commercial paper
Other, including finance leases
Total short-term debt
Long-term debt
$250 million, 4.375% Notes due 2020
$300 million, 5.125% Notes due 2020
$500 million, 4.125% Notes due 2020
$500 million, 2.6% Notes due 2020
$1,750 million, 3.2% Notes due 2020
$400 million, Floating Rate Notes due 2020
$1,000 million, Floating Rate Notes due 2020
$3,000 million, Floating Rate Term Loan due 2021
$500 million, 3.3% Notes due 2021
$300 million, 4.5% Notes due 2021
$78 million, 6.37% Notes due 2021
$1,000 million, Floating Rate Notes due 2021
$1,250 million, 3.4% Notes due 2021
$1,248 million, 4.75% Notes due 2021
$750 million, 4% Notes due 2022
$999 million, 3.9% Notes due 2022
$500 million, 3.05% Notes due 2022
$17 million, 8.3% Notes due 2023
$100 million, 7.65% Notes due 2023
$700 million, Floating Rate Notes due 2023
$1,000 million, 3% Notes due 2023
$3,100 million, 3.75% Notes due 2023
$1,000 million, 3.5% Notes due 2024
$900 million, 3.25% Notes due 2025
$2,200 million, 4.125% Notes due 2025
$1,500 million, 4.5% Notes due 2026
$1,500 million, 3.4% Notes due 2027
$259 million, 7.875% Debentures due 2027
$600 million, 3.05% Notes due 2027
$3,800 million, 4.375% Notes due 2028
$45 million, 8.3% Step Down Notes due 2033
$190 million, 6.15% Notes due 2036
$2,200 million, 4.8% Notes due 2038
$121 million, 5.875% Notes due 2041
$449 million, 6.125% Notes due 2041
$317 million, 5.375% Notes due 2042
$1,500 million, 4.8% Notes due 2046
$1,000 million, 3.875% Notes due 2047
$3,000 million, 4.9% Notes due 2048
Other, including finance leases
Issuer(s)
Express Scripts (1)
ESI (1)
Cigna
Old Cigna
Cigna
Cigna
Express Scripts
Express Scripts
Old Cigna
Cigna/Old Cigna
Other
Old Cigna
Old Cigna
Medco (1)
Express Scripts
Cigna
Express Scripts
Cigna
Cigna
Cigna/Express Scripts
(2)
Cigna/Old Cigna (2)
Other
Cigna
Cigna
Cigna/Express Scripts
(2)
Cigna/Old Cigna (2)
Cigna/Express Scripts
(2)
Cigna/Express Scripts
(2)
Cigna/Old Cigna (2)
Cigna/Old Cigna (2)
Cigna
Cigna/Express Scripts
(2)
Cigna
Cigna/Express Scripts
(2)
Cigna/Old Cigna (2)
Cigna
Cigna/Express Scripts
(2)
Cigna/Express Scripts
(2)
Cigna/Old Cigna (2)
Cigna/Old Cigna (2)
Cigna
Cigna/Old Cigna (2)
Cigna/Old Cigna (2)
Cigna
Cigna/Old Cigna (2)
Cigna/Express Scripts
(2)
Cigna/Old Cigna (2)
Cigna/Express Scripts
(2)
Cigna/Old Cigna (2)
Cigna
Other
December 31,
2019
December 31,
2018
$
$
$
-
-
999
300
1,748
351
496
400
249
944
27
5,514
-
-
-
-
-
-
-
-
499
298
78
998
1,247
1,272
747
999
485
17
100
698
966
3,088
970
895
2,188
1,506
1,396
259
595
3,776
45
190
2,178
119
491
315
1,465
988
2,964
61
31,893
995
343
-
-
-
-
-
-
-
1,500
117
2,955
248
298
506
493
1,743
399
997
2,997
499
297
78
996
1,245
1,285
746
998
481
17
100
697
959
3,085
966
895
2,187
1,508
1,386
259
595
3,774
45
190
2,178
119
493
315
1,465
988
2,964
32
39,523
Total long-term debt
(1) Express Scripts Holding Company is identified as Express Scripts. Express Scripts, Inc. is identified as ESI. Medco Health Solutions, Inc. is identified as Medco.
(2) Due to the Exchange of legacy Notes for Cigna Notes, there are two series of outstanding Notes.
$
$
99
Debt repayment. During 2019, the Company repaid approximately $5.2 billion of outstanding obligations, including the $3.0 billion
term loan, $1.3 billion in current maturities of long-term debt, $0.7 billion in short term debt and $151 million for the early redemption
of the Medco Notes.
Exchange of Legacy Notes for Cigna Notes and Redemption of Medco Notes. In the fourth quarter of 2019, the Company completed
an exchange of $12.7 billion of legacy Notes issued by Express Scripts, Medco and Old Cigna for new Notes issued by Cigna with the
same interest rates, maturities and other comparable terms. The Company entered into this exchange primarily to simplify its capital
structure and reporting obligations. Additionally, in the fourth quarter of 2019, the Company fully redeemed all of the remaining
outstanding Medco Notes. As a result of the exchange and redemption, guarantees of obligations under the remaining legacy Notes
not exchanged, as well as under Notes issued by Cigna in September 2018 to finance its acquisition of Express Scripts, were released
and Cigna is no longer required to separately present Condensed Consolidated Financial Information under Rule 3-10 of Regulation S-
X.
Term Loan Credit Agreement. Cigna borrowed $3.0 billion under its Term Loan Credit Agreement to finance the Merger and to pay
fees and expenses of the Merger. As of December 31, 2019, the Company repaid the term loan in full and the agreement was
terminated.
Notes issued to fund the Express Scripts acquisition. In the third quarter of 2018, the Company issued private placement Notes with
registration rights to finance the Express Scripts acquisition. Total proceeds were approximately $20.0 billion. Interest on this debt is
generally paid semi-annually except for quarterly interest payments on the floating rate notes. We completed an exchange offer to
register such debt in the third quarter of 2019.
Revolving Credit Agreements. Cigna has a Revolving Credit and Letter of Credit Agreement (the “Revolving Credit Agreement”)
that matures on April 6, 2023 and is diversified among 23 banks. Cigna can borrow up to $3.25 billion for general corporate purposes,
with up to $500 million to issue letters of credit, net of $10 million of letters of credit outstanding under the Revolving Credit
Agreement as of December 31, 2019. The Revolving Credit Agreement also includes an option to increase the facility amount up to
$500 million and an option to extend the termination date for additional one-year periods, subject to consent of the banks.
In the fourth quarter of 2019, Cigna entered into an additional 364-day revolving credit agreement that matures in October 2020 and is
diversified among 23 banks. Under this revolving credit agreement, Cigna can borrow up to $1.0 billion for general corporate
purposes. The agreement includes the option to “term out” any revolving loans that are outstanding at maturity by converting them
into a term loan maturing on the one-year anniversary of conversion.
The revolving credit agreements contain customary covenants and restrictions including a financial covenant that the Company’s
leverage ratio may not exceed 60%.
Commercial Paper outstanding as of December 31, 2019 had an average interest rate of 2.11%.
The Company was in compliance with its debt covenants as of December 31, 2019.
Maturities of outstanding long-term debt and finance leases are as follows:
(In millions)
2020
2021
2022
2023
2024
Maturities after 2024
Scheduled Maturities
Long-term Debt (1)
Finance Leases
$
$
$
$
$
$
4,549
4,376
2,249
4,917
1,000
19,581
$
$
$
$
$
$
27
18
16
7
5
15
(1) Long-term debt maturity amounts include current maturities of long-term debt and exclude maturities of finance leases.
Interest expense on long-term and short-term debt was $1.6 billion in 2019, $507 million in 2018 and $243 million in 2017, excluding
$209 million after-tax loss on the early extinguishment of debt in 2017.
100
Note 8 – Common and Preferred Stock
As a result of Cigna's acquisition of Express Scripts on December 20, 2018, Old Cigna shareholders exchanged each of their shares for
a share of Cigna common stock and shareholders of Express Scripts received 0.2434 of a share of Cigna (and $48.75 in cash) for each
share of Express Scripts. Following the Merger, Old Cigna was de-listed and shares of Cigna were listed on the New York Stock
Exchange for trading.
Cigna (and, prior to the Merger, Old Cigna) has a total of 25 million shares of $1 par value preferred stock authorized for issuance.
No shares of preferred stock were outstanding at December 31, 2019, 2018 or 2017.
The following table presents the share activity of Old Cigna and Cigna for the years ended December 31, 2019, 2018 and 2017.
(Shares in thousands)
Common: Par value $0.25; 600,000 shares authorized - Old Cigna
Outstanding - January 1,
Issued for stock option exercises and other benefit plans
Repurchased common stock
Balance, December 20, 2018 (Merger Date)
Exchange of Old Cigna shares for shares of Cigna
Outstanding - December 31,
Retirement of treasury stock on December 20, 2018
Exchange of Old Cigna certificated treasury stock for new Cigna certificated treasury stock
Treasury stock - December 31,
Issued - December 31,
Common: Par value $0.01; 600,000 shares authorized - Cigna
Outstanding - January 1,
Shares issued to Old Cigna shareholders
Shares issued to Express Scripts shareholders
Issued for stock option exercises and other benefit plans
Repurchased common stock
Outstanding - December 31,
Treasury stock
Issued - December 31,
Note 9 – Insurance and Contractholder Liabilities
A. Account Balances – Insurance and Contractholder Liabilities
2019
2018
2017
256,869
2,761
(15,663)
243,967
1,118
(1,300)
243,785
(243,785)
-
243,967
(52,358)
52,178
296,145
(2)
-
-
-
243,785
137,337
91
(289)
380,924
570
381,494
380,924
3,413
(11,806)
372,531
13,012
385,543
As of December 31, 2019 and 2018, the Company’s insurance and contractholder liabilities were comprised of the following:
(In millions)
Contractholder deposit funds
Future policy benefits
Unpaid claims and claim expenses
Integrated Medical
Other segments
Unearned premiums
Total
Insurance and contractholder liabilities classified as liabilities
held for sale (1)
Insurance and contractholder liabilities per Consolidated
Balance Sheets
December 31, 2019
December 31, 2018
Current
Non-
current
Total
Current
Non-
current
$
600 $
553
7,139 $
9,281
7,739 $
9,834
641 $
740
7,365 $
8,981
2,875
2,529
453
7,010
17
3,474
360
20,271
2,892
6,003
813
27,281
2,678
2,394
348
6,801
19
3,230
379
19,974
(2,089)
(4,219)
(6,308)
Total
8,006
9,721
2,697
5,624
727
26,775
$
4,921 $
16,052 $
20,973 $
6,801 $
19,974 $
26,775
(1) Amounts classified as liabilities held for sale primarily include $4.9 billion of unpaid claims, $717 million of contractholder deposit funds and $653 million of
future policy benefits.
Insurance and contractholder liabilities expected to be paid within one year are classified as current.
101
Accounting Policy - Contractholder Deposit Funds. Liabilities for contractholder deposit funds primarily include deposits received
from customers for investment-related and universal life products and investment earnings on their fund balances. These liabilities are
adjusted to reflect administrative charges and, for universal life fund balances, mortality charges. In addition, this caption includes: 1)
premium stabilization reserves under group insurance contracts representing experience refunds left with the Company to pay future
premiums; 2) deposit administration funds used to fund non-pension retiree insurance programs; 3) retained asset accounts and 4)
annuities or supplementary contracts without significant life contingencies. Interest credited on these funds is accrued ratably over the
contract period.
Accounting Policy - Future Policy Benefits. Future policy benefits represent the present value of estimated future obligations under
long-term life and supplemental health insurance policies and annuity products currently in force. These obligations are estimated
using actuarial methods and consist primarily of reserves for annuity contracts, life insurance benefits, GMDB contracts (see Note 10
for additional information) and certain health, life and accident insurance products of our International Markets segment.
Obligations for annuities represent specified periodic benefits to be paid to an individual or groups of individuals over their remaining
lives. Obligations for life insurance policies and GMDB contracts represent benefits expected to be paid to policyholders, net of
future premiums expected to be received. Management estimates these obligations based on assumptions as to premiums, interest
rates, mortality or morbidity, future claim adjudication expenses and surrenders, allowing for adverse deviation as appropriate.
Mortality, morbidity and surrender assumptions are based on the Company’s own experience and published actuarial tables. Interest
rate assumptions are based on management’s judgment considering the Company’s experience and future expectations, and range
from 1% to 9%. Obligations for the run-off settlement annuity business include adjustments for realized and unrealized investment
returns consistent with GAAP when a premium deficiency exists.
B. Unpaid Claims and Claim Expenses – Integrated Medical
This liability reflects estimates of the ultimate cost of claims that have been incurred but not reported, including expected development
on reported claims, those that have been reported but not yet paid (reported claims in process), and other medical care expenses and
services payable that are primarily comprised of accruals for incentives and other amounts payable to health care professionals and
facilities.
Accounting policy. The Company uses actuarial principles and assumptions that are consistently applied each reporting period and
recognizes the actuarial best estimate of the ultimate liability along with a margin for adverse deviation. This approach is consistent
with actuarial standards of practice that the liabilities be adequate under moderately adverse conditions.
The Company compares key assumptions used to establish the medical costs payable to actual experience for each reporting period.
The unpaid claims liability is adjusted through current period shareholders’ net income when actual experience differs from these
assumptions. Additionally, the Company evaluates expected future developments and emerging trends that may impact key
assumptions. The process used to determine this liability requires the Company to make critical accounting estimates that involve
considerable judgment, reflecting the variability inherent in forecasting future claim payments. These estimates are highly sensitive to
changes in the Company’s key assumptions, specifically completion factors and medical cost trend.
The liability is primarily calculated using “completion factors” developed by comparing the claim incurral date to the date claims were
paid. Completion factors are impacted by several key items including changes in: 1) electronic (auto-adjudication) versus manual
claim processing; 2) provider claims submission rates; 3) membership and 4) the mix of products. The Company uses historical
completion factors combined with an analysis of current trends and operational factors to develop current estimates of completion
factors. The Company estimates the liability for claims incurred in each month by applying the current estimates of completion
factors to the current paid claims data. This approach implicitly assumes that historical completion rates will be a useful indicator for
the current period.
The Company relies more heavily on medical cost trend analysis that reflects expected claim payment patterns and other relevant
operational considerations for more recent months. Medical cost trend is primarily impacted by medical service utilization and unit
costs that are affected by changes in the level and mix of health benefits offered, including inpatient, outpatient and pharmacy, the
impact of copays and deductibles, changes in provider practices and changes in consumer demographics and consumption behavior.
The total of incurred but not reported liabilities plus expected development on reported claims, including reported claims in process,
was $2.7 billion at December 31, 2019 and $2.5 billion at December 31, 2018.
102
Activity in the unpaid claims liability for the Integrated Medical segment for the years ended December 31 was as follows:
(In millions)
Balance at January 1,
Less: Reinsurance and other amounts recoverable
Balance at January 1, net
Acquired, net
Incurred costs related to:
Current year
Prior years
Total incurred
Paid costs related to:
Current year
Prior years
Total paid
Balance at December 31, net
Add: Reinsurance and other amounts recoverable
Balance at December 31,
2019
2018
2017
$
$
2,697
264
2,433
-
24,368
(165)
24,203
21,851
2,196
24,047
2,589
303
2,892
$
$
2,420
262
2,158
40
21,331
(173)
21,158
18,978
1,945
20,923
2,433
264
2,697
$
$
2,261
273
1,988
-
19,334
(227)
19,107
17,179
1,758
18,937
2,158
262
2,420
Reinsurance and other amounts recoverable reflect amounts due from reinsurers and policyholders to cover incurred but not reported
and pending claims for certain business for which the Company administers the plan benefits without any right of offset. See Note 10
for additional information on reinsurance.
Variances in incurred costs related to prior years’ unpaid claims and claims expenses that resulted from the differences between actual
experience and the Company’s key assumptions were as follows:
(Dollars in millions)
Year Ended
December 31, 2019
$
%(1)
December 31, 2018
$
%(2)
Actual completion factors
Medical cost trend
Other
Total favorable variance
(1) Percentage of current year incurred costs as reported for the year ended December 31, 2018.
(2) Percentage of current year incurred costs as reported for the year ended December 31, 2017.
90
75
-
165
$
$
0.4 % $
0.4
-
0.8 % $
92
72
9
173
0.5 %
0.4
-
0.9 %
Incurred costs related to prior years in the table above, although adjusted through shareholders’ net income, do not directly correspond
to an increase or decrease to shareholders’ net income. The primary reason for this difference is that decreases to prior year incurred
costs pertaining to the portion of the liability established for moderately adverse conditions are not considered as impacting
shareholders’ net income if they are offset by increases in the current year provision for moderately adverse conditions.
Prior year development increased shareholders’ net income by $67 million ($85 million before-tax) for the year ended December 31,
2019, compared with $77 million ($97 million before-tax) for the year ended December 31, 2018. Favorable prior year development
in both years reflects lower than expected utilization of medical services.
103
The following table depicts the incurred and paid claims development as of December 31, 2019 (net of reinsurance), claims frequency
metrics and incurred but not reported liabilities reported in the Integrated Medical segment. The information about incurred and paid
claims development for the year ended December 31, 2018 is presented as supplementary information and is unaudited.
Incurral Year
(In millions)
2018
2019
Incurred Costs
2018
(Unaudited)
2019
Unpaid Claims &
Claim Expenses
Claims Frequency
$
20,458 $
20,320 $
23,306 $
58
2,386
2.9 million
3.5 million
Cumulative incurred costs plus acquired for the periods presented
$
43,626
Incurral Year
2018
2019
Cumulative paid costs for the periods presented
Outstanding liabilities for the periods presented, net of reinsurance
Other long-duration liabilities not included in development table above
Net unpaid claims and claims expenses - Integrated Medical
Reinsurance and other amounts recoverable
Unpaid claims and claim expenses - Integrated Medical
Cumulative Costs Paid
2018
(Unaudited)
$
18,192 $
$
$
$
2019
20,262
20,920
41,182
2,444
145
2,589
303
2,892
More than 95% of health claims for an accident year are paid within one year of their incurred date.
There is no single or common claim frequency metric used in the health care industry. The Company believes a relevant metric for its
health insurance business is the number of customers for whom an insured medical claim was paid. Customers for whom no insured
medical claim was paid are excluded from the calculation. Claims that did not result in a liability are not included in the frequency
metric.
C. Unpaid Claims and Claim Expenses – Group Disability and Other and International Markets
Accounting policy. Liabilities for unpaid claims and claim expenses are established by book of business within Group Disability and
Other and International Markets. Unpaid claims and claim expenses within the Group Disability and Other and International Markets
segments consist of (1) case or claims reserves for reported claims that are unpaid as of the balance sheet date; (2) incurred but not
reported reserves for claims when the insured event has occurred but has not been reported to the Company and (3) loss adjustment
expense reserves for the expected costs of settling these claims. The Company consistently estimates incurred but not yet reported
losses using actuarial principles and assumptions based on historical and projected claim incidence patterns, claim size and the
expected payment period. The Company recognizes the actuarial best estimate of the ultimate liability within a level of confidence,
consistent with actuarial standards of practice that the liabilities be adequate under moderately adverse conditions. The Company
immediately records an adjustment in medical costs and other benefit expenses when estimates of these liabilities change.
Liabilities for unpaid claims and claim expenses within the group disability and life business reflect the following primary products:
long-term and short-term disability, life insurance and accident coverages. The majority of the Company’s liability for disability
claims consists of “disabled life reserves”, measured as the present value of estimated future benefit payments, including expected
development, for each reported claim that is currently receiving benefit payments over the expected disability period or pending a
decision on eligibility for benefits. The Company projects the expected disability period by using historical resolution rates combined
with an analysis of current trends and operational factors to develop current estimates of resolution rates. Expected claim resolution
rates may vary based upon the Company’s experience for the anticipated disability period, the covered benefit period, the cause of
disability, the benefit design and the claimant’s age, gender and income level. The gross monthly benefit is reduced (offset) by
disability income received under other benefit programs, most commonly Social Security Disability Income, workers’ compensation,
statutory disability or other group benefit plans. The Company estimates the probability and amount of future offset awards and
lapses based on the Company’s experience for certain offsets not yet finalized.
104
The Company also establishes a liability for the expected present value of future benefit payments for known claims that have recently
been resolved but may reopen in the future, based on Company experience. Prior to a claim becoming known, the Company
establishes a liability for incurred but not reported claims using standard actuarial techniques and calculations based on completion
factors and loss ratio assumptions using the Company’s experience combined with an analysis of current trends and operational
factors. Completion factors are impacted by several key items including changes in claim inventory levels, claim payment patterns,
changes in business volume and other factors. Loss ratio assumptions are developed using historical Company experience, adjusted
prospectively for expected changes in the underlying business including rate actions, persistency and inforce growth.
Liability balance details. The liability details for unpaid claims and claim expenses are as follows:
(In millions)
International Markets
Group Disability and Other
Group Disability and Life
Other Operations
Total Group Disability and Other
2019(1)
2018
$
844 $
758
4,972
187
5,159
6,003 $
4,674
192
4,866
5,624
Unpaid claims and claim expenses Group Disability and Other and International Markets
$
(1) Includes Unpaid claims amounts classified as Liabilities held for sale.
The Company discounts certain liabilities, predominantly long-term disability liabilities, because benefits payments are made over
extended periods. Discount rate assumptions for these liabilities are based on projected investment returns for the supporting asset
portfolios. Details of the Company’s Group Disability and Life unpaid claim discounted liability balance as of December 31 were as
follows:
(In billions)
Discounted liabilities
Aggregate amount of discount
Range of discount rates
$
4.5
$
1.2
5.2 %
4.2
1.1
5.2 %
4.0 % -
4.2 % -
2019(1)
2018
$
$
(1) Includes unpaid claims amounts classified as Liabilities held for sale.
Activity in the Company’s liabilities for unpaid claims and claim expenses, excluding Other Operations, are presented in the following
table. Liabilities associated with Other Operations are excluded because they pertain to obligations for long-duration insurance
contracts or, if short-duration, the liabilities have been fully reinsured.
(In millions)
Balance at January 1,
Less: Reinsurance
Balance at January 1, net
Incurred claims related to:
Current year
Prior years
Interest accretion
All other incurred
Total incurred
Paid claims related to:
Current year
Prior years
Total paid
Acquisitions
Foreign currency
Balance at December 31, net
Add: Reinsurance
Balance at December 31,
2019(1)
2018
2017
$
$
5,432
156
5,276
5,616
152
(40)
5,728
3,488
1,873
5,361
-
(11)
5,632
184
5,816
$
$
5,274
140
5,134
5,350
156
(147)
5,359
3,391
1,808
5,199
23
(41)
5,276
156
5,432
$
$
4,997
123
4,874
5,097
163
(43)
5,217
3,229
1,757
4,986
-
29
5,134
140
5,274
(1) Includes unpaid claims amounts classified as Liabilities held for sale.
Reinsurance in the table above reflects amounts due from reinsurers related to unpaid claims liabilities. The Company’s insurance
subsidiaries enter into agreements with other companies primarily to limit losses from large exposures and to permit recovery of a
portion of incurred losses. See Note 10 for additional information on reinsurance.
105
The majority of the liability for unpaid claims and claim expenses is related to disability claims with long-tailed payouts. Interest
earned on assets backing these liabilities is an integral part of pricing and reserving. Therefore, interest accreted on prior year
balances is shown as a separate component of prior year incurred claims and reported in medical costs and other benefit expenses in
the income statement. This interest is calculated by applying the average discount rate used in determining the liability balance to the
average liability balance over the period. The remaining prior year incurred claims amount primarily reflects updates to the
Company’s liability estimates and variances between actual experience during the period relative to the assumptions and expectations
reflected in determining the liability. Assumptions reflect the Company’s expectations over the life of the book of business and will
vary from actual experience in any period, both favorably and unfavorably, with variation in resolution rates being the most significant
driver for the long-term disability business. Favorable prior year incurred claims for the years ended December 31, 2019 and
December 31, 2018 primarily reflect favorable long-term disability and life experience. The favorable experience is driven by higher
resolution rate experience relative to expectations reflected in the prior year reserve and lower than expected incidence.
Long-term disability development tables. The table below presents information about incurred and paid claims development as of
December 31, 2019 (net of reinsurance), total incurred but not reported liabilities and cumulative claims frequency for the Company’s
long-term disability book of business. The information about incurred and paid claims development for the years ended 2012 through
2018 is presented as supplementary information and is unaudited. As permitted under GAAP, the Company presents development
table information beginning in 2012 because obtaining information beyond this period was impracticable as historical data was not
maintained in such detail
(In millions, except for claims frequency)
Incurred Claims (undiscounted)
Unaudited
2012
2013
2014
2015
2016
2017
2018
2019
Incurred
But Not
Reported
Liabilities
(1)
$
995 $
951 $
889 $
876 $
883 $
880 $
861 $
860 $
Accident Year
2012
2013
2014
2015
2016
2017
2018
2019
1,063
1,037
1,158
1,062
1,129
1,184
1,072
1,167
1,154
1,246
1,057
1,146
1,185
1,184
1,226
1,032
1,094
1,160
1,199
1,193
1,348
Claims
Frequency
21,186
23,526
25,324
25,781
25,577
23,959
25,154
13,061
-
-
-
-
-
1
10
533
1,030
1,081
1,148
1,202
1,207
1,267
1,434
9,229
(1) Incurred but not reported amounts are included in 2019 incurred claims.
Cumulative incurred claims for the periods presented $
Accident Year
2012
2013
2014
2015
2016
2017
2018
2019
2012
2013
2014
Unaudited
2015
2016
2017
2018
2019
Cumulative Paid Claims
$
81 $
288 $
92
429 $
342
111
504 $
503
379
114
571 $
600
575
417
122
621 $
670
667
603
411
110
661 $
732
743
702
598
396
116
Cumulative paid claims for the periods presented $
All outstanding liabilities for the periods presented, net of reinsurance $
All outstanding liabilities prior to 2012, net of reinsurance
Impact of discounting
Liability for long-term disability unpaid claims and claim expenses, net of reinsurance (1)(2) $
693
780
803
783
709
590
434
126
4,918
4,311
771
(891)
4,191
(1) Includes Unpaid claims amounts classified as Liabilities held for sale.
(2) Includes approximately $3.5 billion of disabled life reserves for individuals on long-term disability.
106
The claims frequency metric used for the Company’s long-term disability line of business represents the number of unique claim
events for which benefits have been approved and payments made. Claim events are assigned a unique claimant identifier and
incurral date. Thus, if an individual has multiple claims for different disabling events (and therefore different incurral dates), each will
be determined to be a unique claim event. However, if an individual receives multiple benefits under more than one policy (for
example for supplemental disability benefits such as pension contribution benefits or survivor benefits), the Company treats this as a
single claim occurrence because they related to the same claim event. Claims frequency metrics for the most recent year are expected
to be low reflecting the long-term disability product features including waiting and elimination periods that result in delayed eligibility
for contract benefits. Claims that did not result in a liability are not included in the frequency metric.
The following is supplementary and unaudited information about average historical claims payout patterns for the long-term disability
business for the years presented in the development table as of December 31, 2019. The average annual percentage payout of incurred
claims, net of reinsurance, is approximately 9% in year one, 25% in year two, 16% in year three, 9% in year four, 7% in year five, 6%
in year six, 5% in year seven and 4% in year eight.
The following table reconciles the long-term disability net incurred and paid claims development table to the liability for unpaid
claims and claim expenses in the Company’s Consolidated Balance Sheets as of December 31, 2019.
(In millions)
Net outstanding liabilities – Group Disability and Life businesses
Long-term disability liabilities, net of reinsurance
Other short-duration insurance books of business, net of reinsurance
Liabilities for unpaid claims and claim expenses, net of reinsurance
Reinsurance recoverable on unpaid claims – Group Disability and Life businesses
Long-term disability
Other short-duration insurance books of business
Total reinsurance recoverable on unpaid claims
Total liability for unpaid claims and claim expenses – Group Disability and Life businesses
International Markets segment
Other Operations
Unpaid claims and claim expenses - Group Disability and Other and International Markets(1)
(1) Includes Unpaid claims amounts classified as Liabilities held for sale.
$
$
4,191
652
4,843
117
12
129
4,972
844
187
6,003
The Group Disability and Life and International Markets books of business, net of reinsurance, also include liabilities for life, accident
and short-term disability insurance products. Liabilities for these products are typically complete within one year. Claim
development on these liabilities is largely driven by completion factors and loss ratio assumptions.
Note 10 – Reinsurance
The Company’s insurance subsidiaries enter into agreements with other insurance companies to assume and cede reinsurance.
Reinsurance is ceded primarily in acquisition and disposition transactions when the underwriting company is not being acquired.
Reinsurance is also used to limit losses from large exposures and to permit recovery of a portion of direct or assumed losses.
Reinsurance does not relieve the originating insurer of liability. Therefore, reinsured liabilities must continue to be reported along
with the related reinsurance recoverables. The Company regularly evaluates the financial condition of its reinsurers and monitors
concentrations of its credit risk.
107
A. Reinsurance Recoverables
The majority of the Company’s reinsurance recoverables resulted from acquisition and disposition transactions in which the
underwriting company was not acquired. Components of the Company’s reinsurance recoverables are presented in the following
table. The table below includes $222 million as of December 31, 2019 and $297 million as of December 31, 2018 of current
reinsurance recoverables that are reported in other current assets.
(Dollars in millions)
Line of Business
Reinsurer(s)
Ongoing Operations
Integrated Medical, International Markets,
Group Disability, COLI(1)
Various
December 31,
2019 (1)
December 31,
2018
Collateral and Other Terms
at December 31, 2019
$
514 $
464
Balances range from less than $1 million up to
$72 million. Approximately 70% of the balance is
from companies rated as investment grade by
Standard & Poor’s.
Total recoverables related to ongoing operations
Acquisition, disposition or runoff activities
Individual Life and Annuity (sold in 1998) Lincoln National Life
514
3,174
464
3,312
and Lincoln Life &
Annuity of New York
Both companies’ ratings were well above the level
that would trigger a contractual obligation to fully
secure the outstanding balance.
GMDB (effectively exited in 2013)
Berkshire
Retirement Benefits Business (sold in
2004)
Prudential Retirement
Insurance and Annuity
Supplemental Benefits Business (2012
acquisition)
Great American Life
Other
Various
787
711
238
71
893
787
100% secured by assets in a trust.
100% secured by assets in a trust.
261
100% secured by assets in a trust.
87
100% secured by assets in a trust or other
deposits.
Total recoverables related to acquisition, disposition or runoff
activities
Total reinsurance recoverables
(1) Includes $173 million of recoverables classified as Assets held for sale.
$
4,981
5,495 $
5,340
5,804
The Company bears the risk of loss if its reinsurers and retrocessionaires do not meet or are unable to meet their reinsurance
obligations to the Company. The Company reviews its reinsurance arrangements and establishes reserves against the recoverables if
recovery is not considered probable.
108
B. Effects of Reinsurance
The following table presents direct, assumed and ceded premiums for both short-duration and long-duration insurance contracts. It
also presents reinsurance recoveries that have been netted against benefit expenses in the Company’s Consolidated Statements of
Income.
(In millions)
Premiums
Short-duration contracts
Direct
Assumed
Ceded
Total short-duration contract premiums
Long-duration contracts
Direct
Assumed
Ceded
Individual life insurance and annuity business sold
Other
Total long-duration contract premiums
Total premiums
Reinsurance recoveries
Individual life insurance and annuity business sold
Other
Total reinsurance recoveries
2019
2018
2017
$
35,690
$
32,148
$
28,838
64
(203)
35,551
4,352
105
(126)
(168)
4,163
39,714
238
157
395
$
$
$
77
(182)
32,043
4,268
116
(133)
(181)
4,070
36,113
249
203
452
$
$
$
199
(150)
28,887
3,748
130
(143)
(131)
3,604
32,491
259
66
325
$
$
$
The effects of reinsurance on written premiums for short-duration contracts were not materially different from the recognized
premium amounts shown in the table above.
C. Effective Exit of GMDB and GMIB Business
The Company entered into an agreement with Berkshire to effectively exit the GMDB and GMIB business via a reinsurance
transaction in 2013. Berkshire reinsured 100% of the Company’s future claim payments in this business, net of other reinsurance
arrangements existing at that time. The reinsurance agreement is subject to an overall limit with approximately $3.3 billion remaining
at December 31, 2019.
GMDB is accounted for as reinsurance and GMIB assets and liabilities are reported as derivatives at fair value as discussed below.
GMIB assets are reported in other current assets and other assets and GMIB liabilities are reported in accrued expenses and other
liabilities and other non-current liabilities.
GMDB
The GMDB exposure arises under annuities written by ceding companies that guarantee the benefit received at death. The Company’s
exposure arises when the guaranteed minimum death benefit exceeds the fair value of the related mutual fund investments at the time
of a contractholder’s death.
Accounting policy. The Company estimates the gross liability and reinsurance recoverable with an internal model based on the
Company’s experience and future expectations over an extended period, consistent with the long-term nature of this product. As a
result of the reinsurance transaction, reserve increases have a corresponding increase in the recorded reinsurance recoverable, provided
the increased recoverable remains within the overall Berkshire limit (including the GMIB asset presented below).
109
The following table presents the account value, net amount at risk and the number of contractholders for guarantees assumed by the
Company in the event of death. The net amount at risk is the amount that the Company would have to pay in excess of the
contractholders’ account value if all contractholders died as of the specified date. The Company should be reimbursed in full for these
payments unless the Berkshire reinsurance limit is exceeded.
(Dollars in millions, excludes impact of reinsurance ceded)
Account value
Net amount at risk
Average attained age of contractholders (weighted by exposure)
Number of contractholders (estimated)
GMIB
December 31,
December 31,
2019
2018
$
$
$
$
9,110
1,764
76
8,402
2,466
74
200,000
220,000
The Company reinsured contracts with issuers of GMIB products. The Company’s exposure represents the excess of a contractually
guaranteed amount over the level of variable annuity account values. Payment by the Company depends on the actual account value
in the related underlying mutual funds and the level of interest rates when the contractholders elect to receive minimum income
payments that can only occur within 30 days of a policy anniversary after the appropriate waiting period. The Company has
purchased retrocessional coverage (“GMIB assets”) for these contracts including retrocessional coverage from Berkshire.
Accounting policy. The Company reports GMIB liabilities and assets as derivatives at fair value because cash flows of these
liabilities and assets are affected by equity markets and interest rates, but are without significant life insurance risk and are settled in
lump sum payments. The Company receives and pays fees periodically based on either contractholders’ account values or deposits
increased at a contractual rate. The Company will also pay and receive cash depending on changes in account values and interest rates
when contractholders first elect to receive minimum income payments. Cash flows on these contracts are reported in operating
activities.
Assumptions used in fair value measurement. GMIB assets and liabilities are established using capital market assumptions and
assumptions related to future annuitant behavior (including mortality, lapse, and annuity election rates). The Company classifies
GMIB assets and liabilities in Level 3 of the fair value hierarchy described in Note 12 because assumptions related to future annuitant
behavior are largely unobservable.
The only assumption expected to impact future shareholders’ net income is non-performance risk. The non-performance risk
adjustment reflects a market participant’s view of nonpayment risk by adding an additional spread to the discount rate in the
calculation of both (a) the GMIB liabilities to be paid by the Company and (b) the GMIB assets to be paid by the reinsurers, after
considering collateral. The impact of non-performance risk was immaterial for twelve months ended December 31, 2019 and 2018.
GMIB liabilities totaling $688 million as of December 31, 2019 and $706 million as of December 31, 2018 were reported in accrued
expenses and other liabilities and other non-current liabilities. There were three reinsurers covering 100% of the GMIB exposures as
of December 31, 2019 and December 31, 2018 as follows:
(In millions)
Line of Business
Reinsurer
GMIB
Berkshire
Sun Life Assurance Company of Canada
Liberty Re (Bermuda) Ltd.
Total GMIB recoverables reported in other current assets and other assets
December 31,
2019
December 31,
2018
Collateral and Other Terms
at December 31, 2019
$
$
332 $
202
179
713 $
341
208
184
733
100% were secured by assets in a trust.
96% were secured by assets in a trust.
Amounts included in shareholders net income for GMIB assets and liabilities were not material in 2019, 2018 or 2017.
110
Note 11 – Investments, Investment Income and Gains and Losses
Cigna’s investment portfolio consists of a broad range of investments including debt securities, equity securities, commercial
mortgage loans, policy loans, other long-term investments, short-term investments and derivative financial instruments. The sections
below provide more detail regarding our accounting policies, investment balances, net investment income and realized investment
gains and losses. See Note 12 for information about valuing the Company’s investment portfolio. Debt securities, commercial
mortgage loans, derivative financial instruments and short-term investments with contractual maturities during the next twelve months
are classified on the balance sheet as current investments, unless they are held as statutory deposits or restricted for other purposes and
then they are classified in long-term investments. Equity securities may include exchange traded funds that are used in our cash
management strategy and classified as current investments. All other investments are classified as long-term investments. The
following table summarizes the Company’s investments by category and current or long-term classification.
(In millions)
Debt securities
Equity securities
Commercial mortgage loans
Policy loans
Other long-term investments
Short-term investments
Total
Investments classified as assets held for sale (1)
Investments per Consolidated Balance Sheets
$
$
Current
928
-
-
-
-
423
1,351
$
$
December 31, 2019 (1)
Long-term
22,827
303
1,947
1,357
2,403
-
28,837
Total
Current
Long-term
Total
December 31, 2018
$
23,755
303
1,947
1,357
2,403
423
30,188
$
1,320
377
32
-
-
316
2,045
21,608 $
171
1,826
1,423
1,901
-
26,929
22,928
548
1,858
1,423
1,901
316
28,974
(414)
937
$
(7,295)
21,542
$
(7,709)
22,479
$
2,045
$
26,929 $
28,974
(1) The table above includes $7.7 billion of investments associated with the Group Disability and Life business that is held for sale to New York Life. Under the terms of
the definitive agreement, some of the assets currently associated with the Group Disability and Life business can be substituted for other assets. The assets that will
transfer to New York Life will be primarily debt securities and to a lesser extent commercial mortgage loans and short-term investments.
A. Investment Portfolio
Debt Securities
Accounting policy. Debt securities (including bonds, mortgage and other asset-backed securities and preferred stocks redeemable by
the investor) are classified as available for sale and are carried at fair value with changes in fair value recorded in accumulated other
comprehensive income (loss) within shareholders’ equity. Net unrealized appreciation on debt securities supporting the Company’s
run-off settlement annuity business is reported in future policy benefit liabilities rather than accumulated other comprehensive income
(loss).
The Company records impairment losses in net income for debt securities with fair value below amortized cost that meet either of the
following conditions:
•
•
If the Company intends to sell or determines that it is more likely than not to be required to sell these debt securities before
their fair values recover, an impairment loss is recognized for the excess of the amortized cost over fair value.
If the net present value of projected future cash flows of a debt security (based on qualitative and quantitative factors,
including the probability of default, and the estimated timing and amount of recovery) is below the amortized cost basis, that
difference is recognized as an impairment loss. For mortgage and asset-backed securities, estimated future cash flows are
also based on assumptions about the collateral attributes including prepayment speeds, default rates and changes in value.
Debt securities are classified as either current or long-term investments based on their contractual maturities.
111
The amortized cost and fair value by contractual maturity periods for debt securities were as follows at December 31, 2019:
(In millions)
Due in one year or less
Due after one year through five years
Due after five years through ten years
Due after ten years
Mortgage and other asset-backed securities
Total
Amortized
Cost
Fair
Value
$
920
$
7,176
9,098
4,209
506
932
7,452
9,644
5,191
536
$
21,909
$
23,755
Actual maturities of these securities could differ from their contractual maturities used in the table above because issuers may have the
right to call or prepay obligations, with or without penalties.
Gross unrealized appreciation (depreciation) on debt securities by type of issuer is shown below.
(In millions)
December 31, 2019
Federal government and agency
State and local government
Foreign government
Corporate
Mortgage and other asset-backed
Total
Investments supporting liabilities of the Company’s run-off settlement annuity
business (included in total above) (1)
December 31, 2018
Federal government and agency
State and local government
Foreign government
Corporate
Mortgage and other asset-backed
Total
Investments supporting liabilities of the Company’s run-off settlement annuity
business (included in total above) (1)
Amortized
Unrealized
Unrealized
Cost
Appreciation
Depreciation
Fair
Value
$
$
$
$
$
$
498
$
235
$
729
2,027
18,149
506
81
230
1,299
31
$
-
-
(1)
(28)
(1)
21,909
$
1,876
$
(30)
$
733
810
2,256
19,420
536
23,755
2,229
$
740
$
(4)
$
2,965
507
$
204
$
(1)
$
920
2,214
18,403
506
66
155
411
16
(1)
(7)
(453)
(12)
22,550
$
852
$
(474)
$
710
985
2,362
18,361
510
22,928
2,264
$
479
$
(40)
$
2,703
(1) Net unrealized appreciation for these investments is excluded from accumulated other comprehensive income.
The Company had commitments to purchase $98 million of debt securities as of December 31, 2019, bearing interest at a fixed market
rate.
Review of declines in fair value. Management reviews debt securities with a decline in fair value from cost for impairment based on
criteria that include:
• length of time and severity of decline;
• financial health and specific near term prospects of the issuer;
• changes in the regulatory, economic or general market environment of the issuer’s industry or geographic region; and
• the Company’s intent to sell or the likelihood of a required sale prior to recovery.
112
Management believes the unrealized depreciation below to be temporary based on this review, and therefore has not impaired these
amounts. The table below summarizes debt securities with a decline in fair value from amortized cost by investment grade and by the
length of time these securities have been in an unrealized loss position.
December 31, 2019
December 31, 2018
Fair
Value
Amortized
Unrealized
Number
Cost
Depreciation
of Issues
Fair
Value
Amortized
Unrealized
Number
Cost
Depreciation
of Issues
$
$
$
$
723
340
366
84
$
$
$
$
729
348
378
88
$
$
$
$
(6)
(8)
(12)
(4)
267
355
118
93
$
$
$
$
7,127
1,185
3,023
249
$
$
$
$
7,367
1,240
3,181
270
$
$
$
$
(240)
(55)
(158)
(21)
1,324
1,190
784
245
(Dollars in millions)
One year or less
Investment grade
Below investment grade
More than one year
Investment grade
Below investment grade
Equity Securities
Accounting policy. Changes in the fair values of equity securities that have a readily determinable fair value are reported in net
realized investment gains (losses). As of December 31, 2019, the fair values of these securities were $64 million and cost was $61
million, compared with fair value of $415 million and cost of $433 million as of December 31, 2018. Private equity securities of $192
million as of December 31, 2019, and $89 million as of December 31, 2018, without a readily determinable fair value are carried at
cost minus impairment, if any, plus or minus changes resulting from observable price changes. The amount of impairments or value
changes resulting from observable price changes was not material.
Equity securities also include hybrid investments consisting of preferred stock with call features that are carried at fair value with
changes in fair value reported in net realized investment gains (losses) and dividends reported in net investment income. As of
December 31, 2019, fair values of these securities were $47 million and cost was $58 million, compared with fair value of $44 million
and cost of $58 million as of December 31, 2018.
Commercial Mortgage Loans
Mortgage loans held by the Company are made exclusively to commercial borrowers and are diversified by property type, location
and borrower. Loans are generally issued at fixed rates of interest and are secured by high quality, primarily completed and
substantially leased operating properties. Commercial mortgage loans are classified as either current or long-term investments based
on their contractual maturities.
Accounting policy. Commercial mortgage loans are carried at unpaid principal balances or, if impaired, the lower of unpaid principal
or fair value of the underlying collateral. A commercial mortgage loan is considered impaired when it is probable that the Company
will not collect all amounts due per the terms of the promissory note. Writedowns are recorded in realized investments losses.
Interest income on impaired loans is only recognized when a payment is received.
There were no impaired commercial mortgage loans as of December 31, 2019 or 2018.
As of December 31, 2019, virtually all of the Company’s commercial mortgage loan portfolio is scheduled to mature in 2022 or
thereafter. Actual maturities could differ from contractual maturities for several reasons, including that borrowers may have the right
to prepay their obligations with or without prepayment penalties, the maturity date may be extended or loans may be refinanced.
Credit quality. The Company regularly evaluates and monitors credit risk, beginning with the initial underwriting of a mortgage loan
and continuing throughout the investment holding period. Mortgage origination professionals employ an internal credit quality rating
system designed to evaluate the relative risk of the transaction at origination that is then updated each year as part of the annual
portfolio loan review. The Company evaluates and monitors credit quality on a consistent and ongoing basis, classifying each loan as
a loan in good standing, potential problem loan or problem loan.
Quality ratings are based on our evaluation of a number of key inputs related to the loan, including real estate market-related factors
such as rental rates and vacancies, and property-specific inputs such as growth rate assumptions and lease rollover statistics.
However, the two most significant contributors to the credit quality rating are the debt service coverage and loan-to-value ratios. The
debt service coverage ratio measures the estimated amount of property cash flow available to meet annual interest and principal
payments on debt, with a ratio below 1.0 indicating that there is not enough cash flow to cover the required loan payments. The loan-
to-value ratio, commonly expressed as a percentage, compares the amount of the loan to the fair value of the underlying property
113
collateralizing the loan.
The following table summarizes the credit risk profile of the Company’s commercial mortgage loan portfolio based on loan-to-value
and debt service coverage ratios as of December 31, 2019 and 2018:
(Dollars in millions)
Loan-to-Value Ratio
Carrying Value
December 31, 2019
Average Debt
Service Coverage
Ratio
Average Loan-
to-Value Ratio
Carrying Value
Average Debt
Service Coverage
Ratio
Average Loan-
to-Value Ratio
December 31, 2018
Below 60%
60% to 79%
80% to 100%
Total
$
$
1,136
723
88
1,947
2.19
1.98
1.62
2.09
$
$
1,132
650
76
1,858
58%
2.14
1.93
1.49
2.04
58%
The Company’s annual in-depth review of its commercial mortgage loan investments is the primary mechanism for identifying
emerging risks in the portfolio. The Company’s investment professionals completed the annual in-depth review in the second quarter
of 2019 that included an analysis of each underlying property’s most recent annual financial statements, rent rolls, operating plans,
budgets, a physical inspection of the property and other pertinent factors. Based on historical results, current leases, lease expirations
and rental conditions in each market, the Company estimated the current year and future stabilized property income and fair value for
each loan.
The Company re-evaluates a loan’s credit quality between annual reviews if new property information is received or an event such as
delinquency or a borrower’s request for restructure causes management to believe that the Company’s estimate of financial
performance, fair value or the risk profile of the underlying property has been impacted.
Policy Loans
Accounting policy. Policy loans, primarily associated with our corporate-owned life insurance business, are carried at unpaid
principal balances plus accumulated interest, the total of which approximates fair value. These loans are collateralized by life
insurance policy cash values and therefore have minimal exposure to credit loss. Interest rates are reset annually based on a rolling
average of benchmark interest rates.
Other Long-Term Investments
Accounting policy. Other long-term investments include investments in unconsolidated entities. These entities include certain limited
partnerships and limited liability companies holding real estate, securities or loans. These investments are carried at cost plus the
Company’s ownership percentage of reported income or loss, based on the financial statements of the underlying investments that are
generally reported at fair value. Income from these investments is reported on a one quarter lag due to the timing of when financial
information is received from the general partner or manager of the investments.
Other long-term investments also include investment real estate carried at depreciated cost less any impairment write-downs to fair
value when cash flows indicate that the carrying value may not be recoverable. Depreciation is generally recorded using the straight-
line method based on the estimated useful life of each asset. Investment real estate as of December 31, 2019 and 2018 is expected to
be held longer than one year and may include real estate acquired through the foreclosure of commercial mortgage loans.
Additionally, other long-term investments include foreign currency swaps carried at fair value. See discussion below for information
on the Company’s accounting policies for these derivative financial instruments.
Other long-term investments and related commitments are diversified by issuer, property type and geographic regions. The following
table provides unfunded commitment and carrying value information for these investments. The Company expects to disburse
approximately 30% of the committed amounts in 2020.
114
(In millions)
Real estate investments
Securities partnerships
Other
Total
Short-Term Investments and Cash Equivalents
Carrying value as of December 31,
Commitments as of
2019
2018
December 31, 2019
Unfunded
$
$
788
$
1,409
206
2,403
$
679
1,045
177
1,901
$
$
551
1,379
24
1,954
Accounting policy. Security investments with maturities of greater than three months to one year from time of purchase are classified
as short-term, available for sale and carried at fair value that approximates cost. Cash equivalents consist of short-term investments
with maturities of three months or less from the time of purchase and are carried at cost that approximates fair value.
Short-term investments and cash equivalents included the following types of issuers:
(In millions)
Corporate securities
Federal government securities
Foreign government securities
Money market funds
Derivative Financial Instruments
December 31,
December 31,
2019
2018
$
$
$
$
1,985
472
65
631
$
$
$
$
581
82
238
1,174
The Company uses derivative financial instruments to manage the characteristics of investment assets (such as duration, yield,
currency and liquidity) to meet the varying demands of the related insurance and contract holder liabilities. The Company also uses
derivative financial instruments to hedge the risk of changes in the net assets of certain of its foreign subsidiaries due to changes in
foreign currency exchange rates. The Company has written and purchased GMIB reinsurance contracts in its run-off reinsurance
business that are accounted for as freestanding derivatives as discussed in Note 10. Derivatives in the Company’s separate accounts
are excluded from the following discussion because associated gains and losses generally accrue directly to separate account
policyholders.
Derivative instruments used by the Company typically include foreign currency swap contracts and foreign currency forward
contracts. Foreign currency swap contracts periodically exchange cash flows between two currencies for principal and interest.
Foreign currency forward contracts require the Company to purchase a foreign currency in exchange for the functional currency of its
operating unit at a future date, generally within three months from the contracts’ trade dates.
The Company manages the credit risk of these derivative instruments by diversifying its portfolio among approved dealers of high
credit quality and through routine monitoring of credit risk exposures. Certain of the Company’s over-the-counter derivative
instruments require either the Company or the counterparty to post collateral or demand immediate payment depending on the amount
of the net liability position of the derivative instrument and predefined financial strength or credit rating thresholds. These collateral
posting requirements vary by counterparty and amounts posted were not significant as of December 31, 2019 or 2018.
Accounting policy. Derivatives are recorded on our balance sheet at fair value and are classified as current or non-current according
to their contractual maturities. Further information on our policies for determining fair value are discussed in Note 12. The Company
applies hedge accounting when derivatives are designated, qualified and highly effective as hedges. Under hedge accounting, the
changes in fair value of the derivative and the hedged risk are generally recognized together and offset each other when reported in
shareholders’ net income. Various qualitative or quantitative methods appropriate for each hedge are used to formally assess and
document hedge effectiveness at inception and each period throughout the life of a hedge.
115
Gross fair values of our derivative financial instruments are presented in Note 12. As of December 31, 2019 and 2018, and for the
years then ended, the effects of derivative instruments on the Consolidated Financial Statements were not material, including gains or
losses reclassified from accumulated other comprehensive income into shareholders’ net income, as well as amounts excluded from
the assessment of hedge effectiveness. The following table summarizes the types and notional quantity of derivative instruments held
by the Company.
(In millions)
Purpose
Type of Instrument
Notional Value as of
December 31,
2019
December 31,
2018
Fair value hedge: To hedge the foreign exchange-related changes in fair values of
certain foreign-denominated bonds, primarily Euro and British pounds. The notional
value of these derivatives matches the amortized cost of the hedged bonds.
Foreign currency swap contracts
$
817
$
525
Net investment hedge: To reduce the risk of changes in net assets due to changes in
foreign currency spot exchange rates for certain foreign subsidiaries that conduct their
business principally in Euros and Korean Won. The notional value of hedging
instruments matches the hedged amount of subsidiary net assets.
Economic hedge: To hedge the foreign exchange-related changes in fair values of a
U.S. dollar-denominated investment portfolio to reflect the local currency for the
Company’s foreign subsidiary in South Korea. The notional value of hedging
instruments generally aligns with the fair value of the hedged investment portfolio.
Foreign currency swap contracts and
foreign currency forward contracts
$
844
$
439
Foreign currency forward contracts
$
410
$
309
The Company’s derivative financial instruments are presented as follows:
• Fair value hedges of the foreign exchange-related changes in fair values of certain foreign-denominated bonds: Swap fair
values are reported in long-term investments or other non-current liabilities. Changes in fair values attributable to foreign
exchange risk of the swap contracts and the hedged bonds are reported in realized investment gains and losses. The portion
of the swap contracts’ changes in fair value excluded from the assessment of hedge effectiveness is recorded in accumulated
other comprehensive income and recognized in net investment income as swap coupon payments are accrued, offsetting the
foreign-denominated coupons received on the designated bonds. Net interest cash flows are reported in operating activities,
while exchanges of notional principal amounts are reported in investing activities.
• Net investment hedges of certain foreign subsidiaries that conduct their business principally in currencies other than the U.S.
dollar: The fair values of the foreign currency swap and forward contracts are reported in other assets or other liabilities.
The changes in fair values of these instruments are reported in other comprehensive income, specifically in translation of
foreign currencies. The portion of the change in fair values relating to foreign exchange spot rates will be recognized in
earnings upon deconsolidation of the hedged foreign subsidiaries. The remaining changes in fair value of these instruments
are excluded from our effectiveness assessment and recognized in interest expense when coupon payments are accrued or
ratably over the term of the instrument. The notional value of hedging instruments matches the hedged amount of subsidiary
net assets. Cash flows relating to these contracts are reported in investing activities.
• Economic hedges for derivatives not designated as accounting hedges: Fair values of forward contracts are reported in
current investments or accrued expenses and other liabilities. The changes in fair values are reported in realized investment
gains and losses. Cash flows relating to these contracts are reported in investing activities.
Concentration of Risk
The Company did not have a concentration of investments in a single issuer or borrower exceeding 10% of shareholders’ equity as of
December 31, 2019 or 2018.
116
B. Net Investment Income
Accounting policy. When interest and principal payments on investments are current, the Company recognizes interest income when
it is earned. The Company recognizes interest income on a cash basis when interest payments are delinquent based on contractual
terms or when certain terms (interest rate or maturity date) of the investment have been restructured. For unconsolidated entities that
are included in Other long-term investments, investment income is generally recognized according to the Company’s share of the
reported income or loss on the underlying investments. Investment income attributed to the Company’s separate accounts is excluded
from our earnings because associated gains and losses generally accrue directly to separate account policyholders.
The components of net investment income for the years ended December 31 were as follows:
(In millions)
Debt Securities
Equity securities
Commercial mortgage loans
Policy loans
Other long-term investments
Short-term investments and cash
Total investment income
Less investment expenses
Net investment income
2019
2018
2017
$
986
$
1,009
$
5
88
66
167
131
1,443
53
28
78
70
156
194
1,535
55
$
1,390
$
1,480
$
946
14
81
69
124
42
1,276
50
1,226
Real estate investments and securities partnerships with a carrying value of $192 million at December 31, 2019 and $150 million at
December 31, 2018 were non-income producing during the preceding twelve months.
C. Realized Investment Gains and Losses
Accounting policy. Realized investment gains and losses are based on specifically identified assets and results from sales, investment
asset write-downs, changes in the fair values of certain derivatives and equity securities and changes in valuation reserves on
commercial mortgage loans.
The following realized gains and losses on investments exclude amounts required to adjust future policy benefits for the run-off
settlement annuity business (consistent with accounting for a premium deficiency), as well as realized gains and losses attributed to
the Company’s separate accounts because those gains and losses generally accrue directly to separate account policyholders.
(In millions)
Net realized investment gains (losses), excluding investment asset write-downs
Write-downs on debt securities
Write-downs on other invested assets
Net realized investment gains (losses), before income taxes
2019
2018
2017
$
$
189
$
(12)
-
$
(34)
(43)
(4)
177
$
(81)
$
268
(26)
(5)
237
Net realized investment gains, excluding investment asset write-downs in 2019 and 2017 primarily represent gains on the sales of real
estate partnerships and debt securities. Additionally, 2019 included mark-to-market gains and 2017 included gains on sales of equity
securities. Net realized investment losses, excluding investment asset write-downs in 2018 represented mark-to-market losses on
equity securities and derivatives, partially offset by gains on the sales of real estate partnerships. Realized gains or losses on equity
securities still held at December 31, 2019 and 2018 were not material.
The following table presents sales information for available-for-sale debt securities. Gross gains on sales and gross losses on sales
exclude amounts required to adjust future policy benefits for the run-off settlement annuity business.
(In millions)
Proceeds from sales
Gross gains on sales
Gross losses on sales
2019
2018
2017
$
$
$
3,077
72
(19)
$
$
$
2,625
28
$
$
(47)
$
2,012
103
(18)
117
Note 12 – Fair Value Measurements
The Company carries certain financial instruments at fair value in the financial statements including debt securities, certain equity
securities, short-term investments and derivatives. Other financial instruments are measured at fair value only under certain
conditions, such as when impaired or when there are observable price changes for equity securities with no readily determinable fair
value.
Fair value is defined as the price at which an asset could be exchanged in an orderly transaction between market participants at the
balance sheet date. A liability’s fair value is defined as the amount that would be paid to transfer the liability to a market participant,
not the amount that would be paid to settle the liability with the creditor.
The Company’s financial assets and liabilities carried at fair value have been classified based upon a hierarchy defined by GAAP.
The hierarchy gives the highest ranking to fair values determined using unadjusted quoted prices in active markets for identical assets
and liabilities (Level 1) and the lowest ranking to fair values determined using methodologies and models with unobservable inputs
(Level 3). An asset’s or a liability’s classification is based on the lowest level of input that is significant to its measurement. For
example, a financial asset or liability carried at fair value would be classified in Level 3 if unobservable inputs were significant to the
instrument’s fair value, even though the measurement may be derived using inputs that are both observable (Levels 1 and 2) and
unobservable (Level 3).
The Company estimates fair values using prices from third parties or internal pricing methods. Fair value estimates received from
third-party pricing services are based on reported trade activity and quoted market prices when available, and other market
information that a market participant would use to estimate fair value. The internal pricing methods are performed by the Company’s
investment professionals and generally involve using discounted cash flow analyses, incorporating current market inputs for similar
financial instruments with comparable terms and credit quality as well as other qualitative factors. In instances where there is little or
no market activity for the same or similar instruments, fair value is estimated using methods, models and assumptions that the
Company believes a hypothetical market participant would use to determine a current transaction price. These valuation techniques
involve some level of estimation and judgment that becomes significant with increasingly complex instruments or pricing models.
The Company is responsible for determining fair value and for assigning the appropriate level within the fair value hierarchy based on
the significance of unobservable inputs. The Company reviews methodologies, processes and controls of third-party pricing services
and compares prices on a test basis to those obtained from other external pricing sources or internal estimates. The Company
performs ongoing analyses of both prices received from third-party pricing services and those developed internally to determine that
they represent appropriate estimates of fair value. The controls executed by the Company include evaluating changes in prices and
monitoring for potentially stale valuations. The Company also performs sample testing of sales values to confirm the accuracy of
prior fair value estimates. The minimal exceptions identified during these processes indicate that adjustments to prices are infrequent
and do not significantly impact valuations. We conduct an annual on-site visit of the most significant pricing service to review their
processes, methodologies and controls. This on-site review includes a walk-through of inputs for a sample of securities held across
various asset types to validate the documented pricing process.
118
A. Financial Assets and Financial Liabilities Carried at Fair Value
The following table provides information as of December 31, 2019 and 2018 about the Company’s financial assets and liabilities
carried at fair value. Separate account assets are also recorded at fair value on the Company’s Consolidated Balance Sheets and are
reported separately in the Separate Accounts section below as gains and losses related to these assets generally accrue directly to
policyholders.
(In millions)
Quoted Prices in Active
Markets for Identical Assets
(Level 1)
Significant Other Observable
Inputs
(Level 2)
Significant Unobservable
Inputs
(Level 3)
Total
As of
As of
As of
As of
As of
As of
As of
As of
December 31, December 31,
December 31, December 31,
December 31, December 31,
December 31, December 31,
2019
2018
2019
2018
2019
2018
2019
2018
Financial assets at
fair value
Debt securities
Federal government
and agency
State and local
government
Foreign government
Corporate
Mortgage and other
asset-backed
Total debt securities
Equity securities (1)
Short-term investments
Derivative assets
Real estate funds
priced at NAV as a
practical expedient (2)
Financial liabilities at
fair value
Derivative liabilities
$
197 $
209
$
536 $
501
$
- $
-
$
733 $
-
-
-
-
197
7
-
-
-
-
-
-
209
384
-
-
810
2,228
19,063
398
985
2,356
18,127
372
23,035
22,341
72
423
83
43
316
53
-
28
357
138
523
32
-
-
-
6
234
138
378
32
-
-
710
985
2,362
18,361
510
810
2,256
19,420
536
23,755
22,928
111
423
83
184
459
316
53
239
$
- $
-
$
18 $
10
$
- $
-
$
18 $
10
(1) Excludes certain equity securities that have no readily determinable fair value.
(2) As a practical expedient, certain real estate funds are carried at fair value based on the Company’s ownership share of the equity of the investee (Net Asset Value
(“NAV“)) including changes in the fair value of its underlying investments. The funds have a quarterly redemption frequency, 45-90 day redemption notice period
and $56 million in unfunded commitments as of December 31, 2019.
Level 1 Financial Assets
Inputs for instruments classified in Level 1 include unadjusted quoted prices for identical assets in active markets accessible at the
measurement date. Active markets provide pricing data for trades occurring at least weekly and include exchanges and dealer
markets.
Assets in Level 1 include actively-traded U.S. government bonds and exchange-listed equity securities. A relatively small portion of
the Company’s investment assets are classified in this category given the narrow definition of Level 1 and the Company’s investment
asset strategy to maximize investment returns.
Level 2 Financial Assets and Financial Liabilities
Inputs for instruments classified in Level 2 include quoted prices for similar assets or liabilities in active markets, quoted prices from
those willing to trade in markets that are not active or other inputs that are market observable or can be corroborated by market data
for the term of the instrument. Such other inputs include market interest rates and volatilities, spreads and yield curves. An
instrument is classified in Level 2 if the Company determines that unobservable inputs are insignificant.
119
Debt and equity securities. Approximately 97% of the Company’s investments in debt and equity securities are classified in Level 2
including most public and private corporate debt and hybrid equity securities, federal agency and municipal bonds, non-government
mortgage-backed securities and preferred stocks. Third-party pricing services and internal methods often use recent trades of
securities with similar features and characteristics because many debt securities do not trade daily. Pricing models are used to
determine these prices when recent trades are not available. These models calculate fair values by discounting future cash flows at
estimated market interest rates. Such market rates are derived by calculating the appropriate spreads over comparable U.S. Treasury
securities based on the credit quality, industry and structure of the asset. Typical inputs and assumptions to pricing models include,
but are not limited to, a combination of benchmark yields, reported trades, issuer spreads, liquidity, benchmark securities, bids, offers,
reference data and industry and economic events. For mortgage-backed securities, inputs and assumptions may also include
characteristics of the issuer, collateral attributes, prepayment speeds and credit rating.
Nearly all of these instruments are valued using recent trades or pricing models. Less than 1% of the fair value of investments
classified in Level 2 represents foreign bonds that are valued using a single, unadjusted market-observable input derived by averaging
multiple broker-dealer quotes, consistent with local market practice.
Short-term investments are carried at fair value that approximates cost. The Company compares market prices for these securities to
recorded amounts on a regular basis to validate that current carrying amounts approximate exit prices. The short-term nature of the
investments and corroboration of the reported amounts over the holding period support their classification in Level 2.
Derivative assets and liabilities classified in Level 2 represent over-the-counter instruments such as foreign currency forward and
swap contracts. Fair values for these instruments are determined using market observable inputs including forward currency and
interest rate curves and widely published market observable indices. Credit risk related to the counterparty and the Company is
considered when estimating the fair values of these derivatives. However, the Company is largely protected by collateral
arrangements with counterparties and determined that no adjustments for credit risk were required as of December 31, 2019 or 2018.
The nature and use of these derivative financial instruments are described in Note 11.
Level 3 Financial Assets and Financial Liabilities
Certain inputs for instruments classified in Level 3 are unobservable (supported by little or no market activity) and significant to their
resulting fair value measurement. Unobservable inputs reflect the Company’s best estimate of what hypothetical market participants
would use to determine a transaction price for the asset or liability at the reporting date.
The Company classifies certain newly-issued, privately-placed, complex or illiquid securities in Level 3. Approximately 2% of debt
and equity securities are priced using significant unobservable inputs and classified in this category.
Fair values of mortgage and other asset-backed securities, as well as corporate and government debt securities, are primarily
determined using pricing models that incorporate the specific characteristics of each asset and related assumptions including the
investment type and structure, credit quality, industry and maturity date in comparison to current market indices, spreads and liquidity
of assets with similar characteristics. Inputs and assumptions for pricing may also include characteristics of the issuer, collateral
attributes and prepayment speeds for mortgage and other asset-backed securities. Recent trades in the subject security or similar
securities are assessed when available, and the Company may also review published research in its evaluation as well as the issuer’s
financial statements.
Quantitative Information about Unobservable Inputs
The following table summarizes the fair value and significant unobservable inputs used in pricing the following debt securities that
were developed directly by the Company as of December 31, 2019 and 2018. The range and weighted average basis point amounts
(“bps”) for liquidity and credit spreads (adjustment to discount rates) reflect the Company’s best estimates of the unobservable
adjustments a market participant would make to calculate these fair values.
Corporate and government debt securities. The significant unobservable input used to value the following corporate and government
debt securities is an adjustment for liquidity. An adjustment is needed to reflect current market conditions and issuer circumstances
when there is limited trading activity for the security.
120
Mortgage and other asset-backed securities. The significant unobservable inputs used to value the following mortgage and other
asset-backed securities are liquidity and weighting of credit spreads. An adjustment for liquidity is made as of the measurement date
that considers current market conditions, issuer circumstances and complexity of the security structure when there is limited trading
activity for the security. An adjustment to weight credit spreads is needed to value a more complex bond structure with multiple
underlying collateral and no standard market valuation technique. The weighting of credit spreads is primarily based on the
underlying collateral’s characteristics and their proportional cash flows supporting the bond obligations.
(Fair value in millions )
Debt securities
Corporate and government debt securities
$
Mortgage and other asset-backed securities
Securities not priced by the Company (1)
Total Level 3 debt securities
$
Fair Value as of
Unobservable Adjustment
Range (Weighted Average) as of
December 31,
2019
2018
Unobservable Input
December 31, 2019
December 31,
2019
2018
385 $
138
-
523 $
229
138
11
378
Liquidity
Liquidity
70 - 930 (280) bps
50 - 930 (230) bps
60 - 370 (70) bps
60 - 340 (70) bps
Weighting of credit spreads
240 - 460 (330) bps
190 - 340 (260) bps
(1) The fair values for these securities use single, unadjusted non-binding broker quotes not developed directly by the Company.
Significant increases in liquidity or credit spreads would result in lower fair value measurements while decreases in these inputs would
result in higher fair value measurements. The unobservable inputs are generally not interrelated and a change in the assumption used
for one unobservable input is not accompanied by a change in the other unobservable input.
Changes in Level 3 Financial Assets and Financial Liabilities Carried at Fair Value
The following table summarizes the changes in financial assets and financial liabilities classified in Level 3 in 2019 and 2018. Gains
and losses reported in these tables may include net changes in fair value that are attributable to both observable and unobservable
inputs.
(In millions)
Balance at January 1,
Total (losses) included in shareholders’ net income
Gains (losses) included in other comprehensive income
Gains (losses) required to adjust future policy benefits for settlement annuities (1)
Purchases, sales and settlements
Purchases
Sales
Settlements
Total purchases, sales and settlements
Transfers into/(out of) Level 3
Transfers into Level 3
Transfers out of Level 3 (2)
Total transfers into/(out of) Level 3
Balance at December 31,
Total (losses) included in shareholders’ net income attributable to instruments held at the reporting date
2019
2018
$
410
$
(8)
22
2
72
-
(19)
53
170
(94)
76
555
(8)
$
$
$
$
732
(22)
(8)
(8)
22
(11)
(70)
(59)
44
(269)
(225)
410
(9)
(1) Amounts do not accrue to shareholders.
(2) Beginning in 2018, certain private equity securities are no longer carried at fair value under the policy election of ASU 2016-01 (Recognition and Measurement of
Financial Assets and Financial Liabilities). Private equity securities of $70 million as of December 31, 2017 are included in the 2018 Transfers out of Level 3 amount.
Total gains and losses included in shareholders’ net income in the tables above are reflected in the Consolidated Statements of Income
as realized investment gains (losses) and net investment income.
121
Gains and losses included in other comprehensive income in the tables above are reflected in net unrealized appreciation
(depreciation) on securities in the Consolidated Statements of Comprehensive Income.
Transfers into or out of the Level 3 category occur when unobservable inputs, such as the Company’s best estimate of what a market
participant would use to determine a current transaction price, become more or less significant to the fair value measurement.
Transfers between Level 2 and Level 3 during 2019 and 2018 primarily reflected changes in liquidity and credit risk estimates for
certain private placement issuers across several sectors.
Separate Accounts
Accounting policy. Separate account assets and liabilities are contractholder funds maintained in accounts with specific investment
objectives. The assets of these accounts are legally segregated and are not subject to claims that arise out of any of the Company’s
other businesses. These separate account assets are carried at fair value with equal amounts recorded for related separate account
liabilities. The investment income and fair value gains and losses of these accounts generally accrue directly to the contractholders
and, together with their deposits and withdrawals, are excluded from the Company’s Consolidated Statements of Income and Cash
Flows. Fees and charges earned for mortality risks, asset management or administrative services are reported in either premiums or
fees and other revenues. Investments that are measured using the practical expedient of NAV are excluded from the fair value
hierarchy.
Fair values of separate account assets at December 31 were as follows:
(In millions)
Guaranteed separate accounts (See
Note 22)
Non-guaranteed separate accounts (1)
Subtotal
Non-guaranteed separate accounts
priced at NAV as a practical
expedient (1)
Total
Separate account assets classified as
assets held for sale
Quoted Prices in Active
Markets for Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant Unobservable
Inputs
(Level 3)
Total
2019
2018
2019
2018
2019
2018
2019
2018
$
$
219 $
1,450
1,669 $
187
1,204
1,391
$
$
271 $
5,522
5,793 $
267
5,216
5,483
$
$
- $
263
263 $
-
$
490 $
233
233
7,235
7,725
756
8,481
(16)
454
6,653
7,107
732
7,839
Separate account assets per
Consolidated Balance Sheets
7,839
(1) Non-guaranteed separate accounts included $4 billion as of December 31, 2019 and $3.8 billion as of December 31, 2018 in assets supporting the Company’s pension
plans, including $0.2 billion classified in Level 3 as of December 31, 2019 and 2018.
8,465 $
$
Separate account assets classified as Level 1 primarily include exchange-listed equity securities. Level 2 assets primarily include:
•
•
corporate and structured bonds valued using recent trades of similar securities or pricing models that discount future cash flows at
estimated market interest rates as described above; and
actively-traded institutional and retail mutual fund investments.
Separate account assets classified in Level 3 primarily support Cigna’s pension plans and include certain newly-issued, privately-
placed, complex, or illiquid securities that are priced using methods discussed above as well as commercial mortgage loans. Activity,
including transfers into and out of Level 3, was not material in 2019 or 2018.
122
Separate account investments in securities partnerships, real estate, and hedge funds are generally valued based on the separate
account’s ownership share of the equity of the investee (NAV as a practical expedient) including changes in the fair values of its
underlying investments. Substantially all of these assets support the Cigna Pension Plans. The following table provides additional
information on these investments.
Fair Value as of
December 31,
Unfunded
Commitments
Redemption Frequency
as of
(if currently
Redemption Notice
2019
2018
December 31, 2019
(In millions)
Securities partnerships
Real estate funds
Hedge funds
Total
$
$
531
$
220
5
756 $
477
$
237
18
732 $
320
-
eligible)
Not applicable
Quarterly
Period
Not applicable
30 - 90 days
- Up to annually, varying by fund
30 - 90 days
320
As of December 31, 2019, the Company does not have plans to sell any of these assets at less than fair value. These investments are
structured to satisfy longer-term investment objectives. Securities partnerships are contractually unredeemable, and the underlying
investment assets are expected to be liquidated by the investees within ten years after inception.
B. Assets and Liabilities Measured at Fair Value under Certain Conditions
Some financial assets and liabilities are not carried at fair value each reporting period, but may be measured using fair value only
under certain conditions such as investments when they become impaired, including investment real estate and commercial mortgage
loans, and certain equity securities with no readily determinable fair value. Equity securities with no readily determinable fair value
are also measured at fair value when there are observable price changes from orderly transactions with the same issuer. In 2019 there
were immaterial gains relating to price changes for equity securities with no readily determinable fair value and no impaired
investments written down to their fair values. In 2018, there were immaterial realized investment losses resulting from impairments
on these assets, and no price changes for the equity securities with no readily determinable fair value. Carrying values represented
less than 1% of total investments for both 2019 and 2018.
C. Fair Value Disclosures for Financial Instruments Not Carried at Fair Value
The following table includes the Company’s financial instruments not recorded at fair value that are subject to fair value disclosure
requirements at December 31, 2019 and 2018. In addition to universal life products and finance leases, financial instruments that are
carried in the Company’s Consolidated Financial Statements at amounts that approximate fair value are excluded from the following
table.
(In millions)
Classification in
Fair Value
Hierarchy
Commercial mortgage loans
Long-term debt, including current maturities, excluding finance
leases
Level 3
Level 2
$
$
December 31, 2019
December 31, 2018
Fair Value
Carrying
Value
Fair Value
Carrying
Value
1,989
$
1,947
$
1,832
$
1,858
39,439
$
36,375
$
40,819
$
40,829
Fair values of off-balance sheet financial instruments were not material as of December 31, 2019 or 2018.
Note 13 – Variable Interest Entities
When the Company becomes involved with a variable interest entity and when there is a change in the Company’s involvement with
an entity, the Company must determine if it is the primary beneficiary and must consolidate the entity. The Company is considered
the primary beneficiary if it has the power to direct the entity’s most significant economic activities and has the right to receive
benefits or obligation to absorb losses that could be significant to the entity. The Company evaluates the following criteria:
•
•
•
the structure and purpose of the entity;
the risks and rewards created by, and shared through, the entity; and
the Company’s ability to direct its activities, receive its benefits and absorb its losses relative to the other parties involved with the
entity including its sponsors, equity holders, guarantors, creditors and servicers.
123
The Company determined it was not a primary beneficiary in any material variable interest entities as of December 31, 2019 or 2018.
The Company’s involvement in variable interest entities for which it is not the primary beneficiary is described below.
Securities limited partnerships and real estate limited partnerships. The Company owns interests in securities limited partnerships
and real estate limited partnerships that are defined as variable interest entities. These partnerships invest in the equity or mezzanine
debt of privately-held companies and real estate properties. General partners unaffiliated with the Company control decisions that
most significantly impact the partnership’s operations and the limited partners do not have substantive kick-out or participating rights.
The Company’s maximum exposure to loss from these entities of $3.4 billion across approximately 140 limited partnerships as of
December 31, 2019 includes $1.8 billion reported in long-term investments and commitments to contribute an additional $1.6 billion.
The Company’s noncontrolling interest in each of these limited partnerships is generally less than 15% of the partnership ownership
interests.
Other asset-backed and corporate securities. In the normal course of its investing activities, the Company also makes passive
investments in certain asset-backed and corporate securities that are issued by variable interest entities whose sponsors or issuers are
unaffiliated with the Company. The Company receives fixed-rate cash flows from these investments and the maximum potential
exposure to loss is limited to the carrying amount of $0.7 billion as of December 31, 2019 that is reported in debt securities. The
Company’s combined ownership interests are insignificant relative to the total principal amounts issued by these entities.
The Company is involved with various other variable interest entities with immaterial carrying values and maximum exposures to
loss.
The Company has not provided, and does not intend to provide, financial support to any of the above entities that it is not
contractually required to provide. The Company performs ongoing qualitative analyses of its involvement with these variable interest
entities to determine if consolidation is required.
124
Note 14 – Accumulated Other Comprehensive Income (Loss) (“AOCI”)
AOCI includes unrealized appreciation on securities and derivatives (excluding appreciation on investments supporting future policy
benefit liabilities of the run-off settlement annuity business), foreign currency translation and the net postretirement benefits liability
adjustment (see Note 16). AOCI includes the Company’s share from unconsolidated entities reported on the equity method.
Generally, tax effects in AOCI are established at the currently enacted tax rate and reclassified to net income in the same period that
the related pre-tax AOCI reclassifications are recognized. Changes in the components of AOCI were as follows:
(In millions)
Securities and Derivatives
Beginning balance
Reclassification adjustment to retained earnings related to U.S. tax reform legislation
Reclassification adjustment to retained earnings related to new financial instruments
guidance
Reclassification adjustment from retained earnings related to new hedging guidance
Adjusted beginning balance
Appreciation (depreciation) on securities and derivatives
Tax (expense) benefit
Net appreciation (depreciation) on securities and derivatives
Reclassification adjustment for (gains) losses included in shareholders' net income (net
realized investment (gains) losses)
Reclassification adjustment for losses included in shareholders' net income (selling,
general and administrative expenses)
Tax benefit (expense)
Net (gains) losses reclassified from AOCI to net income
Other comprehensive income (loss), net of tax
Ending balance
Translation of foreign currencies
Beginning balance
Reclassification adjustment to retained earnings related to U.S. tax reform legislation
Adjusted beginning balance
Translation of foreign currencies
Tax (expense)
Net translation of foreign currencies
Less: Net translation of foreign currencies attributable to noncontrolling interests
Shareholders' net translation of foreign currencies
Ending balance
Postretirement benefits liability
Beginning balance
Reclassification adjustment to retained earnings related to U.S. tax reform legislation
Adjusted beginning balance
Reclassification adjustment for amortization of net losses from past experience and prior
service costs (interest expense and other)
Reclassification adjustment for settlement (interest expense and other)
Tax (expense)
Net adjustments reclassified from AOCI to net income
Valuation update
Tax benefit (expense)
Net change due to valuation update
Other comprehensive (loss) income, net of tax
Ending balance
$
$
$
$
$
$
2019
2018
2017
18 $
-
328 $
65
-
-
18
1,266
(270)
996
(49)
-
10
(39)
957
975 $
(221) $
-
(221)
(57)
(2)
(59)
(5)
(54)
(275) $
(1,508) $
-
(1,508)
62
10
(15)
57
(249)
59
(190)
(133)
(1,641) $
(4)
(6)
383
(512)
100
(412)
60
-
(13)
47
(365)
18 $
(65) $
(4)
(69)
(167)
-
(167)
(15)
(152)
(221) $
(1,345) $
(290)
(1,635)
69
-
(15)
54
93
(20)
73
127
(1,508) $
365
-
-
-
365
34
(19)
15
(81)
1
28
(52)
(37)
328
(369)
-
(369)
306
(5)
301
(3)
304
(65)
(1,378)
-
(1,378)
64
7
(24)
47
(22)
8
(14)
33
(1,345)
125
Note 15 – Organizational Efficiency Plan
The Company is continuously evaluating ways to deliver our products and services more efficiently and at a lower cost. During the
fourth quarter of 2019, we committed to a plan to increase our organizational alignment, operational efficiency and reduce costs. As a
result, we recognized a charge in selling, general and administrative expenses of $207 million pre-tax ($162 million after-tax) in the
fourth quarter of 2019 primarily for severance costs related to headcount reductions. We expect most of the severance to be paid by
the end of 2021.
(In millions)
Fourth quarter 2019 charge
Less: 2019 payments
Balance, December 31, 2019
Note 16 – Pension
A. About Our Plans
$
$
207
2
205
The Company sponsors U.S. and non-U.S. defined benefit pension plans; future benefit accruals for the domestic plans are frozen.
Accounting policy. The Company measures the assets and liabilities of its domestic pension plans as of December 31. Benefit
obligations are measured at the present value of estimated future payments based on actuarial assumptions. The Company uses the
“corridor” method to account for changes in the benefit obligation when actual results differ from those assumed, or when
assumptions change. These changes are called net unrecognized actuarial gains (losses). Under the corridor method, net unrecognized
actuarial gains (losses) are initially recorded in accumulated other comprehensive income. When the unrecognized gain (loss) exceeds
10% of the benefit obligation, that excess is amortized to expense over the expected remaining lives of plan participants. The net plan
expense is reported in interest expense and other in the Consolidated Statements of Income.
For balance sheet purposes, we measure plan assets at fair value. When the actual return differs from the expected return, those
differences are reflected in the net unrealized actuarial gain (loss) discussed above. However, to measure pension benefit costs, we
use a “market-related” asset valuation that differs from the actual fair value for domestic pension plan assets invested in non-fixed
income investments. The “market-related” value recognizes the difference between actual and expected long-term returns in the
portfolio over five years, a method that reduces the short-term impact of market fluctuations on pension costs. The market-related
asset value was approximately $4.2 billion, compared with a fair value of approximately $4.4 billion at December 31, 2019.
126
B. Funded Status and Amounts Included in Accumulated Other Comprehensive Income
The following table summarizes the projected benefit obligations and assets related to our U.S. and non-U.S. pension plans as of, and
for the years ended, December 31.
(In millions)
Change in benefit obligation
Benefit obligation, January 1
Service cost
Interest cost
Assumed in acquisition
Litigation settlement
Loss (gain) from past experience
Benefits paid from plan assets
Benefits paid — other
Benefit obligation, December 31
Change in plan assets
Fair value of plan assets, January 1
Assumed in acquisition
Actual return on plan assets
Benefits paid
Contributions
Fair value of plan assets, December 31
Funded status
Liability in Consolidated Balance Sheets
Accrued expenses and other liabilities
Other non-current liabilities
Pension
Benefits
2019
2018
$
4,741
$
4,969
(1)
2
194
-
142
574
(325)
(14)
5,314
4,151
-
594
(325)
21
4,441
$
$
$
(873)
$
(18)
(855)
$
$
3
169
137
32
(235)
(314)
(20)
4,741
4,281
96
85
(314)
3
4,151
(590)
(30)
(560)
(1) Loss reflects a decrease in the discount rate and an unfavorable change in the mortality assumption.
We fund our qualified pension plans at least at the minimum amount required by the Employee Retirement Income Security Act of
1974 and the Pension Protection Act of 2006. The Company made immaterial contributions to the qualified pension plans in 2019.
For 2020, contributions to the qualified pension plans are expected to be immaterial. Future years’ contributions will ultimately be
based on a wide range of factors including but not limited to asset returns, discount rates and funding targets. There are no plan assets
for our non-qualified pension plans as they are generally funded on a pay-as-you-go basis.
Benefit payments. The following benefit payments are expected to be paid in:
(In millions)
2020
2021
2022
2023
2024
2025-2029
Pension
Benefits
322
312
314
318
318
1,574
$
$
$
$
$
$
127
Amounts reflected in the pension liabilities shown above that have not yet been reported in net income and, therefore, have been
included in accumulated other comprehensive loss consisted of the following as of December 31:
(In millions)
Unrecognized net (losses)
Unrecognized prior service cost
Postretirement benefits liability adjustment
C. Cost of Our Plans
Net pension cost was as follows:
(In millions)
Service cost
Interest cost
Expected long-term return on plan assets
Litigation settlement
Amortization of:
Net loss from past experience
Settlement loss
Net plan cost
Pension Benefits
2019
2018
$
$
(2,132)
(5)
(2,137)
$
$
(1,980)
(6)
(1,986)
Pension Benefits
2019
2018
2017
$
2
$
3
$
194
(245)
142
59
10
169
(257)
32
70
-
$
162
$
17
$
3
186
(260)
-
66
7
2
As further discussed in Note 22, Old Cigna and the Cigna Pension Plan (the “Plan”) are defendants in a class action lawsuit related to
the Plan’s conversion of certain employees from an annuity to a cash balance benefit in 1997. In the fourth quarter of 2018, the Plan
was ordered to pay $32 million representing the attorney fee portion of the settlement. This payment was recognized as an expense in
2018. In the first quarter of 2019, the Plan implemented the court order described in Note 22 resulting in an increase to the pension
liability of $142 million. The Company reversed a litigation reserve for the expenses recognized for this matter in both 2019 and 2018
aggregating to the same amount resulting in no impact on net income.
D. Assumptions Used for Pension
Discount rate:
Pension benefit obligation
Pension benefit cost
Expected long-term return on plan assets:
Pension benefit cost
Mortality table for pension obligations
2019
3.30%
4.23%
6.75%
2018
4.23%
3.51%
7.00%
White Collar mortality table
with MP 2019 projection scale
RP 2014 with MP 2018 projection
scale
In 2019, to better align with our mortality experience, the Company adopted the “White Collar mortality table with MP 2019
projection scale” to value our benefit obligations.
The Company sets discount rates by applying actual annualized yields for high quality bonds at various durations to the expected cash
flows of the pension liabilities. A discount rate curve is constructed using an array of bonds in various industries throughout the
domestic market, but only selects those for the curve that have an above average return at each duration. Management believes that
this curve is representative of the yields that the Company is able to achieve through its plan asset investment strategy.
Expected long-term rates of return on plan assets were developed considering actual long-term historical returns, expected long-term
market conditions, plan asset mix and management’s investment strategy that continues a significant allocation to domestic and
foreign equity securities as well as securities partnerships, real estate and hedge funds. Expected long-term market conditions take
into consideration certain key macroeconomic trends including expected domestic and foreign GDP growth, employment levels and
inflation.
128
E. Pension Plan Assets
As of December 31, 2019, pension assets included $4 billion invested in the separate accounts of Connecticut General Life Insurance
Company and Life Insurance Company of North America, subsidiaries of the Company, as well as an additional $284 million invested
directly in funds offered by the buyer of the retirement benefits business, and $122 million invested by others.
The fair values of pension assets by category are as follows as of December 31, 2019 and 2018.
(In millions)
Debt securities:
Corporate
Asset-backed
Fund investments
Total debt securities
Equity securities:
Domestic
International, including funds and pooled separate accounts (1)
Total equity securities
Securities partnerships
Real estate funds, including pooled separate accounts (1)
Commercial mortgage loans
Hedge funds
Guaranteed deposit account contract
Cash equivalents and other current assets, net
Total pension assets at fair value
2019
2018
$
1,906
$
41
460
2,407
582
419
1,001
531
230
96
24
100
52
1,446
32
768
2,246
506
360
866
477
250
110
36
107
59
$
4,441
$
4,151
(1) A pooled separate account has several participating benefit plans and each owns a share of the total pool of investments.
The Company’s current target investment allocation percentages (60% fixed income, 25% public equity securities and 15% in other
investments, including private equity (securities partnerships) and real estate) are developed by management as guidelines, although
the fair values of each asset category are expected to vary as a result of changes in market conditions. The Company would expect to
further reduce the allocation to equity securities and other investments and increase the allocation to fixed income investments as
funding levels improve.
See Note 12 for further details regarding how fair value is determined, including the level within the fair value hierarchy and the
procedures we use to validate fair value measurements. The Company classifies substantially all debt securities in Level 2 for pension
plan assets. These assets are valued using recent trades of similar securities or are fund investments priced using their daily net asset
value that is the exit price. A substantial portion of domestic equity securities within pension assets are classified as Level 1, while
international equity funds within pension assets are predominantly classified in Level 2 using daily net asset value.
Securities partnerships, real estate and hedge funds are valued using NAV as a practical expedient and are excluded from the fair value
hierarchy. See Note 12 for additional disclosures related to these assets invested in the separate accounts of the Company’s
subsidiaries. Certain securities as described in Note 12, as well as commercial mortgage loans and guaranteed deposit account
contracts, are classified in Level 3 because unobservable inputs used in their valuation are significant.
F. 401(k) Plans
The Company sponsors a 401(k) plan in which the Company matches a portion of employees’ pre-tax contributions. Participants in
the plan may invest in various funds that invest in the Company’s common stock, several diversified stock funds, a bond fund or a
fixed-income fund.
The Company may elect to increase its matching contributions if the Company’s annual performance meets certain targets. The
Company’s annual expense for these plans was as follows:
(In millions)
Expense
2019
2018
2017
$
256
$
196
$
122
129
Note 17 – Employee Incentive Plans
A. About Our Plans
The People Resources Committee (the “Committee”) of the Board of Directors awards stock options, restricted stock grants, restricted
stock units, deferred stock and strategic performance shares (“SPS”) to certain employees. The Committee has issued common stock
instead of cash compensation. Prior to the acquisition of Express Scripts, the Company issued shares from Treasury stock for these
awards. Following the acquisition, original issue shares were used.
Awards of Express Scripts options and restricted stock units were rolled over to Cigna stock options and restricted stock units in
connection with the Express Scripts acquisition on December 20, 2018. Information in this footnote includes the effect of the Express
Scripts rollover awards unless otherwise indicated.
The Company records compensation expense for stock and option awards over their vesting periods primarily based on the estimated
fair value at the grant date. Fair value is determined differently for each type of award as discussed below.
Shares of common stock available for award at December 31 were as follows:
(In millions)
Common shares available for award
B. Stock Options
2019
2018
2017
23.2
25.7
14.0
Accounting policy. The Company awards options to purchase Cigna common stock at the market price of the stock on the grant date
except for rollover option awards issued to Express Scripts employees in connection with the acquisition. Options vest over periods
ranging from one year to three years and expire no later than 10 years from grant date. Fair value is estimated using the Black-Scholes
option-pricing model by applying the assumptions presented below. That fair value is reduced by options expected to be forfeited
during the vesting period. The Company estimates forfeitures at the grant date based on our experience and adjusts the expense to
reflect actual forfeitures over the vesting period. The fair value of options, net of forfeitures, is recognized in selling, general and
administrative expenses on a straight-line basis over the vesting period.
Black-Scholes option-pricing model assumptions and the resulting fair value of options are presented in the following table. The
average fair value of options and the expected option life exclude the rollover options granted to Express Scripts employees in
connection with the acquisition. See Note 4 for further information.
2019
2018
2017
Dividend yield
Expected volatility
Risk-free interest rate
Expected option life
0.0%
30.0%
2.5%
4.4 years
Weighted average fair value of options
$
53.10 $
0.0%
35.0%
2.5%
4.4 years
64.18 $
0.0%
35.0%
1.8%
4.3 years
46.38
The expected volatility reflects the past daily stock price volatility of Cigna stock. The Company does not consider volatility implied
in the market prices of traded options to be a good indicator of future volatility because remaining traded options will expire within
one year. The risk-free interest rate is derived using the four-year U.S. Treasury bond yield rate as of the award date for the primary
annual grant. Expected option life reflects the Company’s historical experience.
130
The following table shows the status of, and changes in, common stock options during the last three years.
(Options in thousands)
2019
2018
2017
Outstanding - January 1
Granted
Exercised
Expired or canceled
Outstanding - December 31
Options exercisable at year-end
Weighted
Average
Weighted
Average
Weighted
Average
Options
Exercise Price
Options
Exercise Price
Options
Exercise Price
12,370
1,569
(2,297)
(204)
11,438
8,874
$
$
$
$
$
$
125.46
183.41
106.75
180.08
136.19
123.87
6,156
7,080
(771)
(95)
12,370
9,446
$
$
$
$
$
$
100.79
143.62
88.35
165.04
125.46
114.22
7,097
1,230
(2,072)
(99)
6,156
3,894
$
$
$
$
$
$
82.01
149.17
63.41
138.41
100.79
77.36
Compensation expense of $64 million related to unvested stock options at December 31, 2019 will be recognized over the next two
years (weighted average period).
The table below summarizes information for stock options exercised during the last three years:
(In millions)
Intrinsic value of options exercised
Cash received for options exercised
Tax benefit from options exercised
2019
2018
2017
$
$
$
180
224
34
$
$
$
86
68
8
$
$
$
218
131
41
The following table summarizes information for outstanding common stock options at December 31, 2019:
Number (in thousands)
Total intrinsic value (in millions)
Weighted average exercise price
Weighted average remaining contractual life
C. Restricted Stock
Options
Options
Outstanding
Exercisable
11,438
781
136.19
5.6 years
$
$
8,874
715
123.87
4.7 years
$
$
The Company awards restricted stock (grants and units) to the Company’s employees that vest over periods ranging from one to three
years. Recipients of restricted stock awards accumulate dividends during the vesting period, but forfeit their awards and accumulated
dividends if their employment terminates before the vesting date.
Accounting policy. Fair value of restricted stock awards is equal to the market price of Cigna’s common stock on the date of grant.
This fair value is reduced by awards that are expected to forfeit. At the grant date, the Company estimates forfeitures based on
experience and adjusts the expense to reflect actual forfeitures over the vesting period. This fair value, net of forfeitures, is recognized
in selling, general and administrative expenses over the vesting period on a straight-line basis.
131
The following table shows the status of, and changes in, restricted stock awards during the last three years.
(Awards in thousands)
2019
2018
2017
Outstanding - January 1
Awarded
Vested
Forfeited
Outstanding - December 31
Weighted Average
Fair Value at Award
Date
Grants/Units
Grants/Units
Weighted Average
Fair Value at Award
Date
Weighted Average
Fair Value at Award
Date
Grants/Units
2,138
870
(964)
(99)
1,945
$
$
$
$
$
168.12
183.86
160.74
168.68
178.78
1,295
1,451
(560)
(48)
2,138
$
$
$
$
$
126.44
183.29
112.53
150.84
168.12
1,309
451
(409)
(56)
1,295
$
$
$
$
$
97.78
155.21
67.09
121.74
126.44
The fair value of vested restricted stock at the vesting date for the years ended December 31 was as follows:
(In millions)
Fair value of vested restricted stock
2019
2018
2017
$
171
$
107
$
62
Approximately 10,300 employees held 1.9 million restricted stock awards at the end of 2019 with $160 million of related
compensation expense to be recognized over the next two years (weighted average period).
D. Strategic Performance Shares (“SPS”)
The Company awards SPSs to executives and certain other key employees generally with a performance period of three years. Half of
these shares are subject to a market condition (total shareholder return relative to industry peer companies) and half are subject to a
performance condition (cumulative adjusted net income). These targets are set by the Committee at the beginning of the performance
period. Holders of these awards receive shares of Cigna common stock at the end of the performance period ranging anywhere from 0
to 200% of the original awards.
Accounting policy. Compensation expense for SPSs is recorded over the performance period. Fair value is determined at the grant
date for “market condition” SPSs using a Monte Carlo simulation model and not subsequently adjusted regardless of the final
outcome. Expense is initially accrued for “performance condition” SPSs based on the most likely outcome, but evaluated for
adjustment each period for updates in the expected outcome. Expense is adjusted to the actual outcome (number of shares awarded
times the share price at the grant date) at the end of the performance period.
The following table shows the status of, and changes in, SPSs during the last three years:
2019
Weighted
Average Fair Value
2018
Weighted
Average Fair Value
2017
Weighted
Average Fair Value
(Awards in thousands)
Outstanding - January 1
Awarded
Vested
Forfeited
Outstanding - December 31
Shares
at Award Date
Shares
at Award Date
Shares
at Award Date
707
389
(244)
(34)
818
$
$
$
$
$
160.74
184.72
139.27
178.98
177.94
778
221
(269)
(23)
707
$
$
$
$
$
136.57
197.51
121.57
158.16
160.74
942
275
(386)
(53)
778
$
$
$
$
$
109.14
150.06
78.91
138.19
136.57
132
The fair value of vested SPSs at the vesting date for the years ended December 31 was as follows:
(Shares in thousands; $ in millions)
Shares
Fair Value
Shares
Fair Value
Shares
Fair Value
Shares of Cigna common stock distributed
upon SPS vesting
254
$
45
380
$
73
476
$
70
2019
2018
2017
Approximately 1,600 employees held 818,000 SPSs at the end of 2019 and $58 million of related compensation expense is expected to
be recognized over the next two years. The amount of expense for “performance condition” SPSs will vary based on actual
performance in 2020 and 2021.
E. Compensation Cost and Tax Effects of Share-based Compensation
The Company records tax benefits in shareholders’ net income during the vesting period based on the amount of expense being
recognized. The difference between tax benefits based on the expense and the actual tax benefit realized are also recorded in net
income when stock options are exercised, or when restricted stock and SPSs vest.
(In millions)
Total compensation cost for shared-based awards
Tax benefits recognized
2019
2018
2017
$
$
299
59
$
$
180
36
$
$
178
79
Note 18 – Goodwill, Other Intangibles and Property and Equipment
A. Goodwill
Accounting policy. Goodwill represents the excess of the cost of businesses acquired over the fair value of their net assets. The
resulting goodwill is assigned to those reporting units expected to realize cash flows from the acquisition, based on those reporting
units’ relative fair values. As a result, goodwill is primarily reported in the Health Services segment ($33.7 billion), the Integrated
Medical segment ($10.5 billion) and, to a lesser extent, the International Markets segment ($0.4 billion).
The Company evaluates goodwill for impairment at least annually during the third quarter at the reporting unit level and writes it
down through shareholders’ net income if impaired. Fair value of a reporting unit is generally estimated based on either a market
approach or a discounted cash flow analysis using assumptions that the Company believes a hypothetical market participant would use
to determine a current transaction price. The significant assumptions and estimates used in determining fair value include the discount
rate and future cash flows. A discount rate is selected to correspond with each reporting unit’s weighted average cost of capital,
consistent with that used for investment decisions considering the specific and detailed operating plans and strategies within that
reporting unit. Projections of future cash flows for each reporting unit are consistent with our annual planning process for revenues,
pharmacy costs, benefits expenses, operating expenses, taxes, capital levels and long-term growth rates.
Goodwill activity. Goodwill activity during 2019 and 2018 was as follows:
(In millions)
Balance at January 1,
Goodwill acquired, net
Impact of foreign currency translation
Balance at December 31,
2019
2018
$
$
44,505
$
103
(6)
44,602
$
6,164
38,371
(30)
44,505
The significant increase in goodwill during 2018 reflects the Company’s acquisition of Express Scripts as further discussed in Note 4.
133
B. Other Intangibles
Accounting policy. The Company’s other intangible assets primarily include purchased customer and producer relationships, provider
networks and trademarks. The fair value of purchased customer relationships and the amortization method were determined as of the
dates of purchase using an income approach that relies on projected future net cash flows including key assumptions for customer
attrition and discount rates. The Company’s definite-lived intangible assets are amortized on an accelerated or straight-line basis,
reflecting their pattern of economic benefits, over periods from one to 39 years. Management revises amortization periods if it
believes there has been a change in the length of time that an intangible asset will continue to have value. Costs incurred to renew or
extend the terms of these intangible assets are generally expensed as incurred.
The Company’s amortized intangible assets are tested for impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. If the total of the expected future undiscounted cash flows generated by the underlying asset
group is less than the carrying amount of the asset group, the Company recognizes an impairment charge equal to the difference
between the carrying value of the asset group and its estimated fair value. The Company’s indefinite-lived intangible assets are each
reviewed for impairment at least annually by comparing their fair value with their carrying value. If the carrying value exceeds fair
value, that excess is recognized as an impairment loss.
There were no material impairments in the years ended December 31, 2019, 2018 or 2017.
Components of other assets, including other intangibles. Other intangible assets were comprised of the following at December 31:
(In millions)
2019
Customer relationships
Trade Name - Express Scripts
Other
Other intangible assets
Value of business acquired (reported in deferred policy acquisition costs)
Total
2018
Customer relationships
Trade Name - Express Scripts
Other
Other intangible assets
Value of business acquired (reported in deferred policy acquisition costs)
Total
Accumulated Net Carrying
Cost
Amortization
Value
$
$
$
$
31,184
8,400
383
39,967
643
40,610
31,451
8,400
560
40,411
665
41,076
3,319
86
3,405
122
3,527
1,213
195
1,408
102
1,510
27,865
8,400
297
36,562
521
37,083
30,238
8,400
365
39,003
563
39,566
The Company has indefinite-lived intangible assets totaling $8.4 billion at December 31, 2019 and 2018, largely consisting of trade
names and licenses.
C. Property and Equipment
Accounting policy. Property and equipment is carried at cost less accumulated depreciation. Cost includes interest, real estate taxes
and other costs incurred during construction when applicable. Internal-use software that is acquired, developed or modified solely to
meet the Company’s internal needs, with no plan to market externally, is also included in this category. Costs directly related to
acquiring, developing or modifying internal-use software are capitalized.
The Company calculates depreciation and amortization principally using the straight-line method generally based on the estimated
useful life of each asset as follows: buildings and improvements, 10 to 40 years; purchased software, three to five years; internally
developed software, three to seven years and furniture and equipment (including computer equipment), three to 10 years.
Improvements to leased facilities are depreciated over the lesser of the remaining lease term or the estimated life of the improvement.
The Company considers events and circumstances that would indicate the carrying value of property, equipment or capitalized
software might not be recoverable. An impairment charge is recorded if the Company determines the carrying value of any of these
assets is not recoverable. The Company also reviews and shortens the estimated useful lives of these assets, if necessary.
134
Components of property and equipment. Property and equipment was comprised of the following as of December 31:
(In millions)
2019
Internal-use software
Other property and equipment
Total property and equipment
Property and equipment classified as Assets held for sale
Total property and equipment per Consolidated Balance Sheet
2018
Internal-use software
Other property and equipment
Total property and equipment
Accumulated
Net Carrying
Cost
Amortization
Value
$
$
$
$
6,578
$
3,282
$
2,569
9,147
(226)
8,921
5,694
2,264
7,958
$
$
$
1,353
4,635
(131)
4,504
2,415
981
3,396
$
$
$
3,296
1,216
4,512
(95)
4,417
3,279
1,283
4,562
Components of depreciation and amortization. Depreciation and amortization expense was comprised of the following for the years
ended December 31:
(In millions)
Internal-use software
Other property and equipment
Value of business acquired (reported in deferred policy acquisition costs)
Other intangibles
Total depreciation and amortization
2019
2018
2017
$
$
850
284
34
2,483
3,651
$
$
323
146
16
210
695
$
$
298
153
18
97
566
The Company estimates annual pre-tax amortization for intangible assets, including internal-use software, over the next five calendar
years to be as follows:
(In millions)
2020
2021
2022
2023
2024
Note 19 – Leases
Pre-tax Amortization
$
$
$
$
$
2,466
2,386
2,061
1,902
1,773
As discussed in Note 2, the Company adopted ASU 2016-02, Leases, as of January 1, 2019. As permitted by the standard, the
Company did not restate its Consolidated Financial Statements for periods prior to the adoption date and the required disclosures
presented below are prospective from the date of adoption. The Company’s leases are primarily for office space and certain computer
and other equipment, and have terms of up to 23 years.
Accounting policy. The Company determines if an arrangement is a lease and its lease classification (operating or finance) at
inception. Beginning in the first quarter of 2019, both operating and finance leases result in (1) a right-of-use (“ROU”) asset that
represents our right to use the underlying asset for the lease term and (2) a lease liability that represents our obligation to make lease
payments arising from the lease. ROU assets and lease liabilities are reflected in the following lines in the Company’s Consolidated
Balance Sheet:
Operating lease
Finance lease
ROU Asset
Other assets
Current Lease Liability
Non-Current Lease Liability
Accrued expenses and other liabilities
(current)
Other liabilities (non-current)
Property and equipment
Short-term debt
Long-term debt
135
These lease assets and liabilities are recognized at the lease commencement date based on the present value of the lease payments over
the lease term. Most of the Company’s leases do not provide an implicit rate, so the Company uses its incremental borrowing rate
based on the information available at commencement date in determining the present value of lease payments. The ROU asset also
includes any lease pre-payments made and excludes lease incentives for operating leases. The Company’s expected life of a lease
may consider options to extend or terminate a lease when it is reasonably certain that the Company will exercise that option.
The Company has lease agreements with lease and non-lease components that are accounted for as a single lease component. Variable
lease payments are expensed as incurred and represent amounts that are neither fixed in nature, such as maintenance and other services
provided by the lessor, nor tied to an index or rate.
The components of lease expense were as follows:
(In millions)
Operating lease cost
Finance lease cost:
Amortization of ROU assets
Interest on lease liabilities
Total finance lease cost
Variable lease cost
Total lease cost
Year Ended
December 31, 2019
188
$
28
3
31
50
269
$
Rental expense under operating lease agreements was $162 million for the years ended December 31, 2018 and 2017.
Supplemental cash flow information related to leases was as follows:
(In millions)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows from operating leases
Operating cash outflows from finance leases
Financing cash outflows from finance leases
ROU assets obtained in exchange for lease obligations:
Operating leases
Finance leases
Year ended
December 31, 2019
$
$
$
$
$
173
3
25
89
68
The non-cash impact of adopting the new lease guidance was an increase of Other assets of $615 million and an increase to Accrued
expenses and other liabilities of $630 million.
136
Operating and finance lease ROU assets and lease liabilities were as follows at the balance sheet date:
(In millions)
Operating leases:
Operating lease ROU assets
Accrued expenses and other current liabilities
Other non-current liabilities
Total operating lease liabilities
Finance leases:
Property and equipment, gross
Accumulated depreciation
Property and equipment, net
Short-term debt
Long-term debt
Total finance lease liabilities
December 31, 2019
536
166
465
631
110
(23)
87
27
61
88
$
$
$
$
$
$
$
As of December 31, 2019, the weighted average remaining lease term was five years for operating leases and five years for finance
leases, and the weighted average discount rate was 3.89% for operating leases and 3.77% for finance leases.
Maturities of lease liabilities as of December 31, 2019 were as follows:
(In millions)
Operating Leases
Finance Leases
2020
2021
2022
2023
2024
Thereafter
Total lease payments
Less: imputed interest
Total
$
$
$
177
159
133
89
63
74
695
64
631
$
28
21
18
8
6
16
97
9
88
Note 20 – Shareholders’ Equity and Dividend Restrictions
State insurance departments and foreign jurisdictions that regulate certain of the Company’s subsidiaries prescribe accounting
practices (differing in some respects from GAAP) to determine statutory net income and surplus. The Company’s life, accident and
health insurance and Health Maintenance Organization (“HMO”) subsidiaries are regulated by such statutory requirements. The
statutory net income of the Company’s life, accident and health insurance and HMO subsidiaries for the years ended, and their
statutory surplus as of December 31, were as follows:
(In billions)
Net income
Surplus
2019
2018
2017
$
$
3.8
13.8
$
$
3.4
12.2
$
$
2.5
10.4
137
The Company’s HMO and life, accident and health insurance subsidiaries are also subject to minimum statutory surplus requirements
and may be required to maintain investments on deposit with state departments of insurance or other regulatory bodies. Additionally,
these subsidiaries may be subject to regulatory restrictions on the amount of annual dividends or other distributions (such as loans or
cash advances) that insurance companies may extend to their parent companies without prior approval. As of December 31, 2019,
these amounts, including restricted GAAP net assets of the Company’s subsidiaries, were as follows:
(In billions)
Minimum statutory surplus required by regulators
Investments on deposit with regulatory bodies
Maximum dividend distributions permitted in 2020 without regulatory approval
Maximum loans to the parent company permitted without regulatory approval
Restricted GAAP net assets of Cigna Corporation's subsidiaries
2019
4.8
0.5
2.9
1.0
15.3
$
$
$
$
$
Permitted practices used by the Company’s insurance subsidiaries in 2019 that differed from prescribed regulatory accounting had an
immaterial impact on statutory net income and surplus.
Note 21 – Income Taxes
Accounting policy. Deferred income taxes are reflected in the Consolidated Balance Sheets for differences between the financial and
income tax reporting bases of the Company’s underlying assets and liabilities, and established based upon enacted tax rates and laws.
Deferred income tax assets are recognized when available evidence indicates that realization is more likely than not, and a valuation
allowance is established to the extent this standard is not met. The deferred income tax provision generally represents the net change
in deferred income tax assets and liabilities during the reporting period excluding adjustments to accumulated other comprehensive
income or amounts recorded in connection with a business combination. The current income tax provision generally represents
estimated amounts due on income tax returns for the year reported to various jurisdictions plus the effect of any uncertain tax
positions. The Company recognizes a liability for uncertain tax positions if management believes the probability that the positions
will be sustained is less than 50 percent. The liabilities for uncertain tax positions are classified as current when the position is
expected to be settled within 12 months or the statute of limitation expires within 12 months.
Income taxes attributable to the Company’s foreign operations are generally provided using the respective foreign jurisdictions’ tax
rate.
Our capital management strategy to support the liquidity and regulatory capital requirements of our foreign operations and certain
international growth initiatives is to retain overseas a significant portion of the earnings generated by our foreign operations. This
strategy does not materially limit our ability to meet our liquidity and capital needs in the United States. The Company generally does
not intend to repatriate these earnings.
A. Income Tax Expense
The components of income taxes for the years ended December 31 were as follows:
(In millions)
Current taxes
U.S. income taxes
Foreign income taxes
State income taxes
Total current taxes
Deferred taxes (benefits)
U.S. income taxes (benefits)
Foreign income taxes
State income tax (benefits)
Total deferred taxes (benefits)
Total income taxes
2019
2018
2017
$
1,476
$
173
114
1,763
(236)
16
(93)
(313)
$
804
185
47
1,036
(75)
8
(34)
(101)
$
1,450
$
935
$
974
122
36
1,132
204
39
(1)
242
1,374
138
Total income taxes for the years ended December 31 were different from the amount computed using the nominal federal income tax
rate for the following reasons:
(In millions)
Tax expense at nominal rate
Effect of U.S. tax reform legislation
Effect of foreign earnings
Health insurance industry tax
State income tax (net of federal income tax benefit)
Other
Total income taxes
$
$
2019
$ %
2018
$ %
2017
$ %
1,380
21.0 % $
752
21.0 % $
1,262
35.0 %
-
24
-
32
14
-
0.4
-
0.5
0.2
(4)
74
78
10
25
(0.1)
2.1
2.2
0.3
0.6
232
(70)
-
23
(73)
6.4
(1.9)
-
0.6
(2.0)
1,450
22.1 % $
935
26.1 % $
1,374
38.1 %
The decrease in the 2019 effective tax rate was due primarily to the suspension of the health insurance industry tax. Tax expense in
2017 was based on a federal income tax rate of 35% and included a $232 million charge due to U.S. tax reform, driven by revaluation
of deferred tax balances and the deemed repatriation tax on accumulated foreign earnings.
Consolidated pre-tax income from the Company’s foreign operations was approximately 12% of the Company’s pre-tax income in
2019. The comparable amounts in prior years were 15% in 2018 and 14% in 2017. South Korean operations produced a majority of
the Company’s foreign pre-tax earnings.
B. Deferred Income Taxes
Deferred income tax assets and liabilities as of December 31 were as follows:
(In millions)
Deferred tax assets (1)
Employee and retiree benefit plans
Other insurance and contractholder liabilities
Loss carryforwards
Other accrued liabilities
Other
Deferred tax assets before valuation allowance
Valuation allowance for deferred tax assets
Deferred tax assets, net of valuation allowance
Deferred tax liabilities (1)
Depreciation and amortization
Acquisition-related basis differences
Policy acquisition expenses
Unrealized appreciation on investments and foreign currency translation
Other
Total deferred tax liabilities
Net deferred income tax (liabilities) assets
(1) Certain prior year balances have been reclassified to align with the year end 2019 presentation.
2019
2018
$
511
$
282
260
183
218
1,454
(196)
1,258
630
9,386
113
223
293
10,645
$
(9,387)
$
411
396
255
341
187
1,590
(199)
1,391
744
9,863
211
(29)
55
10,844
(9,453)
Management believes that future results will be sufficient to realize a majority of the Company’s gross deferred tax assets. We
establish valuation allowances against deferred tax assets when we determine that it is more likely than not that the asset will not be
recognized. Valuation allowances have been established against certain federal, state and foreign capital and operating losses. There
are multiple expiration dates associated with these losses, though a significant portion expire in 2021.
139
C. Uncertain Tax Positions and Other Tax Matters
Reconciliations of unrecognized tax benefits for the years ended December 31 follow:
(In millions)
Balance at January 1,
Increase due to prior year positions
Increase due to business combinations
Increase due to current year positions
Reduction related to settlements with taxing authorities
Reduction related to lapse of applicable statute of limitations
Balance at December 31,
2019
2018
2017
$
$
928
$
68
-
29
-
(7)
$
35
40
860
6
(1)
(12)
1,018
$
928
$
31
-
-
7
(1)
(2)
35
Substantially all unrecognized tax benefits would impact shareholders’ net income if recognized. The increase in the liability for
uncertain tax positions from 2017 to 2018 was largely due to matters related to Health Services.
The Company classifies net interest expense on uncertain tax positions as a component of income tax expense, but excludes this
amount from the disclosed liability for uncertain tax positions. The liability for net interest expense on uncertain tax positions was
approximately $100 million as of December 31, 2019, and immaterial for the prior two years.
D. Other Tax Matters
The statute of limitations for Cigna's consolidated federal income tax returns through 2015 has closed and there are no pending
examinations. The Internal Revenue Service (“IRS”) has examined Express Scripts’ tax returns for 2010 through 2012, for which
there is a significant disputed tax matter, and is currently examining returns for 2013 through 2015. In addition, the Company has
pending refund claims for various years. The Company conducts business in a number of state and foreign jurisdictions and may be
engaged in multiple audit proceedings at any given time. Generally, no further state or foreign audit activity is expected for tax years
prior to 2011 for Cigna’s entities and 2006 for Express Scripts’ entities.
Note 22 – Contingencies and Other Matters
The Company, through its subsidiaries, is contingently liable for various guarantees provided in the ordinary course of business.
A. Financial Guarantees: Retiree and Life Insurance Benefits
The Company guarantees that separate account assets will be sufficient to pay certain life insurance or retiree benefits. For the
majority of these benefits, the sponsoring employers are primarily responsible for ensuring that assets are sufficient to pay these
benefits and are required to maintain assets that exceed a certain percentage of benefit obligations. If employers fail to do so, the
Company or an affiliate of the buyer of the retirement benefits business (Prudential Retirement Insurance and Annuity Company or
“Prudential”) has the right to redirect the management of the related assets to provide for benefit payments. As of December 31, 2019,
employers maintained assets that exceeded the benefit obligations under these arrangements of approximately $450 million. These
guarantees are generally provided by the Company with minimal reinsurance from third parties. An additional liability is established
if management believes that the Company will be required to make payments under the guarantees; there were no additional liabilities
required for these guarantees, net of reinsurance, as of December 31, 2019. Separate account assets supporting these guarantees are
classified in Levels 1 and 2 of the GAAP fair value hierarchy (see Note 12).
The Company does not expect that these financial guarantees will have a material effect on the Company’s consolidated results of
operations, liquidity or financial condition.
B. Certain Other Guarantees
The Company had indemnification obligations as of December 31, 2019 in connection with acquisition and disposition transactions.
These indemnification obligations are triggered by the breach of representations or covenants provided by the Company, such as
representations for the presentation of financial statements, the filing of tax returns, compliance with law or the identification of
outstanding litigation. These obligations are typically subject to various time limitations, defined by the contract or by operation of
law, such as statutes of limitation. In some cases, the maximum potential amount due is subject to contractual limitations based on a
percentage of the transaction purchase price, while in other cases limitations are not specified or applicable. The Company does not
believe that it is possible to determine the maximum potential amount due under these obligations because not all amounts due under
140
these indemnification obligations are subject to limitation. There were no liabilities for these indemnification obligations as of
December 31, 2019.
C. Guaranty Fund Assessments
The Company operates in a regulatory environment that may require its participation in assessments under state insurance guaranty
association laws. The Company’s exposure to assessments for certain obligations of insolvent insurance companies to policyholders
and claimants is based on its share of business written in the relevant jurisdictions.
There were no material impacts related to existing or new guaranty fund assessments in 2019.
D. Legal and Regulatory Matters
The Company is routinely involved in numerous claims, lawsuits, regulatory inquiries and audits, government investigations,
including under the federal False Claims Act and state false claims acts initiated by a government investigating body or by a qui tam
relator’s filing of a complaint under court seal and other legal matters arising, for the most part, in the ordinary course of managing a
global health service business. Additionally, the Company has received and is cooperating with subpoenas or similar processes from
various governmental agencies requesting information, all arising in the normal course of its business. Disputed tax matters arising
from audits by the Internal Revenue Service or other state and foreign jurisdictions, including those resulting in litigation, are
accounted for under GAAP guidance for uncertain tax positions. Further information on income tax matters can be found in Note 21.
Pending litigation and legal or regulatory matters that the Company has identified with a reasonable possibility of material loss are
described below. For material pending litigation and legal or regulatory matters discussed below, the Company provides disclosure in
the aggregate of accruals and range of loss, or a statement that such information cannot be estimated. The Company’s accruals for the
matters discussed below under “Litigation Matters” and “Regulatory Matters” are immaterial. Due to numerous uncertain factors
presented in these cases, it is not possible to estimate an aggregate range of loss (if any) for these matters at this time. In light of the
uncertainties involved in these matters, there is no assurance that their ultimate resolution will not exceed the amounts currently
accrued by the Company. An adverse outcome in one or more of these matters could be material to the Company’s results of
operations, financial condition or liquidity for any particular period. The outcomes of lawsuits are inherently unpredictable, and we
may be unsuccessful in these ongoing litigation matters or any future claims or litigation.
Litigation Matters
Amara cash balance pension plan litigation. In December 2001, Janice Amara filed a class action lawsuit in the U.S. District Court
for the District of Connecticut against Cigna Corporation (now Old Cigna) and the Plan on behalf of herself and other similarly
situated Plan participants affected by the 1998 conversion to a cash balance formula. The plaintiffs allege various violations of the
Employee Retirement Income Security Act of 1974 (“ERISA”), including that the Plan’s cash balance formula discriminates against
older employees; that the conversion resulted in a wear-away period (when the pre-conversion accrued benefit exceeded the post-
conversion benefit); and that the Plan communications contained inaccurate or inadequate disclosures about these conditions.
In 2008, the District Court (1) affirmed the Company’s right to convert to a cash balance plan prospectively beginning in 1998;
(2) found for plaintiffs on the disclosure claim only; and (3) required the Company to pay pre-1998 benefits under the pre-conversion
traditional annuity formula and post-1997 benefits under the post-conversion cash balance formula. From 2008 through 2015, this
case has undergone a series of court proceedings that resulted in the original District Court Order being largely upheld. In 2015, the
Company submitted to the District Court its proposed method for calculating the additional pension benefits due to class members and
plaintiffs responded in August 2015.
Since then, there has been continued litigation regarding the calculation of benefits and attorneys’ fees and administration of the
remedy payments. On November 29, 2018, the Court ordered the Pension Plan to pay attorneys’ and incentive fees of $32 million,
and to pay any past due lump sums and back benefits within 90 days of the Order. The attorneys’ fees were paid as ordered in
December 2018. In the first quarter of 2019, the Company amended the Plan, notified class participants of their increased benefits and
commenced remedy benefit payments out of the Plan, including the past due lump sums and back benefits. See Note 16 for additional
information.
In April 2019, plaintiffs challenged certain aspects of the methodology used to calculate and pay benefits. In August 2019, the Court
denied plaintiffs’ challenge in all but one minor respect that did not result in a material change to the pension obligation. The
plaintiffs filed a motion for reconsideration that the Court denied on January 10, 2020. On January 15, 2020, plaintiffs filed a motion
for an equitable accounting and a notice of appeal.
141
Cigna Litigation with Anthem. In February 2017, the Company delivered a notice to Anthem terminating the 2015 merger
agreement, and notifying Anthem that it must pay the Company the $1.85 billion reverse termination fee pursuant to the terms of the
merger agreement. Also in February 2017, the Company filed suit against Anthem in the Delaware Court of Chancery (the “Chancery
Court”) seeking declaratory judgments that the Company’s termination of the merger agreement was valid and that Anthem was not
permitted to extend the termination date. The complaint also sought payment of the reverse termination fee and additional damages in
an amount exceeding $13 billion, including the lost premium value to the Company’s shareholders caused by Anthem’s willful
breaches of the merger agreement. Anthem countersued, alleging its own claims for damages.
On February 15, 2017, the Chancery Court granted Anthem’s motion for a temporary restraining order and temporarily enjoined the
Company from terminating the merger agreement. In May 2017, the Chancery Court denied Anthem’s motion for a preliminary
injunction to enjoin Cigna from terminating the merger agreement but stayed its ruling pending Anthem’s determination as to whether
to seek an appeal. Anthem subsequently notified Cigna and the Chancery Court that it did not intend to appeal the Chancery Court’s
decision. As a result, the merger agreement was terminated.
The litigation between the parties remains pending. A trial was held during the first quarter of 2019. Oral arguments on post-trial
briefs were held on November 26, 2019. In February 2020, the Chancery Court issued a letter requesting certain supplemental
briefing. The supplemental briefs are due March 6, 2020. We believe in the merits of our claims and dispute Anthem’s claims, and
we intend to vigorously defend ourselves and pursue our claims.
Express Scripts Litigation with Anthem. In March 2016, Anthem filed a lawsuit in the United States District Court for the Southern
District of New York alleging various breach of contract claims against Express Scripts relating to the parties’ rights and obligations
under the periodic pricing review section of the pharmacy benefit management agreement between the parties including allegations
that Express Scripts failed to negotiate new pricing concessions in good faith, as well as various alleged service issues. Anthem also
requested that the court enter declaratory judgment that Express Scripts is required to provide Anthem competitive benchmark pricing,
that Anthem can terminate the agreement, and that Express Scripts is required to provide Anthem with post-termination services at
competitive benchmark pricing for one year following any termination by Anthem. Anthem claims it is entitled to $13 billion in
additional pricing concessions over the remaining term of the agreement, as well as $1.8 billion for one year following any contract
termination by Anthem and $150 million in damages for service issues (“Anthem’s Allegations”). On April 19, 2016, in response to
Anthem’s complaint, Express Scripts filed its answer denying Anthem’s Allegations in their entirety and asserting affirmative
defenses and counterclaims against Anthem. The court subsequently granted Anthem’s motion to dismiss two of six counts of
Express Scripts’ amended counterclaims. The current scheduling order runs through the completion of summary judgment briefing in
October 2020. There is no tentative trial date. We believe in the merits of our claims and dispute Anthem’s claims, and we intend to
vigorously defend ourselves and pursue our claims.
Regulatory Matters
Civil Investigative Demand. The U.S. Department of Justice (“DOJ”) is conducting an industry-wide investigation of Medicare
Advantage organizations’ risk adjustment practices under Medicare Parts C and D including medical chart reviews and health exams.
The Company is currently responding to information requests (civil investigative demands) received from the DOJ (U.S. Attorney’s
Offices for the Eastern District of Pennsylvania and the Southern District of New York). We will continue to cooperate with the
DOJ’s investigation.
Disability claims regulatory matter. The Company is subject to an agreement with the Departments of Insurance for Maine,
Massachusetts, Pennsylvania, Connecticut and California (together, the “Lead States”), originally entered into in 2013, that relates to
the Company’s long-term disability claims handling practices. The agreement provides for enhanced procedures related to
documentation and disposition. Cigna has cooperated fully with the Lead States and we believe we have addressed the requirements
of the agreement. The Lead States initiated a re-examination of our practices. Accordingly, the Company may be subject to
additional costs, penalties and requests to change its business practices that could negatively impact future earnings for this business.
142
Note 23 – Segment Information
See Note 1 for a description of our segments. Effective with the first quarter of 2019, the Company began allocating compensation
cost for stock options to the segments. Prior year segment information was not restated for this change. A description of our basis for
reporting segment operating results is outlined below. Intersegment transactions primarily reflect pharmacy sales to insured customers
of the Integrated Medical segment. These and other transactions are eliminated in consolidation.
The Company uses “pre-tax adjusted income from operations” and “adjusted revenues” as its principal financial measures of segment
operating performance because management believes they best reflect the underlying results of business operations and permit
analysis of trends in underlying revenue, expenses and profitability. Pre-tax adjusted income from operations is defined as income
before taxes excluding realized investment results, amortization of acquired intangible assets, results of Anthem and Coventry Health
Care, Inc. (the “transitioning clients”) and special items. Income or expense amounts that are excluded from adjusted income from
operations because they are not indicative of underlying performance or the responsibility of operating segment management include:
• Realized investment gains (losses) including changes in market values of certain financial instruments between balance sheet
dates, as well as gains and losses associated with invested asset sales
• Amortization of acquired intangible assets because these relate to costs incurred for acquisitions
• Results of transitioning clients because those results are not indicative of ongoing results
• Special items, if any, that management believes are not representative of the underlying results of operations due to the nature
or size of these matters.
The Company does not report total assets by segment since this is not a metric used to allocate resources or evaluate segment
performance.
Adjusted revenues is defined as revenues excluding: 1) revenue contributions from transitioning clients; 2) the Company’s share of
certain realized investment results of its joint ventures reported in the International Markets segment using the equity method of
accounting and 3) special items, if any.
The following tables present the special items recorded by the Company in 2019, 2018 and 2017.
(In millions)
Description of Special Item Charges (Benefits) and Financial Statement Line Item(s)
Year ended December 31, 2019
Total integration and transaction-related costs (Selling, general and administrative expenses)
Charge for organizational efficiency plan (Selling, general and administrative expenses)
Charges associated with litigation matters (Selling, general and administrative expenses)
Year ended December 31, 2018
Integration and transaction-related costs
- Selling, general and administrative expenses
- Interest expense and other
- Net investment income
Total integration and transaction-related costs
Charges associated with litigation matters (Selling, general and administrative expenses)
Charges associated with U.S. tax reform
- Selling, general and administrative expenses
- Tax (benefit)
Total (benefits) charges associated with U.S. tax reform
Year ended December 31, 2017
Integration and transaction-related costs
- Selling, general and administrative expenses
- Tax (benefit)
Total integration and transaction-related costs
Charges associated with U.S. tax reform
- Selling, general and administrative expenses
- Tax expense
Total charges (benefits) associated with U.S. tax reform
Debt extinguishment costs
Long-term care guaranty fund assessment (Selling, general and administrative expenses)
143
After-tax
Before-tax
$
$
$
$
$
$
$
$
$
$
$
$
$
$
427
162
41
587
179
(97)
669
19
1
(3)
(2)
92
(59)
33
(36)
232
196
209
83
$
$
$
$
$
$
$
$
$
$
$
$
$
$
552
207
51
748
227
(123)
852
25
2
2
126
126
(56)
(56)
321
129
Summarized segment financial information for the years ended December 31 was as follows:
Health Services
Integrated
Medical
International
Markets
Group
Disability and
Other
Corporate and
Eliminations
Total
$
152,176
(In millions)
2019
Revenues from external customers (1)
Inter-segment revenues
Net investment income
Total revenues
Revenue contributions from transitioning clients
$
107,354 $
2,380
60
109,794
(13,347)
-
96,447 $
3,071 $
3,983 $
$
$
$
Net realized investment results from equity method
subsidiaries (2)
Adjusted revenues
Depreciation and amortization
Income (loss) before taxes
Pre-tax adjustments to reconcile to adjusted income from operations
Adjustment for transitioning clients
(Income) attributable to noncontrolling interests
Net realized investment (gains) (2)
Amortization of acquired intangible assets
Special items
Integration and transaction-related costs
Charge for organizational efficiency plan
Charges associated with litigation matters
Pre-tax adjusted income (loss) from operations
$
(1,726)
(4)
-
2,839
-
-
-
5,092 $
34,861
1,180
478
36,519
-
-
36,519
449
3,904
-
-
(112)
69
-
-
(30)
3,831
$
$
$
$
$
5,500
-
159
5,659
-
(44)
5,615
87
785
-
(16)
(43)
36
-
-
-
762
$
$
$
$
$
4,461
26
695
5,182
-
-
5,182
41
562
-
-
(66)
5
-
-
-
501
$
$
$
$
$
-
(3,586)
(2)
(3,588)
-
-
(3,588)
3
(2,664)
-
-
-
-
552
207
81
(1,824)
$
$
47,170
Health Services
Integrated
Medical
International
Markets
Group
Disability and
Other
Corporate and
Eliminations
Total
(In millions)
2018
Revenues from external customers (1)
Inter-segment revenues
Net investment income
Total revenues
Revenue contributions from transitioning clients
Net realized investment results from equity method
subsidiaries (2)
$
$
5,902 $
1,154
9
7,065 $
(459)
31,759
573
459
32,791
-
-
-
-
6,606 $
120 $
329 $
$
$
$
Special items reported in integration and transaction-
related costs
Adjusted revenues
Depreciation and amortization
Income (loss) before taxes
Pre-tax adjustments to reconcile to adjusted income from operations
Adjustment for transitioning clients
(Income) attributable to noncontrolling interests
Net realized investment losses(2)
Amortization of acquired intangible assets
Special items
Integration and transaction-related costs
Charges associated with litigation matters
U.S. tax reform
Pre-tax adjusted income (loss) from operations
$
(62)
-
-
113
-
-
-
380 $
-
32,791
466
3,342
-
-
36
99
-
25
-
3,502
$
$
$
$
$
$
5,174
-
149
5,323
-
43
-
5,366
55
670
-
(14)
61
18
-
-
-
735
$
$
$
$
$
$
4,335
14
712
5,061
-
-
-
5,061
53
497
-
-
25
5
-
-
2
529
$
$
$
$
$
$
-
(1,741)
151
(1,590)
-
-
(123)
(1,713)
1
(1,257)
-
-
2
-
852
-
-
(403)
$
(1) Includes the Company’s share of the earnings of its joint ventures reported in the International Markets segment using the equity method of accounting.
(2) Beginning in 2018, includes the Company's share of certain realized investment gains (losses) of its joint ventures reported using the equity method of accounting.
144
$
$
$
$
$
$
$
1,390
153,566
(13,347)
(44)
140,175
3,651
6,570
(1,726)
(20)
(221)
2,949
552
207
51
8,362
1,480
48,650
(459)
43
(123)
48,111
695
3,581
(62)
(14)
124
235
852
25
2
4,743
(In millions)
Health Services
Integrated
Medical
International
Markets
Group
Disability and
Other
Corporate and
Eliminations
Total
$
$
$
$
$
2017
Revenues from external customers (1)
Inter-segment revenues
Net investment income
Total revenues
Adjusted revenues
Depreciation and amortization
Income (loss) before taxes
Pre-tax adjustments to reconcile to adjusted income from operations
Loss attributable to noncontrolling interests
Net realized investment (gains)
Amortization of acquired intangible assets
Special items
Debt extinguishment costs
Long-term care guaranty fund assessment
Integration and transaction-related costs
U.S. tax reform
Pre-tax adjusted income (loss) from operations
$
3,250 $
988
3
4,241 $
4,241 $
- $
288 $
-
-
-
-
-
-
-
288 $
28,193
476
366
29,035
29,035
470
2,859
1
(137)
93
-
106
-
-
2,922
$
$
$
$
$
$
4,774
-
127
4,901
4,901
61
667
1
(31)
17
-
-
-
-
654
$
$
$
$
$
$
4,363
12
700
5,075
5,075
31
614
-
(69)
5
-
23
-
(56)
517
$
$
$
$
$
$
-
(1,476)
30
(1,446)
(1,446)
4
(822)
-
-
-
321
-
126
-
(375)
$
40,580
1,226
41,806
41,806
566
3,606
2
(237)
115
321
129
126
(56)
4,006
$
$
$
$
$
(1) Includes the Company’s share of the earnings of its joint ventures reported in the International Markets segment using the equity method of accounting.
Revenue from external customers includes pharmacy revenues, premiums and fees and other revenues. The following table presents
these revenues by product, premium and service type for the twelve months ended December 31:
(In millions)
Products (Pharmacy revenues) (ASC 606)
Network revenues
Home delivery and specialty revenues
Other
Total pharmacy revenues
Integrated Medical premiums (ASC 944)
Commercial
Health Insurance
Stop loss
Other
Government
Medicare Advantage
Medicare Part D
Other
Total Integrated Medical premiums
International Markets premiums
Domestic disability, life and accident premiums
Other premiums
Total premiums
Services (ASC 606)
Fees
Other external revenues
Total services
Total revenues from external customers
2019
2018
2017
$
50,431 $
47,768
4,900
103,099
12,523
4,328
1,040
6,314
1,699
4,185
30,089
5,266
4,225
134
39,714
9,229
134
$
9,363
152,176 $
1,415 $
3,997
67
5,479
10,710
4,008
1,038
5,832
764
4,496
26,848
5,043
4,000
222
36,113
5,558
20
5,578
47,170 $
-
2,979
-
2,979
9,439
3,483
917
5,534
764
3,494
23,631
4,619
3,973
268
32,491
5,053
57
5,110
40,580
145
Foreign and U.S. revenues from external customers for the three years ended December 31 are shown below. The Company’s foreign
revenues are generated by its foreign operating entities. In the periods shown, no foreign country contributed more than 5% of
consolidated revenues from external customers.
(In millions)
United States
South Korea
All other foreign countries
Total
2019
2018
2017
$
$
$
147,332
2,022
2,822
152,176 $
$
42,773
2,093
2,304
47,170 $
36,555
1,892
2,133
40,580
146
Quarterly Financial Data (unaudited)
The following unaudited quarterly financial data is presented on a consolidated basis for each of the years ended December 31, 2019
and December 31, 2018. Quarterly financial results necessarily rely heavily on estimates. This and certain other factors, such as the
seasonal nature of portions of the insurance business, suggest the need to exercise caution in drawing specific conclusions from
quarterly consolidated results.
(In millions, except per share amounts)
Three Months Ended
March 31,
June 30,
September 30,
December 31,
Consolidated Results
2019
Total revenues
Income before income taxes
Shareholders’ net income
Shareholders’ net income per share
Basic
Diluted
2018
Total revenues
Income before income taxes
Shareholders’ net income
Shareholders’ net income per share
Basic
Diluted
Stock and dividend data
2019
Price range of common stock — high
— low
Dividends declared per common share
2018
Price range of common stock — high
— low
Dividends declared per common share
$
1
$
$
$
$
$
$
$
37,946
1,788
$
38,819
1,758
$
38,556
1,763
$
38,245
1,261
1,368
(1)
1,408
(1)
1,351
(1)
977
(1)
3.61
3.56
11,413
1,218
$
3.73
3.70
11,480
1,102
$
3.60
3.57
11,457
1,033
915
(1)
806
(1)
772
(1)
3.78
3.72
202.02
158.58
0.04
227.13
163.02
0.04
$
$
$
$
$
$
3.32
3.29
170.89
141.95
-
182.10
163.80
-
$
$
$
$
$
$
3.18
3.14
185.77
145.51
-
208.73
166.88
-
2.63
2.60
$
14,300
228
144
(1)
0.56
0.55
$
$
$
$
$
$
207.28
146.50
-
226.61
176.52
-
(1) Shareholders’ net income includes the following after-tax charges (benefits), described in Note 23 to the Consolidated Financial Statements:
March 31,
June 30,
September 30,
December 31,
2019 Integration and transaction-related costs
$
2019 Charge for organizational efficiency plan
2019 Charges (benefits) associated with litigation matters
Total 2019 charges
$
108
-
-
108
2018 Integration and transaction-related costs
$
2018 Charges (benefits) associated with litigation matters
2018 U.S. tax reform
Total 2018 charges
$
March 31,
50
-
-
50
$
$
$
$
115
$
-
64
179
$
88
-
(23)
65
$
$
116
162
-
278
June 30,
September 30,
December 31,
109
$
-
-
109
$
108
35
(5)
138
$
$
402
(16)
3
389
147
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
Item 9A. CONTROLS AND PROCEDURES
A. Disclosure Controls and Procedures
Based on an evaluation of the effectiveness of Cigna’s disclosure controls and procedures conducted under the supervision and with
the participation of Cigna's management (including Cigna’s Chief Executive Officer and Chief Financial Officer), Cigna’s Chief
Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, Cigna’s disclosure
controls and procedures are effective to ensure that information required to be disclosed by Cigna in the reports that it files or submits
under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and
forms and is accumulated and communicated to Cigna’s management, including its principal executive and principal financial officers,
as appropriate to allow timely decisions regarding required disclosure.
B. Internal Control Over Financial Reporting
Management’s Annual Report on Internal Control over Financial Reporting
Management of Cigna Corporation is responsible for establishing and maintaining adequate internal controls over financial reporting.
The Company’s internal controls were designed to provide reasonable assurance that the Company’s consolidated published financial
statements for external purposes were prepared in accordance with accounting principles generally accepted in the United States. The
Company’s internal control over financial reporting includes those policies and procedures that:
(i)
(ii)
(iii)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the Company;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with accounting principles generally accepted in the United States, and that receipts and expenditures of the
Company are being made only in accordance with authorization of management and directors of the Company; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisitions, use or disposition of
the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Management assessed the effectiveness of the Company’s internal controls over financial reporting as of December 31, 2019. In
making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (“COSO”) in Internal Control-Integrated Framework (2013). Based on management’s assessment and the criteria set
forth by COSO, it was determined that the Company’s internal controls over financial reporting are effective as of December 31,
2019.
The Company’s independent registered public accounting firm, PricewaterhouseCoopers LLP, has audited the effectiveness of the
Company’s internal control over financial reporting, as stated in their report located in Item 8 of this Form 10-K.
Change in Internal Control over Financial Reporting
During the period covered by this report, other than the changes resulting from the Express Scripts, Inc. acquisition discussed below,
there have been no changes in Cigna's internal control over financial reporting that have materially affected, or are reasonably likely to
materially affect, Cigna's internal control over financial reporting.
On December 20, 2018, the Company completed the acquisition of Express Scripts, Inc. During 2019, the Company has incorporated
internal controls over significant processes specific to Express Scripts that it believes to be appropriate and necessary in consideration
of the level of related integration. As the Company further integrates the Express Scripts business, it will continue to review the
internal controls and may take further steps to ensure that the internal controls are effective and integrated appropriately.
Item 9B. OTHER INFORMATION
None.
148
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
A. Directors of the Registrant
PART III
The information under the captions “Corporate Governance Matters – Process for Director Elections,” “– Board of Directors’
Nominees” and “– Board Meetings and Committees” (as it relates to Audit Committee disclosure) in Cigna’s definitive proxy
statement related to the 2020 annual meeting of shareholders is incorporated herein by reference.
B. Executive Officers of the Registrant
See PART I – “Information about our Executive Officers” on page 47 in this Form 10-K.
C. Code of Ethics and Other Corporate Governance Disclosures
The information under the caption “Corporate Governance Matters – Codes of Ethics” in Cigna’s definitive proxy statement related to
the 2020 annual meeting of shareholders is incorporated herein by reference. We intend to promptly disclose on our website, in
accordance with applicable rules, any required disclosure of changes to or waivers, if any, of our Code of Ethics or our Director Code
of Business Conduct and Ethics.
D. Delinquent Section 16(a) Reports
The information under the caption “Ownership of Cigna Common Stock – Delinquent Section 16(a) Reports”, if included in Cigna’s
definitive proxy statement related to the 2020 annual meeting of shareholders, is incorporated herein by reference.
Item 11. EXECUTIVE COMPENSATION
The information under the captions “Corporate Governance Matters – Non-Employee Director Compensation,” “Corporate
Governance Matters – Certain Transactions – Compensation Committee Interlocks and Inside Participation,” “Compensation Matters
– Compensation Discussion and Analysis,” “– Report of the People Resources Committee” and “– Executive Compensation Tables”
in Cigna’s definitive proxy statement related to the 2020 annual meeting of shareholders is incorporated herein by reference.
149
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The following table presents information regarding Cigna’s equity compensation plans as of December 31, 2019:
Plan Category
Equity Compensation Plans Approved by Security
Holders
Equity Compensation Plans Not Approved by
Security Holders
Total
(a)(1)
(b)(2)
Securities To Be Issued
Upon Exercise Of
Outstanding Options,
Warrants And Rights
Weighted Average
Exercise Price Of
Outstanding Options,
Warrants And Rights
(c)(3)
Securities Remaining
Available For Future
Issuance Under Equity
Compensation Plans
(Excluding Securities
Reflected In Column (a))
13,709,684
$
-
13,709,684
$
136.19
-
136.19
26,267,656
-
26,267,656
(1)
Includes, in addition to outstanding stock options:
(i) 96,298 restricted stock units, 115,723 deferred shares, and 1,558,258 strategic performance shares that are reported at the maximum 200% payout rate
granted under the Cigna Long-Term Incentive Plan, the Corporation Stock Plan and the Cigna Corporation Director Equity Plan; and
(ii) 789,459 shares of common stock underlying stock option awards and 488,127 restricted stock units granted under the Express Scripts Holding Company 2016
Long-Term Incentive Plan, 10,001 deferred shares granted under the Express Scripts, Inc. Executive Deferred Compensation Plan of 2005, 2,077,398 shares of
common stock underlying stock option awards granted under the Express Scripts, Inc. 2011 Long-Term Incentive Plan, 1,759,907 shares of common stock
underlying stock option awards and 3,300 restricted stock units granted under the Medco Health Solutions, Inc. 2002 Stock Incentive Plan, and 90,088 shares of
common stock underlying stock option awards granted under the Accredo Health, Incorporated 2002 Long-Term Incentive Plan that were all approved by the
applicable company’s shareholders before Cigna’s acquisition of Express Scripts in December 2018.
(2) The weighted-average exercise price is based only on outstanding stock options. The outstanding stock options assumed due to Cigna's acquisition of Express
Scripts, in aggregate, have a weighted-average exercise price of $139.76. Excluding the assumed options from this acquisition results in a weighted-average
exercise price of $133.69.
(3) Includes 225,338 shares of common stock available as of the close of business December 31, 2019 for future issuance under the Cigna Corporation Director
Equity Plan, 23,231,054 shares of common stock available as of the close of business on December 31, 2019 for future issuance under the Cigna Long-Term
Incentive Plan that includes 11,825,476 shares of common stock available assumed from the Express Scripts, Inc. 2016 Long-Term Incentive Plan, and 2,811,264
shares of common stock available as of the close of business December 31, 2019 for future issuance under the Express Scripts, Inc. Executive Deferred
Compensation Plan of 2005. Because no further grants may be made under the Express Scripts, Inc. 2016 Long-Term Incentive Plan, the Express Scripts, Inc.
2011 Long-Term Incentive Plan, the Medco Health Solutions, Inc. 2002 Stock Incentive Plan, and the Accredo Health, Incorporated 2002 Long-Term Incentive
Plan, shares available for issuance under these plans are not included.
The information under the captions “Ownership of Cigna Common Stock – Stock Held by Directors, Nominees and Executive
Officers” and “Ownership of Cigna Common Stock – Stock Held by Certain Beneficial Owners” in Cigna’s definitive proxy statement
related to the 2020 annual meeting of shareholders is incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information under the captions “Corporate Governance Matters – Director Independence” and “– Certain Transactions” in
Cigna’s definitive proxy statement related to the 2020 annual meeting of shareholders is incorporated herein by reference.
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information under the captions “Audit Matters – Policy for the Pre-Approval of Audit and Non-Audit Services” and “– Fees
to Independent Registered Public Accounting Firm” in Cigna’s definitive proxy statement related to the 2020 annual meeting of
shareholders is incorporated herein by reference.
150
PART IV
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) (1) The following Financial Statements begin on page 77:
Report of Independent Registered Public Accounting Firm.
Consolidated Statements of Income for the years ended December 31, 2019, 2018 and 2017.
Consolidated Statements of Comprehensive Income for the years ended December 31, 2019, 2018 and 2017.
Consolidated Balance Sheets as of December 31, 2019 and 2018.
Consolidated Statements of Changes in Total Equity for the years ended December 31, 2019, 2018 and 2017.
Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017.
Notes to the Consolidated Financial Statements.
(2) The financial statement schedules are listed in the Index to Financial Statement Schedules on page FS-1.
(b) The exhibits listed in the accompanying “Index to Exhibits” in this Item 15 are filed or incorporated by reference as part of this
Annual Report on Form 10-K.
151
Number
2.1(a)
2.1(b)
3.1
3.2
4.1(a)
4.1(b)
4.1(c)
4.1(d)
4.2
4.3(a)
INDEX TO EXHIBITS
Description
Agreement and Plan of Merger, dated as of March 8, 2018, by and
among Cigna Corporation (formerly Halfmoon Parent, Inc.),
Express Scripts Holding Company, Cigna Holding Company
(formerly Cigna Corporation), Halfmoon I, Inc., and Halfmoon II,
Inc.
Amendment No. 1, dated as of June 27, 2018, to the Agreement and
Plan of Merger, dated as of March 8, 2018, by and among Cigna
Corporation, Express Scripts Holding Company, Cigna Holding
Company, Halfmoon I, Inc. and Halfmoon II, Inc.
Amended and Restated Certificate of Incorporation of the registrant
as last amended December 20, 2018
Amended and Restated By-Laws of the registrant as last amended
February 26, 2020.
Indenture, dated as of September 17, 2018, between Cigna
Corporation (formerly Halfmoon Parent, Inc.) and U.S. Bank
National Association, as trustee
Supplemental Indenture, dated as of September 17, 2018, between
Cigna Corporation (formerly Halfmoon Parent, Inc.) and U.S. Bank
National Association, as trustee
Second Supplemental Indenture dated as of December 20, 2018, by
and among Express Scripts Holding Company, Cigna Holding
Company and U.S. Bank National Association, as Trustee
Third Supplemental Indenture, dated as of October 11, 2019, by
and among Cigna Corporation, as the Issuer, Cigna Holding
Company and Express Scripts Holding Company, each as
guarantors, and U.S. Bank, National Association, as trustee
Registration Rights Agreement, dated as of October 11, 2019, by
and among Cigna Corporation, as the Issuer, Cigna Holding
Company and Express Scripts Holding Company, each as
guarantors, and J.P. Morgan Securities LLC, Deutsche Bank
Securities Inc., and Wells Fargo Securities, LLC, each as dealer
managers
Senior Indenture dated August 16, 2006 between Cigna Holding
Company (formerly Cigna Corporation) and U.S. Bank National
Association
4.3(b)
Supplemental Indenture No. 1 dated November 10, 2006 between
Cigna Holding Company and U.S. Bank National Association
Method of Filing
Filed by Cigna Holding Company
(“CHC”) as Exhibit 2.1 to the Current
Report on Form 8-K on March 13,
2018 and incorporated herein by
reference.
Filed by CHC as Exhibit 2.1 to the
Current Report on Form 8-K on July
2, 2018 and incorporated herein by
reference.
Filed by the registrant as Exhibit 3.1
to the Current Report on Form 8-K on
December 20, 2018 and incorporated
herein by reference.
Filed by the registrant as Exhibit 3.1
to the Current Report on Form 8-K on
February 27, 2020 and incorporated
herein by reference.
Filed by CHC as Exhibit 4.1 to the
Current Report on Form 8-K on
September 21, 2018 and incorporated
herein by reference.
Filed by CHC as Exhibit 4.2 to the
Current Report on Form 8-K on
September 21, 2018 and incorporated
herein by reference.
Filed by the registrant as Exhibit 4.7
to the Current Report on Form 8-K on
December 20, 2018 and incorporated
herein by reference.
Filed by the registrant as Exhibit 4.1
to the Current Report on Form 8-K on
October 11, 2019 and incorporated
herein by reference.
Filed by the registrant as Exhibit 4.2
to the Current Report on Form 8-K on
October 11, 2019 and incorporated
herein by reference.
Filed by CHC as Exhibit 4.1(a) to the
Annual Report on Form 10-K for the
year ended December 31, 2012 and
incorporated herein by reference.
Filed by CHC as Exhibit 4.1(b) to the
Annual Report on Form 10-K for the
year ended December 31, 2012 and
incorporated herein by reference.
152
4.3(c)
Supplemental Indenture No. 2 dated March 15, 2007 between
Cigna Holding Company and U.S. Bank National Association
4.3(d)
Supplemental Indenture No. 3 dated March 7, 2008 between Cigna
Holding Company and U.S. Bank National Association
4.3(e)
Supplemental Indenture No. 5 dated May 17, 2010 between Cigna
Holding Company and U.S. Bank National Association
4.3(f)
Supplemental Indenture No. 6 dated December 8, 2010 between
Cigna Holding Company and U.S. Bank National Association
4.3(g)
Supplemental Indenture No. 7 dated March 7, 2011 between Cigna
Holding Company and U.S. Bank National Association
4.3(h)
Supplemental Indenture No. 8 dated November 10, 2011 between
Cigna Holding Company and U.S. Bank National Associated
4.3(i)
4.3(j)
4.3(k)
4.3(l)
Supplemental Indenture No. 9 dated as of March 20, 2015, between
Cigna Holding Company and U.S. Bank National Association, as
trustee
Supplemental Indenture No. 10 dated as of September 14, 2017
between Cigna Holding Company and U.S. Bank National
Association, as trustee
Supplemental Indenture No. 11 dated as of December 20, 2018, by
and among Cigna Corporation, Cigna Holding Company and U.S.
Bank National Association, as trustee
Supplemental Indenture No. 12, dated as of October 11, 2019,
among Cigna Holding Company, as Issuer, Cigna Corporation, as
parent guarantor, and U.S. Bank, National Association, as trustee
4.4(a)
Indenture dated January 1, 1994 between Cigna Holding Company
(formerly Cigna Corporation ) and Marine Midland Bank
4.4(b)
Supplemental Indenture No. 1 dated as of December 20, 2018, by
and among Cigna Corporation (formerly Halfmoon Parent, Inc.),
Cigna Holding Company and HSBC Bank USA, National
Association (as successor to Marine Midland Bank, N.A.), as
Trustee
153
Filed by CHC as Exhibit 4.1(c) to the
Quarterly Report on Form 10-Q for
the quarterly period ended March 31,
2011 and incorporated herein by
reference.
Filed by CHC as Exhibit 4.1 to the
Current Report on Form 8-K on
March 10, 2008 and incorporated
herein by reference.
Filed by CHC as Exhibit 99.2 to the
Current Report on Form 8-K on May
28, 2010 and incorporated herein by
reference.
Filed by CHC as Exhibit 99.2 to the
Current Report on Form 8-K on
December 9, 2010 and incorporated
herein by reference.
Filed by CHC as Exhibit 99.2 to the
Current Report on Form 8-K on
March 8, 2011 and incorporated
herein by reference.
Filed by CHC as Exhibit 4.1 to the
Current Report on Form 8-K on
November 14, 2011 and incorporated
herein by reference.
Filed by CHC as Exhibit 4.1 to the
Current Report on Form 8-K on
March 26, 2015 and incorporated
herein by reference.
Filed by CHC as Exhibit 4.1 to the
Current Report on Form 8-K filed
September 14, 2017 and incorporated
herein by reference.
Filed by the registrant as Exhibit 4.1
to the Current Report on Form 8-K on
December 20, 2018 and incorporated
herein by reference.
Filed by the registrant as Exhibit 4.3
to the Current Report on Form 8-K on
October 11, 2019 and incorporated
herein by reference.
Filed by CHC as Exhibit 4.2 to the
Annual Report on Form 10-K for the
year ended December 31, 2009 and
incorporated herein by reference.
Filed by the registrant as Exhibit 4.2
to the Current Report on Form 8-K on
December 20, 2018 and incorporated
herein by reference.
4.4(c)
4.5(a)
4.5(b)
4.6(a)
4.6(b)
4.6(c)
4.6(d)
4.6(e)
4.6(f)
4.6(g)
4.6(h)
Supplemental Indenture No. 2, dated as of October 11, 2019,
among Cigna Holding Company, as Issuer, Cigna Corporation, as
parent guarantor, and HSBC Bank USA, National Association, as
trustee
Indenture dated June 30, 1988 between Cigna Holding Company
(formerly Cigna Corporation) and Bankers Trust Company
Supplemental Indenture No. 1 dated as of December 20, 2018, by
and among Cigna Corporation (formerly Halfmoon Parent, Inc.),
Cigna Holding Company and Deutsche Bank Trust Company
Americas, a New York banking corporation (as successor to
Bankers Trust Company), as Trustee
Indenture, dated as of November 21, 2011, among Express Scripts,
Inc., Express Scripts Holding Company (formerly Aristotle
Holding, Inc.), the other subsidiaries of Express Scripts Holding
Company party thereto and Wells Fargo Bank, National
Association, as Trustee
Third Supplemental Indenture, dated as of November 21, 2011,
among Express Scripts, Inc., Express Scripts Holding Company,
the other subsidiaries of Express Scripts Holding Company party
thereto and Wells Fargo Bank, National Association, as Trustee
Fourth Supplemental Indenture, dated as of November 21, 2011,
among Express Scripts, Inc., Express Scripts Holding Company,
the other subsidiaries of Express Scripts Holding Company party
thereto and Wells Fargo Bank, National Association, as Trustee
Seventh Supplemental Indenture, dated as of February 9, 2012,
among Express Scripts, Inc., Express Scripts Holding Company,
the other subsidiaries of Express Scripts Holding Company party
thereto and Wells Fargo Bank, National Association, as Trustee,
related to Express Scripts Holding Company’s 3.900% senior notes
due 2022
Eighth Supplemental Indenture, dated as of April 2, 2012, among
Express Scripts, Inc., Express Scripts Holding Company, Medco
Health Solutions, Inc., the other subsidiaries of Express Scripts
Holding Company party thereto and Wells Fargo Bank, National
Association, as Trustee
Eleventh Supplemental Indenture, dated as of June 5, 2014, among
Express Scripts Holding Company, the Subsidiary Guarantors party
thereto and Wells Fargo Bank, National Association, as Trustee
Twelfth Supplemental Indenture, dated as of June 5, 2014, among
Express Scripts Holding Company, the Subsidiary Guarantors party
thereto and Wells Fargo Bank, National Association, as Trustee
Thirteenth Supplemental Indenture, dated as of June 5, 2014,
among Express Scripts Holding Company, the Subsidiary
Guarantors party thereto and Wells Fargo Bank, National
Association, as Trustee
Filed by the registrant as Exhibit 4.4
to the Current Report on Form 8-K on
October 11, 2019 and incorporated
herein by reference.
Filed by CHC as Exhibit 4.3 to the
Annual Report on Form 10-K for the
year ended December 31, 2009 and
incorporated herein by reference.
Filed by the registrant as Exhibit 4.3
to the Current Report on Form 8-K on
December 20, 2018 and incorporated
herein by reference.
Filed by Express Scripts, Inc. (“ESI”)
as Exhibit 4.1 to the Current Report on
Form 8-K filed November 25, 2011
and incorporated herein by reference.
Filed by ESI as Exhibit 4.4 to the
Current Report on Form 8-K on
November 25, 2011 and incorporated
herein by reference.
Filed by ESI as Exhibit 4.5 to the
Current Report on Form 8-K on
November 25, 2011 and incorporated
herein by reference.
Filed by ESI as Exhibit 4.3 to the
Current Report on Form 8-K filed
February 10, 2012 and incorporated
herein by reference.
Filed by Express Scripts Holding
Company (“ESRX”) as Exhibit 4.1 to
the Current Report on Form 8-K on
April 6, 2012 and incorporated herein
by reference.
Filed by ESRX as Exhibit 4.1 to the
Current Report on Form 8-K on June
5, 2014 and incorporated herein by
reference.
Filed by ESRX as Exhibit 4.2 to the
Current Report on Form 8-K on June
5, 2014 and incorporated herein by
reference.
Filed by ESRX as Exhibit 4.3 to the
Current Report on Form 8-K on June
5, 2014 and incorporated herein by
reference.
154
4.6(i)
4.6(j)
4.6(k)
4.6(l)
4.6(m)
4.6(n)
4.6(o)
4.6(p)
4.6(q)
4.6(r)
4.7(a)
4.7(b)
Sixteenth Supplemental Indenture, dated as of February 25, 2016,
among Express Scripts Holding Company, the Subsidiary
Guarantors party thereto and Wells Fargo Bank, National
Association, as Trustee
Seventeenth Supplemental Indenture, dated as of February 25,
2016, among Express Scripts Holding Company, the Subsidiary
Guarantors party thereto and Wells Fargo Bank, National
Association, as Trustee
Eighteenth Supplemental Indenture, dated as of July 5, 2016,
among Express Scripts Holding Company, the Subsidiary
Guarantors party thereto and Wells Fargo Bank, National
Association, as Trustee
Nineteenth Supplemental Indenture, dated as of July 5, 2016,
among Express Scripts Holding Company, the Subsidiary
Guarantors party thereto and Wells Fargo Bank, National
Association, as Trustee
Twentieth Supplemental Indenture, dated as of July 5, 2016, among
Express Scripts Holding Company, the Subsidiary Guarantors party
thereto and Wells Fargo Bank, National Association, as Trustee
Twenty-Second Supplemental Indenture, dated as of November 30,
2017, among Express Scripts Holding Company, the Subsidiary
Guarantors party thereto and Wells Fargo Bank, National
Association, as Trustee
Twenty-Third Supplemental Indenture, dated as of November 30,
2017, among Express Scripts Holding Company, the Subsidiary
Guarantors party thereto and Wells Fargo Bank, National
Association, as Trustee and Calculation Agent
Twenty-Fourth Supplemental Indenture, dated as of November 30,
2017, among Express Scripts Holding Company, the Subsidiary
Guarantors party thereto and Wells Fargo Bank, National
Association, as Trustee
Twenty-Fifth Supplemental Indenture dated as of December 20,
2018, by and among Cigna Corporation, Express Scripts Holding
Company and Wells Fargo Bank, National Association, as Trustee
Twenty-Sixth Supplemental Indenture, dated as of October 11,
2019, among Express Scripts Holding Company, as Issuer, Cigna
Corporation, as parent guarantor, and Wells Fargo Bank, National
Association, as trustee
Indenture, dated as of June 9, 2009, among Express Scripts, Inc.,
the Subsidiary Guarantors party thereto and Union Bank, N.A., as
Trustee
Third Supplemental Indenture, dated as of June 9, 2009, among
Express Scripts, Inc., the Subsidiary Guarantors party thereto and
Union Bank, N.A., as Trustee
Filed by ESRX as Exhibit 4.1 to the
Current Report on Form 8-K on
February 25, 2016 and incorporated
herein by reference.
Filed by ESRX as Exhibit 4.2 to the
Current Report on Form 8-K on
February 25, 2016 and incorporated
herein by reference.
Filed by ESRX as Exhibit 4.1 to the
Current Report on Form 8-K on July
5, 2016 and incorporated herein by
reference.
Filed by ESRX as Exhibit 4.2 to the
Current Report on Form 8-K on July
5, 2016 and incorporated herein by
reference.
Filed by ESRX as Exhibit 4.3 to the
Current Report on Form 8-K on July
5, 2016 and incorporated herein by
reference.
Filed by ESRX as Exhibit 4.1 to the
Current Report on Form 8-K on
November 30, 2017 and incorporated
herein by reference.
Filed by ESRX as Exhibit 4.2 to the
Current Report on Form 8-K on
November 30, 2017 and incorporated
herein by reference.
Filed by ESRX as Exhibit 4.3 to the
Current Report on Form 8-K on
November 30, 2017 and incorporated
herein by reference.
Filed by the registrant as Exhibit 4.4
to the Current Report on Form 8-K on
December 20, 2018 and incorporated
herein by reference.
Filed by the registrant as Exhibit 4.5
to the Current Report on Form 8-K on
October 11, 2019 and incorporated
herein by reference.
Filed by ESI as Exhibit 4.1 to the
Current Report on Form 8-K on June
10, 2009 and incorporated herein by
reference.
Filed by ESI as Exhibit 4.4 to the
Current Report on Form 8-K on June
10, 2009 and incorporated herein by
reference.
155
4.7(c)
4.7(d)
4.7(e)
4.8
Seventh Supplemental Indenture, dated as of November 21, 2011,
among Express Scripts, Inc., Express Scripts Holding Company,
the other subsidiaries of Express Scripts Holding Company party
thereto and Union Bank, N.A., as Trustee
Eighth Supplemental Indenture, dated as of April 2, 2012, among
Express Scripts, Inc., Express Scripts Holding Company, Medco
Health Solutions, Inc., the other subsidiaries of Express Scripts
Holding Company party thereto and Union Bank, N.A., as Trustee
Ninth Supplemental Indenture dated as of December 20, 2018, by
and among Cigna Corporation (formerly Halfmoon Parent, Inc.),
Express Scripts, Inc. and MUFG Union Bank, N.A. (as successor to
Union Bank, N.A.), as Trustee
Description of Securities
Filed by ESI as Exhibit 4.6 to the
Current Report on Form 8-K on
November 25, 2011 and incorporated
herein by reference.
Filed by ESRX as Exhibit 4.2 to the
Current Report on Form 8-K on April
6, 2012 and incorporated herein by
reference.
Filed by the registrant as Exhibit 4.5
to the Current Report on Form 8-K on
December 20, 2018 and incorporated
herein by reference.
Filed herewith
Exhibits 10.1 through 10.40 are identified as compensatory plans, management contracts or arrangements pursuant to Item 15 of Form
10-K.
10.1(a)
Cigna Long-Term Incentive Plan as amended and restated effective
as of April 26, 2017 (the “Cigna LTIP”)
10.1(b)
Amendment No. 1, effective January 25, 2018, to the Cigna LTIP
10.1(c)
Form of Cigna LTIP: Strategic Performance Share Grant
Agreement
10.1(d)
Form of Cigna LTIP: Nonqualified Stock Option Grant Agreement
10.1(e)
Form of Cigna LTIP: Restricted Stock Grant Agreement
10.1(f)
Form of Cigna LTIP: Restricted Stock Unit Grant Agreement
10.2
Cigna Corporation Stock Plan, as amended through July 2000
10.3
Cigna Stock Unit Plan, as amended and restated effective February
22, 2017
Filed by the registrant as Exhibit 10.1
to the Current Report on Form 8-K on
May 1, 2017 and incorporated herein
by reference.
Filed by CHC as Exhibit 10.3 to the
Quarterly Report on Form 10-Q for
the quarterly period ended March 31,
2018 and incorporated herein by
reference.
Filed by the registrant as Exhibit 10.1
to Quarterly Report on Form 10-Q for
the period ended March 31, 2019 and
incorporated herein by reference.
Filed by the registrant as Exhibit 10.2
to Quarterly Report on Form 10-Q for
the period ended March 31, 2019 and
incorporated herein by reference.
Filed by the registrant as Exhibit 10.3
to Quarterly Report on Form 10-Q for
the period ended March 31, 2019 and
incorporated herein by reference.
Filed by the registrant as Exhibit 10.4
to Quarterly Report on Form 10-Q for
the period ended March 31, 2019 and
incorporated herein by reference.
Filed by CHC as Exhibit 10.7 to the
Annual Report on Form 10-K for the
year ended December 31, 2009 and
incorporated herein by reference.
Filed by CHC as Exhibit 10.5 to the
Quarterly Report on Form 10-Q for
the quarterly period ended March 31,
2017 and incorporated herein by
reference.
156
10.4(a)
Express Scripts Holding Company 2016 Long-Term Incentive Plan
(the “ESRX LTIP”)
10.4(b)
10.4(c)
10.4(d)
Form of Stock Option Grant Notice for Non-Employee Directors
used with respect to grants of stock options by Express Scripts
Holding Company to non-employee directors under the ESRX
LTIP
Form of Restricted Stock Unit Grant Notice used with respect to
grants of restricted stock units by Express Scripts Holding
Company under the ESRX LTIP
Form of Stock Option Grant Notice used with respect to grants of
stock options by Express Scripts Holding Company under the
ESRX LTIP
10.5(a)
Express Scripts, Inc. 2011 Long-Term Incentive Plan (as amended
and restated effective April 2, 2012) (the “ESI LTIP”)
10.5(b)
10.5(c)
10.5(d)
Form of Stock Option Grant Notice for Non-Employee Directors
used with respect to grants of stock options by Express Scripts
Holding Company under the ESI LTIP
Form of Stock Option Grant Notice used with respect to certain
grants of stock options by Express Scripts Holding Company prior
to 2013 under the ESI LTIP
Form of Stock Option Grant Notice used with respect to grants of
stock options by Express Scripts Holding Company under the ESI
LTIP
10.6(a)
Medco Health Solutions, Inc. 2002 Stock Incentive Plan (as
amended and restated effective April 2, 2012).
10.6(b)
Form of terms and conditions for director stock option and
restricted stock unit awards
10.7
Accredo Health, Incorporated 2002 Long-Term Incentive Plan
Filed by ESRX as Appendix A to
ESRX’s Definitive Proxy Statement
on Schedule 14A for its 2016 Annual
Meeting of Stockholders, filed March
21, 2016 and incorporated herein by
reference.
Filed by ESRX as Exhibit 10.4 to the
Current Report on Form 8-K on May
4, 2016 and incorporated herein by
reference.
Filed by ESRX as Exhibit 10.5 to the
Current Report on Form 8-K on May
4, 2016 and incorporated herein by
reference.
Filed by ESRX as Exhibit 10.7 to
Current Report on Form 8-K on May
4, 2016 and incorporated herein by
reference.
Filed by the registrant as Exhibit 4.10
to the Registration Statement on Form
S-8 (No. 333- 228930) on December
20, 2018 and incorporated herein by
reference.
Filed by ESRX as Exhibit 10.6 to
Quarterly Report on Form 10-Q for
the quarter ended June 30, 2012 and
incorporated herein by reference.
Filed by ESRX as Exhibit 10.14 to the
Current Report on Form 8-K on April
2, 2012 and incorporated herein by
reference.
Filed by ESRX as Exhibit 10.1 to the
Quarterly Report on Form 10-Q for
the quarter ended March 31, 2013 and
incorporated herein by reference.
Filed by the registrant as Exhibit 4.11
to the Registration Statement on Form
S-8 (No. 333- 228930) on December
20, 2018 and incorporated herein by
reference.
Filed by Medco as Exhibit 10.2 to the
Current Report on Form 8-K on
February 8, 2005 and incorporated
herein by reference.
Filed by the registrant as Exhibit 4.12
to the Registration Statement on Form
S-8 (No. 333- 228930) on December
20, 2018 and incorporated herein by
reference.
157
10.8
10.9
Deferred Compensation Plan for Directors of Cigna Corporation, as
amended and restated January 1, 1997
Cigna Deferred Compensation Plan, as amended and restated
October 24, 2001
10.10
Cigna Deferred Compensation Plan of 2005 effective as of
January 1, 2005
10.11
Express Scripts, Inc. Amended and Restated Executive Deferred
Compensation Plan (effective December 31, 2004 and
grandfathered for the purposes of Section 409A of the Code)
10.12(a)
Express Scripts, Inc. Executive Deferred Compensation Plan of
2005 (as amended and restated effective December 20, 2018)
10.12(b)
Amendment No. 1 to the Express Scripts, Inc. Executive Deferred
Compensation Plan of 2005
10.13(a)
Cigna Supplemental Pension Plan as amended and restated
effective August 1, 1998
10.13(b)
Amendment No. 1 to the Cigna Supplemental Pension Plan,
amended and restated effective as of September 1, 1999
10.13(c)
Amendment No. 2 dated December 6, 2000 to the Cigna
Supplemental Pension
10.14(a)
Cigna Supplemental Pension Plan of 2005 effective as of January 1,
2005
Filed by CHC as Exhibit 10.1 the
Annual Report on Form 10-K for the
year ended December 31, 2011 and
incorporated herein by reference.
Filed by CHC as Exhibit 10.14 to the
Annual Report on Form 10-K for the
year ended December 31, 2011 and
incorporated herein by reference.
Filed by the registrant as Exhibit 4.6
to the Registration Statement on Form
S-8 (No. 333- 228930) on December
20, 2018 and incorporated herein by
reference.
Filed by ESI as Exhibit No. 10.1 to the
Current Report on Form 8-K on May
25, 2007 and incorporated herein by
reference.
Filed by the registrant as Exhibit 4.13
to the Registration Statement on Form
S-8 (No. 333- 228930) on December
20, 2018 and incorporated herein by
reference.
Filed herewith.
Filed by CHC as Exhibit 10.15(a) to
the Annual Report on Form 10-K for
the year ended December 31, 2009
and incorporated herein by reference.
Filed by CHC as Exhibit 10.15(b) to
the Annual Report on Form 10-K for
the year ended December 31, 2009
and incorporated herein by reference.
Filed by CHC as Exhibit 10.16(c) to
the Annual Report on Form 10-K for
the year ended December 31, 2011
and incorporated herein by reference.
Filed by CHC as Exhibit 10.15 to the
Annual Report on Form 10-K for the
year ended December 31, 2007 and
incorporated herein by reference.
10.14(b)
Amendment No. 1 to the Cigna Supplemental Pension Plan of 2005 Filed by CHC as Exhibit 10.1 to the
Quarterly Report on Form 10-Q for
the quarterly period ended June 30,
2009 and incorporated herein by
reference.
158
10.15(a)
Cigna Supplemental 401(k) Plan effective January 1, 2010
10.15(b)
Amendment No. 1 to the Cigna Supplemental 401(k) Plan
Filed by the registrant as Exhibit 4.7
to the Registration Statement on Form
S-8 (No. 333- 228930) on December
20, 2018 and incorporated herein by
reference.
Filed herewith
10.15(c)
Amendment No. 2 to the Cigna Supplemental 401(k) Plan
Filed herewith
10.15(d)
Amendment No. 3 to the Cigna Supplemental 401(k) Plan
Filed herewith
10.16
Cigna Corporation Non-Employee Director Compensation Program
amended and restated effective February 26, 2014
10.17
Cigna Corporation Non-Employee Director Compensation
Program, amended and restated effective January 1, 2019
10.18
Cigna Corporation Director Equity Plan
10.19
10.20
10.21
10.22
Cigna Restricted Share Equivalent Plan for Non-Employee
Directors as amended and restated effective January 1, 2008
Deferred Compensation Plan of 2005 for Directors of Cigna
Corporation, Amended and Restated effective April 28, 2010
Form of Indemnification Agreement with Express Scripts Holding
Company’s executive officers and former members of the Express
Scripts Holding Company’s board of directors
Cigna Executive Severance Benefits Plan as amended and restated
effective October 23, 2018
Filed by CHC as Exhibit 10.1 to the
Quarterly Report on Form 10-Q for
the quarterly period ended March 31,
2014 and incorporated herein by
reference.
Filed by the registrant as Exhibit
10.18 to the Annual Report on Form
10-K for the year ended December 31,
2018 and incorporated herein by
reference.
Filed by the registrant as Exhibit 4.5
to the Registration Statement on Form
S-8 (No. 333- 228930) on December
20, 2018 and incorporated herein by
reference.
Filed by CHC as Exhibit 10.4 to the
Annual Report on Form 10-K for the
year ended December 31, 2012 and
incorporated herein by reference.
Filed by the registrant as Exhibit 4.8
to the Registration Statement on Form
S-8 (No. 333- 228930) on December
20, 2018 and incorporated herein by
reference.
Filed by ESRX as Exhibit 10.1 to the
Current Report on Form 8-K on
March 5, 2014 and incorporated
herein by reference.
Filed by the registrant as Exhibit
10.23 to the Annual Report on Form
10-K for the year ended December 31,
2018 and incorporated herein by
reference.
159
10.23
10.24
Description of Severance Benefits for Executives in Non-Change of
Control Circumstances
Cigna Executive Incentive Plan amended and restated as of
January 1, 2012
10.25
Description of Cigna Corporation Financial Services Program
10.26
Offer Letter for Eric P. Palmer dated June 16, 2017
10.27
Nicole Jones’ Offer of Employment dated April 27, 2011
10.28
Employment Agreement for Jason D. Sadler dated May 7, 2010
10.29
Promotion letter for Jason Sadler dated June 2, 2014
10.30
Retention Agreement by and between Cigna Corporation and Mr.
Timothy Wentworth, dated as of May 12, 2018.
10.31
10.32
10.33
Express Scripts Holding Company Executive Employment
Agreement with Timothy Wentworth dated May 4, 2016
Schedule regarding Amended Deferred Stock Unit Agreements
effective December 31, 2008 with John M. Murabito and Form of
Amended Deferred Stock Unit Agreement
Retention Agreement between the Cigna Corporation and Steven B.
Miller dated October 9, 2018
10.34
Agreement and Release between the Company and Matthew G.
Manders dated October 16, 2017
160
Filed by CHC as Exhibit 10.10 to the
Annual Report on Form 10-K for the
year ended December 31, 2009 and
incorporated herein by reference.
Filed by CHC as Exhibit 10.1 to the
Quarterly Report on Form 10-Q for
the quarterly period ended March 31,
2012 and incorporated herein by
reference.
Filed by CHC as Exhibit 10.18 to the
Annual Report on Form 10-K for the
year ended December 31, 2009 and
incorporated herein by reference.
Filed by CHC as Exhibit 10.1 to the
Current Report on Form 8-K on June
19, 2017 and incorporated herein by
reference.
Filed by CHC as Exhibit 10.2 to the
Quarterly Report on Form 10-Q for
the period ended March 31, 2012 and
incorporated herein by reference.
Filed by CHC as Exhibit 10.1(a) to the
Quarterly Report on Form 10-Q for
the period ended March 31, 2015 and
incorporated herein by reference.
Filed by CHC as Exhibit 10.1(b) to the
Quarterly Report on Form 10-Q for
the period ended March 31, 2015 and
incorporated herein by reference.
Filed by the registrant as Exhibit 10.1
to Amendment No. 1 to the
Registration Statement on Form S-4
(No. 333-224960) on June 20, 2018
and incorporated herein by reference.
Filed by ESRX as Exhibit 10.1 to the
Current Report on Form 8-K on May
4, 2016 and incorporated herein by
reference.
Filed by CHC as Exhibit 10.20 to the
Annual Report on Form 10-K for the
year ended December 31, 2008 and
incorporated herein by reference.
Filed by the registrant as Exhibit
10.34 to the Annual Report on Form
10-K for the year ended December 31,
2018 and incorporated herein by
reference.
Filed by CHC as Exhibit 10.1 to the
Current Report on Form 8-K on
October 18, 2017 and incorporated
herein by reference.
10.35
Promotion letter for Christopher Hocevar dated January 30, 2017
10.36
10.37
10.38
10.39
21
23
31.1
31.2
32.1
32.2
101
104
Agreement and Release between the Company and Christopher J.
Hocevar dated September 26, 2018
Agreement and Release between the Company and Alan Muney,
M.D. effective December 21, 2018
Revolving Credit and Letter of Credit Agreement, dated as of
April 6, 2018
Master Transaction Agreement, dated February 4, 2013 among
Connecticut General Life Insurance Company, Berkshire Hathaway
Life Insurance Company of Nebraska and, solely for purposes of
Sections 3.10, 6.1, 6.3, 6.4, 6.6, 6.9 and Articles II, V, VII, and
VIII, thereof, National Indemnity Company (including the Forms of
Retrocession Agreement, the Collateral Trust Agreement, the
Security and Control Agreement, the Surety Policy and the ALC
Model Purchase Option Agreement as exhibits)
Subsidiaries of the Registrant
Consent of Independent Registered Public Accounting Firm
Certification of Chief Executive Officer of Cigna Corporation
pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities
Exchange Act of 1934
Certification of Chief Financial Officer of Cigna Corporation
pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities
Exchange Act of 1934
Certification of Chief Executive Officer of Cigna Corporation
pursuant to Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C.
Section 1350
Certification of Chief Financial Officer of Cigna Corporation
pursuant to Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C.
Section 1350
The following materials from Cigna Corporation’s Annual Report
on Form 10-K for the year ended December 31, 2019, formatted in
inline XBRL (Extensible Business Reporting Language): (i) the
Consolidated Balance Sheets; (ii) the Consolidated Statements of
Income; (iii) the Consolidated Statements of Comprehensive
Income; (iv) the Consolidated Statements of Cash Flows; (v) the
Consolidated Statements of Changes in Total Equity; (vi) the Notes
to Consolidated Financial Statements; and (vii) Financial Statement
Schedules I and II.
Cover Page Interactive Data File (formatted as inline XBRL and
contained in Exhibit 101)
161
Filed by CHC as Exhibit 10.8 to the
Quarterly Report on Form 10-Q for
the period ended March 31, 2018 and
incorporated herein by reference.
Filed by CHC as Exhibit 10.1 to the
Quarterly Report on Form 10-Q for
the period ended September 30, 2018
and incorporated herein by reference.
Filed by the registrant as Exhibit
10.40 to the Annual Report on Form
10-K for the year ended December 31,
2018 and incorporated herein by
reference.
Filed by CHC as Exhibit 10.1 to
Current Report on Form 8-K on
April 12, 2018 and incorporated
herein by reference.
Filed by CHC as Exhibit 10.29 to the
Annual Report on Form 10-K for the
year ended December 31, 2012 and
incorporated herein by reference.
Filed herewith.
Filed herewith.
Filed herewith.
Filed herewith.
Furnished herewith.
Furnished herewith.
Filed herewith.
Filed herewith.
The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure
other than the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular,
any representations and warranties made by the Company in these agreements or other documents were made solely within the
specific context of the relevant agreement or document and may not describe the actual state of affairs at the date they were made or at
any other time.
Item 16. FORM 10-K SUMMARY
None.
162
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: February 27, 2020
CIGNA CORPORATION
By:
Eric P. Palmer
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities indicated as of February 27, 2020.
Signature
Title
David M. Cordani
Eric P. Palmer
Chief Executive Officer and Director
(Principal Executive Officer)
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
Mary T. Agoglia Hoeltzel
Senior Vice President, Tax and Chief Accounting Officer
(Principal Accounting Officer)
William J. DeLaney
Eric J. Foss
Elder Granger, M.D.
Director
Director
Director
Isaiah Harris, Jr.
Chairman of the Board
163
Mark McClellan, M.D.
Roman Martinez IV
Kathleen M. Mazzarella
John M. Partridge
William L. Roper, M.D.
Eric C. Wiseman
Donna F. Zarcone
Director
Director
Director
Director
Director
Director
Director
164
CIGNA CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENT SCHEDULES
Report of Independent Registered Public Accounting Firm on Financial Statement Schedules ....................
FS-2
PAGE
Schedules
I
Condensed Financial Information of Cigna Corporation (Registrant) .........................................
Statements of Income for the Years Ended December 31, 2019, 2018 and 2017 ...................
Balance Sheets as of December 31, 2019 and 2018 ...............................................................
Statements of Cash Flows for the Years Ended December 31, 2019, 2018 and 2017 ............
Notes to Condensed Financial Statements ..............................................................................
Valuation and Qualifying Accounts for the Years Ended December 31, 2019, 2018 and 2017 ..
FS-3
FS-3
FS-4
FS-5
FS-6
FS-7
II
Schedules other than those listed above are omitted because they are not required or are not applicable, or the required information
is shown in the financial statements or notes thereto.
FS-1
Report of Independent Registered Public Accounting Firm on
Financial Statement Schedules
To the Board of Directors and Shareholders of Cigna Corporation
Our audits of the consolidated financial statements referred to in our report dated February 27, 2020 (which report and consolidated
financial statements are included under Item 8 in this Annual Report on Form 10-K) also included an audit of the financial statement
schedules listed on page FS-1 in Item 15 of this Form 10-K. In our opinion, these financial statement schedules present fairly, in all
material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
Hartford, Connecticut
February 27, 2020
FS-2
CIGNA CORPORATION AND SUBSIDIARIES
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF CIGNA CORPORATION
(REGISTRANT)
STATEMENTS OF INCOME
(in millions)
Revenues
Net investment income
Intercompany interest income
Total revenues
Operating expenses
Selling, general and administrative expenses
Total operating expenses
Income (loss) from operations
Interest and other (expense)
Intercompany interest (expense)
Debt extinguishment costs
Realized investment (loss)
Loss before taxes
Income tax (benefit)
Loss of Parent Company
Equity in income of subsidiaries
Shareholders' net income
Shareholders' other comprehensive income (loss), net of tax
Net unrealized appreciation (depreciation) on securities and derivatives
Net translation (losses) gains of foreign currencies
Postretirement benefits liability adjustment
Shareholders' other comprehensive income (loss), net of tax
For the years ended
December 31,
Cigna*
2019
Cigna*
2018
Old Cigna*
2017
$
$
-
6
6
(85)
(85)
91
(1,032)
(127)
-
-
(1,068)
(251)
(817)
5,921
5,104
$
123
-
123
200
200
(77)
(244)
(5)
-
(1)
(327)
(74)
(253)
2,890
2,637
957
(54)
(133)
770
5,874 $
(365)
(152)
127
(390)
2,247
-
-
-
195
195
(195)
(246)
(18)
(321)
-
(780)
(194)
(586)
2,823
2,237
(37)
304
33
300
2,537
Shareholders' comprehensive income
* As described in Note 4 to the Consolidated Financial Statements, on December 20, 2018, Old Cigna became a wholly-owned subsidiary of Cigna, and
Cigna became the Registrant.
$
$
See Notes to Financial Statements on the following pages.
FS-3
CIGNA CORPORATION AND SUBSIDIARIES
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF CIGNA CORPORATION
(REGISTRANT)
BALANCE SHEETS
(in millions)
Assets
Cash and cash equivalents
Short-term investments
Other current assets
Total current assets
Intercompany receivable
Investments in subsidiaries
Other noncurrent assets
TOTAL ASSETS
Liabilities
Short-term debt
Other current liabilities
Total current liabilities
Intercompany payable
Long-term debt
TOTAL LIABILITIES
Shareholders’ Equity
Common stock (shares issued, 386 and 381; authorized, 600)
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings
Less treasury stock, at cost
TOTAL SHAREHOLDERS’ EQUITY
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
As of December 31,
2019
2018
$
$
$
$
-
30
4
34
4,111
77,380
19
81,544
4,043
457
4,500
2,341
29,365
36,206
4
28,306
(941)
20,162
(2,193)
45,338
81,544
$
$
$
$
243
-
14
257
-
68,969
48
69,274
-
418
418
4,965
22,863
28,246
4
27,751
(1,711)
15,088
(104)
41,028
69,274
See Notes to Financial Statements on the following pages.
FS-4
CIGNA CORPORATION AND SUBSIDIARIES
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF CIGNA CORPORATION
(REGISTRANT)
STATEMENTS OF CASH FLOWS
(in millions)
Cash Flows from Operating Activities
Shareholders’ net income
Adjustments to reconcile shareholders’ net income
to net cash provided by operating activities
Equity in income of subsidiaries
Dividends received from subsidiaries
Other liabilities
Debt extinguishment costs
Other, net
NET CASH PROVIDED BY OPERATING ACTIVITIES
Cash Flows from Investing Activities
Short-term investment purchased, net
Other, net
NET CASH (USED IN) INVESTING ACTIVITIES
Cash Flows from Financing Activities
Net change in amounts due to affiliates
Proceeds on issuance of commercial paper
Payments for debt extinguishment
Repayment of long-term debt
Net proceeds on issuance of long-term debt
Issuance of common stock
Common dividends paid
Repurchase of common stock
Tax withholding on stock compensation and other
Other
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
For the years ended
December 31,
Cigna*
2019
Cigna*
2018
Old Cigna*
2017
$
5,104
$
2,637
$
2,237
(5,921)
2,457
43
-
20
1,703
(30)
-
(30)
2,015
944
-
(3,002)
-
224
(15)
(1,987)
(82)
(13)
(1,916)
(243)
243
(2,890)
(2,823)
-
412
-
(14)
145
-
(27,115)
(27,115)
4,437
-
-
-
22,856
1
-
(32)
(49)
-
27,213
243
-
758
(224)
321
333
602
(6)
(11)
(17)
1,955
100
(313)
(1,250)
1,581
131
(10)
(2,725)
(63)
-
(594)
(9)
18
Cash and cash equivalents, end of year
* As described in Note 4 to the Consolidated Financial Statements, on December 20, 2018, Old Cigna became a wholly-owned subsidiary of Cigna, and Cigna
became the Registrant.
243
-
$
$
$
9
See Notes to Financial Statements on the following pages.
FS-5
CIGNA CORPORATION AND SUBSIDIARIES
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF CIGNA CORPORATION
(REGISTRANT)
NOTES TO CONDENSED FINANCIAL STATEMENTS
The accompanying condensed financial statements should be read in conjunction with the Consolidated Financial Statements and the
accompanying notes thereto contained in this Annual Report on Form 10-K (“Form 10-K”).
Note 1 – For purposes of these condensed financial statements, Cigna Corporation’s (the “Company”) wholly-owned and majority-
owned subsidiaries are recorded using the equity method of accounting.
Note 2 – See Note 7 – Debt included in Part II, Item 8 of this Form 10-K for a description of the short-term and long-term debt
obligations of Cigna Corporation and its subsidiaries.
Debt repayment. During 2019, the Company repaid the $3.0 billion term loan.
Exchange of Legacy Notes for Cigna Notes and Redemption of Medco Notes. In the fourth quarter of 2019, the Company completed
an exchange of $12.7 billion of legacy Notes issued by Express Scripts, Medco and Old Cigna for new Notes issued by the Company
with the same interest rates, maturities and other comparable terms. The exchange is reflected as a non-cash investing and financing
activity. The Company entered into this exchange primarily to simplify its capital structure and reporting obligations. Additionally, in
the fourth quarter of 2019, Medco, a subsidiary of the Company, fully redeemed all of the remaining outstanding Medco Notes. As a
result of the exchange and redemption, guarantees of obligations under the remaining legacy Notes not exchanged, as well as under
Notes issued by the Company in September 2018 to finance its acquisition of Express Scripts, were released and we are no longer
required to separately present Condensed Consolidated Financial Information under Rule 3-10 of Regulation S-X.
Term Loan Credit Agreement. The Company borrowed $3.0 billion under its Term Loan Credit Agreement to finance the Merger
and to pay fees and expenses of the Merger. As of December 31, 2019, the Company repaid the term loan in full and the agreement
was terminated.
Notes issued to fund the Express Scripts acquisition. In the third quarter of 2018, the Company issued private placement Notes with
registration rights to finance the Express Scripts acquisition. Total proceeds were approximately $20.0 billion. Interest on this debt is
generally paid semi-annually except for quarterly interest payments on the floating rate notes. The Company completed an exchange
offer to register such debt in the third quarter of 2019.
Maturity of the Company’s long-term debt is as follows:
(In millions)
2020
2021
2022
2023
2024
Maturities after 2024
$
$
$
$
$
$
3,099
3,812
1,770
4,699
714
18,638
Note 3 — Intercompany liabilities of the Company consist primarily of payables to Old Cigna of $2.3 billion as of December 31, 2019
and $4.3 billion as of and December 31, 2018. Interest was accrued at an average monthly rate of 2.58% for 2019 and 2.33% for
2018. Intercompany receivables of the Company consist primarily of net amounts due from Express Scripts Holdings of $3.9 billion
(consisting of an $8.2 billion receivable offset by a $4.3 billion payable) as of December 31, 2019. Interest income on the receivable
was accrued at an annual fixed rate of 5.5%. Interest expense on the payable was accrued at an average rate of 2.58%.
Note 4 — The Company had guarantees of approximately $48 million as of December 31, 2019. These guarantees are primarily
related to outstanding letters of credit. In 2019, no payments have been made on these guarantees.
FS-6
CIGNA CORPORATION AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(in millions)
Description
2019
Allowance for doubtful accounts
Accounts receivable, net
Deferred tax asset valuation allowance
Reinsurance recoverables
2018
Allowance for doubtful accounts
Accounts receivable, net
Deferred tax asset valuation allowance (1)
Reinsurance recoverables
2017
Investment asset valuation reserves
Commercial mortgage loans
Allowance for doubtful accounts
Accounts receivable, net
Deferred tax asset valuation allowance
Reinsurance recoverables
Balance at
beginning
of year
Charged
(Credited) to
costs and
expenses
Charged
(Credited)
to other
accounts
Other
deductions
Balance at
end
of year
$
$
$
$
$
$
$
$
$
$
217
199
2
207
72
3
5
200
87
3
$
$
$
$
$
$
$
$
$
$
51
(6)
-
18
(5)
(1)
1
19
11
-
$
$
$
$
$
$
$
$
$
$
-
3
-
(3)
132
-
-
(11)
(26)
-
$
$
$
$
$
$
$
$
$
$
(16)
-
-
(5)
-
-
(6)
(1)
-
-
$
$
$
$
$
$
$
$
$
$
252
196
2
217
199
2
-
207
72
3
(1) Deferred tax valuation allowance amount includes amount assumed from Express Scripts in 2018.
FS-7
Exhibit 21 – Subsidiaries of the Registrant
Listed below are subsidiaries of Cigna Corporation as of December 31, 2019 with their jurisdictions of organization.
Those subsidiaries not listed would not, in the aggregate, constitute a “significant subsidiary” of Cigna Corporation, as
that term is defined in Rule 1-02(w) of Regulation S-X.
Entity Name
Accredo Health, Incorporated
Accredo Health Group, Inc.
Allegiance Life & Health Insurance Company, Inc.
Allegiance Re, Inc.
American Retirement Life Insurance Company
Ascent Health Services, LLC
Benefits Management Corp.
Bravo Health Mid-Atlantic, Inc.
Bravo Health Pennsylvania, Inc.
CareAllies, Inc.
CareCore National, LLC
Central Reserve Life Insurance Company
Ceres Sales of Ohio, LLC
Cigna & CMB Life Insurance Company Limited
Cigna Apac Holdings Limited
Cigna Arbor Life Insurance Company
Cigna Beechwood Holdings, SdC/MTS
Cigna Behavioral Health of California, Inc.
Cigna Behavioral Health of Texas, Inc.
Cigna Behavioral Health, Inc.
Cigna Bellevue Alpha, LLC
Cigna Benefits Financing, Inc.
Cigna Brokerage & Marketing (Thailand) Limited
Cigna Cedar Holdings, Ltd.
Cigna Chestnut Holdings, Ltd.
Cigna Corporate Services, LLC
Cigna Data Services (Shanghai) Company Limited
Cigna Dental Health of California, Inc.
Cigna Dental Health of Colorado, Inc.
Cigna Dental Health of Delaware, Inc.
Cigna Dental Health of Florida, Inc.
Cigna Dental Health of Illinois, Inc.
Cigna Dental Health of Kansas, Inc.
Cigna Dental Health of Kentucky, Inc.
Cigna Dental Health of Maryland, Inc.
Cigna Dental Health of Missouri, Inc.
Cigna Dental Health of New Jersey, Inc.
Cigna Dental Health of North Carolina, Inc.
Cigna Dental Health of Ohio, Inc.
Cigna Dental Health of Pennsylvania, Inc.
Cigna Dental Health of Texas, Inc.
Cigna Dental Health of Virginia, Inc.
Cigna Dental Health Plan of Arizona, Inc.
Jurisdiction
Delaware
Delaware
Montana
Montana
Ohio
Delaware
Montana
Maryland
Pennsylvania
Delaware
New York
Ohio
Ohio
China
Bermuda
Connecticut
Belgium
California
Texas
Minnesota
Delaware
Delaware
Thailand
Malta
United Kingdom
Delaware
China
California
Colorado
Delaware
Florida
Illinois
Kansas
Kentucky
Maryland
Missouri
New Jersey
North Carolina
Ohio
Pennsylvania
Texas
Virginia
Arizona
E-1
Cigna Dental Health, Inc.
Cigna Elmwood Holdings, SPRL
Cigna Europe Insurance Company S.A.-N.V.
Cigna European Services (UK) Limited
Cigna Finans Emeklilik ve Hayat A.S.
Cigna Global Holdings, Inc.
Cigna Global Insurance Company Limited
Cigna Global Reinsurance Company, Ltd.
Cigna Global Wellbeing Holdings Limited
Cigna Global Wellbeing Solutions Limited
Cigna Health and Life Insurance Company
Cigna Health Corporation
Cigna Health Management, Inc.
Cigna Health Solutions India Pvt. Ltd.
Cigna Healthcare Holdings, Inc.
Cigna Healthcare Mid-Atlantic, Inc.
Cigna Healthcare of Arizona, Inc.
Cigna Healthcare of California, Inc.
Cigna Healthcare of Colorado, Inc.
Cigna Healthcare of Connecticut, Inc.
Cigna Healthcare of Florida, Inc.
Cigna Healthcare of Georgia, Inc.
Cigna Healthcare of Illinois, Inc.
Cigna Healthcare of Indiana, Inc.
Cigna Healthcare of Maine, Inc.
Cigna Healthcare of Massachusetts, Inc.
Cigna Healthcare of New Hampshire, Inc.
Cigna Healthcare of New Jersey, Inc.
Cigna Healthcare of North Carolina, Inc.
Cigna Healthcare of Pennsylvania, Inc.
Cigna Healthcare of South Carolina, Inc.
Cigna Healthcare of St. Louis, Inc.
Cigna Healthcare of Tennessee, Inc.
Cigna Healthcare of Texas, Inc.
Cigna Healthcare of Utah, Inc.
Cigna HLA Technology Services Company Limited
Cigna Holding Company
Cigna Holdings Overseas, Inc.
Cigna Holdings, Inc.
Cigna Hong Kong Holdings Company Limited
Cigna Insurance Public Company Limited
Cigna Insurance Middle East S.A.
Cigna Insurance Services (Europe) Limited
Cigna Intellectual Property, Inc.
Cigna International Corporation
Cigna International Health Services Kenya Limited
Cigna International Health Services SDN BHD
Cigna International Health Services BVBA
Cigna International Health Services, LLC
Cigna International Services, Inc.
Cigna International Services Australia Pty. Ltd.
Cigna Investment Group, Inc.
Florida
Belgium
Belgium
United Kingdom
Turkey
Delaware
Guernsey, C.I
Bermuda
United Kingdom
United Kingdom
Connecticut
Delaware
Delaware
India
Colorado
Maryland
Arizona
California
Colorado
Connecticut
Florida
Georgia
Illinois
Indiana
Maine
Massachusetts
New Hampshire
New Jersey
North Carolina
Pennsylvania
South Carolina
Missouri
Tennessee
Texas
Utah
Hong Kong
Delaware
Delaware
Delaware
Hong Kong
Thailand
Lebanon
United Kingdom
Delaware
Delaware
Kenya
Malaysia
Belgium
Florida
Delaware
Australia
Delaware
E-2
Cigna Investments, Inc.
Cigna Korean Chusik Hoesa
Cigna Laurel Holdings, Ltd.
Cigna Legal Protection UK Ltd.
Cigna Life Insurance Company of Canada
Cigna Life Insurance Company of Europe S.A.- N.V.
Cigna Life Insurance Company of New York
Cigna Life Insurance New Zealand Limited
Cigna Linden Holdings, Inc.
Cigna Magnolia Holdings, Ltd.
Cigna Myrtle Holdings, Ltd.
Cigna Nederland Gamma B.V.
Cigna Oak Holdings, Ltd.
Cigna Palmetto Holdings, Ltd.
Cigna Poplar Holdings, Inc.
Cigna Spruce Holdings GmbH
Cigna Taiwan Life Assurance Company Limited
Cigna Walnut Holdings, Ltd.
Cigna Willow Holdings, Ltd.
Cigna Worldwide General Insurance Company Limited
Cigna Worldwide Insurance Company
Cigna Worldwide Life Insurance Company Limited
Connecticut General Corporation
Connecticut General Life Insurance Company
CuraScript, Inc.
ESI Mail Pharmacy Service, Inc.
ESI Partnership
ESI Resources, Inc.
eviCore 1, LLC
Express Scripts, Inc.
Express Scripts Holding Company
Express Scripts Pharmaceutical, LLC
Express Scripts Pharmacy, Inc.
Express Scripts Strategic Development, Inc.
FirstAssist Administration Limited
Great-West Healthcare of Illinois, Inc.
Grown Ups New Zealand Limited
Health-Lynx LLC
Healthsource, Inc.
HealthSpring, Inc.
HealthSpring of Florida, Inc.
HealthSpring Life & Health Insurance Company, Inc.
HealthSpring of Tennessee, Inc.
KDM Thailand Limited
Life Insurance Company of North America
LINA Financial Services
LINA Life Insurance Company of Korea
Loyal American Life Insurance Company
MCC Independent Practice Association of New York, Inc.
Manipal Cigna Health Insurance Company Limited
Medco Containment Life Insurance Company
Medco Health Services, Inc.
E-3
Delaware
South Korea
Bermuda
United Kingdom
Canada
Belgium
New York
New Zealand
Delaware
Bermuda
Malta
Netherlands
United Kingdom
Bermuda
Delaware
Switzerland
Taiwan
United Kingdom
United Kingdom
Hong Kong
Delaware
Hong Kong
Connecticut
Connecticut
Delaware
Delaware
Delaware
Minnesota
Delaware
Delaware
Delaware
Delaware
Delaware
New Jersey
United Kingdom
Illinois
New Zealand
New Jersey
New Hampshire
Delaware
Florida
Texas
Tennessee
Thailand
Pennsylvania
South Korea
South Korea
Ohio
New York
India
Pennsylvania
Delaware
Medco Health Solutions, Inc.
NewQuest, LLC
NewQuest Management Northeast, LLC
Olympic Health Management Services, Inc.
OnePath Life (NZ) Limited
Priority Healthcare Corporation
Provident American Life and Health Insurance Company
PT Asuransi Cigna
Qualcare Alliance Networks, Inc.
Qualcare Captive Insurance Company Inc. PCC
Qualcare Management Resources Limited Liability Company
Qualcare, Inc.
RHP (Thailand) Limited
Scibal Associates, Inc.
Sterling Life Insurance Company
Tel-Drug, Inc.
Tel-Drug of Pennsylvania, LLC
Temple Insurance Company Limited
United Benefit Life Insurance Company
Verity Solutions Group, Inc.
Delaware
Texas
Delaware
Washington
New Zealand
Indiana
Ohio
Indonesia
New Jersey
New Jersey
New Jersey
New Jersey
Thailand
New Jersey
Illinois
South Dakota
Pennsylvania
Bermuda
Ohio
Delaware
E-4
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-228930 and 333-228931)
of Cigna Corporation of our reports dated February 27, 2020 relating to the financial statements and financial statement schedules and
the effectiveness of internal control over financial reporting, which appear in this Form 10-K.
Exhibit 23
/s/ PricewaterhouseCoopers LLP
Hartford, Connecticut
February 27, 2020
E-5
Exhibit 31.1
I, DAVID M. CORDANI, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Cigna Corporation;
CERTIFICATION
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: February 27, 2020
David M. Cordani
Chief Executive Officer
E-6
Exhibit 31.2
I, ERIC P. PALMER, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Cigna Corporation;
CERTIFICATION
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: February 27, 2020
Eric P. Palmer
Chief Financial Officer
E-7
Certification of Chief Executive Officer of
Cigna Corporation pursuant to 18 U.S.C. Section 1350
Exhibit 32.1
I certify that, to the best of my knowledge and belief, the Annual Report on Form 10-K of Cigna Corporation for the fiscal period
ending December 31, 2019 (the “Report”):
(1)
(2)
complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations
of Cigna Corporation.
David M. Cordani
David M. Cordani
Chief Executive Officer
February 27, 2020
E-8
Certification of Chief Financial Officer of
Cigna Corporation pursuant to 18 U.S.C. Section 1350
Exhibit 32.2
I certify that, to the best of my knowledge and belief, the Annual Report on Form 10-K of Cigna Corporation for the fiscal period
ending December 31, 2019 (the “Report”):
(1)
complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations
of Cigna Corporation.
Eric P. Palmer
Eric P. Palmer
Chief Financial Officer
February 27, 2020
E-9
1. Reference in University of Phoenix releases first responder mental health survey results article, Majority of First Responders Face Mental Health
Challenges in the Workplace, April 18, 2017. Cigna products and services are offered by Cigna Health and Life Insurance Company, Cigna Onsite
Health, LLC, or their affiliates. This information is not intended for residents of New Mexico.
2. Cigna internal analysis of existing arrangements as of December 2019.
3. Cigna Press Release, Cigna's Engagement Programs Improve Health and Lower Costs by 10 Percent, October 29, 2019.
4. Express Scripts, 2019 Drug Trend Report, February 18, 2020.
5. Express Scripts internal analysis of existing arrangements as of February 2020.
6. Accredo Health Group, Patient Services, February 2020.
7. Accredo Health Group internal analysis as of February 25, 2020.
8. Cigna internal analysis of total claim spends in priority markets as of March 2019.
9. Cigna internal analysis of existing arrangements as of May 2019.
10. Cigna Press Release, Cigna Delivers Strong 2019 Results, Expects Continued Attractive Revenue and Earnings Growth in 2020, February 6, 2020.
11. Americas Health Insurance Plans (AHIP), Employer-Provided Coverage, February 2020.
12. Cigna internal analysis of existing arrangements as of October 2019.
13.
In this document, the term "earnings" means adjusted income from operations and "earnings per share" means adjusted income from operations on a
fully diluted per share basis. Our consolidated measures "adjusted income from operations," earnings per share on that same basis, and "adjusted revenues"
(each as defined on page 51 of our Form 10-K) are not determined in accordance with principles generally accepted in the United States (GAAP) and
should not be viewed as substitutes for the most directly comparable GAAP measures "shareholders' net income," "earnings per share" and "total
revenues." We use adjusted income from operations as our principal financial measure of operating performance because management believes it best
reflects the underlying results of our business operations and permits analysis of trends in underlying revenue, expenses and profitability. Management
is not able to provide a reconciliation to shareholders' net income (loss) or adjusted revenues to total revenues on a forward-basis basis because we are
unable to predict certain components thereof including (i) future net realized investment results (from equity method investments with respect to adjusted
revenues) and (ii) future special items. These items are inherently uncertain and depend on various factors, many of which are beyond our control. As
such, any associated estimate and its impact on shareholders' net income and total revenues could vary materially. As previously disclosed, beginning
in 2020, we will no longer exclude contributions from transitioning clients from our adjusted metrics, as the transition for those clients was substantially
complete as of December 31, 2019.
14. Cigna Earnings Call, February 6, 2020
15. Express Scripts, 2019 Drug Trend Report, February 18, 2020.
16. Cigna, Cigna Investor Presentation, February 6, 2020.
17. Express Scripts, 2019 Drug Trend Report, February 18, 2020.
18. The term “Adjusted revenues” is defined as total revenues excluding the following adjustments: revenue contributions from transitioning clients,
special items and Cigna’s share of certain realized investment results of its joint ventures reported in the International Markets segment using the
equity method of accounting. We exclude these items from this measure because management believes they are not indicative of past or future
underlying performance of the business. See page 51 of our Form 10-K for additional information.
All Cigna products and services are provided exclusively by or through operating subsidiaries of Cigna Corporation,
including Cigna Health and Life Insurance Company, Connecticut General Life Insurance Company, Life Insurance
Company of North America, Cigna Life Insurance Company of New York (New York, NY), Cigna Behavioral Health,
Inc., Cigna Health Management, Inc., and HMO or service company subsidiaries of Cigna Health Corporation and
Cigna Dental Health,Inc. The Cigna name, logo, and other Cigna marks are owned by Cigna Intellectual Property, Inc.
The Express Scripts name, logo and related marks are owned by Express Scripts Strategic Development, Inc.
C I G N A ' S M I S S I O N
To improve the health, well-being,
and peace of mind of those we serve.