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Cigna Reports Strong Third Quarter Results And Raises 2012 Outlook

By their nature, forward-looking statements: (i) speak only as of the date they are made, (ii) are not guarantees of future performance or results and (iii) are subject to risks, uncertainties and assumptions that are difficult to predict or quantify. Therefore, actual results could differ materially and adversely from those forward-looking statements as a result of a variety of factors. Some factors that could cause actual results to differ materially from the forward-looking statements include:

 
1. increased medical costs that are higher than anticipated in establishing premium rates in the Company’s Health Care operations, including increased use and costs of medical services;
2. increased medical, administrative, technology or other costs resulting from new legislative and regulatory requirements imposed on the Company’s businesses;
3. challenges and risks associated with implementing operational improvement initiatives and strategic actions in the ongoing operations of the businesses, including those related to: (i) growth in targeted geographies, product lines, buying segments and distribution channels, (ii) offering products that meet emerging market needs, (iii) strengthening underwriting and pricing effectiveness, (iv) strengthening medical cost results and a growing medical customer base, (v) delivering quality service to members and health care professionals using effective technology solutions, and (vi) lowering administrative costs;
4. adverse changes in state, federal and international laws and regulations, including health care reform legislation and regulation that could, among other items, affect the way the Company does business, increase costs, limit the ability to effectively estimate, price for and manage medical costs, and affect the Company’s products, services, market segments, technology and processes;
5. the ability to successfully complete the integration of acquired businesses, including the acquired HealthSpring businesses by, among other things, operating Medicare Advantage coordinated care plans and HealthSpring’s prescription drug plan,

retaining and growing the customer base, realizing revenue, expense and other synergies, renewing contracts on competitive terms, successfully leveraging the information technology platform of the acquired businesses, and retaining key personnel;

6. the ability of the Company to execute its growth plans by successfully leveraging its capabilities and those of the businesses

acquired in serving the Seniors market segment and the Company’s other market segments, including through successful execution of the Company’s physician engagement strategy;

7. the possibility that the acquired HealthSpring business may be adversely affected by economic, business and/or competitive

factors; or by federal and/or state regulation, including health care reform, reductions in funding levels for Medicare programs, and potential changes in risk adjustment data validation audit and payment adjustment methodology;

8. risks associated with pending and potential state and federal class action lawsuits, disputes regarding reinsurance arrangements, other litigation and regulatory actions challenging the Company’s businesses, including disputes related to payments to health care professionals, government investigations and proceedings, tax audits and related litigation, and regulatory market conduct and other reviews, audits and investigations;
9. heightened competition, particularly price competition, that could reduce product margins and constrain growth in the Company’s businesses, primarily the Health Care business;
10. risks associated with the Company’s mail order pharmacy business that, among other things, includes any potential operational deficiencies or service issues as well as loss or suspension of state pharmacy licenses;
11. significant changes in interest rates or sustained deterioration in the commercial real estate markets;
12. downgrades in the financial strength ratings of the Company’s insurance subsidiaries, that could, among other things, adversely affect new sales and retention of current business; downgrades in financial strength ratings of reinsurers, that could result in increased statutory reserves or capital requirements of the Company’s insurance subsidiaries;
13. limitations on the ability of the Company’s insurance subsidiaries to dividend capital to the parent company as a result of downgrades in the subsidiaries’ financial strength ratings, changes in statutory reserve or capital requirements or other financial constraints;
14. inability of the hedge programs adopted by the Company to substantially reduce equity market and certain interest rate risks in the run-off reinsurance operations;
15. adjustments to the reserve assumptions (including lapse, partial surrender, mortality, interest rates and volatility) used in estimating the Company’s liabilities for reinsurance contracts covering guaranteed minimum death benefits under certain variable annuities;
16. adjustments to the assumptions (including interest rates, annuity election rates and amounts collectible from reinsurers) used in estimating the Company’s assets and liabilities for reinsurance contracts covering guaranteed minimum income benefits under certain variable annuities;
17. significant stock market declines, that could, among other things, result in increased expenses for guaranteed minimum income benefit contracts, guaranteed minimum death benefit contracts and the Company’s pension plans in future periods as well as the recognition of additional pension obligations;
18. significant deterioration in economic conditions and significant market volatility, that could have an adverse effect on the Company’s operations, investments, liquidity and access to capital markets;
19. significant deterioration in economic conditions and significant market volatility, that could have an adverse effect on the businesses of our customers (including the amount and type of health care services provided to their workforce, loss in workforce and our customers' ability to pay their obligations) and our vendors (including their ability to provide services);
20. amendments to income tax laws, that could affect the taxation of employer-provided benefits, the taxation of certain insurance products such as corporate-owned life insurance, or the financial decisions of individuals whose variable annuities are covered under reinsurance contracts issued by the Company;
21. potential public health epidemics, pandemics, natural disasters and bio-terrorist activity, that could, among other things, cause the Company’s covered medical and disability expenses, pharmacy costs and mortality experience to rise significantly, and cause operational disruption, depending on the severity of the event and number of individuals affected;
22. risks associated with security or interruption of information systems, that could, among other things, cause operational disruption;
23. challenges and risks associated with the successful management of the Company’s outsourcing projects or key vendors; and
24. the unique political, legal, operational, regulatory and other challenges associated with expanding our business globally.
 

This list of important factors is not intended to be exhaustive. Other sections of the Company’s most recent Annual Report on Form 10-K, including the “Risk Factors” section, the Quarterly Report on Form 10-Q for the quarters ended March 31 and June 30, 2012, the Current Report on Form 8-K filed on August 8, 2012, and other documents filed with the Securities and Exchange Commission include both expanded discussion of these factors and additional risk factors and uncertainties that could preclude the Company from realizing the forward-looking statements. The Company does not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

           
CIGNA CORPORATION
COMPARATIVE SUMMARY OF FINANCIAL RESULTS (unaudited) Exhibit 1
(Dollars in millions, except per share amounts)
 
                     
Three Months Ended Nine Months Ended
September 30, September 30,
    2012   2011       2012   2011
 
REVENUES
 
Premiums and fees $ 6,637 $ 4,748 $ 19,464 $ 14,267
Net investment income 283 297 854 860
Mail order pharmacy revenues 401 368 1,189 1,056
Other revenues   68   51   182   193
Total operating revenues 7,389 5,464 21,689 16,376
Run-off Reinsurance hedge gain (loss) (1) (42) 133 (106) 96
Net realized investment gains 11 13 20 56
                     
Total   $ 7,358   $ 5,610       $ 21,603   $ 16,528
 
ADJUSTED INCOME (LOSS) FROM OPERATIONS (2)
 
Health Care $ 384 $ 248 $ 978 $ 774
International 79 62 224 180
Disability and Life 62 62 216 227
Run-off Reinsurance (7) (46) (29) (47)
Other Operations 22 25 63 64
Corporate (51) (43) (170) (130)
                     
Total   $ 489   $ 308       $ 1,282   $ 1,068
 
SHAREHOLDERS' NET INCOME
 

Segment Earnings (Loss)

 
Health Care (3)(4)(5)(6) $ 345 $ 248 $ 919 $ 775
International (3) 70 62 215 180
Disability and Life (3)(6) 60 62 214 232
Run-off Reinsurance 25 (180) (7) (189)
Other Operations (6) 22 25 63 68
Corporate (4)(6) (63) (43) (203) (116)
                     
Total 459 174 1,201 950
Net realized investment gains, net of taxes 7 9 16 37
                     
Shareholders' net income   $ 466   $ 183       $ 1,217   $ 987
 
 
DILUTED EARNINGS PER SHARE:
 
Adjusted income from operations (2) $ 1.69 $ 1.13 $ 4.42 $ 3.91
Results of guaranteed minimum income benefits business, after-tax 0.11 (0.50) 0.07 (0.52)
Net realized investment gains, net of taxes 0.02 0.04 0.06 0.14
Special item(s), after-tax (3)(4)(5)(6)     (0.21)     -         (0.35)     0.09
Shareholders' net income   $ 1.61   $ 0.67       $ 4.20   $ 3.62
Weighted average shares (in thousands)     289,875     272,060         289,807     272,884
SHAREHOLDERS' EQUITY at September 30               $ 9,530   $ 7,430
 
 
SHAREHOLDERS' EQUITY PER SHARE at September 30               $ 33.24   $ 27.49
 
Effective January 1, 2012, Cigna adopted, as required, amended accounting guidance for deferred policy acquisition costs by selecting retrospective adjustment of prior periods.
 
The financial results of Great American Supplemental Benefits are included in the International segment from the date of acquisition, which was on August 31, 2012. The financial results of HealthSpring are aggregated with the Health Care segment from the date of acquisition, which was on January 31, 2012.
 

(1)

Includes pre-tax futures and swaps contracts entered into as part of a dynamic hedge program to manage equity and growth interest rate risks in Cigna's Run-off Reinsurance operations. Cigna recorded related offsets in Benefits and Expenses to adjust liabilities for reinsured guaranteed minimum death benefit and guaranteed minimum income benefit contracts. For more information, please refer to Cigna's Form 10-Q for the period ended September 30, 2012, which is expected to be filed on November 1, 2012.

 

(2)

Adjusted income (loss) from operations is segment earnings (loss) (shareholders' net income (loss) before net realized investment gains (losses)) excluding results of Cigna's guaranteed minimum income benefits business and special items. See Exhibit 2 for a detailed reconciliation of adjusted income (loss) from operations to segment earnings (loss) and shareholders' net income presented in accordance with generally accepted accounting principles.

 

(3)

The three months and nine months ended September 30, 2012 includes pre-tax charges of $77 million ($50 million after-tax) for a realignment and efficiency plan: $60 million pre-tax ($39 million after-tax) in Health Care; $14 million pre-tax ($9 million after-tax) in International and $3 million pre-tax ($2 million after-tax) in Disability and Life.

 

(4)

The three months ended September 30, 2012 includes pre-tax charges of $12 million ($12 million after-tax) in Corporate for costs associated with the 2012 acquisition of HealthSpring. The nine months ended September 30, 2012 includes pre-tax charges of $53 million ($40 million after-tax) for costs associated with the 2012 acquisition of HealthSpring: $42 million pre-tax ($33 million after-tax) in Corporate and $11 million pre-tax ($7 million after-tax) in Health Care.

 

(5)

The nine months ended September 30, 2012 includes pre-tax charges of $20 million ($13 million after-tax) resulting from a litigation matter in Health Care.

 

(6)

The nine months ended September 30, 2011 includes a net tax benefit of $24 million resulting from the completion of the 2007 and 2008 IRS examinations.

- After-tax benefit of $1 million in Health Care; after-tax benefit of $5 million in Disability and Life; after-tax benefit of $4 million (includes a pre-tax charge of $9 million offset by a tax benefit of $13 million) in Other Operations and an after-tax benefit of $14 million in Corporate.

                                             
CIGNA CORPORATION
SUPPLEMENTAL FINANCIAL INFORMATION (unaudited) Exhibit 2
RECONCILIATION OF ADJUSTED INCOME (LOSS) FROM OPERATIONS TO SHAREHOLDERS' NET INCOME
(Dollars in millions, except per share amounts)
 
Diluted
Earnings Disability Run-off Other
Per Share Consolidated Health Care International and Life Reinsurance Operations Corporate
Three Months Ended, 3Q12   3Q11   2Q12   3Q12   3Q11   2Q12   3Q12   3Q11   2Q12   3Q12   3Q11   2Q12   3Q12   3Q11   2Q12   3Q12   3Q11   2Q12   3Q12   3Q11   2Q12   3Q12   3Q11   2Q12
 
Adjusted income (loss) from operations (1) $ 1.69 $ 1.13 $ 1.49 $ 489 $ 308 $ 434 $ 384 $ 248 $ 332 $ 79 $ 62 $ 65 $ 62 $ 62 $ 89 $ (7) $ (46) $ (11) $ 22 $ 25 $ 21 $ (51) $ (43) $ (62)
 
Results of guaranteed minimum income benefits business (2) 0.11 (0.50) (0.17) 32 (134) (51) - - - - - - - - - 32 (134) (51) - - - - - -
 
Special item(s), after-tax:
Charge for realignment and efficiency plan (3) (0.17) - - (50) - - (39) - - (9) - - (2) - - - - - - - - - - -
Cost associated with HealthSpring acquisition (4) (0.04) - - (12) - - - - - - - - - - - - - - - - - (12) - -
                                                                                             
Segment earnings (loss) 1.59 0.63 1.32 459 174 383 $ 345   $ 248   $ 332   $ 70   $ 62   $ 65   $ 60   $ 62   $ 89   $ 25   $ (180)   $ (62)   $ 22   $ 25   $ 21   $ (63)   $ (43)   $ (62)
Net realized investment gains (losses), net of taxes (7) 0.02 0.04 (0.01) 7 9 (3)
                     
Shareholders' net income $ 1.61   $ 0.67   $ 1.31   $ 466   $ 183   $ 380
 
 
 
Diluted
Earnings Disability Run-off Other
Per Share Consolidated Health Care International and Life Reinsurance Operations Corporate
Nine Months Ended September 30, 2012       2011   2012       2011   2012       2011   2012       2011   2012       2011   2012       2011   2012       2011   2012       2011
 
Adjusted income (loss) from operations (1) $ 4.42 $ 3.91 $ 1,282 $ 1,068 $ 978 $ 774 $ 224 $ 180 $ 216 $ 227 $ (29) $ (47) $ 63 $ 64 $ (170) $ (130)
 
Results of guaranteed minimum income benefits business (2) 0.07 (0.52) 22 (142) - - - - - - 22 (142) - - - -
 
Special item(s), after-tax:
Charge for realignment and efficiency plan (3) (0.17) - (50) - (39) - (9) - (2) - - - - - - -
Cost associated with HealthSpring acquisition (4) (0.14) - (40) - (7) - - - - - - - - - (33) -
Charges associated with a litigation matter (5) (0.04) - (13) - (13) - - - - - - - - - - -
Completion of IRS examination (6) - 0.09 - 24 - 1 - - - 5 - - - 4 - 14
                                                                                             
Segment earnings (loss) 4.14 3.48 1,201 950 $ 919       $ 775   $ 215       $ 180   $ 214       $ 232   $ (7)       $ (189)   $ 63       $ 68   $ (203)       $ (116)
Net realized investment gains, net of taxes (7) 0.06 0.14 16 37
                     
Shareholders' net income $ 4.20       $ 3.62   $ 1,217       $ 987
 

(1)

Cigna measures the financial results of its segments using "segment earnings (loss)", which is defined as shareholders' net income (loss) before net realized investment gains (losses). Adjusted income (loss) from operations is defined as segment earnings excluding special items and results of Cigna's guaranteed minimum income benefits business.

 

(2)

Results of guaranteed minimum income benefits business on a pre-tax basis for:

- three months and nine months ended September 30, 2012 were gains of $50 million and $34 million, respectively;

- three months and nine months ended September 30, 2011 were losses of $206 million and $219 million, respectively; and

- three months ended June 30, 2012 were losses of $79 million.

 

(3)

The three months and nine months ended September 30, 2012 includes pre-tax charges of $77 million ($50 million after-tax) for a realignment and efficiency plan: $60 million pre-tax ($39 million after-tax) in Health Care; $14 million pre-tax ($9 million after-tax) in International and $3 million pre-tax ($2 million after-tax) in Disability and Life.

 

(4)

The three months ended September 30, 2012 includes pre-tax charges of $12 million ($12 million after-tax) in Corporate for costs associated with the 2012 acquisition of HealthSpring. The nine months ended September 30, 2012 includes pre-tax charges of $53 million ($40 million after-tax) for costs associated with the 2012 acquisition of HealthSpring: $42 million pre-tax ($33 million after-tax) in Corporate and $11 million pre-tax ($7 million after-tax) in Health Care.

 

(5)

The nine months ended September 30, 2012 includes pre-tax charges of $20 million ($13 million after-tax) resulting from a litigation matter in Health Care.

 

(6)

The nine months ended September 30, 2011 includes a net tax benefit of $24 million resulting from the completion of the 2007 and 2008 IRS examinations.

- After-tax benefit of $1 million in Health Care; after-tax benefit of $5 million in Disability and Life; after-tax benefit of $4 million (includes a pre-tax charge of $9 million offset by a tax benefit of $13 million) in Other Operations and an after-tax benefit of $14 million in Corporate.

 

(7)

Net realized investment gains (losses) on a pre-tax basis for:

- three months and nine months ended September 30, 2012 were gains of $11 million and $20 million, respectively;

- three months and nine months ended September 30, 2011 were gains of $13 million and $56 million, respectively; and

- three months ended June 30, 2012 were losses of $4 million.





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