10-K 1 CIGNA FORM 10-K FOR THE PERIOD ENDING 12/31/94 1 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K (MARK ONE) /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 1-8323 CIGNA CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 06-1059331 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) ONE LIBERTY PLACE, PHILADELPHIA, PENNSYLVANIA 19192-1550 (Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (215) 761-1000 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE ON TITLE OF EACH CLASS WHICH REGISTERED ------------------------------- ---------------------------------- Common Stock, Par Value $1; ) New York Stock Exchange, Inc. Preferred Stock ) Pacific Stock Exchange, Inc. Purchase Rights; ) Philadelphia Stock Exchange, Inc. and 8.20% Convertible Subordinated New York Stock Exchange, Inc. Debentures due July 10, 2010
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / / The aggregate market value of the voting stock held by non-affiliates of the registrant as of March 2, 1995, was approximately $5.3 billion. As of March 2, 1995, 72,441,624 shares of the registrant's Common Stock were outstanding. Parts I and II of this Form 10-K incorporate by reference information from the registrant's annual report to shareholders for the year ended December 31, 1994 (the "1994 Annual Report"). Part III of this Form 10-K incorporates by reference information from the registrant's proxy statement dated March 20, 1995. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 2 TABLE OF CONTENTS
PAGE ----- PART I Item 1. Business.................................................................. 1 A. Description of Business............................................... 1 B. Financial Information about Industry Segments......................... 3 C. Employee Life and Health Benefits..................................... 3 D. Employee Retirement and Savings Benefits.............................. 7 E. Individual Financial Services......................................... 10 F. Property and Casualty................................................. 14 G. Investments and Investment Income..................................... 28 H. Regulation............................................................ 33 I. Miscellaneous......................................................... 35 Item 2. Properties................................................................ 36 Item 3. Legal Proceedings......................................................... 36 Item 4. Submission of Matters to a Vote of Security Holders....................... 37 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters..... 37 Item 6. Selected Financial Data................................................... 37 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................................................ 37 Item 8. Financial Statements and Supplementary Data............................... 37 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure................................................................ 37 PART III Item 10. Directors and Executive Officers of the Registrant........................ 38 A. Directors of the Registrant........................................... 38 B. Executive Officers of the Registrant.................................. 38 C. Compliance with Section 16(a) of the Securities Exchange Act.......... 39 Item 11. Executive Compensation.................................................... 39 Item 12. Security Ownership of Certain Beneficial Owners and Management............ 39 Item 13. Certain Relationships and Related Transactions............................ 39 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.......... 39 Signatures............................................................................ 40 Index to Financial Statement Schedules................................................ FS-1 Index to Exhibits..................................................................... E-1
i 3 PART I Item 1. BUSINESS A. Description of Business With shareholders' equity of $5.8 billion, revenues of $18.4 billion and assets of $86.1 billion as of December 31, 1994, CIGNA Corporation and its subsidiaries constitute one of the largest investor-owned insurance organizations in the United States and one of the principal United States companies in the financial services industry. Unless the context otherwise indicates, the terms "CIGNA" and the "Company," when used herein, refer to one or more of CIGNA Corporation and its consolidated subsidiaries. Although CIGNA Corporation is not an insurance company, its subsidiaries are major providers of group life and health insurance, managed care products and services, retirement products and services, individual financial services, and property and casualty insurance. CIGNA is one of the largest international insurance organizations based in the United States, measured by international revenues, and the largest investor-owned health maintenance organization ("HMO") in the United States, measured by number of enrollees. CIGNA's major insurance subsidiaries, Connecticut General Life Insurance Company ("CG Life") and Insurance Company of North America ("ICNA"), are among the oldest insurance companies in the United States, with ICNA tracing its origins to 1792 and CG Life to 1865. CIGNA Corporation was incorporated in the State of Delaware in 1981. CIGNA's revenues are derived principally from premiums and fees and investment income. CIGNA conducts its business through the following operating divisions, the financial results of which are reported in the following segments: Employee Life and Health Benefits Segment (beginning on page 3) CIGNA HealthCare CIGNA Group Insurance: Life, Accident, Disability(1) Employee Retirement and Savings Benefits Segment (beginning on page 7) CIGNA Retirement & Investment Services Individual Financial Services Segment (beginning on page 10) CIGNA Individual Insurance CIGNA Reinsurance: Life, Accident, Health Property and Casualty Segment (beginning on page 14) CIGNA Property & Casualty CIGNA International ---------------------- (1) Portions of this division are reported in the Individual Financial Services and Property and Casualty Segments. Investment results produced by CIGNA Investment Management on behalf of CIGNA's insurance operations are reported in each segment's results or in Other Operations. The other businesses of CIGNA Investment Management are described on page 33, and financial results for these businesses are reported in Other Operations. 1 4 CIGNA and certain of its insurance subsidiaries are rated by nationally recognized rating agencies. Insurance company ratings represent the opinions of the rating agencies on the financial strength of the Company and its capacity to meet the obligations of insurance policies. Corporate credit ratings are assessments of the likelihood that the Company will make timely payments of principal and interest. As of March 29, 1995, the principal ratings obtained through an active relationship with the agencies were as follows:
MOODY'S INVESTORS A.M. BEST SERVICES STANDARD & POOR'S DUFF & PHELPS --------------------- -------------------------- ----------------------- ---------------------- Insurance Company Ratings(1) Life: CG Life...................... A+ ("Superior," A1 ("Good," AA ("Excellent," AAA ("Highest," 2nd of 15) 5th of 19) 3rd of 18) 1st of 18) Life Insurance Company of North America.............. A+ ("Superior," -- -- -- 2nd of 15) Property & Casualty: New Domestic Pool Group(2)... A- ("Excellent," -- -- 4th of 15) Baa1(4) ("Adequate," INA Domestic Pool Group(3)... B+ ("Very good," 8th of 19) -- -- 6th of 15) Corporate Credit Ratings(1) Senior Debt.................... -- Baa1 ("Medium-grade," BBB+ ("Adequate," A ("Adequate," 8th of 19) 8th of 22) 6th of 18) Subordinated Debt.............. -- Baa2 ("Medium-grade," BBB ("Adequate," A- ("Adequate," 9th of 19) 9th of 22) 7th of 18) Commercial Paper............... -- Prime-2 ("Strong," A-2 ("Satisfactory," D-1 ("Very High," 2nd of 4) 3rd of 7) 2nd of 7)
--------------- (1) Includes the rating assigned, the agency's characterization of the rating and the position of the rating in the applicable agency's rating scale (e.g., CG Life's rating by A.M. Best Company, Inc. ("A.M. Best") is the 2nd highest rating awarded in its scale of 15). (2) The New Domestic Pool Group consists of four of CIGNA's domestic property and casualty insurance subsidiaries that had formerly been rated by A.M. Best as part of a larger pool of companies. The A- rating is under review with "developing implications." (3) The INA Domestic Pool Group consists of CIGNA's domestic property and casualty insurance subsidiaries (other than those in the New Domestic Pool Group) that formerly had been rated by A.M. Best as part of a larger pool of companies. The B+ rating is under review with "negative implications." (4) Baa1 is the rating assigned by Moody's Investors Services ("Moody's") to the former pool that consisted of the companies now comprising the New Domestic Pool Group and the INA Domestic Pool Group. Rating agencies generally assign ratings along a scale. While the significance of individual ratings varies from agency to agency, companies assigned ratings at the top end of the scale have, in the opinion of the rating agency, the strongest capacity for repayment of debt or payment of claims, while companies at the bottom end of the scale have the weakest capacity. Insurance company rating scales of the principal agencies that rate the Company's insurance subsidiaries are characterized as follows: A.M. Best, A++ to F ("Superior" to "In Liquidation"); Moody's, Aaa to C ("Exceptional" to "Lowest"); Standard & Poor's ("S&P"), AAA to R ("Superior" to "Regulatory Action"); and Duff & Phelps, AAA to DD ("Highest" to "Order of Liquidation"). The rating scales of the principal agencies that rate CIGNA's senior and subordinated debt are characterized as follows: Moody's, Aaa to C ("Best" to "Lowest"); S&P, AAA to D ("Extremely Strong" to "Default"); and Duff & Phelps, AAA to DD ("Highest" to "Default"). The commercial paper rating scales for Moody's, S&P, and Duff & Phelps are as follows: Moody's, Prime-1 to Not Prime ("Superior" to "Not Prime"); S&P, A-1+ to D ("Extremely Strong" to "Default"); and Duff & Phelps, D-1+ to D-5 ("Highest" to "Default"). 2 5 The ratings are reviewed routinely by the rating agencies and may be changed at their discretion. For more information concerning insurance company ratings, see "Employee Life and Health Benefits - Competition" on page 6, "Employee Retirement and Savings Benefits - Competition" on page 10, "Individual Financial Services - Competition" on page 14 and "Property and Casualty - Competition" on page 18. B. Financial Information about Industry Segments All financial information in the tables that follow is presented in conformity with generally accepted accounting principles ("GAAP"), unless otherwise indicated. Certain reclassifications have been made to 1993 and 1992 financial information to conform with the 1994 presentation. Industry rankings and percentages set forth below are for the year ended December 31, 1993, unless otherwise indicated. Unless otherwise noted, statements set forth in this document concerning CIGNA's rank or position in an industry or particular line of business have been developed internally, based on publicly available information. Revenues, income (loss) before income taxes and cumulative effect of accounting changes, and identifiable assets attributable to each of CIGNA's business segments, other operations and foreign operations are set forth in Notes 12 and 13 to CIGNA's 1994 Financial Statements. C. Employee Life and Health Benefits Principal Products and Markets CIGNA's Employee Life and Health Benefits operations offer a wide range of traditional indemnity products and services and are a leading provider of managed care and cost containment products and services. The following table sets forth the principal products of this segment and their related net earned premiums and fees.
YEAR ENDED DECEMBER 31, ---------------------------------- 1994 1993 1992 ------ ------ ------ (IN MILLIONS) Indemnity: Medical.................................................... $2,049 $1,983 $1,946 Life....................................................... 1,813 1,627 1,580 Long-term Disability....................................... 422 427 435 Dental..................................................... 374 324 329 Accidental Death and Dismemberment......................... 253 260 243 Short-term Disability...................................... 93 91 100 Other...................................................... 17 18 13 ------ ------ ------ Total.................................................... 5,021 4,730 4,646 Prepaid Health and Dental Care............................... 2,823 2,708 2,528 ------ ------ ------ Total Premiums and Fees...................................... $7,844 $7,438 $7,174 ====== ====== ======
------------------- Amounts in table do not include "premium equivalents," which are described below. CIGNA's Employee Life and Health Benefits customers range in size from some of the largest United States corporations to small enterprises, and include employers, multiple employer groups, unions, professional and other associations, government-sponsored Medicare and Medicaid programs, and other groups. Products are marketed in all 50 states, the District of Columbia and Puerto Rico. The indemnity products named in the above table are available on an experience-rated basis as well as through traditional insurance arrangements, in which CIGNA assumes the full insurance risk for a set premium. Certain group indemnity coverages, primarily medical and dental, also are available through alternative funding programs under which the customer assumes all or a portion of the responsibility for funding claims, with CIGNA providing combinations of administrative and claim services and insurance for a fee or premium charge. Alternative funding programs, primarily consisting of "minimum premium" arrangements and administrative services only ("ASO") plans, constituted 55% of business volume (premiums and 3 6 fees plus premium equivalents) in 1994. Premium equivalents generally represent paid claims and are additional premiums that would have been earned under minimum premium and ASO contracts if they had been written as traditional indemnity or health maintenance organization ("HMO") programs. In minimum premium business, the policyholder funds claims up to a predetermined aggregate amount and CIGNA funds claims exceeding that amount. Under ASO plans, the policyholder is responsible for funding all claims and CIGNA provides administrative services for a fee; CIGNA may also provide stop-loss insurance for claims in excess of a predetermined amount. Alternative funding programs and their effect on CIGNA's results are more fully described on page 11 of the Management's Discussion and Analysis ("MD&A") section of CIGNA's 1994 Annual Report. CIGNA offers both group term life and group universal life insurance products. Approximately 8,100 group life insurance policies covering approximately 13.7 million lives were outstanding as of December 31, 1994. The following table shows group life insurance in force and termination data.
YEAR ENDED DECEMBER 31 ----------------------------------- 1994 1993 1992 --------- --------- --------- (DOLLARS IN ROUNDED MILLIONS) In force, end of year...................................... $ 523,000 $ 512,000 $ 490,000 ======== ======== ======== Cancellations (lapses and expirations)..................... $ 44,000 $ 53,000 $ 37,000 ======== ======== ========
CIGNA markets various disability products, including long-term and short-term disability, in all states and statutorily required disability plans in certain states. These products generally provide a fixed level of income to replace a portion of earned income lost because of disability. Personal accident coverages, which consist primarily of accidental death and dismemberment and travel accident insurance, are provided to employers, associations and other groups. Disability management and medical cost containment services provided by CIGNA help insurers and employers reduce the cost of their benefit programs. CIGNA provides managed mental health and substance abuse coverage and services to HMOs, insurers and employers through a national network of mental health specialists, some of whom are employees of CIGNA. CIGNA provides managed pharmacy benefit programs through CIGNA's HMOs and to employers directly. To control their health care costs, many employers have changed and others are changing their benefit plan design by introducing or expanding managed care features. Managed care products promote effective, efficient use of health care services by coordinating utilization of care and controlling unit costs through provider contracts. While HMOs are generally the most cost-efficient form of managed care, many employers offer their employees a choice of benefit and cost options. CIGNA provides these options through HMOs, preferred provider organizations ("PPOs") and traditional indemnity coverage as well as through integrated products, which include all three. Integrated products are available under alternative funding as well as traditional insurance arrangements. These products may include contract provisions under which CIGNA assumes the risk for costs exceeding specified levels. CIGNA's prepaid health care operations provide medical services through HMOs. CIGNA's HMOs include staff models, in which physicians and other providers are employees of the HMO, individual practice association ("IPA") models, in which independent physicians and hospitals are under contract with CIGNA to provide services, and mixed models, in which attributes of IPA and staff model HMOs are combined. Staff model HMOs offer a greater opportunity for direct influence over medical costs, quality and service, but require more capital investment. IPAs may cover wider geographic areas with lower fixed costs, but must rely on cost-effective contracts with providers and appropriate utilization management to influence medical costs. Staff models generally offer lower costs to the consumer, whereas IPAs may offer broader provider choice. To maintain and enhance the quality of health care delivered in its HMOs, CIGNA has initiated the development of standard performance measurements for affiliated physicians, hospitals and other providers in its HMOs. Thirteen of CIGNA's HMOs are accredited by the National Committee for Quality Assurance, and CIGNA is in the process of seeking accreditation for the remainder. 4 7 CIGNA's HMOs and PPOs serve all or part of 39 states, the District of Columbia and Puerto Rico. CIGNA had 46 HMO networks serving approximately 3.3 million members as of December 31, 1994, and 48 networks serving approximately 2.7 million and 2.3 million members as of December 31, 1993 and 1992, respectively. Members include participants under traditional and alternative funding programs. During 1994, CIGNA withdrew from three networks and added one, resulting in the net decrease of two HMO networks. As of December 31, 1994, 37 of CIGNA's HMO networks were IPA models (with 65% of total members); four were staff models (with 20% of total members); and five were mixed models (with 15% of total members). CIGNA's indemnity business included arrangements with doctors, hospitals and other independent providers to form PPOs in 80 locations as of December 31, 1994, 71 as of December 31, 1993 and 53 as of December 31, 1992. Under a typical PPO arrangement, CIGNA reimburses PPO participants at a higher percentage for the costs of medical care obtained from contracted providers (who charge on a discounted rate basis) than it does for care obtained from non-contracted providers. CIGNA's PPOs served approximately 1.1 million individuals as of December 31, 1994, approximately 0.8 million as of December 31, 1993 and approximately 0.7 million as of December 31, 1992. CIGNA also offers prepaid dental coverage, using networks of independent providers in most states, serving approximately 2.0 million, 1.7 million and 1.3 million participants as of December 31, 1994, 1993 and 1992, respectively. Distribution The indemnity products of this segment are distributed primarily by employed group sales representatives through national and other insurance brokers and insurance consultants and, to a lesser extent, by CIGNA's career agents. Sales of prepaid health care products are made primarily to employers by CIGNA's sales representatives and also through insurance brokers. Since 1993, CIGNA has developed a direct sales force to market traditional HMOs to smaller companies. Salaried marketing representatives sell disability management, medical and disability cost containment, and managed mental health and substance abuse services directly to insurance companies, HMOs and employer groups. Salaried enrollment specialists enroll employees in group life insurance, HMOs and related programs at the worksite. As of December 31, 1994, the field sales force for the products of this segment consisted of approximately 595 sales representatives in 114 field locations. Pricing and Reserves Premiums and fees charged for group indemnity and prepaid products reflect assumptions about future claims, expenses, credit risk, investment returns, competitive considerations and target profit margins. Premiums and fees charged for HMOs and PPOs also reflect assumptions about the impact of provider contracts and utilization management. Most of the premium volume for the indemnity business is established on an experience-rated basis, in which premiums may be adjusted to reflect actual claims experience, administrative expenses and income from investable funds attributable to a given policyholder. All other premiums are based on a guaranteed-cost method, for which there is no retrospective adjustment for actual experience. Both guaranteed-cost and experience-rated contracts generally permit annual rate adjustments. In addition to paying current benefits and expenses, CIGNA establishes reserves in amounts estimated to be sufficient to settle reported claims not yet paid, as well as claims incurred but not yet reported. Also, reserves are established for estimated experience refunds based on the results of experience-rated policies. Interest on reserve and fund balances is credited to experience-rated policyholders through rates that are either set at the Company's discretion or based on actual investment performance. Generally, for interest-crediting rates set at the Company's discretion, higher rates are credited to long-term funds than to short-term funds, reflecting the fact that higher yields are generally available on investments of longer maturities. For 1994, the rates of interest credited ranged from 2.5% to 8.7%. 5 8 Approximately one-third of the reserves comprise liabilities that will be paid within one year, primarily for group life, medical and prepaid health claims. The remainder primarily include liabilities for long-term disability benefits and group life insurance benefits for disabled individuals. The profitability of medical and dental indemnity and prepaid health care products is largely dependent upon the accuracy of projections for health care cost inflation and utilization, the adequacy of fees charged for administration and risk assumption and, in the case of prepaid health care products, effective medical cost management. The profitability of other indemnity products depends on the adequacy of premiums charged relative to claims and expenses. CIGNA reduces its exposure to large individual and catastrophe losses under group life, disability and accidental death contracts by purchasing reinsurance from unaffiliated insurers. Competition Group indemnity insurance and prepaid health care are highly competitive, and no one competitor or small number of competitors is dominant across the country, although in certain locations some HMOs dominate the sales of traditional products. A large number of insurance companies and other entities compete in offering similar products. Competition exists both for employer-policyholders and for the employees in those instances where the employer offers the products of more than one company. Most group policies are subject to Company review and renewal on an annual basis, and policyholders may seek competitive quotations from several sources prior to renewal. The principal competitive factors that affect this segment are price; quality of service; scope, cost-effectiveness and quality of provider networks; product responsiveness to customers' needs; cost-containment services; and effectiveness of marketing and sales. Being responsive to the needs of employee-consumers as well as of employers is important. For certain products with longer-term liabilities, financial strength of the insurer as indicated by ratings issued by nationally recognized rating agencies is also a competitive factor. The principal competitors of CIGNA's group insurance and prepaid health care businesses are the large life and health insurance companies that provide group insurance, numerous Blue Cross and Blue Shield organizations, stand-alone HMOs, and HMOs sponsored by major insurance companies and hospitals. Competition also arises from smaller regional or specialty companies with strength in a particular geographic area or product line, administrative service firms and self-insurers. CIGNA is one of the largest investor-owned insurance company providers of group life and health indemnity insurance, based on premiums and premium equivalents. It is the largest investor-owned HMO, based on the number of members and the second largest provider of group long-term disability coverages, based on premiums. Health Care Reform Congress recessed in 1994 without enacting health care reform. Comprehensive national reform is not likely to be proposed again in 1995. Instead, CIGNA expects federal and state proposals addressing modest insurance reform and requiring managed care networks to admit any willing providers and placing other limitations on the ability of managed care companies to form and operate efficient networks of doctors, hospitals and pharmacies. Multiple layers of regulation would result if the states enacted legislation different from federal standards. Because any reform measures that will ultimately be adopted are not known, CIGNA cannot predict the effect that health care reform will have on its business operations. AIDS The impact of Acquired Immune Deficiency Syndrome ("AIDS") claims to date has not been material for CIGNA. However, the U.S. Center for Disease Control has projected substantial increases in the number of AIDS cases and related deaths in the general population. If such projected increases occur, they will result 6 9 in higher life and health benefits claims. CIGNA anticipates that most AIDS claims in its Employee Life and Health Benefits business should be recoverable through the experience-rating process and appropriate rate increases for guaranteed-cost and prepaid products. D. Employee Retirement and Savings Benefits General CIGNA's Employee Retirement and Savings Benefits businesses provide investment products and professional services primarily to sponsors of qualified pension, profit-sharing and retirement savings plans. These products and services are marketed through CG Life and certain other subsidiaries. Net earned premiums and fees for, and deposits to, general, separate and investment advisory accounts for this segment for the year ended December 31, were as follows:
1994 1993 1992 ------ ------ ------ (IN MILLIONS) Premiums and Fees: General Account: Guaranteed..................................................... $ 63 $ 151 $ 110 Experience-rated............................................... 91 99 96 ------ ------ ------ 154 250 206 Separate Accounts................................................ 47 46 42 ------ ------ ------ Total Premiums and Fees........................................ $ 201 $ 296 $ 248 ====== ====== ====== Deposits: General Account: Guaranteed..................................................... $ 166 $ 102 $ 411 Experience-rated............................................... 1,235 1,457 1,640 ------ ------ ------ 1,401 1,559 2,051 Separate Accounts................................................ 1,931 1,177 512 Investment Advisory Accounts..................................... 61 75 43 ------ ------ ------ Total Deposits................................................. $3,393 $2,811 $2,606 ====== ====== ======
Assets under management for this segment as of December 31 were as follows:
1994 1993 1992 ------- ------- ------- (IN MILLIONS) General Account(1): Guaranteed.................................................. $ 3,934 $ 4,259 $ 3,933 Experience-rated............................................ 16,380 17,281 16,937 ------- ------- ------- 20,314 21,540 20,870 Separate Accounts............................................. 12,917 12,301 11,223 Investment Advisory Accounts.................................. 651 628 643 ------- ------- ------- Total(1).................................................. $33,882 $34,469 $32,736 ======== ======== ========
--------------- (1) General Account assets under management reflect unrealized appreciation (depreciation) of ($233) million and $521 million as of December 31, 1994 and 1993, respectively, as a result of SFAS No. 115. Principal Products and Markets CIGNA offers a broad range of products to both defined benefit and defined contribution pension plans, profit-sharing plans and retirement savings plans. CIGNA's primary marketing emphasis is on defined contribution plans, which provide for participant accounts with benefits based upon the value of contributions to, and investment returns on, the individual's account. This has been the fastest growing portion of the pension marketplace in recent years. Defined contribution plan assets amounted to approximately $16.6 bil- 7 10 lion, or 49% of assets under management for this segment as of December 31, 1994, compared with $16.3 billion, or 47%, as of December 31, 1993. The balance of this segment's assets under management relate to defined benefit plans, under which annual retirement benefits are fixed or defined by a benefit formula. CIGNA sells investment products and investment management services, either separately or as full-service packages with administrative and other professional services, to pension plan sponsors. Traditionally, CIGNA's marketing emphasis has been on sales of full-service products that include investment management and pension services to middle market customers with plan assets of up to $50 million. In recent years, however, this emphasis has expanded to include sales to sponsors of larger plans that look to more than one entity to provide actuarial, administrative or investment services and products, or combinations thereof. For defined contribution plans, principally 401(k) plans, CIGNA markets products that offer investment management services and plan level and participant recordkeeping, as well as employee communications, enrollment, plan design, technological support and other consulting services. For defined benefit plans, CIGNA offers investment, administrative and professional services, including recordkeeping, plan documentation, and actuarial valuation and consulting. Investment management services for CIGNA's defined contribution and defined benefit products are provided by CIGNA and by third-party managers. In addition, CIGNA offers single premium annuities, both on guaranteed and experience-rated bases, and guaranteed investment contracts ("GICs"), which provide guarantees of principal and interest with a fixed maturity date. Pension products are supported by the general asset account ("General Account") and segregated accounts ("Separate Accounts") of CG Life. The General Account supports both guaranteed and experience-rated contracts. Guaranteed contracts comprise single premium annuities and GICs. As of December 31, 1994, guaranteed single premium annuities accounted for $2.6 billion and GICs accounted for $1.3 billion of General Account assets under management for the Employee Retirement and Savings Benefits segment, compared with $2.8 billion and $1.5 billion as of December 31, 1993. For 1994, the interest rate on reserves for guaranteed single premium annuities ranged from 3.25% to 12.75%, with a weighted average of 8.37%. The rate of interest credited in 1994 on CIGNA's GICs ranged from 5.60% to 12.10%, with a weighted average rate of 8.63%. CIGNA's GICs and single premium annuities generally do not permit withdrawal by the plan sponsor prior to maturity, except that GICs permit withdrawal at market value in the event of plan termination. None of the GICs include renewal clauses. Payouts associated with GICs have not been material to the Company's liquidity and capital resources. Experience-rated contracts that are supported by the General Account have no fixed maturity dates and provide for transfer of net investment experience (including impairments and non-accruals) to policyholders through credited interest and termination provisions. Credited interest rates on experience-rated contracts supported by the General Account are generally declared annually in advance and may be changed prospectively by the Company from time to time. Credited interest rates reflect investment income and realized gains and losses. Credited interest rates for 1994 ranged from 5.00% to 9.50%, with a weighted average rate of 6.42%. The termination provisions of $4.2 billion, or 100%, of the Company's liability for experience-rated defined benefit contracts supported by the General Account that are subject to withdrawal, and the termination provisions of $3.6 billion, or 37%, of the Company's liability for experience-rated defined contribution contracts supported by the General Account, provide the policyholder with essentially two options for withdrawal of assets upon election to terminate: (a) a lump sum at market value; or (b) annual installments. Under the market value method, the Company approximates the market value of the underlying investments by discounting expected future investment cash flows from investment income (including the effect of non-accruals) and repayment of principal, including the effect of impaired assets. The discount rate assumed is based on current market interest rates. Under the installment method, 100% of the contractholder book value is paid, usually over not more than 10 years. Interest is credited over the installment period under a formula derived to pass investment gains and losses (reflecting non-accruals and impairments) through to policyholders. Withdrawals under the installment method have not been material to the Company. 8 11 The termination provisions of $6.1 billion, or 63%, of the Company's liability for experience-rated defined contribution contracts supported by the General Account contain a book value mechanism for withdrawal at policyholder termination. Under certain circumstances, payout of book value is subject to deferral and the rate of interest credited may be reduced for the recovery of investment losses (including non-accruals and impairments). The Separate Accounts allow customers the flexibility to invest in specific portfolios and participate directly in the investment results. Investment options include publicly traded bonds, private placement bonds, equities, real estate, mutual funds and short-term securities. Approximately $8.4 billion, or 65%, of the assets in the Separate Accounts support experience-rated contracts under which the risks and benefits of investment performance generally accrue to the customers. The remaining assets in the Separate Accounts are held under experience-rated contracts that guarantee a minimum level of benefits. As of December 31, 1994 and 1993, the amount of minimum benefit guarantees under these contracts was $4.5 billion and $4.9 billion, respectively. Reserves in addition to the Separate Account liabilities are established when CIGNA believes a payment will be required under one of these guarantees. As of December 31, 1993, reserves of $6 million had been established to provide for the cost of interest guarantees. No additional reserves were required during 1994. For additional information, see Note 17 to CIGNA's 1994 Financial Statements. CIGNA monitors contract termination experience on an ongoing basis. Of those assets subject to withdrawal, persistency for 1994 was 93%, compared with 94% and 93% in 1993 and 1992, respectively. Distribution CIGNA's retirement products and services are distributed primarily through CG Life salaried group pension representatives both directly and through career agents, independent insurance agents and brokers, pension plan consultants, investment advisors and other service providers. As of December 31, 1994, CG Life had a field organization consisting of 63 pension sales representatives and 161 service consultants and administrative personnel located in offices across the United States. Pricing and Reserves CIGNA establishes reserves for experience-rated contracts in an amount equivalent to the contractholder funds on deposit with it, including liability for estimated experience refunds based upon the results of each contract. Profitability on these contracts is based primarily on margins included in charges for investment and administrative services and risk assumption. Premiums and fees for annuity products are based on assumptions as to mortality experience, investment returns, expenses and target profit margins. For guaranteed-cost contracts, the reserve established is the present value of expected future obligations based on these assumptions, with a margin for adverse deviation. Profitability on guaranteed-cost contracts is affected by the degree to which future experience deviates from these assumptions. 9 12 Competition The pension marketplace is highly competitive. CIGNA's competitors include other insurance companies, banks, mutual funds, investment advisors, and certain service and professional organizations. No one competitor or small number of competitors is dominant. Competition focuses on service, technology, cost, variety of investment options, investment performance and insurer financial strength as indicated by ratings issued by nationally recognized agencies. Business growth, as measured by assets under management, is expected to continue to be constrained by withdrawals and lower deposits resulting from decisions by pension plan sponsors to diversify assets and fund management. The largest single pension manager holds less than a 5% market share, as measured by assets under management. According to a survey published in "Pensions & Investments," CIGNA ranked 5th among insurers, and 13th among pension managers overall, in terms of pension and employee retirement savings plan assets under management. E. Individual Financial Services General CIGNA's Individual Financial Services businesses market a broad range of insurance and investment products and services to individuals and corporations. They also assume reinsurance of certain risks under policies written by other insurance companies. The following table sets forth the net earned premiums and fees and deposits for this segment.
YEAR ENDED DECEMBER 31, ---------------------------- 1994 1993 1992 ------ ------ ------ (IN MILLIONS) Premiums and Fees: Life................................................... $ 568 $ 513 $ 392 Health................................................. 55 55 57 Reinsurance............................................ 201 246 261 ------ ------ ------ Total premiums and fees.............................. $ 824 $ 814 $ 710 ====== ====== ====== Deposits, primarily for universal life products and annuities.............................................. $3,208 $2,506 $1,040 ====== ====== ======
10 13 The following table provides data on sales of new policies and additions to existing policies, terminations and life insurance in force for this segment, including assumed reinsurance, and reinsurance ceded to other companies.
YEAR ENDED DECEMBER 31, ---------------------------------- 1994 1993 1992 -------- -------- -------- (DOLLAR AMOUNTS IN MILLIONS EXCEPT AVERAGE SIZE POLICY IN FORCE) In force, beginning of the year.................... $ 81,273 $ 60,749 $ 56,510 -------- -------- -------- Sales and Additions(1): Permanent...................................... 15,248 23,551 7,055 Term........................................... 4,291 3,857 4,279 -------- -------- -------- Total............................................ 19,539 27,408 11,334 -------- -------- -------- Less Terminations: Surrenders and conversions..................... 2,068 1,813 2,139 Lapses......................................... 3,352 2,549 2,921 Other.......................................... 2,065 2,522 2,035 -------- -------- -------- Total............................................ 7,485 6,884 7,095 -------- -------- -------- In force, end of the year: Permanent........................................ 73,028 61,210 40,623 Term............................................. 20,299 20,063 20,126 -------- -------- -------- Total.......................................... $ 93,327 $ 81,273 $ 60,749 ========= ========= ========= Reinsurance ceded included above................... $ 17,147 $ 10,700 $ 9,971 ========= ========= ========= Number of policies in force: Participating.................................... 113,382 79,042 29,813 Non-participating................................ 404,045 410,633 414,389 -------- -------- -------- Total.......................................... 517,427 489,675 444,202 ========= ========= ========= Average size policy in force: By type: Participating.................................... $256,491 $243,239 $ 77,797 ========= ========= ========= Non-participating................................ $159,007 $151,101 $141,003 ========= ========= ========= By division: CIGNA Individual Insurance....................... $195,636 $178,639 $141,987 ========= ========= ========= CIGNA Reinsurance: Life, Accident, Health........ $130,907 $132,748 $124,213 ========= ========= ========= Individual Financial Services segment............ $180,368 $165,974 $136,879 ========= ========= =========
--------------- (1) For 1994 and 1993, $10 billion and $17 billion of sales and additions, respectively, were participating, with the remainder non-participating. For 1992, substantially all sales and additions were non-participating. As of December 31, 1994, total life insurance in force for this segment included assumed reinsurance of approximately $18.2 billion, compared with $17.1 billion as of December 31, 1993 and $16.6 billion as of December 31, 1992. In 1994, assumed reinsurance (included in sales and additions) totaled $3.9 billion, compared with $3.6 billion and $4.3 billion in 1993 and 1992, respectively. Individual Products CIGNA's individual insurance products include term and permanent life insurance, annuities and disability insurance. Term life insurance provides coverage for a stated period and pays a death benefit only if the insured dies within the period. Permanent life insurance, offered on a participating or non-participating 11 14 basis, provides coverage that does not expire after a term of years and builds a cash value that equals the full policy amount if the insured is alive on the policy maturity date. In participating insurance, policyholders directly participate in policy earnings through dividends. Non-participating insurance does not pay dividends, but deviations from assumed experience may be reflected in the policyholder's future premium payments. Products that provide permanent coverages include whole life, universal life and variable universal life. Whole life provides fixed benefits and level premium payments. Universal life provides benefits that fluctuate with the amount of variable premiums paid, and interest credits, mortality and expense charges made, to the policy. Premiums and benefits in universal life products vary with the design of the benefits being funded. Variable universal life provides benefits that also fluctuate, but with the performance of one or more investment accounts. CIGNA offers both fixed and variable annuity products. Fixed annuities accumulate value at a fixed rate of interest on the invested payments. Variable annuities accumulate value at levels determined by the contractholder's allocation of payments among a portfolio of mutual funds and fixed rate accounts and the underlying investment performance of the selected funds (less applicable expense and contract charges). Annuity sales continue to grow; sales totaled $660 million in 1994 and $150 million in 1993. Full year 1995 annuity sales are expected to significantly exceed 1994 levels. CIGNA also markets a number of individual investment products (including mutual funds) and fee-based financial planning services. Principal markets for life insurance products and services sold to individuals are affluent executives, professionals and small business owners (typically with income above $100,000 and net worth of $1.5 million or more). Annuities are generally marketed to upper-middle to affluent customers of banks and stock brokerage firms. Individual insurance products are also sold to corporations to provide coverage on the lives of certain of their employees. Principal markets for corporate-owned life insurance ("COLI") are Fortune 1000 companies. The COLI market and sales volume for COLI products tend to be volatile. During 1994 and 1993, the face amount of new sales (as shown in the preceding table) includes COLI universal life business issued on a participating basis of approximately $10 billion and $17 billion, respectively. Changes in permanent sales and in force, reinsurance ceded, and the number and average size of participating policies are primarily attributable to COLI. 1993 was the first year CIGNA issued COLI universal life on a participating basis. As of December 31, 1994 and 1993, approximately 63% and 70%, respectively, of CIGNA's individual life insurance in force was non-participating permanent, which includes interest-sensitive products such as universal life. This change in business mix resulted from the sale of participating COLI mentioned above. Interest credited on whole life products is equal to or above a minimum guaranteed rate. For interest-sensitive products, credited interest rates vary with the characteristics of each product and the anticipated investment results of the assets backing these products. Where credited interest exceeds the guaranteed rate, the excess is used to purchase additional insurance or increase cash values. Credited interest rates on interest-sensitive products for 1994 ranged from 4.1% to 8.3%. Interest rates for policy loans on individual life insurance products are defined in the contract and are either variable or fixed. Variable interest rates are tied to an external index and may be subject to a specified minimum rate. The interest rates charged to the policyholder on borrowed funds ("loan rates") are generally greater than the interest rates credited to the policyholder on those funds, and such loan rates and the related credited interest rates tend to move in tandem as interest rates fluctuate. A large portion of the contracts that provide for fixed rates also provide for a relatively constant spread between the policy loan rate and the related credited interest rate. Most individual life insurance products have surrender charges to recover policy acquisition costs and to encourage persistency. Persistency for these products was approximately 95% in 1994, 1993 and 1992. 12 15 Reinsurance Products Reinsurance products sold through this segment include coverages for part or all of the risks under policies written by other insurance companies for group life and health, individual life and health, and special risks, such as personal accident and workers' compensation catastrophe coverages. The principal markets for these products are individual and group life, accident and health insurers; special risk and workers' compensation units of property-casualty insurers; and self-insured employers. Reinsurance coverages generally extend for the same duration as the underlying direct policies: from one year or less for group, special risk and individual life term policies, to time of lapse or expiration at death for permanent individual life and individual health policies. Most permanent reinsurance coverages have recapture charges to recover policy acquisition costs and to encourage persistency. Distribution As of December 31, 1994, CG Life sold individual insurance products primarily through approximately 725 full-time career agents and through independent agents and brokers. COLI products are sold primarily through brokers. Investment products are sold through the career agents, who are also registered representatives of a CIGNA broker-dealer. Annuities are distributed through stockbrokers and banks as well as through career agents. The COLI marketplace is dominated by a limited number of brokers. The volume of business from each of the brokers with whom CIGNA has a relationship tends to fluctuate over time. Approximately 75% of COLI sales in 1994 were placed through one broker, the loss of which might have an adverse effect on new sales of corporate-owned participating universal life insurance. Reinsurance products are sold in the United States, Canada, Europe and Latin America through a small sales force and through domestic and foreign intermediaries. Pricing, Reserves and Reinsurance Premiums for life and disability insurance, annuities and assumed reinsurance are based on assumptions about mortality, morbidity, persistency, expenses and target profit margins as well as interest rates and competitive considerations. The long-term profitability of individual products is affected by the degree to which future experience deviates from these assumptions. Fees for universal life insurance products consist of mortality, administration and surrender charges assessed against the policyholder's fund balance. Interest credits and mortality charges for universal life, and mortality charges on variable premium products, may be adjusted prospectively to reflect expected interest and mortality experience. Dividends on participating insurance products may be adjusted to reflect prior experience. For individual disability, annuity, traditional and variable premium life insurance and individual life and health reinsurance in force, CIGNA establishes policy reserves that reflect the present value of expected future obligations less the present value of expected future premiums. For universal life insurance, CIGNA establishes reserves for deposits received and investment income credited to the policyholder, less mortality, administration and surrender charges assessed against the policyholder's fund balance. In addition, for all individual and reinsurance products, CIGNA establishes claim reserves for claims received but not yet paid, based on the amount of the claim received, and for claims incurred but not reported, based on prior claim experience. CIGNA maintains a variety of ceded reinsurance agreements with non-affiliated insurers to limit its exposure to large life and health losses and to multiple losses arising out of a single occurrence. Although such reinsurance does not discharge CIGNA from its obligations on insured risks, CIGNA's exposure to losses is reduced by the amount of reinsurance ceded, provided that reinsurers meet their obligations. 13 16 Competition The individual insurance, annuity and investment businesses are highly competitive. No one competitor or small number of competitors dominates. More than 1,000 domestic life insurance companies may offer one or more individual insurance and annuity products, and approximately 40 companies may offer one or more reinsurance products, similar to those offered by CIGNA. In addition, some of CIGNA's individual financial businesses compete with non-insurance organizations, including commercial and savings banks, investment advisory services, investment companies and securities brokers. Competition focuses on product, service, price, distribution method and the financial strength of the insurer as indicated by ratings issued by nationally recognized agencies. CIGNA has benefited competitively from CG Life's financial strength and stability and from the quality of its distribution systems. The COLI marketplace is also highly competitive. The Company principally competes with approximately half of the 25 largest domestic life insurance companies that may offer one or more COLI products. Competition in this market focuses primarily on product design, underwriting, price, administrative servicing capabilities and insurer financial strength, as indicated by ratings issued by nationally recognized agencies. Based on information published by A.M. Best, CG Life was the 22nd largest U.S. individual life insurer in terms of aggregate individual life insurance in force and the 5th largest in terms of direct premiums. Other Matters CIGNA does not expect AIDS claims, discussed on page 6, to have a significant effect on the results of operations of this segment. Where appropriate, and to the extent permissible under applicable law, CIGNA tests for AIDS antibodies and considers AIDS information in underwriting coverages and setting rates. Legislation or regulatory action may be introduced that could change the policyholder tax treatment of certain of the Company's interest-sensitive products and, thus, adversely affect future sales and persistency of such products. F. Property and Casualty Principal Products and Markets CIGNA's property and casualty operations provide insurance for customers in the United States and international markets, primarily Europe, the Pacific region, Latin America and Canada. During 1994, United States and international markets constituted approximately 48% and 52%, respectively, of the total earned premiums and fees for this segment. CIGNA provides insurance coverage under standard risk transfer arrangements and provides coverages and services for customers who wish to increase their levels of risk retention or to self-insure. In the domestic market, principal product lines include workers' compensation, commercial packages, casualty (including commercial automobile and general liability), property, and marine and aviation. In international markets, principal product lines include individual life, accident and health, and commercial property and casualty (primarily fire, general and excess liability, automobile, marine, energy and other specialty lines). During 1994, CIGNA substantially withdrew from the domestic and international property and casualty reinsurance business because of continuing losses and the level of capital that would have been required to become sufficiently competitive in that business. Approximately $450 million of premiums and fees were earned from that business in 1994, of which $100 million in premiums will continue to be written on a direct basis through the domestic operation. CIGNA continued in 1994 to implement strategic changes in its domestic operations in line with its specialist strategy and to improve operating results. Changes in the mix of business have continued. For example, in the specialty insurance market, CIGNA has discontinued writing insurance for the large domestic airline carriers and in 1993 divested its construction contract surety bond business. In the specialty market, CIGNA is focusing on recreational marine, property coverage placed through mortgage lenders and other 14 17 programs in which specialist agents and brokers share underwriting and processing expertise with CIGNA. Also, CIGNA has essentially eliminated writing domestic voluntary personal automobile insurance. In the medium-sized risk market, CIGNA is reducing the number of individual risks written, and increasing production of group business, such as through affinity groups, associations and national broker blocks of business. In addition, CIGNA is focusing its writings of workers' compensation business that involves standard risk transfer in states with regulatory climates in which the Company believes it can operate profitably. In the large-risk market, CIGNA continues to emphasize sales of petroleum, technical and general property coverages to large insureds as well as sales of complex, loss-sensitive casualty coverages to customers choosing to increase their risk retention. Management of runoff lines of business in the Property and Casualty segment and of asbestos-related, environmental pollution and other long-term exposure claims is being consolidated in an effort to increase its efficiency. CIGNA generally attempts to protect itself from economic loss arising from foreign exchange exposure in its international operations by maintaining invested assets abroad that are currency matched in support of its foreign obligations. For information on the effect of foreign exchange exposure on CIGNA, see Notes 1(Q) and 13 to CIGNA's 1994 Financial Statements. CIGNA's domestic subsidiaries are members of, or participate in, various voluntary associations and syndicates that facilitate the underwriting of large or highly concentrated risks. The associations distribute the risks assumed among the members, provide specialized inspection and engineering services and may use special forms of coverage to control overall exposures. Regulatory authorities also require the participation of CIGNA's domestic subsidiaries in various joint underwriting authorities, pools and other arrangements created to provide insurance coverage to the residual market, including workers' compensation pools that have historically been unprofitable and represent a cost of conducting business in certain jurisdictions. In recent years CIGNA has attempted to minimize the adverse financial effect of such pools through pricing actions. The Company routinely provides property coverages that involve insuring large risks such as office buildings. Any major catastrophe, with or without giving effect to reinsurance, could have a material adverse effect on CIGNA's results of operations. However, because the Company, through its normal risk assessment and accumulation processes monitors writings to avoid significant concentrations, it is not likely that such adverse effect would be material to the Company's liquidity or financial condition. 15 18 The following table sets forth geographic distribution of GAAP net earned premiums and fees for the products of this segment.
YEAR ENDED DECEMBER 31, ---------------------------------------------------- 1994 1993 1992 -------------- -------------- -------------- (DOLLAR AMOUNTS IN MILLIONS) Domestic: California........................................ $ 372 7% $ 408 8% $ 439 8% New Jersey........................................ 219 4 252 5 259 4 Texas............................................. 208 4 233 5 292 5 New York.......................................... 207 4 287 6 383 7 Florida........................................... 128 3 154 3 184 3 Pennsylvania...................................... 122 3 205 4 214 4 Illinois.......................................... 100 2 115 2 145 2 Massachusetts..................................... 99 2 122 2 160 3 All other......................................... 982 19 1,088 21 1,336 23 ------ --- ------ --- ------ --- Total Domestic.................................. $2,437 48% $2,864 56% $3,412 59% ------ --- ------ --- ------ --- International: Japan............................................. 989 20 810 16 650 11 United Kingdom.................................... 468 9 412 8 482 8 Belgium........................................... 128 3 169 3 196 4 France............................................ 109 2 101 2 142 3 All other......................................... 912 18 780 15 878 15 ------ --- ------ --- ------ --- Total International............................. $2,606 52% $2,272 44% $2,348 41% ------ --- ------ --- ------ --- Total........................................... $5,043 100% $5,136 100% $5,760 100% ====== ==== ====== ==== ====== ====
--------------- For 1994, 1993 and 1992, earned premiums and fees were substantially the same as written premiums. Premiums and fees for the domestic and international reinsurance business from which CIGNA withdrew late in 1994 are included in the table. CIGNA's property and casualty insurance subsidiaries provide loss protection to insureds in exchange for premiums. If earned premiums exceed the sum of losses, commissions to agents or brokers, other operating expenses and policyholders' dividends, underwriting profits are realized. The "combined ratio" is a frequently used measure of property and casualty underwriting performance. On a GAAP basis, this ratio is the sum of (i) the ratio of incurred losses and associated loss expenses to earned premiums (the "loss and loss expense ratio"), (ii) the ratio of expenses incurred for sales commissions, premium taxes, administrative and other operating expenses to earned premiums (the "expense ratio") and (iii) the ratio of policyholders' dividends to earned premiums (the "policyholder dividend ratio"), each of these three ratios being expressed as a percentage. The statutory combined ratio differs from the GAAP ratio primarily in that the expense ratio and the policyholder dividend ratio are calculated as a percent of written premiums, rather than earned premiums. When the combined ratio is over 100%, underwriting results are not profitable. The GAAP combined ratios for CIGNA's property and casualty product lines and total property and casualty operations are shown in the table on page 17. Because time normally elapses between the receipt of premiums and the payment of claims and certain related expenses, funds become available for investment by CIGNA. The combined ratio does not reflect investment income from these funds, investment gains and losses, results of non-insurance business, or federal income taxes. Such items, when added to underwriting profits or losses, produce net income or loss. For information concerning investment income, see "Investments and Investment Income -- Property and Casualty Investments" on pages 32 and 33. 16 19 The following tables set forth GAAP net earned premiums and fees, underwriting results, combined ratios and net investment income for this segment.
YEAR ENDED DECEMBER 31, ------------------------------------------------------- 1994 1993 1992 --------------- ---------------- ---------------- (DOLLAR AMOUNTS IN MILLIONS) Premiums and Fees/Percent of Total Premiums and Fees: Domestic Lines: Workers' compensation................................ $ 578 12 % $ 710 14 % $ 1,045 18 % Commercial packages.................................. 456 9 611 12 737 13 Casualty............................................. 455 9 457 9 669 12 Property............................................. 240 5 243 5 223 4 Marine and aviation.................................. 195 4 181 3 146 3 Personal automobile.................................. 125 2 129 2 126 2 Homeowners........................................... 86 2 102 2 110 2 Other................................................ 74 1 95 2 72 1 ------ ----- ------- ----- ------- ----- Total.............................................. 2,209 44 2,528 49 3,128 55 International (excluding international reinsurance).... 1,469 29 1,293 25 1,403 24 Reinsurance (including international reinsurance)...... 448 9 537 11 601 10 International life and health.......................... 917 18 778 15 628 11 ------ ----- ------- ----- ------- ----- Total Premiums and Fees......................... $5,043 100 % $ 5,136 100 % $ 5,760 100 % ====== ===== ======== ===== ======== ===== Underwriting Gain (Loss)/Combined Ratios: Domestic Lines: Workers' compensation................................ $ (103) 117.7% $ (130) 118.4% $ (197) 118.8% Commercial packages.................................. (196) 143.1 (255) 141.8 (247) 133.5 Casualty............................................. (120) 126.5 (266) 157.9 (46) 107.0 Property............................................. (60) 124.8 (101) 141.7 (126) 156.7 Marine and aviation.................................. (16) 108.2 (30) 116.9 (49) 133.8 Personal automobile.................................. (62) 149.7 (64) 149.9 (76) 159.8 Homeowners........................................... (30) 135.2 (14) 113.9 (15) 113.4 Other................................................ (35) 147.8 (5) 105.0 (6) 108.6 ------ ------- ------- Total.............................................. (622) 128.2 (865) 134.2 (762) 124.3 International (excluding international reinsurance).... 24 98.4 (69) 105.4 (183) 113.0 Reinsurance (including international reinsurance)...... (114) 125.3 (132) 124.5 (462) 177.0 ------ ------- ------- Underwriting loss after policyholder dividends-operations................................. (712) 117.3 (1,066) 124.4 (1,407) 127.4 Asbestos and environmental losses(1)................... (275) 6.6 (565) 13.0 (197) 3.9 ------ ------- ------- Underwriting Loss/Combined Ratio: After Policyholders' Dividends.............. $ (987) 123.9 $(1,631) 137.4 $(1,604) 131.3 ====== ======== ======== Before Policyholders' Dividends............. $ (897) 121.7 $(1,501) 134.4 $(1,615) 131.5 ====== ======== ======== Net investment income, pre-tax: Domestic............................................... $ 470 $ 486 $ 556 International.......................................... 207 186 185 Reinsurance............................................ 79 81 101 ------ ------- ------- Total.............................................. $ 756 $ 753 $ 842 ====== ======== ========
--------------- (1) Combined ratio amount represents the effect on GAAP combined ratio. While the above table is presented on a GAAP basis, industry results are more readily available on a statutory basis. CIGNA's statutory combined ratio after policyholders' dividends was 121.6 for 1994. CIGNA's results have been adversely affected in recent years by environmental pollution, asbestos-related and other long-term exposure losses. These losses accounted for 7.1 points on the 1994 statutory combined ratio. In addition, the results of CIGNA's domestic operations continue to reflect the competitive pricing environment. It is not known to what extent the types of losses reflected in CIGNA's combined ratio are also reflected in the combined ratios of other companies. The average statutory combined ratio for the nine months ended September 30, 1994 for companies that write at least 70% commercial coverage and file data with the 17 20 Insurance Services Office was 111.6%. However, caution should be exercised in using these data because it is not possible to compare meaningfully an individual company's combined ratio with an industry average due to numerous variables, including product mix and amounts of fee-for-service business, which differ among companies. Competition The principal competitive factors that affect the property and casualty products of this segment are (i) pricing; (ii) underwriting; (iii) quality of claims and policyholder services; (iv) operating efficiencies; and (v) product differentiation and availability. In the highly competitive environment of the past several years, CIGNA has reduced its premium volume rather than maintain business at inadequate prices, and its share of domestic markets has declined. Competition has intensified due to increased capacity in the insurance market resulting from growing capital supporting the industry. Perception of financial strength, as reflected in the ratings assigned to an insurance company, especially by A.M. Best, is also a factor in the Company's competitive position. The Best downgrade of some of CIGNA's domestic property and casualty subsidiaries to B+ (see page 2 for additional information) could result in lower premiums in certain lines of business, but is not expected to have a material effect on CIGNA's results of operations. In its international life insurance operations, CIGNA focuses on those market segments where it can compete effectively based on service levels and product design, and achieve an adequate level of profitability in the long term. It generally does not attempt to compete with large, entrenched local companies. In the United States, property and casualty insurance can be obtained through national and regional companies that use an agency distribution system, direct writers (who may have an employed agency force) or brokers, or through self-insurance, including the use by corporations of subsidiary captive insurers. Approximately 3,900 companies compete for this business in the United States and no single company or group of affiliated companies is dominant. In 1994 and 1993, CIGNA's domestic property and casualty statutory net written premiums amounted to approximately 0.9% and 1.1%, respectively, of the total market. Internationally, CIGNA competes directly with foreign insurance companies as well as with other U.S.-based companies. Based on information published by A.M. Best, CIGNA's domestic property and casualty insurance subsidiaries rank 19th in annual net premiums written. CIGNA is the sixth largest U.S. writer of commercial multi-peril coverages, 13th largest of workers' compensation coverages and 12th largest of commercial auto coverages. Based on revenues, CIGNA's international operations are the second largest U.S.-based provider of international insurance products and services. Distribution In the United States, CIGNA markets its insurance products principally through independent agents and brokers. In the medium-sized risk market, CIGNA has reduced the number of agents through which it markets its products to focus on those producers who historically have provided more profitable business, to better manage the change in business mix described on pages 14 and 15 and to reduce expenses associated with writing the business. In addition, CIGNA has increased the use of brokers in the medium-sized risk market in an effort to increase the amount of group business that is written. In the international marketplace, property and casualty coverage is sold primarily through brokers. A network of offices in about 50 jurisdictions provides claims and account services to international customers and brokers. Life, accident and health insurance products are sold in the international marketplace through approximately 7,000 brokers and agents. Ceded Reinsurance To protect against losses greater than the amount that it is willing to retain on any one risk or event, CIGNA purchases reinsurance from unaffiliated insurance companies. The Company is not substantially dependent upon any single reinsurer. The Company's largest aggregation of reinsurance recoverables as of 18 21 December 31, 1994 and 1993, at approximately 9% for each year, was with syndicates affiliated with Lloyd's of London, with such recoverables spread over more than 100 syndicates. In addition, approximately 40% of CIGNA's reinsurance recoverables as of December 31, 1994 relate to individual reinsurers that carry a very good or higher financial rating from an independent rating agency, and approximately 20% and 10%, respectively, relate to pools and captives, under which CIGNA's assets are generally protected through future industry assessments or by some form of collateral. A large portion of the remaining recoverables are due from reinsurers that meet CIGNA's security standards and selection criteria described in the following paragraph. Although reinsurance does not discharge CIGNA from its obligations on insured risks, CIGNA's exposure to losses is reduced by the amount ceded, and thus will be limited to the amount of risk retained, provided that reinsurers meet their obligations. The collectibility of reinsurance is largely a function of the solvency of reinsurers. CIGNA cedes risk to reinsurers who meet certain financial security standards and monitors their quality and financial condition. In its selection and monitoring process, CIGNA examines its reinsurers' financial performance and reserve adequacy; considers factors such as the quality of their management; and considers ratings and reviews of them by independent sources. When deemed appropriate, CIGNA seeks collateral from reinsurers; reassumes, in return for a settlement, risks for which it had previously purchased reinsurance; and establishes allowances for potentially unrecoverable reinsurance. Reinsurance disputes can delay recovery of reinsurance and, in some cases, affect its collectibility. Disputes resulting in such delays have increased in recent years, particularly on larger and more complex claims, such as those related to professional liability, asbestos and London reinsurance market exposures. As of December 31, 1994, approximately 88% of CIGNA's reinsurance recoverable balance relates to unpaid reported claims and incurred but not reported claims, and the remaining 12% relates to paid losses. The timing and collectibility of reinsurance recoverables have not had, and are not expected to have, a material adverse effect on CIGNA's liquidity. CIGNA's allowance for unrecoverable reinsurance was $435 million and $405 million at December 31, 1994 and 1993, respectively. Losses for unrecoverable reinsurance were $29 million, $28 million and $89 million for 1994, 1993 and 1992, respectively. Of the loss for 1992, $62 million related to CIGNA's London reinsurance market exposures. Additional losses from unrecoverable reinsurance are likely to affect CIGNA's future results adversely, although the amounts and timing cannot be reasonably estimated. For additional information on reinsurance, including on CIGNA's property catastrophe reinsurance program, see pages 13 through 16 of the MD&A section and Notes 15 and 16 of CIGNA's 1994 Annual Report. Reserves General Significant periods of time may elapse between the occurrence of an insured loss, the reporting of the loss to the insurer and the insurer's payment of that loss. To recognize liabilities for unpaid losses, insurers establish "reserves," which are liabilities representing estimates of future amounts needed to pay claims and related expenses with respect to insured events that have occurred, including events that have not been reported to the insurer. After a claim is reported, except for a class of very small claims that typically are settled quickly, a "case reserve" is established by claims personnel for the estimated amount of the ultimate payment. The estimate reflects the informed judgment of such personnel, based on their experience and knowledge regarding the nature and value of the specific claim. Claims personnel review and update their estimates as additional information becomes available and claims proceed toward resolution. "Bulk reserves" are established on an aggregate basis (i) to provide for losses incurred but not yet reported to and recorded by the insurer; (ii) to provide for the estimated expenses of settling claims, including legal and other fees and general expenses of administering the claims adjustment process; and (iii) to adjust for the fact that, in the aggregate, case reserves may not accurately estimate the ultimate liability for reported 19 22 claims. As part of the bulk reserving process, CIGNA's historical claims data and other information are reviewed and consideration is given to the anticipated impact of various factors such as legal developments, economic conditions and changes in social attitudes. Insurance industry experience is also considered. With respect to asbestos-related, environmental pollution and certain other long-term exposure claims, CIGNA does not establish bulk reserves, except for the estimated expenses of settling reported claims and except for claims related to certain major asbestos manufacturers' policies. See below for a more detailed discussion of reserving for these claims. The reserving process relies on the basic assumption that past experience is an appropriate basis for predicting future events. The probable effects of current developments, trends and other relevant matters are also considered. Because the eventual deficiency or redundancy of reserves is affected by many factors, some of which are interdependent, there is no precise method for evaluating the adequacy of the consideration given to inflation or to any other specific factor affecting claims payments. However, the reserving process provides implicit recognition of the impact of inflation and other factors by taking into account changes in historic claims reporting and payment patterns. A number of analytical reserving techniques are used, which often yield differing results. Accordingly, estimating future claims costs is a complex and uncertain process. Because available claims data and other information are rarely definitive, the evaluation of such data's implications with respect to future losses requires the use of informed estimates and judgments. As additional experience and other data become available and are reviewed, the Company's estimates and judgments are revised and appropriate action is taken, which may include increases or decreases in CIGNA's estimate of ultimate liabilities for insured events of prior years. These increases or decreases, net of reinsurance, are reflected in results for the period in which the estimates are changed. CIGNA continually attempts to improve its loss estimation process by refining its ability to analyze loss development patterns, claims payments and other information, but there remain many reasons for adverse development of estimated ultimate liabilities. For example, the uncertainties inherent in the loss estimation process have grown in the last decade as loss estimates have become increasingly subject to changes in social and legal trends that expand the liability of insureds, establish new liabilities, and reinterpret insurance contracts to provide unanticipated coverage long after the related policies were written. As noted in the discussion below of asbestos-related, environmental pollution and other long-term exposure claims, such changes from past experience significantly affect the ability of insurers to estimate liabilities for unpaid losses and related expenses. In management's judgment, information currently available has been appropriately considered in estimating CIGNA's loss reserves. Prior Year Development The adverse pre-tax effects, net of reinsurance, during 1994, 1993 and 1992 on CIGNA's results of operations from insured events of prior years (prior year development) were $538 million, $789 million and $656 million, respectively. Of the prior year loss development during 1994, 57% was attributable to asbestos- related, environmental pollution and other long-term exposure claims, which are discussed below. The remaining prior year development is discussed on pages 14 through 16 of the MD&A section of CIGNA's 1994 Annual Report. Asbestos-related, Environmental Pollution and Other Long-term Exposure Claims CIGNA continues to receive claims related to asbestos, environmental pollution and other long-term exposure claims asserting a right to recovery under insurance policies issued by the Company. Liabilities for these claims cannot be estimated using standard actuarial methods because developed case law and adequate claim history do not exist for such claims. In addition, these claims differ from almost all others in that it is generally not clear that an insured loss has occurred and which, if any, of multiple policy years and insurers may be liable. These uncertainties prevent identification of applicable policies and policy 20 23 limits until after a claim is reported to the Company and substantial time is spent (many years in some cases) resolving contract issues and determining facts necessary to evaluate the claim. Estimating liabilities and recoveries for claims that will be asserted under assumed and ceded reinsurance policies is also subject to uncertainties similar to those affecting claims under direct policies. CIGNA expects its ceded reinsurance arrangements to continue to provide recoveries for future asbestos-related and environmental pollution losses. However, the extent of future recoveries will depend on future gross loss experience and the particular reinsurance arrangements to which future losses relate. Under current law, CIGNA expects these types of claims will continue to be reported for the foreseeable future. The claims to be paid, if any, and timing of any such payments depend on resolution of the uncertainties associated with them, and are expected to extend over several decades. For the reasons discussed above and further elaborated on below, CIGNA expects that its future results will continue to be adversely affected by losses and legal expenses for these types of claims. Because of the significant uncertainties involved, and the likelihood that they will not be resolved in the near future, CIGNA is unable to reasonably estimate the additional losses and expenses and, therefore, is unable to determine whether such amounts will be material to its future results of operations, liquidity or financial condition. The American Academy of Actuaries has initiated a project to develop standards for estimating currently unquantifiable liabilities. The project may examine unreported claims for asbestos-related, environmental pollution and certain other long-term exposures. In addition, various industry-related parties are attempting to develop methods to estimate pollution liabilities, including estimates based on a market share analysis. CIGNA is evaluating these methods to determine if they could be used in establishing reasonable estimates of reserves for unreported claims for asbestos-related, environmental pollution or other long-term exposures. The outcome and effect, if any, of these initiatives on CIGNA are not determinable at this time. Asbestos-related Claims Since 1985, CIGNA has carried reserves related to certain insurance policies issued for certain major asbestos manufacturers ("targets"), under which CIGNA expects to pay the limits of liability in most cases. These reserves (which include amounts for unreported claims) are generally equal to the policy limits of liability, minus payments made to date, plus an estimate of the associated future legal expenses. In 1994, after a review based on additional information, CIGNA concluded that the limits of liability of certain policies may not be fully paid for asbestos-related claims. Also, over time, based on available data, CIGNA has changed, and in the future may change, its assumptions regarding legal expenses, the effect of asbestos-in-building cases and recoveries from other insurers and reinsurers. In 1994, CIGNA adjusted its reserves carried for the targets to reflect both the review and its changed assumptions, which resulted in a net increase of $18 million. Future changes in assumptions could result in additional changes in the level of reserves carried for the targets. More recent asbestos bodily injury litigation has been filed against manufacturers and suppliers of diverse products that either contain asbestos or used it in the manufacturing process, as well as against contractors and building owners. There is inadequate history from which the Company can predict the number or types of policyholders that will receive asbestos-related claims, how many claims they will receive, the amounts of those future claims, the insurance coverages that might be called upon for defense and indemnification or the likelihood of those coverages having to respond to claims. Because the date of event for which insurance coverage might be determined is unclear, numerous policies with varying terms over many years may be involved. In addition to bodily injury cases, damage suits have been brought seeking reimbursement for the diminution in value of buildings containing asbestos materials and for the expense of removing and replacing asbestos insulation material and other building components made of asbestos. The Company and the insurance industry generally dispute that coverage applies to these asbestos-in-building claims. The financial effect of these claims on CIGNA's future results of operations is not expected to be significant. Within the various state and federal court systems, there have been conflicting decisions regarding the extent, if any, of the obligation of insurers to provide coverage and the method of allocation of costs among 21 24 involved insurers. Additional uncertainties are created by efforts to create novel dispute resolution procedures in response to the burden of asbestos litigation on the courts, such as the proposed global settlement of future asbestos bodily injury claims brought against certain asbestos producers, which is being contested in the courts. The majority of CIGNA's losses and legal expenses for asbestos-related claims arise from its domestic property and casualty operations. As of December 31, 1994, 1993 and 1992, respectively, approximately 1,175, 1,200 (including 140 previously not counted) and 950 policyholders had asbestos-related claims outstanding with the domestic operations. The number of policyholders with claims pending decreased during 1994. In 1994, CIGNA reached settlement agreements that extinguished its liability for all asbestos-related claims from several policyholders. CIGNA continues to litigate certain asbestos-related coverage issues, with 37 lawsuits pending as of December 31, 1994, compared with 35 pending as of December 31, 1993. It is not possible to determine the Company's potential liability for asbestos-related claims based on the number of policyholders with claims outstanding. Additional information (which is not known for unreported claims) would be needed for such determination, including the extent of coverage, the policyholder's liability for claims tendered to it, the injuries allegedly sustained by the policyholder's claimants and the number of claims pending against a policyholder. As discussed above, the lack of information on these and other matters prevents the estimation of liabilities for unreported asbestos-related claims. CIGNA establishes case reserves for reported asbestos-related claims as information permits, including for future legal and associated expenses for such reported claims. However, except for claims under the target manufacturers' policies discussed above, CIGNA does not establish reserves for unreported claims or for legal and associated expenses related to unreported claims because of the uncertainties described above. Reserve changes for asbestos-related claims before ("Gross") and after ("Net") the effects of reinsurance for the periods indicated are as follows:
YEAR ENDED DECEMBER 31, ---------------------------------------------------- 1994 1993 1992 -------------- -------------- -------------- GROSS NET GROSS NET GROSS NET ----- ---- ----- ---- ----- ---- (IN MILLIONS) Asbestos Bodily Injury Claims Beginning reserves..................................... $ 564 $216 $ 486 $166 $ 442 $168 Plus incurred claims and claim adjustment expenses..... 49 48 186 111 125 61 Less payments for claims and claim adjustment expenses............................................. (113) (51) (108) (61) (81) (63) ----- ---- ----- ---- ----- ---- Ending reserves........................................ $ 500 $213 $ 564 $216 $ 486 $166 ====== ===== ===== ===== ===== ===== Asbestos-in-Building Claims Beginning reserves..................................... $ 168 $ 97 $ 70 $ 47 $ 65 $ 40 Plus incurred claims and claim adjustment expenses..... 15 12 117 60 17 8 Less payments for claims and claim adjustment expenses............................................. (89) (41) (19) (10) (12) (1) ----- ---- ----- ---- ----- ---- Ending reserves........................................ $ 94 $ 68 $ 168 $ 97 $ 70 $ 47 ====== ===== ===== ===== ===== =====
The incurred claims and claim adjustment expenses for 1993 include the establishment of reserves of $106 million ($72 million, net of reinsurance) for future legal and associated expenses for reported claims. Environmental Pollution Claims The principal federal statute that requires cleanup of environmental damage is the Comprehensive Environmental Response, Compensation and Liability Act ("Superfund"), passed in 1980. It imposes liability on "Potentially Responsible Parties" ("PRPs"), subjecting them to liability for cleanup costs regardless of fault, time period and relative contribution of pollutants. The tax authority of Superfund expires in 1995, and proposals to change the law's method of allocating responsibility for, or funding, cleanup are expected. Any such changes could affect the liabilities of policyholders and insurers. Due to uncertainties associated with the 22 25 timing and content of any future Superfund legislation, CIGNA is not able to determine what effect, if any, such legislation would have on its results of operations, liquidity or financial condition. In addition to Superfund, other federal environmental statutes exist, and state environmental statutes are, in some cases, stricter than the federal statutes. In addition to cleanup costs, environmental pollution may give rise to claims for bodily injury and property damage. Those identified as potentially responsible for environmental pollution typically assert that their liability is insured. As a result, CIGNA's environmental pollution claims have escalated rapidly since 1985, and a substantial and growing number of legal actions that involve insurers, including CIGNA, have been brought to determine insurance coverage issues. CIGNA and other insurers dispute coverage for the environmental liabilities of policyholders. Fundamental legal questions that will ultimately determine whether or not insurers have an obligation to provide coverage are being vigorously litigated, and there is no consistency among the court decisions nationwide on these questions. Additional uncertainty arises because of the varying types and terms of policies, which may or may not provide for the costs of defense or contain a form of pollution exclusion. Pollution exclusions may be absolute or may allow coverage for certain sudden and accidental events. The estimation of reserves for reported environmental pollution claims is difficult and likely to change as additional information emerges. Even if coverage issues on a particular claim are ultimately resolved in favor of the policyholder, that result may not be useful in setting reserves on other claims because of complex factual variations between sites, policyholders and policies. For example, at any given Superfund site, the allocation of liability varies greatly, depending on such factors as the amount and relative toxicity of the material contributed, extent of impairment to the environment and ability to pay. A PRP may have no liability, may share responsibility with others or may bear the cost alone. According to the Environmental Protection Agency, the average time period between issuance of initial notice of PRP status and determination of the method and cost of a site cleanup now averages about 10 years. The issues have been resolved for relatively few waste sites. The majority of CIGNA's losses and expenses for environmental pollution claims arise from its domestic property and casualty operations. As of December 31, 1994, 1993 and 1992, respectively, the domestic operations had approximately 15,000, 13,300 and 9,200 environmental pollution files outstanding. During 1994, 1993 and 1992, new claim files opened were approximately 2,750, 4,500 (including approximately 1,300 files previously not counted) and 2,500, respectively, and pending claim files dismissed, settled or otherwise resolved were approximately 1,050, 400 and 300, respectively. Recognizing the disputed nature of these claims, files are not closed unless settlement terms are reached, a claim is withdrawn or a court interprets policy language favorably to CIGNA. A file represents each policyholder involved at a site, regardless of the number or type of claims asserted against the policyholder or the number or type of insurance policies (primary or excess) under which coverage is asserted. CIGNA disputes coverage for essentially all environmental pollution claims, and is involved in 450 coverage lawsuits as of December 31, 1994, compared with 472 as of December 31, 1993. Accordingly, and because of the many unresolved legal and factual issues described above, liabilities cannot be estimated based on the number of environmental pollution files outstanding. CIGNA establishes case reserves for reported environmental pollution claims as information permits, including for future legal and associated expenses for such reported claims. However, CIGNA does not establish reserves for unreported claims or for legal and associated expenses related to unreported claims because of the uncertainties described above. 23 26 Reserve changes for environmental pollution claims before ("Gross") and after ("Net") the effects of reinsurance for the periods indicated are as follows:
YEAR ENDED DECEMBER 31, ----------------------------------------------------- 1994 1993 1992 --------------- -------------- -------------- GROSS NET GROSS NET GROSS NET ----- ----- ----- ---- ----- ---- (IN MILLIONS) ENVIRONMENTAL POLLUTION CLAIMS Beginning reserves................................... $ 593 $ 430 $ 252 $148 $ 192 $ 98 Plus incurred claims and claim adjustment expenses... 280 215 482 394 197 127 Less payments for claims and claim adjustment expenses........................................... (166) (103) (141) (112) (137) (77) ----- ----- ----- ---- ----- ---- Ending reserves...................................... $ 707 $ 542 $ 593 $430 $ 252 $148 ====== ====== ====== ===== ===== =====
Incurred claims and claim adjustment expenses for 1993 include the establishment of reserves of $335 million ($268 million, net of reinsurance) for future legal and associated expenses for reported claims. Beginning and ending reserve balances and related incurred expense and payment activity for environmental pollution claims include internal costs to manage environmental pollution claims and disputes with policyholders over insurance coverage issues as well as external litigation-related costs for such disputes. Costs associated with the disputed coverage issues will decline in the future, and eventually end, as the disputes or related issues are resolved. To present reserve changes that more directly relate to indemnity costs and costs to defend policyholders against environmental pollution claims, the following summary excludes internal costs and external litigation-related costs for insurance coverage disputes.
YEAR ENDED DECEMBER 31, ---------------------------------------------------- 1994 1993 1992 -------------- -------------- -------------- GROSS NET GROSS NET GROSS NET ----- ---- ----- ---- ----- ---- (IN MILLIONS) Beginning reserves.................................... $ 444 $285 $ 252 $148 $ 192 $ 98 Plus incurred claims and claim adjustment expenses.... 207 142 295 211 162 92 Less payments for claims and claim adjustment expenses............................................ (93) (30) (103) (74) (102) (42) ----- ---- ----- ---- ----- ---- Ending reserves....................................... $ 558 $397 $ 444 $285 $ 252 $148 ===== ===== ====== ===== ====== =====
Other Long-term Exposure Claims Other long-term exposure claims typically assert injuries from a substance, such as the drug DES, lead or breast implants, which are manifested over an extended period of time. These claims may involve multiple policies, policyholders and insurers, with uncertainties similar to those affecting asbestos-related claims, in resolving whether, and which, insurers may be liable. In addition, there are questions as to which, if any, injuries or damages are caused by the particular product or substance. 24 27 CIGNA's losses and legal expenses for other long-term exposure claims primarily arise from its domestic property and casualty operations. As of December 31, 1994, 1993 and 1992, respectively, approximately 1,020, 1,000 and 700 policyholders had other long-term exposure claims outstanding with the domestic operations. The 1993 amount includes approximately 250 policyholders previously not counted. CIGNA continues to litigate other long-term exposure coverage disputes, with 42 lawsuits pending as of December 31, 1994, compared with 47 pending as of December 31, 1993. CIGNA establishes case reserves for reported long-term exposure claims as information permits, including for future legal and associated expenses for such reported claims. However, CIGNA does not establish reserves for certain classes of unreported claims or for legal and associated expenses related to certain classes of unreported claims because of the uncertainties described above. The incurred claims and claim adjustment expenses, net of reinsurance, for other long-term exposures were $31 million, $76 million and $16 million for 1994, 1993 and 1992, respectively. The incurred claims and claim adjustment expenses in 1993 for other long-term exposure claims reflect the establishment of reserves of $35 million, net of reinsurance, for future legal and associated expenses for reported claims. Reserve Analysis A reconciliation of total beginning and ending reserve balances of the Property and Casualty segment for unpaid claims and claim adjustment expenses for the years ended December 31, 1994, 1993 and 1992 is provided in Note 16 to CIGNA's 1994 Annual Report. The table on page 26 presents the subsequent development of the estimated year-end property and casualty reserve, net of reinsurance ("net reserve") for the 10 years prior to 1994. The first section of the table shows the estimated net reserve that was recorded at the end of each of the indicated years for all current and prior year unpaid claims and claim adjustment expenses. The second section shows the cumulative percentages of such previously recorded net reserve paid in succeeding years. The third section shows, as a percentage of such net reserve, the re-estimates of the net reserve made in each succeeding year. The indicated deficiency as shown in the table represents the aggregate change in the reserve estimates from the original balance sheet dates through 1994. The amounts noted are cumulative; that is, an increase in a loss estimate that related to a prior year occurrence generates a deficiency in each intervening year. For example, a deficiency recognized in 1993 relating to losses incurred in 1987 would be included in the indicated deficiency amount for the years 1987 through 1992. Yet, the deficiency would be reflected in operating results in 1993 only. 25 28 Conditions and trends that have affected the reserve development reflected in the table may continue to change, and care should be exercised in extrapolating future reserve redundancies or deficiencies from such development.
YEAR ENDED DECEMBER 31, --------------------------------------------------------------------------------------------- 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 ------ ------ ------ ------ ------ ------ ------- ------- ------- ------- ------- (DOLLAR AMOUNTS IN MILLIONS) Net reserve for unpaid claims and claim adjustment expenses......... $5,715 $7,299 $8,027 $8,784 $9,366 $9,731 $10,126 $110,188 $10,467 $10,550 $10,506 ======= ======= ======= ======= ======= ======= ======== ======== ======== ======== ======== Cumulative percentage of net reserve paid through: One year later.................. 38.3% 30.5% 31.0% 30.3% 31.1% 34.3% 33.7% 33.9% 28.8% 24.6% Two years later................. 60.0 51.2 50.2 49.6 52.7 54.2 53.8 53.4 45.6 Three years later............... 79.3 66.8 65.4 65.7 67.6 69.3 68.5 66.7 Four years later................ 92.7 79.5 78.9 77.0 78.9 80.7 78.9 Five years later................ 104.2 90.4 88.4 84.7 87.9 88.5 Six years later................. 114.0 99.1 95.2 92.8 94.4 Seven years later............... 122.9 105.4 102.9 98.5 Eight years later............... 129.4 112.9 108.4 Nine years later................ 137.8 118.2 Ten years later................. 143.6 Net reserve (percentage) re-estimated as of: One year later.................. 125.0% 101.7% 103.3% 102.7% 103.0% 103.1% 103.4% 106.4% 107.5% 105.1% Two years later................. 127.3 108.8 106.2 105.0 105.9 106.9 107.4 115.5 113.6 Three years later............... 133.3 111.8 110.0 108.0 109.8 109.7 117.0 122.7 Four years later................ 136.5 116.2 114.9 111.4 112.4 119.7 123.7 Five years later................ 140.5 122.4 118.9 114.1 122.0 125.8 Six years later................. 147.7 126.7 122.2 124.0 128.0 Seven years later............... 151.5 130.9 132.7 129.8 Eight years later............... 157.5 142.1 138.3 Nine years later................ 170.7 148.1 Ten years later................. 177.9 Net indicated deficiency: $4,454 $3,508 $3,076 $2,613 $2,624 $2,514 $ 2,396 $ 2,311 $ 1,420 $ 538 Gross reserve--December 31......... $17,831 $17,654 $16,696 Less: Reinsurance recoverable...... 7,364 7,104 6,190 ------- ------- ------- Net reserve--December 31........... $10,467 $10,550 $10,506 ======== ======== ======== Gross re-estimated reserve......... $19,413 $18,022 Less: Re-estimated reinsurance recoverable....................... 7,526 6,934 ------- ------- Net re-estimated reserve........... $11,887 $11,088 ======== ======== Gross cumulative deficiency........ $ 1,582 $ 368 ======== ========
In 1994, CIGNA performed an actuarial review of certain businesses, including captive insurance companies, that are substantially reinsured. Such review resulted in a reduction in gross loss reserves of approximately $250 million, with a corresponding decrease in reinsurance recoverables. There was no effect on the net indicated deficiency. For additional information about gross loss development, amounts ceded to reinsurers and net loss development, see pages 14 through 16 of the MD&A section of CIGNA's 1994 Annual Report. On a GAAP basis, which is before the effects of reinsurance, CIGNA's 1994 year-end reserves totaled $16.7 billion. For GAAP purposes, CIGNA's reserves are generally carried at the full value of the estimated liabilities. For state regulatory purposes, reserves are reported in accordance with statutory accounting procedures ("SAP"), which is net of the effects of reinsurance, and, on that basis, totaled $9.5 billion. 26 29 The following table reconciles, as of year end, liabilities for unpaid claims and claim adjustment expenses determined for state regulatory purposes in accordance with SAP to those determined in accordance with GAAP:
1994 1993 1992 ------- ------- ------- (IN MILLIONS) Statutory reserve for unpaid claims and claim adjustment expenses, net of reinsurance...................................................... $ 9,514 $ 9,590 $ 9,864 Adjustments: Statutory Reinsurance Recoverable................................... 5,764 6,584 7,160 Discounting of Gross Reserves(1).................................... 1,418 1,480 807 ------- ------- ------- GAAP reserve for unpaid claims and claim adjustment expenses.......... 16,696 17,654 17,831 Less GAAP Reinsurance Recoverable..................................... 6,190 7,104 7,364 ------- ------- ------- GAAP reserve for unpaid claims and claim adjustment expenses, net of reinsurance.................................................. $10,506 $10,550 $10,467 ======== ======== ========
--------------- (1) Primarily for workers' compensation reserves. For SAP purposes, workers' compensation reserves are discounted at 6%. During 1993, CIGNA expanded the use of discounting for certain statutory loss reserves and modified the assumptions used to discount other reserves, which decreased statutory reserves by $388 million. NAIC and Other Property and Casualty Regulatory Matters The National Association of Insurance Commissioners ("NAIC") has adopted risk-based capital rules for property and casualty companies. CIGNA's property and casualty subsidiaries were adequately capitalized under the rules as of December 31, 1994. Additional information about the rules and their effect on CIGNA's property and casualty subsidiaries is contained on page 34 of this document, and on page 9 of the MD&A section and in Note 17 of CIGNA's 1994 Annual Report. The NAIC calculates annually 12 financial ratios to assist state insurance regulators in monitoring the financial condition of insurance companies. Departure from the benchmark "usual range" on four or more of the ratios could lead to inquiries from individual state insurance commissioners as to certain aspects of a company's business. For 1994, CIGNA's consolidated domestic property and casualty insurance subsidiaries fell outside the usual ranges for four of the ratios, as discussed below. Management believes that this departure from the usual ranges reflects the unfavorable insurance environment and will not result in any regulatory actions that would have a material adverse effect on the results of operations, liquidity or financial condition of CIGNA. The consolidated subsidiaries fell outside the usual ranges for the two year overall operating ratio (119%), the one and two year reserve development to surplus ratios (21% and 65%, respectively) and the liabilities to liquid assets ratio (129%). The two year operating ratio measures a company's overall profitability by relating cumulative underwriting losses net of investment income for the current and prior year to premium for that period. A ratio in excess of 100% falls outside the usual range. Significant factors contributing to this result include losses from catastrophes and asbestos and environmental pollution claims as well as a competitive pricing environment. Underwriting losses and steps taken to improve results are discussed on pages 13 and 14 of the MD&A section of the Company's 1994 Annual Report. The one and two year reserve development to surplus ratios relate a company's loss reserve development for insured events of prior years for the most recent calendar year to 1993 surplus (for the one year ratio) and for the two most recent calendar years to 1992 surplus (for the two year ratio). A company falls outside the usual ranges if such development exceeds 20% of such surplus. The reasons for the Company's adverse loss development are discussed beginning on page 20 above and on pages 15 and 16 of the MD&A section of the Company's 1994 Annual Report. 27 30 The liabilities to liquid assets ratio measures a company's ability to pay its liabilities with cash, investment assets or receivables. A ratio in excess of 105% falls outside the usual range. As stated above on page 14, CIGNA provides coverages and services for customers who wish to increase their levels of risk retention or to self-insure. The receivables associated with certain of these products (with respect to which the Company typically obtains collateral) are separately classified in the financial statements and are not included in the NAIC definition of liquid assets. The inclusion of the liabilities associated with such products without the related receivables results in the Company falling outside the usual range. As a result of property and casualty losses, CIGNA contributed $250 million of capital in 1994 and $150 million in 1993 to enhance the capital base of the domestic property and casualty operations. In 1995, CIGNA committed to contribute $125 million of capital to such operations by the end the year. Additional capital contributions may be needed depending upon the extent of property and casualty losses; however, the amount and timing of any such contributions are not reasonably estimable at this time. CIGNA's property and casualty insurance subsidiaries are members of regulated advisory organizations that provide certain statistical, rate-making, policy audit and similar services on a fee basis. In most states, these subsidiaries may use rate filings or loss costs, which are estimated future losses to which an insurer must add a profit and expense load to arrive at a rate, developed by advisory organizations. They also use filings developed by themselves, or combinations of both, thus enabling them to pursue an independent course in certain areas while using advisory organization services in others. The continued operation of advisory organizations and their authority to set advisory rates is the subject of a variety of proposed regulatory restraints and legal challenges. G. Investments and Investment Income CIGNA's investment operations primarily provide investment management and related services in the United States and certain other countries for CIGNA's corporate and insurance-related assets. Assets under management at year-end 1994 totaled $69.9 billion, comprising CIGNA corporate and insurance-related investment assets ("investment assets") of $50.9 billion and advisory portfolios of $19.0 billion. Advisory portfolios included $14.6 billion in Separate Accounts of CIGNA's life insurance subsidiaries. For information about Separate Accounts, see "Employee Retirement and Savings Benefits--Principal Products and Markets" beginning on page 7. CIGNA invests in a broad range of asset classes, including domestic and international fixed maturities and common stocks, mortgage loans, real estate and short-term investments. Investments in fixed maturities (bonds) include publicly traded and private placement debt securities; securitized assets, including mortgage-backed securities, collateralized mortgage obligations (CMOs) and other asset-backed securities; and redeemable preferred stocks. As of December 31, 1993, CIGNA adopted Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Accordingly, fixed maturities classified as held to maturity are carried at amortized cost, net of impairments, and those classified as available for sale are carried at fair value, with unrealized appreciation or depreciation included in Shareholders' Equity. As of December 31, 1994, fixed maturities classified as available for sale had an aggregate fair value, including policyholder share, that was less than amortized cost by approximately $378 million. Fixed maturities classified as available for sale had an aggregate fair value, including policyholder share, that was greater than amortized cost by approximately $1.76 billion as of December 31, 1993. The decline in unrealized appreciation primarily reflects the upward movement in interest rates since December 31, 1993. The major portfolios under management consist of the combined assets of the Employee Life and Health Benefits, Employee Retirement and Savings Benefits, and Individual Financial Services segments (collectively, "Employee Benefits and Individual Financial portfolios") and the assets of the Property and Casualty segment. CIGNA's investment assets are generally managed to reflect the underlying characteristics of related 28 31 insurance and contractholder liabilities, as well as regulatory and tax considerations pertaining to those liabilities. CIGNA's insurance and contractholder liabilities as of December 31, 1994 comprised the following: property and casualty 36%, fully guaranteed 12%, experience-rated 25%, interest-sensitive 14%, and other life and health 13%. Property and casualty claim demands are somewhat unpredictable in nature and require liquidity from the underlying investment assets, which are structured to emphasize current investment income to the extent consistent with maintaining appropriate portfolio quality and diversity. The liquidity requirements for shorter-term liabilities are met primarily through cash flows and shorter-term investments (less than two years) and, to a lesser extent, through publicly traded fixed maturities. For longer-term liabilities, liquidity requirements are met primarily through private fixed maturity investments. Fully guaranteed products primarily include GICs, single premium annuity products and settlement annuities. Because these products generally do not permit withdrawal by policyholders prior to maturity, the amount and timing of future benefit cash flows can be reasonably estimated. Funds supporting these products are invested in fixed income investments that generally match the aggregate duration of the investment portfolio with that of the related benefit cash flows. As of December 31, 1994, the duration of assets and liabilities for GICs, single premium annuities and settlement annuities was 2 years, 7 years and 11 years, respectively. Experience-rated products include defined benefit and defined contribution pension products. The principal and liquidity requirements of experience-rated liabilities are met by investments that emphasize current yield, primarily fixed income investments. Investment assets for interest-sensitive products, which include universal life insurance, primarily include fixed income investments, which emphasize investment yield while meeting the liquidity requirements of the related liabilities. Other life and health products consist of various group and individual life and health products. The supporting investment assets are structured to emphasize investment income, and the necessary liquidity is provided through cash flow, short-term investments and common stocks. Investment strategy and results are affected by the amount and timing of cash available for investment, competition for investments, especially in private asset classes, economic conditions and interest rates. For example, cash flows increased in 1993 due to higher principal repayments, primarily from prepayments of mortgage-backed securities, and decreased in 1994 due to a reduction in such principal repayments. Reinvestment of this cash at prevailing interest rates reduced investment income in 1993 and, to a lesser degree, in 1994. Investment results are also affected by asset allocation decisions. As noted above, CIGNA generally manages its investment assets to reflect the underlying characteristics of related insurance and contractholder liabilities such as liquidity, currency, yield and duration, which vary among CIGNA's principal product lines. In connection with its investment strategy, CIGNA uses derivative instruments through hedging applications to manage market risk. Derivative instruments are not used for speculative purposes. For additional information concerning CIGNA's use of derivatives, see Note 3(F) to the 1994 Financial Statements which are included in its 1994 Annual Report. CIGNA routinely monitors and evaluates the status of its investments in light of current economic conditions, trends in capital markets and other factors. Such factors include industry segment considerations for fixed maturity investments, and geographic and property-type considerations for mortgage loan investments. CIGNA's fixed maturity investments, including policyholder share, as of December 31, 1994 constituted approximately 52% of the Employee Benefits and Individual Financial portfolios and approximately 88% of the Property and Casualty portfolios, respectively. As of that date, approximately 32% of fixed maturity investments was attributable to experience-rated contracts. CIGNA reduces credit risk for the portfolios as a whole by investing primarily in investment grade fixed maturities rated by rating agencies (for public investments), by CIGNA (for private investments) or by the Securities Valuation Office of the NAIC (for 29 32 both public and private investments). For information about below investment grade holdings and NAIC and agency ratings, see pages 18 and 19 of the MD&A section of CIGNA's 1994 Annual Report. CIGNA's mortgage loan investments, including policyholder share, constituted approximately 25% of the Employee Benefits and Individual Financial portfolios and approximately 3% of the Property and Casualty portfolios as of December 31, 1994. As of that date, approximately 57% of mortgage loan investments was attributable to experience-rated contracts. Mortgage loan investments are subject to underwriting criteria addressing loan-to-value ratio, debt service coverage, cash flow, tenant quality, leasing, market, location and financial strength of the borrower. Such investments consist primarily of first mortgage loans on commercial properties and are diversified relative to property type, location and borrower. The Company invests in fully completed and substantially leased commercial properties. Virtually all of the Company's mortgage loans are bullet or balloon loans, under which all or a substantial portion of the loan principal is due at the end of the loan term. CIGNA manages properties obtained through foreclosure of mortgage loans ("foreclosure properties") until such properties are sold. The Company's general policy is to sell foreclosure properties after rehabilitating the properties, re-leasing them and managing them for two to four years, although CIGNA may hold certain foreclosure properties for immediate sale if circumstances indicate that to do so is in the best financial interests of the Company or policyholders. The adverse financial effect of problem bonds and problem mortgage loans on CIGNA declined substantially in 1994. Economic conditions, including real estate market conditions, have improved. However, additional losses from problem investments are expected to occur for specific investments in the normal course of business, particularly due to continuing weak conditions in certain office building markets. CIGNA does not expect additional non-accruals, write-downs and reserves to materially affect future results of operations, liquidity or financial condition, or to result in a significant decline in the aggregate carrying value of its assets. See pages 18 through 23 of the MD&A section of CIGNA's 1994 Annual Report and Notes 1, 3, 4 and 18 to CIGNA's 1994 Financial Statements for additional information about CIGNA's investments. 30 33 Employee Benefits and Individual Financial Investments The following tables summarize the distribution of investments attributable to CIGNA's Employee Benefits and Individual Financial portfolios and the related net investment income from such investments. Approximately 49% of the investments in the Employee Benefits and Individual Financial portfolios is attributable to experience-rated contracts with policyholders.
AS OF DECEMBER 31, ---------------------------- INVESTMENTS 1994 1993 1992 ----------- ------- ------- ------- (IN MILLIONS) Fixed maturities Bonds: Finance............................................................... $ 6,608 $ 7,236 $ 6,161 Consumer products..................................................... 3,047 2,776 2,608 Manufacturing......................................................... 2,374 2,332 2,109 States, municipalities and political subdivisions..................... 1,885 2,026 1,754 Public utilities...................................................... 1,754 1,708 1,548 Energy................................................................ 1,598 1,526 1,397 Transportation........................................................ 948 1,068 911 U.S. government and government agencies and authorities............... 436 560 450 Foreign governments(1)................................................ 174 151 149 Other................................................................. 331 299 282 ------- ------- ------- Total bonds...................................................... 19,155 19,682 17,369 Redeemable preferred stocks............................................. 33 26 24 ------- ------- ------- Total fixed maturities........................................... 19,188 19,708 17,393 ------- ------- ------- Equity securities Common stocks: Industrial and miscellaneous.......................................... 1,118 1,110 886 Public utilities...................................................... 122 162 232 Banks, trust and insurance companies.................................. 115 121 76 ------- ------- ------- Total common stocks.............................................. 1,355 1,393 1,194 Non-redeemable preferred stocks......................................... 55 84 54 ------- ------- ------- Total equity securities.......................................... 1,410 1,477 1,248 ------- ------- ------- Mortgage loans Commercial: Office buildings...................................................... 3,387 3,652 4,245 Retail facilities..................................................... 3,744 3,483 3,486 Apartments............................................................ 1,022 923 905 Hotels................................................................ 662 711 875 Industrial............................................................ 403 379 380 Other................................................................. 109 109 114 ------- ------- ------- Total commercial................................................. 9,327 9,257 10,005 Agricultural............................................................ 88 118 171 ------- ------- ------- Total mortgages.................................................. 9,415 9,375 10,176 ------- ------- ------- Policy loans.............................................................. 5,237 3,623 2,062 Real estate............................................................... 1,481 1,539 1,173 Other long-term investments............................................... 137 108 99 Short-term investments.................................................... 306 401 497 ------- ------- ------- Total investments................................................ $37,174 $36,231 $32,648 ======== ======== ========
--------------- See Note 1 of Notes to Financial Statements beginning on page 27 of CIGNA's 1994 Annual Report for a discussion of the method of valuation of investments. The above amounts do not include Separate Account assets. (1) Comprises fixed maturities of sovereign foreign governments. 31 34
YEAR ENDED DECEMBER 31, ----------------------------- NET INVESTMENT INCOME 1994 1993 1992 -------------------------------------------------------------------------- ------- ------- ------- (DOLLAR AMOUNTS IN MILLIONS) Fixed maturities.......................................................... $1,648 $1,610 $1,594 Equity securities......................................................... 55 56 42 Mortgage loans............................................................ 820 948 998 Real estate............................................................... 303 244 162 Policy loans.............................................................. 365 253 164 Other investments......................................................... 63 69 70 ------- ------- ------- Total............................................................ 3,254 3,180 3,030 Less investment expenses.................................................. 277 248 176 ------- ------- ------- Net investment income, pre-tax............................................ $2,977 $2,932 $2,854 ======== ======== ======== Net investment yield(1)................................................... 8.40 % 8.80 % 9.14 % ======== ======== ========
--------------- (1) The net investment yield is equal to (a) net investment income multiplied by two, divided by (b) the sum, at the beginning and end of the year (excluding the effects of SFAS No. 115), of cash, invested assets and investment income due and accrued, less borrowed money, less net investment income. Property and Casualty Investments The following tables summarize the distribution of investments attributable to CIGNA's Property and Casualty segment and the related net investment income from such investments.
AS OF DECEMBER 31, ----------------------------- INVESTMENTS 1994 1993 1992 -------------------------------------------------------------------------- ------- ------- ------- (IN MILLIONS) Fixed maturities Bonds: States, municipalities and political subdivisions..................... $ 2,204 $ 2,545 $ 2,088 Finance............................................................... 2,013 1,799 1,469 Foreign governments(1)................................................ 1,757 1,472 218 U.S. government and government agencies and authorities............... 872 1,083 599 Public utilities...................................................... 751 635 200 Energy................................................................ 590 842 250 Consumer products..................................................... 463 421 430 Manufacturing......................................................... 415 409 339 Transportation........................................................ 160 72 136 Other................................................................. 762 706 620 ------- ------- ------- Total bonds......................................................... 9,987 9,984 6,349 Redeemable preferred stocks............................................. 11 24 23 ------- ------- ------- Total fixed maturities.............................................. 9,998 10,008 6,372 ------- ------- ------- Equity securities Common stocks: Industrial and miscellaneous.......................................... 333 293 877 Banks, trust and insurance companies.................................. 45 57 45 Public utilities...................................................... 3 9 125 ------- ------- ------- Total common stocks................................................. 381 359 1,047 Non-redeemable preferred stocks......................................... 8 7 11 ------- ------- ------- Total equity securities............................................. 389 366 1,058 ------- ------- ------- Other long-term investments, principally mortgages........................ 693 643 722 Short-term investments(2)................................................. 342 461 2,473 ------- ------- ------- Total investments................................................... $11,422 $11,478 $10,625 ======== ======== ========
------------ (1) Comprises fixed maturities of sovereign foreign governments. (2) Includes fixed maturities that are carried at market value of approximately $2.1 billion as of December 31, 1992. 32 35
YEAR ENDED DECEMBER 31, --------------------------- NET INVESTMENT INCOME 1994 1993 1992 --------------------- ----- ----- ----- (DOLLAR AMOUNTS IN MILLIONS) Interest: Taxable............................................................... $ 680 $ 643 $ 712 Tax-exempt............................................................ 77 101 105 ----- ----- ----- Total............................................................ 757 744 817 Dividends from stocks..................................................... 12 25 30 Other..................................................................... 46 34 42 ----- ----- ----- Total investment income................................................... 815 803 889 Less investment expenses.................................................. 59 50 47 ----- ----- ----- Net investment income, pre-tax............................................ $ 756 $ 753 $ 842 ===== ===== ===== Net investment yield(1)................................................... 6.92% 7.24% 8.39% ===== ===== =====
--------------- (1) The net investment yield is equal to (a) net investment income multiplied by two, divided by (b) the sum, at the beginning and end of the year (excluding the effects of SFAS No. 115), of cash, invested assets and investment income due and accrued, less borrowed money, less net investment income. Portfolio Management and Advisory Services CIGNA's investment operations primarily focus on providing investment services to CIGNA and its insurance subsidiaries. In addition, the investment operations provide fee-based investment management and advisory services to advisory clients, including large group pension sponsors, institutions and international investors. CIGNA acquires or originates, directly or through intermediaries, various investments including private placements, public securities, mortgage loans, real estate and leveraged capital funds. Other Investments and Operations Investment assets for CIGNA's Other Operations include fixed maturities, mortgage loans, real estate and investments maturing in less than two years. These assets support the settlement annuity and non-insurance businesses, and also supported, until January 1994 when they were sold, CIGNA's California personal automobile and homeowners insurance businesses that CIGNA retained from the 1989 sale of the Horace Mann insurance companies. Net investment income for these investments was $212 million for 1994, $217 million for 1993 and $218 million for 1992. In addition, CIGNA has non-strategic equity investments in operating businesses, primarily real estate operations. H. Regulation CIGNA's insurance subsidiaries are licensed to do business in, and are subject to regulation and supervision by, the states of the United States, the District of Columbia, certain U.S. territories and various foreign jurisdictions. Although the extent of regulation varies, most jurisdictions have laws and regulations governing rates, solvency, standards of business conduct, and various insurance and investment products. Licensing of insurers and their agents and the approval of policy forms are usually required. The form and content of statutory financial statements and the type and concentration of investments are also regulated. Each insurance subsidiary is required to file periodic financial reports with supervisory agencies in most of the jurisdictions in which it does business, and its operations and accounts are subject to examination by such agencies at regular intervals. Most states and the District of Columbia require licensed insurance companies to support guaranty associations, which are organized to pay claims on behalf of insolvent insurance companies. These associations levy assessments on member insurers in a particular state to pay such claims on the basis of their proportionate shares of the lines of business of the insolvent insurer. Maximum assessments permitted by law in any one year generally range from 1% to 2% of annual premiums written by each member in a particular state with respect 33 36 to the categories of business involved, and may be offset against premium taxes payable in some states. The assessments against CIGNA's subsidiaries were $27 million, $28 million and $23 million for 1994, 1993 and 1992, respectively, before giving effect to premium tax offsets. The amounts of future assessments are not expected to have a material adverse effect on CIGNA's financial condition. The increase in the number of insurance companies that are impaired or insolvent has prompted state and federal initiatives to enhance solvency regulation. For example, the NAIC has developed model solvency-related laws that it is encouraging states to adopt. In addition, risk-based capital rules have been adopted for life insurance and property and casualty insurance companies that recommend a specified level of capital depending on the types and quality of investments held, the types of business written and the types of liabilities maintained. Depending on the ratio of the insurer's adjusted surplus to its risk-based capital, the insurer could be subject to various regulatory actions ranging from increased scrutiny to conservatorship. Four levels of regulatory attention may be triggered if the ratio of adjusted surplus to risk-based capital (the "RBC ratio") is insufficient. If a property and casualty ("P&C") insurance company's RBC ratio is between 60% and 80% (75% and 100% for life insurance ("Life") companies), the "company action level," the company must submit a plan to the regulator detailing corrective action it proposes to undertake. If a P&C company's RBC ratio is between 40% and 60% (50% and 75% for Life companies), the "regulatory action level," the company must also submit a plan, but a regulator may also issue a corrective order requiring the insurer to comply within a specified period. If a P&C company's RBC ratio is between 28% and 40% (35% and 50% for Life companies), the "authorized control level," the regulatory response is the same as at the "regulatory action level," but in addition, the regulator may take action to rehabilitate or liquidate the insurer. If the RBC ratio for a P&C company is less than 28% (35% for Life companies), the "mandatory control level," the regulator must rehabilitate or liquidate the insurer. As of December 31, 1994, CIGNA's life insurance and property and casualty insurance subsidiaries were adequately capitalized under the risk-based capital rules. See page 9 of the MD&A section of CIGNA's 1994 Annual Report for additional information. Also, the NAIC is addressing risk-based capital guidelines for HMOs and is considering the adoption of a proposal that would limit the types and amounts of investment assets that can be held by an insurance company. In the past, federal oversight of insurer solvency has also been proposed. Among proposals that have been discussed are optional federal chartering, which would preempt most state insurance regulations; minimum federal solvency standards, which would be supervised by the states; federal licensing of all reinsurers; and establishment of a national guaranty fund. Recent state and federal regulatory scrutiny of life insurers' sales and advertising practices, including the adequacy of disclosure regarding products and their future performance, may result in increased regulations in this area. In December 1993, the U.S. Supreme Court issued the John Hancock Mutual Life Insurance Company v. Harris Trust decision, which held that certain funds held under a general account group annuity contract were subject to ERISA fiduciary standards. The Department of Labor is addressing compliance issues raised by the decision and, depending on the outcome, CIGNA may make future changes to its group annuity contracts or the operation of its general account. CIGNA's insurance subsidiaries are subject to state laws regulating insurers that are subsidiaries of insurance holding companies. Under such laws, which are generally becoming more stringent, certain dividends, distributions and other transactions between an insurance subsidiary and the holding company or its other subsidiaries may require notification to, or be subject to the approval of, one or more state insurance commissioners. Both national and state proposals to reform health care are expected in 1995. Such proposals are discussed on page 6. CIGNA's HMOs are subject to regulation and supervision by various government agencies in the states in which they do business. The extent of regulation varies, but most jurisdictions regulate licensing, solvency, 34 37 contracts and rates. Regulation of these entities may also include standards for quality assurance, minimum levels of benefits that must be offered and requirements for availability and continuity of care. A few states require HMOs to participate in guaranty funds, and several state legislatures have recently considered insolvency and guaranty fund legislation, a trend that is expected to continue. Many of CIGNA's HMOs are also federally qualified and subject to regulation as to benefits, solvency and rates under the federal HMO Act. CIGNA's mental health and substance abuse clinics are licensed by the states in which they operate for quality of treatment. Regulatory concerns with insurance risk selection have increased significantly in recent years. Legislative, regulatory and judicial activity also continues regarding the use of gender in determining insurance benefits and rates, and some states have imposed restrictions on the use of underwriting criteria related to AIDS. Also, various interpretations under the recently enacted Americans with Disabilities Act may affect the provision of insurance benefits under certain types of policies. Property and casualty insurers are required to participate in assigned risk plans, joint underwriting authorities, pools and other residual market mechanisms to write coverages on risks not acceptable under normal underwriting standards. In addition, states have responded to concerns about the availability and affordability of commercial casualty insurance by proposing or adopting legislation, regulations or positions to, among other things, limit rate increases, require rate reductions or refunds, restrict nonrenewal and cancellation with respect to commercial lines coverages or require the refunding of "excess" profits, and by expanding regulatory examination of the appropriateness of rates, non-renewals and cancellations. The extent of insurance regulation varies significantly among the countries in which CIGNA conducts its international operations. As a foreign insurer, CIGNA is, in many countries, faced with greater restrictions than domestic competitors. Trade barriers include discriminatory licensing procedures, compulsory cessions of reinsurance, required localization of records and funds, higher premium and income taxes, and requirements for local participation in an insurer's ownership. Where appropriate, CIGNA has incorporated insurance subsidiaries locally to improve its position. Depending upon their nature, CIGNA's investment management activities and products with United States contacts are subject to the federal securities laws, ERISA and other federal and state laws governing investment management activities and products. Investments made by United States insurance companies are subject to state insurance laws. Investment management activities and products outside the United States, and investments made by non-United States insurance companies outside the United States, are subject to local regulation. Often, the investments of individual insurance companies are subject to regulation by multiple jurisdictions. Federal initiatives can have an impact on the insurance business in a variety of ways. In addition to proposals discussed above related to Superfund, health care reform and federal oversight of insurer solvency, current and proposed federal measures that may significantly affect the insurance business include: (a) pension and other employee benefit regulation; (b) Social Security legislation; (c) financial services regulation; (d) amendment to the antitrust exemption provided for the business of insurance by the McCarran-Ferguson Act; (e) tax legislation; (f) the Americans with Disabilities Act; and (g) repeal of the Glass-Steagall Act. The economic and competitive effects of the legislative and regulatory proposals discussed above would depend upon the final form such legislation or regulation might take. I. Miscellaneous Portions of CIGNA's insurance business are seasonal in nature. Reported claims under group health and certain property and casualty products are generally higher in the first quarter. Sales, particularly of individual life products, are generally lowest in the first quarter and highest in the fourth quarter. CIGNA and its principal subsidiaries are not dependent on business from one or a few customers. No customer accounted for 10% or more of CIGNA's consolidated revenues in 1994. CIGNA and its principal subsidiaries are not dependent on business from one or a few brokers or agents, except as noted on page 13 in 35 38 connection with sales of certain corporate-owned life insurance products. In addition, CIGNA's insurance businesses are generally not committed to accept a fixed portion of the business submitted by independent brokers and agents, and generally all such business is subject to its approval and acceptance. CIGNA had approximately 48,300, 50,600 and 52,300 employees as of December 31, 1994, 1993 and 1992, respectively. Item 2. PROPERTIES CIGNA's headquarters are located in approximately 90,240 total square feet of leased office space at One Liberty Place, Philadelphia, Pennsylvania. CIGNA Property & Casualty, CIGNA Group Insurance: Life, Accident, Disability, and CIGNA International are located in a leased building of approximately 1.25 million total square feet at Two Liberty Place, Philadelphia. CIGNA HealthCare, CIGNA Individual Insurance, CIGNA Reinsurance: Life, Accident, Health and CIGNA Investment Management are located in a complex of buildings owned by CIGNA, aggregating approximately 1.15 million total square feet of office space, located at 900-950 Cottage Grove Road, Bloomfield, Connecticut. CIGNA's Retirement & Investment Services operations are located in approximately 230,000 total square feet of leased office space at Metro Center One, Hartford, Connecticut. In addition, CIGNA owns or leases office buildings, or parts thereof, throughout the United States and in other countries. For additional information concerning leases and property, see Notes 1(H) and 14 to CIGNA's 1994 Consolidated Financial Statements on pages 28 and 41, respectively, of CIGNA's 1994 Annual Report. This paragraph does not include information on investment properties. CIGNA's information processing resources include large mainframe computers in major data centers, a multitude of personal computers connected through local area networks and a nationwide backbone network that provides desktop computing and office automation to CIGNA employees. CIGNA's policies regarding the safeguarding of critical corporate data are disseminated to all employees. The policies require data security through the use of appropriate identification and password practices and data backup through appropriate offsite storage techniques. Protection of CIGNA's major data centers, which house large amounts of critical corporate data, involves access controls, fire detection and suppression systems, and other hazard elimination processes. In addition, CIGNA maintains a formal disaster contingency plan, which includes recovery services in the event of a disaster in a CIGNA data center. Critical files are stored offsite, to be available for recovery in the event of a disaster. Item 3. LEGAL PROCEEDINGS CIGNA is continuously involved in numerous lawsuits arising, for the most part, in the ordinary course of business, either as a liability insurer defending third-party claims brought against its insureds or as an insurer defending coverage claims brought against it by its policyholders or other insurers. During 1988, a number of state attorneys general and private plaintiffs filed lawsuits against a number of insurance companies and others, including CIGNA, alleging violations of federal and state antitrust laws. One of the lawsuits, filed in Texas, was settled in March 1991 for an insignificant amount. All of the remaining lawsuits were dismissed by the trial court in 1989. The United States Court of Appeals reversed the trial court and the United States Supreme Court reversed in part and modified in part the ruling of the Court of Appeals and remanded the cases to the Court of Appeals for further proceedings in accordance with its opinion. The Supreme Court ruled that the insurance companies did not forfeit their McCarran-Ferguson protection when they acted with reinsurers to produce acceptable policy terms and defined the boycott exception to the McCarran-Ferguson exemption in a manner favorable to the insurance industry. The cases were remanded to the trial court for further proceedings. Subject to final approval by the trial court, an agreement in principle to settle these cases has been reached. CIGNA's portion of the settlement is not material to its results of operations. While the outcome of all litigation involving CIGNA, including insurance-related litigation, cannot be determined, litigation (other than that related to asbestos, environmental pollution and other long-term exposure claims, which is discussed below) is not expected to result in losses that differ from recorded reserves 36 39 by amounts that would be material to results of operations, liquidity or financial condition. Also, reinsurance recoveries related to claims in litigation, net of allowance for uncollectible reinsurance, are not expected to result in recoveries that differ from recorded recoverables by amounts that would be material to results of operations, liquidity or financial condition. CIGNA is involved in lawsuits regarding policy coverage and judicial interpretation of legal liability for asbestos-related, environmental pollution and other long-term exposure claims. As discussed beginning on page 20, reserving for these claims is subject to significant uncertainties, such as lack of developed case law or adequate claim history. Future results of the Company are expected to continue to be affected adversely by losses and legal expenses for asbestos-related, environmental pollution and other long-term exposure claims. Because of the significant uncertainties involved and the likelihood that these uncertainties will not be resolved in the near future, CIGNA is unable to reasonably estimate the additional losses and expenses and, therefore is unable to determine whether such amounts will be material to its future results of operations, liquidity or financial condition. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information under the caption "Quarterly Financial Data--Stock and Dividend Data" on page 47 and under the caption "Stock Listing" on the inside back cover of CIGNA's 1994 Annual Report is incorporated by reference, as is the information from Note 7 to CIGNA's Consolidated Financial Statements on pages 35 and 36 and the number of shareholders of record as of December 31, 1994 under the caption "Highlights" on page 1 of CIGNA's 1994 Annual Report. Item 6. SELECTED FINANCIAL DATA The five-year financial information under the caption "Highlights" on page 1 of CIGNA's 1994 Annual Report is incorporated by reference. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information on pages 8 through 23 of CIGNA's 1994 Annual Report is incorporated by reference. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA CIGNA's Consolidated Financial Statements on pages 24 through 45 and the report of its independent accountants on page 46 of CIGNA's 1994 Annual Report are incorporated by reference, as is the unaudited information set forth under the caption "Quarterly Financial Data--Consolidated Results" on page 47. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 37 40 PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT A. Directors of the Registrant The information under the captions "Nominees for Election" and "Incumbent Directors to Continue in Office" on pages 5 through 7 of CIGNA's proxy statement dated March 20, 1995 are incorporated by reference. B. Executive Officers of the Registrant Reference is made below to CG Life, which is an indirect subsidiary of CIGNA. All officers are elected to serve for a one-year term or until their successors are elected. Principal occupations and employment during the past five years are listed. LAWRENCE P. ENGLISH, 54, President of CIGNA HealthCare since March 1992; President of CIGNA's Individual Financial Services Division from April 1986 until March 1992; and President of CG Life from January 1991 until February 1992. H. EDWARD HANWAY, 43, President of CIGNA International since March 1994; and President of CIGNA International: Property & Casualty from February 1989 until March 1994. GERALD A. ISOM, 56, President of CIGNA Property and Casualty since March 1993; Group Vice President of Transamerica Corporation from 1990 until March 1993; and Chief Executive Officer and President of Transamerica Insurance Group from January 1985 until March 1993. Transamerica Insurance Group is a major provider of property and casualty insurance products. THOMAS C. JONES, 48, President of CIGNA Individual Insurance beginning February 1995; President of CIGNA Reinsurance Property & Casualty from March 1994 until February 1995; President of CG Life beginning March 1995; Executive Vice President, Chief Administrative Officer and member of the Boards of Directors of NAC Re Corporation and NAC Reinsurance Corporation from November 1985 until January 1994; and Chief Operating Officer of NAC Re Corporation and NAC Reinsurance Corporation from June 1993 and September 1990, respectively, until January 1994. NAC Re Corporation is the parent corporation of NAC Reinsurance Corporation, a major provider of property and casualty reinsurance products. JOHN K. LEONARD, 46, President of CIGNA Group Insurance: Life, Accident, Disability since March 1992; and Senior Vice President of CIGNA from March 1989 until March 1992, with responsibility for Corporate Marketing and Strategy. DONALD M. LEVINSON, 49, Executive Vice President of CIGNA since March 1988, with responsibility for Human Resources and Services. FRANCINE M. NEWMAN, 50, President of CIGNA Reinsurance: Life, Accident, Health since July 1984. BYRON D. OLIVER, 52, President of CIGNA Retirement & Investment Services since February 1988. ARTHUR C. REEDS, III, 50, President of CIGNA Investment Management since March 1992; and Managing Director and Head of Portfolio Management, CIGNA's Investment Division, from May 1986 until March 1992. JAMES G. STEWART, 52, Executive Vice President and Chief Financial Officer of CIGNA since 1983. WILSON H. TAYLOR, 51, Chairman of CIGNA since November 1989; and Chief Executive Officer of CIGNA since November 1988 and President of CIGNA since May 1988. THOMAS J. WAGNER, 55, Executive Vice President and General Counsel of CIGNA since January 1992; Corporate Secretary of CIGNA from January 1988 until April 1992; and Senior Vice President of CIGNA from January 1988 until January 1992. 38 41 C. Compliance with Section 16(a) of the Securities Exchange Act The information under the caption "Compliance with Section 16(a) of the Securities Exchange Act" on page 24 of CIGNA's proxy statement dated March 20, 1995 is incorporated by reference. Item 11. EXECUTIVE COMPENSATION The information under the captions "Executive Compensation" on pages 16 through 20 and "Compensation of Directors" on pages 8 and 9 of CIGNA's proxy statement dated March 20, 1995 is incorporated by reference. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information under the captions "Ownership of CIGNA Corporation Common Stock by Directors and Executive Officers" on pages 2 and 3 and "Ownership of CIGNA Corporation Common Stock by Certain Beneficial Owners" on page 4 of CIGNA's proxy statement dated March 20, 1995, relating to security ownership of certain beneficial owners and management, is incorporated by reference. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information under the caption "Certain Transactions" on page 9 of CIGNA's proxy statement dated March 20, 1995 is incorporated by reference. PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K A. (1) The following financial statements have been incorporated by reference from the pages indicated below of CIGNA's 1994 Annual Report: Consolidated Statements of Income and Retained Earnings for the years ended December 31, 1994, 1993 and 1992--page 24. Consolidated Balance Sheets as of December 31, 1994 and 1993--page 25. Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1993 and 1992--page 26. Notes to Financial Statements--pages 27 through 45. Report of Independent Accountants, Price Waterhouse LLP--page 46. (2) The financial statement schedules are listed in the Index to Financial Statement Schedules on page FS-1. (3) The exhibits are listed in the Index to Exhibits beginning on page E-1. B. During the last quarter of the fiscal year ended December 31, 1994, the registrant filed (1) a Report on Form 8-K dated October 31, 1994 containing a copy of a news release reporting its third quarter 1994 results; and (2) a Report on Form 8-K dated December 21, 1994 regarding revised ratings. 39 42 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 by its undersigned duly authorized officer, on its behalf and in the capacity indicated. Date: March 29, 1995 CIGNA Corporation By: /s/ James G. Stewart ---------------------------------------- James G. Stewart 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 on March 29, 1995. PRINCIPAL EXECUTIVE OFFICER: DIRECTORS:* Robert P. Bauman Evelyn Berezin Wilson H. Taylor* Robert H. Campbell Chairman, Chief Executive Officer Alfred C. DeCrane, Jr. and a Director James F. English, Jr. Bernard M. Fox Frank S. Jones Gerald D. Laubach Marilyn W. Lewis Paul F. Oreffice Charles R. Shoemate PRINCIPAL ACCOUNTING OFFICER: Louis W. Sullivan, M.D. Ezra K. Zilkha /s/ Gary A. Swords -------------------------------------------- Gary A. Swords Vice President and Chief Accounting Officer *By: /s/ Thomas J. Wagner --------------------------------------- Thomas J. Wagner Attorney-in-Fact
40 43 CIGNA CORPORATION AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENT SCHEDULES
PAGE ----- Report of Independent Accountants on Financial Statement Schedules......................................................... FS-2
SCHEDULES I Summary of Investments--Other Than Investments in Related Parties as of December 31, 1994.......................... FS-3 II Condensed Financial Information of CIGNA Corporation (Registrant)............................................. FS-4 III Supplementary Insurance Information........................ FS-8 IV Reinsurance................................................ FS-10 V Valuation and Qualifying Accounts and Reserves............. FS-11 VI Supplemental Information Concerning Property-Casualty Insurance Operations..................................... FS-12
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, which are incorporated by reference from CIGNA's 1994 Annual Report. FS-1 44 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES To the Board of Directors of CIGNA Corporation Our audits of the consolidated financial statements referred to in our report dated February 13, 1995 appearing on page 46 of the 1994 Annual Report to Shareholders of CIGNA Corporation (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedules listed in the index on page FS-1 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. The Company implemented certain new accounting pronouncements as discussed in Note 1 to the consolidated financial statements. /S/ PRICE WATERHOUSE LLP Philadelphia, Pennsylvania February 13, 1995 FS-2 45 CIGNA CORPORATION AND SUBSIDIARIES SCHEDULE I SUMMARY OF INVESTMENTS-- OTHER THAN INVESTMENTS IN RELATED PARTIES DECEMBER 31, 1994 (IN MILLIONS)
AMOUNT AT WHICH SHOWN IN THE FAIR CONSOLIDATED TYPE OF INVESTMENT COST VALUE BALANCE SHEET ------------------------------------------------------------ ------- ------- --------------- Fixed maturities Bonds: United States government and government agencies and authorities.......................................... $ 1,526 $ 1,533 $ 1,533 States, municipalities and political subdivisions...... 4,352 4,358 4,353 Foreign governments.................................... 2,046 1,998 1,999 Public utilities....................................... 2,744 2,702 2,705 Convertibles and bonds with warrants attached.......... 78 77 77 All other corporate bonds.............................. 20,407 20,085 20,106 Redeemable preferred stocks............................... 42 44 44 ------- ------- --------------- Total fixed maturities............................... 31,195 30,797 30,817 ------- ------- --------------- Equity securities Common stocks: Industrial, miscellaneous and all other................ 1,285 1,451 1,451 Banks, trust and insurance companies................... 154 161 161 Public utilities....................................... 134 126 126 Non-redeemable preferred stocks........................... 78 68 68 ------- ------- --------------- Total equity securities.............................. 1,651 1,806 1,806 ------- ------- --------------- Total fixed maturities and equity securities......... 32,846 $32,603 ======= Mortgage loans on real estate............................... 9,970 9,970 Policy loans................................................ 5,355 5,355 Real estate investments (including $892 million of real estate acquired in satisfaction of debt).................. 1,747 1,747 Other long-term investments................................. 371 371 Short-term investments...................................... 853 853 ------- --------------- Total investments.................................... $51,142 $50,919 ======= ============
FS-3 46 CIGNA CORPORATION AND SUBSIDIARIES SCHEDULE II CONDENSED FINANCIAL INFORMATION OF CIGNA CORPORATION (REGISTRANT) STATEMENTS OF INCOME (IN MILLIONS)
FOR THE YEAR ENDED DECEMBER 31, ----------------------------- 1994 1993 1992 ----- ----- ----- Intercompany income........................................ $ 2 $ 3 $ 2 Other revenue.............................................. -- -- 4 ----- ----- ----- Total revenues........................................... 2 3 6 ----- ----- ----- Operating expenses: Interest................................................. 111 105 90 Intercompany interest.................................... 18 14 18 Other.................................................... 3 1 3 ----- ----- ----- Total operating expenses.............................. 132 120 111 ----- ----- ----- Loss before income taxes................................... (130) (117) (105) Income tax benefit......................................... (34) (33) (17) ----- ----- ----- Loss of parent company..................................... (96) (84) (88) Equity in income of subsidiaries before cumulative effect of accounting changes............................. 650 318 425 ----- ----- ----- Income before cumulative effect of accounting changes...... 554 234 337 Cumulative effect of accounting changes for postemployment and postretirement benefits other than pensions, net of taxes.................................................... -- -- (530) Cumulative effect of accounting change for income taxes.... -- -- 504 ----- ----- ----- Net income................................................. $ 554 $ 234 $ 311 ===== ===== =====
See Notes to Condensed Financial Statements on FS-7. FS-4 47 CIGNA CORPORATION AND SUBSIDIARIES SCHEDULE II CONDENSED FINANCIAL INFORMATION OF CIGNA CORPORATION (REGISTRANT) BALANCE SHEETS (IN MILLIONS)
AS OF DECEMBER 31, ------------------- 1994 1993 ------ ------ Assets: Cash and cash equivalents............................................ $ 1 $ 1 Investments in subsidiaries.......................................... 8,187 8,964 Other assets......................................................... 202 115 Goodwill............................................................. 82 124 ------ ------ Total............................................................. $8,472 $9,204 ====== ====== Liabilities: Intercompany......................................................... $ 650 $ 486 Short-term debt...................................................... 267 348 Long-term debt....................................................... 1,211 1,100 Other liabilities.................................................... 533 695 ------ ------ Total liabilities................................................. 2,661 2,629 ------ ------ Shareholders' Equity: Common stock (shares issued, 83)..................................... 83 83 Additional paid-in capital........................................... 2,248 2,222 Net unrealized appreciation (depreciation) -- fixed maturities....... (122) 961 Net unrealized appreciation -- equity securities..................... 141 211 Net translation of foreign currencies................................ (27) (74) Retained earnings.................................................... 4,052 3,717 Less treasury stock, at cost......................................... (564) (545) ------ ------ Total shareholders' equity........................................ 5,811 6,575 ------ ------ Total............................................................. $8,472 $9,204 ====== ======
See Notes to Condensed Financial Statements on FS-7. FS-5 48 CIGNA CORPORATION AND SUBSIDIARIES SCHEDULE II CONDENSED FINANCIAL INFORMATION OF CIGNA CORPORATION (REGISTRANT) STATEMENTS OF CASH FLOWS (IN MILLIONS)
FOR THE YEAR ENDED DECEMBER 31, ----------------------- 1994 1993 1992 ----- ----- ----- Cash Flows from Operating Activities: Income before cumulative effect of accounting changes............... $ 554 $ 234 $ 337 Adjustments to reconcile income before cumulative effect of accounting changes to net cash provided by (used in) operating activities: Equity in income of subsidiaries............................... (650) (318) (425) Dividends received from subsidiaries........................... 523 308 322 Other liabilities.............................................. (162) 210 38 Other, net..................................................... (82) (22) 10 ----- ----- ----- Net cash provided by operating activities.................... 183 412 282 ----- ----- ----- Cash Flows from Investing Activities: Capital contributions to subsidiaries............................... (158) (480) (79) Proceeds from sale of subsidiaries.................................. -- -- 4 Other, net.......................................................... -- 1 -- ----- ----- ----- Net cash used in investing activities........................ (158) (479) (75) ----- ----- ----- Cash Flows from Financing Activities: Change in intercompany debt......................................... 164 37 (61) Net change in commercial paper...................................... (38) (48) 92 Issuance of long-term debt.......................................... 112 327 111 Repayment of debt................................................... (44) (36) (124) Dividends paid...................................................... (219) (219) (218) ----- ----- ----- Net cash provided by (used in) financing activities.......... (25) 61 (200) ----- ----- ----- Net (decrease) increase in cash and cash equivalents................ -- (6) 7 Cash and cash equivalents, beginning of year........................ 1 7 -- ----- ----- ----- Cash and cash equivalents, end of year.............................. $ 1 $ 1 $ 7 ===== ===== =====
See Notes to Condensed Financial Statements on FS-7. FS-6 49 CIGNA CORPORATION AND SUBSIDIARIES SCHEDULE II 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 in the Annual Report. Note 1-- As of December 31, 1993, CIGNA implemented Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities." The effect of implementing SFAS No. 115 resulted in an increase in net assets and shareholders' equity of approximately $900 million resulting from the classification of certain fixed maturities previously classified as held to maturity (carried at amortized cost) to available for sale (carried at fair value). In 1992, CIGNA implemented SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions"; No. 109, "Accounting for Income Taxes"; and SFAS No. 112, "Employers' Accounting for Postemployment Benefits." These accounting changes were implemented as of January 1, 1992 through cumulative effect adjustments. Prior year financial statements were not restated. The cumulative effect of implementing these accounting standards as of January 1, 1992 resulted in a non-cash after-tax charge to net income of $26 million. In addition, the implementation of these accounting standards decreased 1992 net income by $5 million. Note 2-- Long-term debt, net of current maturities, consists of CIGNA's 7.4% Notes, due 2003; 7.65% Notes, due 2023; 8% Notes, due 1996; 8.2% Convertible Subordinated Debentures, due 2010; 8 1/4% Notes, due 2007; 8.3% Notes due 2023; 8 3/4% Notes, due 2001; 6 3/8% Notes due 2006 and Medium-term Notes with interest rates ranging from 5 3/4% to 9 3/4%, and original maturity dates from approximately two to ten years. Maturities of long-term debt for each of the next five years are as follows: 1995--$2 million; 1996-- $157 million; 1997--$39 million; 1998--$82 million; 1999--$23 million. In 1994, CIGNA issued $100 million of unsecured 6 3/8% Notes due in 2006 and $12 million of medium-term notes. In 1993, CIGNA issued $100 million of unsecured 7.4% Notes due in 2003, $100 million of unsecured 7.65% Notes due in 2023; $100 million of unsecured 8.3% Notes due in 2023 and $27 million of medium-term notes. As of December 31, 1994, CIGNA had approximately $840 million remaining under effective shelf registration statements filed with the Securities and Exchange Commission that may be issued as debt, equity securities or both, depending upon market conditions and CIGNA's capital requirements. Interest paid on short- and long-term debt amounted to $109 million, $95 million and $88 million, for 1994, 1993 and 1992, respectively. Note 3-- CIGNA Corporation files a consolidated U.S. federal income tax return with its domestic subsidiaries. Net income taxes paid in connection with the consolidated return were $477 million, $75 million and $287 million during 1994, 1993 and 1992, respectively. FS-7 50 CIGNA CORPORATION AND SUBSIDIARIES SCHEDULE III SUPPLEMENTARY INSURANCE INFORMATION (IN MILLIONS)
DEFERRED FUTURE POLICY UNPAID POLICY BENEFITS AND CLAIMS ACQUISITION CONTRACTHOLDER AND CLAIM SEGMENT COSTS DEPOSIT FUNDS EXPENSES ------------------------------------------------------ ----------- -------------- --------- Year Ended December 31, 1994: Property and Casualty: Domestic......................................... $ 218 $ -- $12,373 International.................................... 185 1,755 2,300 Other, primarily Reinsurance..................... 10 179 2,134 ----------- -------------- --------- Total Property and Casualty.................... 413 1,934 16,807 Employee Life and Health Benefits................... 28 3,909 2,125 Employee Retirement and Savings Benefits............ 71 19,493 -- Individual Financial Services....................... 616 10,080 213 All Other........................................... -- 2,138 -- ----------- -------------- --------- Total.......................................... $ 1,128 $ 37,554 $19,145 ========== ============= ========= Year Ended December 31, 1993: Property and Casualty: Domestic......................................... $ 269 $ -- $13,107 International.................................... 167 1,242 2,270 Other, primarily Reinsurance..................... 10 129 2,370 ----------- -------------- --------- Total Property and Casualty.................... 446 1,371 17,747 Employee Life and Health Benefits................... 28 3,833 2,168 Employee Retirement and Savings Benefits............ 62 20,404 -- Individual Financial Services....................... 549 7,699 200 All Other........................................... -- 1,956 29 ----------- -------------- --------- Total.......................................... $ 1,085 $ 35,263 $20,144 ========== ============= ========= Year Ended December 31, 1992: Property and Casualty: Domestic......................................... $ 283 $ -- $12,559 International.................................... 178 809 2,309 Other, primarily Reinsurance..................... 21 120 2,684 ----------- -------------- --------- Total Property and Casualty.................... 482 929 17,552 Employee Life and Health Benefits................... 27 3,583 1,668 Employee Retirement and Savings Benefits............ 53 19,936 -- Individual Financial Services....................... 499 5,607 157 All Other........................................... -- 1,923 35 ----------- -------------- --------- Total.......................................... $ 1,061 $ 31,978 $19,412 ========== ============= =========
------------ (1) Amounts presented are shown net of the effects of reinsurance. (2) The allocation of net investment income is based upon the investment year method, the identification of certain portfolios with specific segments, or a combination of both. FS-8 51
BENEFITS, PREMIUMS NET LOSSES AND UNEARNED AND INVESTMENT SETTLEMENT SEGMENT PREMIUMS FEES(1) INCOME(2) EXPENSES(1) ----------------------------------------------------- -------- -------- ----------- ----------- Year Ended December 31, 1994: Property and Casualty: Domestic......................................... $1,169 $ 2,209 $ 470 $ 2,358 International.................................... 1,023 2,386 207 1,613 Other, primarily Reinsurance..................... 132 448 79 443 -------- -------- ----------- ----------- Total Property and Casualty.................... 2,324 5,043 756 4,414 Employee Life and Health Benefits................... 218 7,844 515 5,766 Employee Retirement and Savings Benefits............ -- 201 1,722 1,469 Individual Financial Services....................... 33 824 741 1,065 All Other........................................... -- -- 212 212 -------- -------- ----------- ----------- Total.......................................... $2,575 $13,912 $ 3,946 $12,926 ========= ========= ========== ========== Year Ended December 31, 1993: Property and Casualty: Domestic......................................... $1,403 $ 2,528 $ 486 $ 3,017 International.................................... 965 2,071 186 1,446 Other, primarily Reinsurance..................... 112 537 81 570 -------- -------- ----------- ----------- Total Property and Casualty.................... 2,480 5,136 753 5,033 Employee Life and Health Benefits................... 188 7,438 503 5,543 Employee Retirement and Savings Benefits............ -- 296 1,846 1,721 Individual Financial Services....................... 35 814 583 921 All Other........................................... 8 28 217 201 -------- -------- ----------- ----------- Total.......................................... $2,711 $13,712 $ 3,902 $13,419 ========= ========= ========== ========== Year Ended December 31, 1992: Property and Casualty: Domestic......................................... $1,562 $ 3,128 $ 556 $ 3,188 International.................................... 747 2,031 185 1,474 Other, primarily Reinsurance..................... 161 601 101 920 -------- -------- ----------- ----------- Total Property and Casualty.................... 2,470 5,760 842 5,582 Employee Life and Health Benefits................... 64 7,174 504 5,553 Employee Retirement and Savings Benefits............ -- 248 1,893 1,738 Individual Financial Services....................... 51 710 457 775 All Other........................................... 9 32 218 209 -------- -------- ----------- ----------- Total.......................................... $2,594 $13,924 $ 3,914 $13,857 ========= ========= ========== ==========
POLICY OTHER ACQUISITION OPERATING PREMIUMS SEGMENT EXPENSES EXPENSES WRITTEN ----------------------------------------------------- ----------- --------- -------- Year Ended December 31, 1994: Property and Casualty: Domestic......................................... $ 461 $ 468 $1,989 International.................................... 500 421 1,496 Other, primarily Reinsurance..................... 106 77 465 ----------- --------- -------- Total Property and Casualty.................... 1,067 966 3,950 Employee Life and Health Benefits................... 11 2,044 -- Employee Retirement and Savings Benefits............ 17 162 -- Individual Financial Services....................... 70 292 -- All Other........................................... 1 31 -- ----------- --------- -------- Total.......................................... $ 1,166 $ 3,495 $3,950 ========== ======== ========= Year Ended December 31, 1993: Property and Casualty: Domestic......................................... $ 524 $ 619 $2,388 International.................................... 465 448 1,334 Other, primarily Reinsurance..................... 124 77 507 ----------- --------- -------- Total Property and Casualty.................... 1,113 1,144 4,229 Employee Life and Health Benefits................... 13 1,985 -- Employee Retirement and Savings Benefits............ 14 153 -- Individual Financial Services....................... 68 294 -- All Other........................................... 2 32 28 ----------- --------- -------- Total.......................................... $ 1,210 $ 3,608 $4,257 ========== ======== ========= Year Ended December 31, 1992: Property and Casualty: Domestic......................................... $ 567 $ 517 $2,858 International.................................... 491 391 1,377 Other, primarily Reinsurance..................... 131 (75) 582 ----------- --------- -------- Total Property and Casualty.................... 1,189 833 4,817 Employee Life and Health Benefits................... 15 1,938 -- Employee Retirement and Savings Benefits............ 12 142 -- Individual Financial Services....................... 61 306 -- All Other........................................... 3 47 32 ----------- --------- -------- Total.......................................... $ 1,280 $ 3,266 $4,849 ========== ======== =========
FS-9 52 CIGNA CORPORATION AND SUBSIDIARIES SCHEDULE IV REINSURANCE (DOLLAR AMOUNTS IN MILLIONS)
PERCENTAGE CEDED TO ASSUMED OF AMOUNT GROSS OTHER FROM OTHER NET ASSUMED AMOUNT COMPANIES COMPANIES AMOUNT TO NET -------- --------- ---------- -------- ---------- Year Ended December 31, 1994: Life insurance in force................... $496,373 $33,891 $ 152,334 $614,816 24.8% ======== ======= ======== ======== ======== Premiums and fees: Life insurance and annuities........... $ 3,107 $ 341 $ 526 $ 3,292 16.0% Accident and health insurance.......... 6,566 310 646 6,902 9.3 Property and casualty insurance........ 4,591 1,894 1,021 3,718 27.5 -------- --------- ---------- -------- Total............................. $ 14,264 $ 2,545 $ 2,193 $ 13,912 15.8% ======== ======= ======== ======== ======== Year Ended December 31, 1993: Life insurance in force................... $395,042 $26,268 $ 234,892 $603,666 38.9% ======== ======= ======== ======== ======== Premiums and fees: Life insurance and annuities........... $ 2,378 $ 167 $ 893 $ 3,104 28.8% Accident and health insurance.......... 5,970 228 835 6,577 12.7 Property and casualty insurance........ 4,780 1,801 1,052 4,031 26.1 -------- --------- ---------- -------- Total............................. $ 13,128 $ 2,196 $ 2,780 $ 13,712 20.3% ======== ======= ======== ======== ======== Year Ended December 31, 1992: Life insurance in force................... $310,592 $25,933 $ 263,726 $548,385 48.1% ======== ======= ======== ======== ======== Premiums and fees: Life insurance and annuities........... $ 1,697 $ 81 $ 926 $ 2,542 36.4% Accident and health insurance.......... 5,920 236 901 6,585 13.7 Property and casualty insurance........ 5,878 2,258 1,177 4,797 24.5 -------- --------- ---------- -------- Total............................. $ 13,495 $ 2,575 $ 3,004 $ 13,924 21.6% ======== ======= ======== ======== ========
FS-10 53 CIGNA CORPORATION SCHEDULE V VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (IN MILLIONS)
CHARGED CHARGED (CREDITED) (CREDITED) BALANCE AT TO TO OTHER OTHER BALANCE BEGINNING COSTS AND ACCOUNTS DEDUCTIONS AT END DESCRIPTION OF PERIOD EXPENSES --DESCRIBE(1) --DESCRIBE(2) OF PERIOD ---------------------------------------------- ---------- --------- ------------- ------------- --------- 1994: INVESTMENT ASSET VALUATION RESERVES: Fixed maturities............................ $ 11 $ -- $ -- $ (11) $ -- Mortgage loans.............................. 216 8 24 (69) 179 Real estate................................. 98 6 6 (6) 104 ALLOWANCE FOR DOUBTFUL ACCOUNTS: Premiums, accounts and notes receivable..... 120 62 -- (43) 139 Reinsurance recoverables.................... 405 42 -- (12) 435 DEFERRED TAX ASSET VALUATION ALLOWANCE........ 53 (6) -- -- 47 1993: INVESTMENT ASSET VALUATION RESERVES: Fixed maturities............................ $ 29 $ (10) $ (8) $ -- $ 11 Mortgage loans.............................. 184 62 48 (78) 216 Real estate................................. 79 8 21 (10) 98 ALLOWANCE FOR DOUBTFUL ACCOUNTS: Premiums, accounts and notes receivable..... 90 49 -- (19) 120 Reinsurance recoverables.................... 381 28 -- (4) 405 DEFERRED TAX ASSET VALUATION ALLOWANCE........ 82 (29) -- -- 53 1992: INVESTMENT ASSET VALUATION RESERVES: Fixed maturities............................ $ 28 $ 1 $ -- $ -- $ 29 Mortgage loans.............................. 170 32 51 (69) 184 Real estate................................. 45 8 29 (3) 79 ALLOWANCE FOR DOUBTFUL ACCOUNTS: Premiums, accounts and notes receivable..... 104 17 -- (31) 90 Reinsurance recoverables.................... 311 89 -- (19) 381 DEFERRED TAX ASSET VALUATION ALLOWANCE........ 38 44 -- -- 82
--------------- (1) Change in valuation reserves attributable to policyholder contracts. (2) Reflects transfer of reserves to other investment asset categories as well as charge-offs upon sales, repayments and other. FS-11 54 CIGNA CORPORATION AND SUBSIDIARIES SCHEDULE VI SUPPLEMENTAL INFORMATION CONCERNING PROPERTY-CASUALTY INSURANCE OPERATIONS (IN MILLIONS) [CAPTION]
------------------------------------------------------------------------------------------------------------ COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E ------------------------------------------------------------------------------------------------------------ RESERVES FOR DEFERRED UNPAID CLAIMS DISCOUNT, AFFILIATION POLICY AND CLAIM IF ANY, WITH ACQUISITION ADJUSTMENT DEDUCTED IN UNEARNED REGISTRANT COSTS EXPENSES COLUMN C(1) PREMIUMS ------------------------------------------------------------------------------------------------------------ Year Ended December 31, 1994: Consolidated property-casualty entities............................. $ 390 $16,696 $20 $1,851 Year Ended December 31, 1993: Consolidated property-casualty entities............................. $ 420 $17,654 $22 $1,980 Year Ended December 31, 1992: Consolidated property-casualty entities............................. $ 442 $17,831 $20 $2,139
--------------- (1) Discounts were computed using an annual interest rate of 9%. (2) Amounts presented are shown net of the effects of reinsurance. FS-12 55
------------------------------------------------------------------------------------------------------------------------------------ COLUMN A COLUMN F COLUMN G COLUMN H COLUMN I COLUMN J COLUMN K ------------------------------------------------------------------------------------------------------------------------------------ CLAIMS AND CLAIM AMORTIZATION ADJUSTMENT EXPENSES OF DEFERRED PAID CLAIMS AFFILIATION NET INCURRED RELATED TO: POLICY AND CLAIM WITH EARNED INVESTMENT CURRENT PRIOR ACQUI- ADJUSTMENT PREMIUMS REGISTRANT PREMIUMS(2) INCOME YEAR(2) YEAR(2) SITION COSTS EXPENSES(2) WRITTEN ------------------------------------------------------------------------------------------------------------------------------------ Year Ended December 31, 1994: Consolidated property-casualty entities..................... $ 4,126 $650 $3,025 $538 $ 966 $ 3,607 $3,950 Year Ended December 31, 1993: Consolidated property-casualty entities..................... $ 4,358 $667 $3,464 $789 $1,020 $ 4,170 $4,229 Year Ended December 31, 1992: Consolidated property-casualty entities..................... $ 5,132 $780 $4,448 $656 $1,103 $ 4,825 $4,817
FS-13 56 [THIS PAGE INTENTIONALLY LEFT BLANK] 57 INDEX TO EXHIBITS
NUMBER DESCRIPTION METHOD OF FILING ------ --------------------------------------- --------------------------------------- 3.1 Restated Certificate of Incorporation Filed as Exhibit 3.1 to the of the registrant as last amended registrant's Form 10-K for the October 2, 1990 year-ended December 31, 1993 and incorporated herein by reference. 3.2 By-Laws of the registrant as last Filed as Exhibit 4.2 to the amended and restated December 9, 1991 registrant's Post- Effective Amendment No. 1 dated December 19, 1991 to Form S-8 Registration Statement No. 33-44371 and incorporated herein by reference. 4.1 Description of Preferred Stock Purchase Filed as Item 1 and Exhibit 1 to the Rights, including the Rights Agreement registrant's Form 8-A Registration dated as of July 23, 1987 between CIGNA Statement dated July 28, 1987, such Corporation and Morgan Shareholder Exhibit 1 amended by the registrant's Services Trust Company Amendment No. 1 on Form 8 dated August 11, 1987, and incorporated herein by reference. 4.2 Amended description of Preferred Stock Filed as Item 1 and Exhibit 2 to the Purchase Rights, including the First registrant's Amendment No. 2 on Form 8 Amendment to Rights Agreement dated as dated March 27, 1989 and incorporated of March 22, 1989 between CIGNA herein by reference. Corporation and Morgan Shareholder Services Trust Company Exhibits 10.1 through 10.18 are filed as exhibits pursuant to Item 14(c) of Form 10-K. 10.1 CIGNA Corporation Stock Plan effective Filed as Exhibit 10.1 to the as of May 1, 1991 registrant's Form 10-K for the year ended December 31, 1993 and incorporated herein by reference. 10.2 Amendment No. 1 dated as of July 28, Filed as Exhibit 10.2 to the 1993 to the CIGNA Corporation Stock registrant's Form 10-K for the year Plan ended December 31, 1993 and incorporated herein by reference. 10.3 Amendment No. 2 dated as of February Filed as Exhibit 10.3 to the 24, 1994 to the CIGNA Corporation Stock registrant's Form 10-K for the year Plan ended December 31, 1993 and incorporated herein by reference. 10.4 CIGNA Corporation Executive Stock Filed as Exhibit 10.4 to the Incentive Plan, as Amended and Restated registrant's Form 10-K for the year as of March 23, 1988 ended December 31, 1993 and incorporated herein by reference. 10.5 Amendment No. 1 dated as of September Filed as Exhibit 10.5 to the 28, 1988 to the CIGNA Corporation registrant's Form 10-K for the year Executive Stock Incentive Plan ended December 31, 1993 and incorporated herein by reference. 10.6 Amendment No. 2 dated as of March 27, Filed as Exhibit 10.6 to the 1991 to the CIGNA Corporation Executive registrant's Form 10-K for the year Stock Incentive Plan ended December 31, 1993 and incorporated herein by reference.
E-1 58 INDEX TO EXHIBITS
NUMBER DESCRIPTION METHOD OF FILING ------ --------------------------------------- --------------------------------------- 10.7 Description of the CIGNA Corporation Filed as Exhibit 10.7 to the Key Management Annual Incentive Bonus registrant's Form 10-K for the year Plan ended December 31, 1993 and incorporated herein by reference. 10.8 CIGNA Corporation Strategic Performance Filed as Exhibit 10.8 to the Plan, as amended and restated March 25, registrant's Form 10-K for the year 1992 ended December 31, 1993 and incorporated herein by reference. 10.9 Description of CIGNA Corporation Filed as Exhibit 10.9 to the Financial Services Program registrant's Form 10-K for the year ended December 31, 1993 and incorporated herein by reference. 10.10 Deferred Compensation Plan of CIGNA Filed as Exhibit 10.10 to the Corporation and Participating registrant's Form 10-K for the year Subsidiaries, as amended and restated ended December 31, 1993 and as of January 1, 1990 incorporated herein by reference. 10.11 Deferred Compensation Plan for Filed as Exhibit 10.11 to the Directors of CIGNA Corporation, as registrant's Form 10-K for the year amended and restated as of May 1, 1991 ended December 31, 1993 and incorporated herein by reference. 10.12 Retirement and Consulting Plan for Filed as Exhibit 10.12 to the Directors of CIGNA Corporation, as registrant's Form 10-K for the year amended and restated as of May 29, 1991 ended December 31, 1993 and incorporated herein by reference. 10.13 Agreement dated February 9, 1993 Filed as Exhibit 10.14 to the between Gerald A. Isom and the registrant's Form 10-K for the year registrant ended December 31, 1993 and incorporated herein by reference. 10.14 Restricted Stock Plan for Non-Employee Filed as Exhibit 10.15 to the Directors of CIGNA Corporation registrant's Form 10-K for the year effective as of September 30, 1989 ended December 31, 1993 and incorporated herein by reference. 10.15 Description of First Amendment to the Filed as Exhibit 10.16 to the Restricted Stock Plan for Non-Employee registrant's Form 10-K for the year Directors of CIGNA Corporation ended December 31, 1993 and incorporated herein by reference. 10.16 Description of Stock Compensation Plan Filed as Exhibit 10.17 to the for Non-Employee Directors of CIGNA registrant's Form 10-K for the year Corporation, as amended ended December 31, 1993 and incorporated herein by reference. 10.17 CIGNA Supplemental Pension Plan, as Filed as Exhibit 10.1 to the amended and restated as of July 28, registrant's Form 10-Q for the quarter 1993 ended June 30, 1994 and incorporated herein by reference. 10.18 CIGNA Corporation Severance Benefits Filed as Exhibit 10.2 to the Plan, as amended and restated as of registrant's Form 10-Q for the quarter July 27, 1994 ended June 30, 1994 and incorporated herein by reference. 11 Computation of Primary and Fully Filed herewith. Diluted Earnings Per Share 12 Computation of Ratios of Earnings to Filed herewith. Fixed Charges
E-2 59 INDEX TO EXHIBITS
NUMBER DESCRIPTION METHOD OF FILING ------ --------------------------------------- --------------------------------------- 13 Portions of registrant's 1994 Annual Filed herewith. Report to Shareholders (Entire Annual Report bound in printed versions of Form 10-K.) 21 Subsidiaries of the Registrant Filed herewith. 23 Consent of Independent Accountants Filed herewith. 24.1 Powers of Attorney Filed herewith. 24.2 Certified Resolutions Filed herewith. 27 Financial Data Schedule (Included only Filed herewith. in the electronic format of Form 10-K.) 28.1 Reconciliation of Schedule P to Total Filed herewith. Statutory Reserves 28.2 (P) Schedule P to the Annual Statement Filed herewith in paper format under for the Year 1994 of ICNA and its cover of Form SE. Affiliates
The registrant will furnish to the Commission upon request a copy of any of the registrant's agreements with respect to its long-term debt. Shareholders may obtain copies of exhibits by writing to CIGNA Corporation, Shareholder Services Department, Two Liberty Place, 1601 Chestnut Street, P.O. Box 7716, Philadelphia, Pennsylvania 19192-2378. E-3 EX-11 2 COMP. OF PRIMARY/FULLY DILUTED EARNINGS PER SHARE 1 EXHIBIT 11 CIGNA CORPORATION COMPUTATION OF PRIMARY EARNINGS PER SHARE (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
FOR THE YEAR ENDED DECEMBER 31, -------------------------------------- 1994 1993 1992 ---------- ---------- ---------- INCOME AVAILABLE TO COMMON SHARES --------------------------------------------------------- PRIMARY: Income before cumulative effect of accounting changes............................................. $ 554 $ 234 $ 337 Cumulative effect of accounting changes for postemployment and postretirement benefits other than pensions, net of taxes......................... -- -- (530) Cumulative effect of accounting change for income taxes............................................... -- -- 504 ---------- ---------- ---------- Net income available to common shares.................. $ 554 $ 234 $ 311 ========= ========= ========= WEIGHTED AVERAGE SHARES --------------------------------------------------------- PRIMARY: Common shares.......................................... 72,218,299 71,933,241 71,694,059 Common share equivalents applicable to stock options... 98,548 88,710 42,716 ---------- ---------- ---------- Total............................................... 72,316,847 72,021,951 71,736,775 ========= ========= ========= EARNINGS PER SHARE --------------------------------------------------------- PRIMARY: Income before cumulative effect of accounting changes............................................. $ 7.66 $ 3.25 $ 4.70 Cumulative effect of accounting changes for postemployment and postretirement benefits other than pensions, net of taxes......................... -- -- (7.39) Cumulative effect of accounting change for income taxes............................................... -- -- 7.03 ---------- ---------- ---------- Net income............................................. $ 7.66 $ 3.25 $ 4.34 ========= ========= =========
2 CIGNA CORPORATION COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
FOR THE YEAR ENDED DECEMBER 31, ----------------------------------------- 1994 1993 1992 ----------- ----------- ----------- INCOME AVAILABLE TO COMMON SHARES FULLY DILUTED: Income before cumulative effect of accounting changes.......................................... $ 554 $ 234 $ 337 Adjusted for: Interest expense (net of tax) on convertible subordinated debentures........................ 13 * 13 ----------- ----------- ----------- Income before cumulative effect of accounting changes.......................................... 567 234 350 Cumulative effect of accounting changes for postemployment and postretirement benefits other than pensions, net of taxes...................... -- -- (530) Cumulative effect of accounting change for income taxes............................................ -- -- 504 ----------- ----------- ----------- Net income available to common shares............... $ 567 $ 234 $ 324 ========== ========== ========== WEIGHTED AVERAGE SHARES FULLY DILUTED: Common shares....................................... 72,218,299 71,933,241 71,694,059 Common share equivalents applicable to stock options.......................................... 115,185 97,177 57,728 Assumed conversion of convertible subordinated debentures....................................... 3,625,956 * 3,626,395 ----------- ----------- ----------- Total............................................ 75,959,440 72,030,418 75,378,182 ========== ========== ========== EARNINGS PER SHARE FULLY DILUTED: Income before cumulative effect of accounting changes.......................................... $ 7.47 $ 3.25 $ 4.65 Cumulative effect of accounting changes for postemployment and postretirement benefits other than pensions, net of taxes...................... -- -- (7.03) Cumulative effect of accounting change for income taxes............................................ -- -- 6.69 ----------- ----------- ----------- Net income.......................................... $ 7.47 $ 3.25 $ 4.31 ========== ========== ==========
--------------- * Anti-dilutive; therefore, amounts have been excluded. EX-12 3 COMP. OF RATIOS OF EARNINGS TO FIXED CHARGES 1 EXHIBIT 12 CIGNA CORPORATION COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES (DOLLARS IN MILLIONS)
YEAR ENDED DECEMBER 31, ---------------------------------------------- 1994 1993 1992 1991 1990 ------ ------ ------ ------ ------ Income from continuing operations before income tax................................................ $ 805 $ 165 $ 179 $ 584 $ 352 ------ ------ ------ ------ ------ Fixed charges included in income: Interest expense................................... 121 124 100 106 115 Interest portion of rental expense................. 102 114 113 123 116 ------ ------ ------ ------ ------ Total fixed charges included in income........ 223 238 213 229 231 ------ ------ ------ ------ ------ Income available for fixed charges................... $1,028 $ 403 $ 392 $ 813 $ 583 ------ ------ ------ ------ ------ Ratio of earnings to fixed charges................... 4.6 1.7 1.8 3.6 2.5 ====== ====== ====== ====== ======
EX-13 4 PORTIONS OF 1994 ANNUAL REPORT TO SHAREHOLDERS 1 Exhibit 13 Portions of Registrant's 1994 Annual Report to Shareholders 2 HIGHLIGHTS
------------------------------------------------------------------------------------------------------------------------ (Dollars in millions, except per share amounts) 1994 1993 1992 1991 1990 ------------------------------------------------------------------------------------------------------------------------ REVENUES: Premiums and fees $ 13,912 $ 13,712 $ 13,924 $ 14,295 $ 13,986 Net investment income and other revenues 4,438 4,408 4,493 4,373 4,198 Realized investment gains (losses) 42 282 165 82 (20) ------------------------------------------------------------------------------------------------------------------------ Total $ 18,392 $ 18,402 $ 18,582 $ 18,750 $ 18,164 ------------------------------------------------------================================================================== INCOME (LOSS) FROM CONTINUING OPERATIONS: Employee Life and Health Benefits $ 548 $ 589 $ 483 $ 329 $ 291 Employee Retirement and Savings Benefits 190 159 216 167 161 Individual Financial Services 136 110 86 76 67 Property and Casualty (235) (530) (374) (7) (104) Other Operations (85) (94) (74) (112) (97) ------------------------------------------------------------------------------------------------------------------------ Total $ 554 $ 234 $ 337 $ 453 $ 318 ------------------------------------------------------================================================================== NET INCOME $ 554 $ 234 $ 311 $ 449 $ 330 Per share: Income from continuing operations 7.66 3.25 4.70 6.34 4.20 Net income 7.66 3.25 4.34 6.28 4.36 Common dividends declared 3.04 3.04 3.04 3.04 3.04 Total assets 86,102 84,975 78,034 74,573 71,372 Long-term debt 1,389 1,235 929 848 832 Shareholders' equity 5,811 6,575 5,744 5,863 5,242 Per share 80.46 91.30 80.09 81.93 73.51 Common shares outstanding (thousands) 72,225 72,015 71,720 71,563 71,313 Shareholders of record 16,408 17,491 18,581 19,380 20,234 Employees 48,341 50,624 52,255 55,961 56,973 ------------------------------------------------------------------------------------------------------------------------
See Notes to the Financial Statements, including Note 1 for information regarding the effect of adopting accounting pronouncements. 3 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONSOLIDATED RESULTS OF OPERATIONS
(In millions) ------------------------------------------------------------------------------------------- FINANCIAL SUMMARY 1994 1993 1992 ------------------------------------------------------------------------------------------- Premiums and fees $ 13,912 $ 13,712 $ 13,924 Net investment income 3,946 3,902 3,914 Other revenues 492 506 579 Realized investment gains 42 282 165 ------- ------- ------- Total revenues 18,392 18,402 18,582 Benefits and expenses 17,587 18,237 18,403 ------- ------- ------- Income before taxes and cumulative effect of accounting changes 805 165 179 Income taxes (benefits) 251 (69) (158) ------- ------- ------- Income before cumulative effect of accounting changes 554 234 337 Cumulative effect of accounting changes -- -- (26) ------- ------- ------- Net income $ 554 $ 234 $ 311 ------------------------------------------------------===================================== Realized investment gains, net of taxes $ 28 $ 224 $ 192 ------------------------------------------------------=====================================
CIGNA's consolidated net income increased significantly in 1994, compared with 1993, and declined 25% for 1993, compared with 1992. Results for 1993 included a $244 million after-tax charge for legal and associated expenses for reported claims related to asbestos, environmental pollution and other long-term exposures and $107 million in after-tax restructuring charges. In addition, CIGNA's results for 1993 reflected a benefit of $48 million, resulting from the effect on CIGNA's net deferred tax asset of an increase in the federal income tax rate. Results for 1992 include a $140 million net after-tax charge for London reinsurance exposures and a $182 million tax benefit (including $24 million related to realized investment results), reflecting a reduction in income tax expense from federal tax audits of CIGNA. Excluding the above items and after-tax realized investment gains, income before cumulative effect of accounting changes was $526 million, $313 million and $127 million for 1994, 1993 and 1992, respectively. The 1994 increase primarily reflects lower losses in the Property and Casualty segment and higher earnings in the Employee Life and Health Benefits segment. The 1993 increase primarily reflects overall improvement in the Employee Life and Health Benefits and Individual Financial Services segments as well as lower catastrophe losses in the Property and Casualty segment. After-tax realized investment gains for 1994 decreased, compared with 1993, primarily due to lower gains on sales of equity securities and fixed maturities and a higher effective tax rate in 1994 than in 1993. Partially offsetting these factors were decreases in new loss reserves, primarily for mortgage loan and real estate investments, and higher gains on sales of real estate. After-tax realized investment gains increased in 1993, compared with 1992, primarily due to higher gains from the sale of equity securities resulting from a restructuring of the portfolio into less volatile investments primarily for the Property and Casualty and Employee Life and Health Benefits segments. Partially offsetting these gains was a higher effective tax rate in 1993, compared with 1992 and higher loss reserves on mortgage loans resulting from adverse real estate market conditions. Consolidated revenues, excluding realized investment gains, have remained level since 1992. These results reflect higher premiums and fees for the Employee Life and Health Benefits segment due to growth in HMO and life premiums. Offsetting this increase were declines in Property and Casualty premiums and fees, reflecting the continuation of intense price competition in the property and casualty industry and CIGNA's decision to de-emphasize, or substantially withdraw from, certain property and casualty product lines. Net income for 1995 is expected to improve, compared with 1994. However, such improvement could be materially affected by a continued adverse property and casualty environment and major catastrophes as well as the effect of potential legislative actions, such as Superfund re-authorization. OTHER MATTERS Based on a recent strategic assessment, CIGNA decided in the third quarter of 1994 to substantially withdraw from the property and casualty reinsurance business. For 1993, the portion of the business affected by the withdrawal had international and domestic revenues of approximately $500 million, and results of operations that were not material to CIGNA. In connection with the withdrawal, CIGNA entered into agreements to sell renewal opportunities for a significant portion of its international reinsurance business. CIGNA will discontinue writing most other property and casualty reinsurance coverages. These actions are not expected to have a material effect on CIGNA's future results of operations. During 1993, CIGNA announced restructuring initiatives in the Property and Casualty segment (both the domestic and international operations) and the Employee Life and Health Benefits segment. These actions were taken to reduce operating expenses by eliminating certain payroll and lease costs in 8 4 future years. During 1994, CIGNA continued implementation of the restructuring initiatives and, as of December 31, 1994, there were no material changes to the costs associated with, or the anticipated annual savings related to, these initiatives. See the Property and Casualty segment discussion for additional information. CIGNA continues to conduct strategic and financial reviews of its businesses in order to deploy its capital most effectively. Such reviews could result in future actions; however, no determinations have been made at this time. In connection with federal tax audits for the years 1982 through 1990, two issues are being contested that could result in assessments totaling approximately $350 million. CIGNA is currently contesting the issues and, although the outcomes are uncertain, management believes that CIGNA should prevail. See Note 8 to the Financial Statements for additional information. CIGNA's businesses are subject to a changing social, economic, legal, legislative and regulatory environment which could affect them. Some of the changes include initiatives to: revise the system of funding cleanup of environmental damages; develop standards for estimating currently unquantifiable liabilities; reinterpret insurance contracts long after the policies were written to provide coverage unanticipated by CIGNA; restrict insurance pricing and the application of underwriting standards; reform health care; restrict investment practices; and expand regulation. Some of the more significant issues are discussed below. Superfund, originally enacted in 1980, was under review by Congress in 1994. Congress recessed in 1994 without completing action on Superfund legislation. New legislation could be introduced in Congress in 1995, in part because the existing Superfund legislation expires in 1995. Any changes in Superfund relating to: (1) allocating responsibility; (2) funding cleanup costs; or (3) establishing cleanup standards could affect the liabilities of potentially responsible parties and insurers. Due to uncertainties associated with the timing and content of any future Superfund legislation, the effect on CIGNA's results of operations, liquidity or financial condition cannot be reasonably estimated at this time. The American Academy of Actuaries has initiated a project to develop standards for estimating currently unquantifiable liabilities. The project may examine unreported claims for asbestos-related, environmental pollution and certain other long-term exposures. In addition, various industry-related parties are attempting to develop methods to estimate pollution liabilities, including estimates based on a market share analysis. CIGNA is evaluating these methods to determine if they could be used in establishing reasonable estimates of reserves for unreported claims for asbestos-related, environmental pollution or other long-term exposures. The outcome and effect, if any, of those initiatives on CIGNA are not determinable at this time. Proposals on national health care reform were under consideration in 1994, which could have significantly changed the way health care is financed and delivered in the United States. Congress recessed in 1994 without enacting health care reform. New legislation could be introduced in Congress in 1995; however, comprehensive national reform is not likely to be proposed in 1995. Instead, CIGNA expects federal and state proposals seeking modest insurance reform and limitations on the formation and operation of efficient health care networks. Due to uncertainties associated with the timing and content of any health care legislation, the effect on CIGNA's future results of operations, liquidity or financial condition cannot be reasonably estimated at this time. The National Association of Insurance Commissioners (NAIC) has developed model solvency-related guidelines ("risk-based capital" rules) to strengthen solvency regulation of insurance companies. Depending on the ratio of the insurer's surplus to its risk-based capital, the insurer could be subject to various regulatory actions ranging from increased scrutiny to conservatorship. As of December 31, 1994, CIGNA's life insurance and property and casualty insurance subsidiaries were adequately capitalized under the risk-based capital rules. As the risk-based capital guidelines for property and casualty insurers become more stringent in future years, additional capital for the property and casualty subsidiaries may be needed; however, the amount and timing of additional capital contributions will depend on future results of operations. 9 5 Also, the NAIC is addressing risk-based capital guidelines for health maintenance organizations (HMOs) and a proposal that would limit the types and amounts of investment assets that can be held. CIGNA does not expect such guidelines to have a material adverse effect on its future results of operations, liquidity or financial condition. During 1994, A.M. Best Company, Inc. (Best) reduced its rating of certain property and casualty companies to B++ ("Very Good") from A- ("Excellent"). During the first quarter of 1995, Best upgraded the ratings of certain of these domestic property and casualty companies from B++ to A- while the remaining companies were downgraded to B+ ("Very Good"). Also during 1994, Standard & Poor's downgraded CIGNA's principal life insurance subsidiary, Connecticut General Life Insurance Company, from AA+ to AA (both categorized as "Excellent"). CIGNA does not expect the effect of these downgrades to be material to its results of operations, liquidity or financial condition. The eventual effect on CIGNA of the changing environment in which it operates remains uncertain. For additional information, see Note 17 to the Financial Statements. ACCOUNTING PRONOUNCEMENTS In 1993, CIGNA adopted Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities" and SFAS No. 113, "Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts." Adoption of these pronouncements had no effect on results of operations. In 1992, several pronouncements were adopted, principally affecting employee benefits and income taxes, which resulted in the recording of an adverse cumulative effect adjustment for accounting changes of $26 million. The following segment discussions exclude the cumulative effect adjustment in 1992, which increased (decreased) net income for Employee Life and Health Benefits, ($146) million; Employee Retirement and Savings Benefits, ($25) million; Individual Financial Services, ($37) million; Property and Casualty, $179 million; and Other Operations, $3 million. See Notes 1 and 12 to the Financial Statements for a detailed discussion of certain accounting pronouncements and their effect on CIGNA and its business segments. EMPLOYEE LIFE AND HEALTH BENEFITS
(In millions) ------------------------------------------------------------------------------------------- FINANCIAL SUMMARY 1994 1993 1992 ------------------------------------------------------------------------------------------- Premiums and fees $ 7,844 $ 7,438 $ 7,174 Net investment income 515 503 504 Other revenues 272 286 290 Realized investment gains 19 165 53 ------ ------ ------ Total revenues 8,650 8,392 8,021 Benefits and expenses 7,821 7,541 7,506 ------ ------ ------ Income before taxes 829 851 515 Income taxes 281 262 32 ------ ------ ------ Income $ 548 $ 589 $ 483 -------------------------------------------------------==================================== Realized investment gains, net of taxes $ 17 $ 126 $ 63 -------------------------------------------------------====================================
Income for the Employee Life and Health Benefits segment decreased 7% in 1994, compared with an increase of 22% in 1993. Results for 1992 include a significant tax benefit of $108 million related to federal tax audits. Excluding the tax benefit noted above and after-tax realized investment gains, income for 1994 was $531 million, compared with $463 million for 1993 and $312 million for 1992. The increase for 1994 reflects improvements of $62 million and $6 million in the segment's HMO and indemnity operations, respectively. The HMO improvement reflects approximately $42 million attributable to membership growth, with the balance primarily attributable to rate increases and favorable medical cost experience. The increase in indemnity earnings reflects an $8 million improvement in group universal life business primarily due to sales. The increase also reflects, to a lesser extent, favorable claim experience and rate increases for other lines. Partially offsetting the indemnity improvements was a decline in long-term disability (LTD) earnings due to unfavorable claim experience. The increase for 1993 reflects an improvement of $68 million in HMO operations. The HMO improvement reflects approximately $30 million attributable to membership growth, with the balance attributable to rate increases and medical cost management. Also contributing to the 1993 growth in income were improved operating results of $83 million in the group indemnity business primarily reflecting more favorable claim experience due, in part, to lower medical care cost inflation; and an improvement of $22 million for LTD, primarily due to favorable claim experience as well as rate increases. Premiums and fees increased 5% in 1994 and 4% in 1993. The 1994 improvement reflects (1) increased premiums and fees for HMOs of $115 million, primarily reflecting membership growth and rate increases; and (2) an increase of $291 10 6 million in group indemnity business (life, $186 million; medical, $66 million; all other, $39 million), primarily reflecting sales and rate increases. Overall, future growth in medical indemnity business is expected to be constrained by increasing penetration into indemnity markets by prepaid health care providers, including conversions to CIGNA's HMOs. The 1993 improvement reflects increased premiums and fees for HMOs of $180 million, primarily reflecting rate increases, and an increase of $84 million in group indemnity businesses (life, $47 million; medical, $37 million). Total HMO membership increased 23% in 1994, compared with an 18% increase in 1993. Substantially all membership growth has been in HMO alternative funding programs under which the customer assumes all or a portion of the responsibility for funding claims. Such programs generally have lower margins than traditional HMO plans. Management believes that adding premium equivalents to premiums and fees (adjusted premiums and fees) produces a more meaningful measure of business volume. Premium equivalents generally represent paid claims and are additional premiums that would have been earned under alternative funding programs, such as minimum premium and administrative services only (ASO) plans, if these coverages had been written as traditional indemnity and HMO programs. ASO plans generally do not involve the assumption of insurance or significant credit risks; therefore, profit margins for such plans are often lower than for traditional programs. Adjusted premiums and fees were $17.5 billion in both 1994 and 1993, compared with $17.0 billion in 1992. In addition to the factors noted previously for premiums and fees, 1994 reflects membership growth in HMO alternative funding programs, offset by declining medical indemnity premium equivalents due to cancellations and conversions to HMOs. Premium equivalents, as a percentage of total adjusted premiums and fees, were 55% in 1994, 57% in 1993 and 58% in 1992. ASO plans accounted for 46%, 45% and 40% of total adjusted premiums and fees in 1994, 1993 and 1992, respectively. The adjusted premium mix in 1994 was approximately 48% medical insurance, 28% prepaid health and dental care, 10% life insurance, 9% dental insurance, 3% long-term disability insurance and 2% other insurance coverages. Indemnity claims paid for insured plans and claims paid for alternative funding programs, including ASOs, for the year ended December 31 were as follows:
------------------------------------------------------------------------------------------- (In millions) 1994 1993 1992 ------------------------------------------------------------------------------------------- Insured plans $ 3,706 $ 3,465 $ 3,378 Alternative funding programs 9,725 9,917 9,606 ------------------------------------------------------------------------------------------- Total $ 13,431 $ 13,382 $ 12,984 ------------------------------------------------------=====================================
EMPLOYEE RETIREMENT AND SAVINGS BENEFITS
(In millions) ------------------------------------------------------------------------------------------- FINANCIAL SUMMARY 1994 1993 1992 ------------------------------------------------------------------------------------------- Premiums and fees $ 201 $ 296 $ 248 Net investment income 1,722 1,846 1,893 Realized investment gains (losses) 12 (31) 7 ------ ------ ------ Total revenues 1,935 2,111 2,148 Benefits and expenses 1,648 1,888 1,892 ------ ------ ------ Income before taxes 287 223 256 Income taxes 97 64 40 ------ ------ ------ Income $ 190 $ 159 $ 216 -------------------------------------------------------==================================== Realized investment gains (losses), net of taxes $ 6 $ (23) $ 16 -------------------------------------------------------====================================
Income for the Employee Retirement and Savings Benefits segment increased 19% in 1994, compared with a decrease of 26% in 1993. Included in the results for 1994 was an unfavorable tax adjustment related to federal tax audits of $3 million (including a $1 million charge related to realized investment results), compared with favorable tax adjustments of $3 million (including a $3 million charge related to realized investment results) in 1993, and $41 million (including a $14 million benefit related to realized investment results) in 1992. Excluding after-tax realized investment results and the tax adjustments, income for 1994 was $186 million, compared with $176 million for 1993 and $173 million in 1992. The 1994 increase primarily reflects improved interest margins on defined contribution business. Competitive pressures and interest rate movements could affect such margins in the future. Earnings growth for 1993 principally reflects higher earnings from an increased asset base, partially offset by the effects of lower investment yields due to lower interest rates. Premiums and fees decreased 32% in 1994 and increased 19% in 1993. The 1994 decrease primarily reflects lower group annuity premiums. The increase in 1993 was due primarily to higher group annuity premiums. Net investment income decreased 7% in 1994 and 2% in 1993. These declines reflect the effects of lower yields on invested assets and, for 1994, a decrease resulting from customers' redirection of investments to separate accounts. 11 7 Assets under management is generally a key determinant of earnings for this segment. For the year ended December 31, assets under management and related activity, including amounts attributable to separate accounts, were as follows:
------------------------------------------------------------------------------------------- (In millions) 1994 1993 ------------------------------------------------------------------------------------------- Balance -- January 1 $ 34,469 $ 32,736 Premiums and deposits 3,456 2,960 Investment results 2,320 2,876 Increase (decrease) in fair value of assets (1,250) 626 Customer withdrawals (2,518) (2,915) Benefit payments and other (2,595) (1,814) ------------------------------------------------------------------------------------------- Balance -- December 31 $ 33,882 $ 34,469 ----------------------------------------------------------------------=====================
Approximately 50% and 45% of the premiums and deposits for 1994 and 1993, respectively, were from new customers. The decline in investment results for assets under management for 1994, compared with 1993, primarily reflects significantly lower realized gains from the sales of separate account investment assets and lower investment yields. The decrease for 1994 in the fair value of assets, primarily fixed maturities, resulted from an increase in interest rates. The decline in withdrawals for 1994, compared with 1993, reflects approximately $840 million of payments made in 1993 to two large customers under contracts that were terminated prior to 1993. The increase in benefit payments and other is primarily due to the payment of benefits of $318 million for several large contracts that matured in 1994 and an increase in annuity payments of $300 million. Management expects asset growth to continue to be constrained by withdrawals and lower deposits resulting from decisions by plan sponsors to diversify assets and fund management and by benefit payments of approximately $500 million to be made on several large contracts that will mature in 1995. In addition, the fair value of assets under management will be adversely affected by any future increase in interest rates. INDIVIDUAL FINANCIAL SERVICES
(In millions) ------------------------------------------------------------------------------------------- FINANCIAL SUMMARY 1994 1993 1992 ------------------------------------------------------------------------------------------- Premiums and fees $ 824 $ 814 $ 710 Net investment income 741 583 457 Other revenues 64 65 98 Realized investment gains (losses) 8 (15) (15) ------ ------ ------ Total revenues 1,637 1,447 1,250 Benefits and expenses 1,427 1,283 1,142 ------ ------ ------ Income before taxes 210 164 108 Income taxes 74 54 22 ------ ------ ------ Income $ 136 $ 110 $ 86 -------------------------------------------------------==================================== Realized investment gains (losses), net of taxes $ 5 $ (13) $ -- -------------------------------------------------------====================================
Income for the Individual Financial Services segment increased 24% and 28% in 1994 and 1993, respectively. Excluding after-tax realized investment results, income for 1994 was $131 million, compared with $123 million for 1993 and $86 million for 1992. The 1994 increase reflects higher earnings of $14 million from interest-sensitive products, primarily reflecting improved interest margins and business growth partially offset by the absence of $5 million of favorable tax adjustments recorded in 1993. The increase for 1993 reflects $20 million from improved margins and higher sales of interest-sensitive business, principally corporate- owned life insurance (COLI), and improved reinsurance earnings. In 1994 and 1993, premiums and fees increased 1% and 15%, respectively, and net investment income increased 27% and 28%, respectively. These increases, as well as the increases in benefits and expenses, reflect growth in business, primarily of interest-sensitive products (principally COLI). Deposits, which are not included in revenues, totaled $3.2 billion, $2.5 billion and $1.0 billion in 1994, 1993 and 1992, respectively. The 1994 increase reflects increased deposits of $165 million for universal life and $538 million for annuities, while the 1993 increase primarily reflects business growth for interest-sensitive products (principally COLI). 12 8 PROPERTY AND CASUALTY
(In millions) ------------------------------------------------------------------------------------------- FINANCIAL SUMMARY 1994 1993 1992 ------------------------------------------------------------------------------------------- Premiums and fees $ 5,043 $ 5,136 $ 5,760 Net investment income 756 753 842 Other revenues 223 254 254 Realized investment gains 8 185 119 ------ ------ ------ Total revenues 6,030 6,328 6,975 Benefits and expenses 6,447 7,290 7,604 ------ ------ ------ Loss before tax benefits (417) (962) (629) Income tax benefits (182) (432) (255) ------ ------ ------ Loss $ (235) $ (530) $ (374) -------------------------------------------------------====================================
Losses for the Property and Casualty segment for the periods presented above included the following after-tax (charges)/benefits (in millions): Realized investment gains $ 4 $ 150 $ 111 Prior year development: Asbestos and environmental (179) (367) (129) Other (171) (146) (403) Catastrophe losses (98) (94) (166) Restructuring charges (9) (97) (16) Reserve decrease for a closed book of reinsurance business -- -- 150 Reserve increase for self-insurance programs -- (40) -- Gain on sale of international insurance subsidiaries -- 20 -- Tax benefit from federal income tax rate change on deferred tax asset -- 24 -- Federal tax audit adjustments 8 -- 22 Underlying operations 210 20 57 ------------------------------------------------------------------------------------------- Loss $ (235) $ (530) $ (374) -------------------------------------------------------====================================
The improvement in "Underlying operations" for 1994, compared with last year, as shown in the above table, primarily reflects lower current accident year underwriting losses for both the domestic and international businesses. The improvements were primarily driven by favorable claim experience and rate increases on certain lines of business and, to a lesser extent, by expense savings of approximately $40 million after-tax, primarily due to lower employee-related costs resulting from restructuring initiatives. Although its results are beginning to show improvement, CIGNA's domestic business continues to reflect the highly competitive pricing environment. The decline in "Underlying operations" in 1993, compared with 1992, reflects higher underwriting losses in domestic operations due primarily to the pricing environment, partially offset by lower losses in the international operations due to re-underwriting of the European property business. Pre-tax catastrophe losses, net of reinsurance, ("catastrophe losses") for 1994, 1993 and 1992 were $151 million (before reinsurance ("gross"), $158 million), $145 million (gross, $308 million) and $251 million (gross, $402 million), respectively. Catastrophe losses for 1994 include $87 million (gross, $92 million) for the Los Angeles earthquake and $27 million (gross, $27 million) for the severe winter weather. Catastrophe losses for 1993 included $41 million (gross, $173 million) for the World Trade Center bombing and $36 million (gross, $38 million) for the East Coast blizzard. Catastrophe losses for 1992 included $95 million (gross, $194 million) for Hurricane Andrew, $56 million (gross, $88 million) for Hurricane Iniki and $42 million (gross, $53 million) for the Los Angeles riots. CIGNA's principal property catastrophe reinsurance program provides approximately 95% recovery of losses between $70 million and $400 million for its domestic operations and 95% recovery of losses between $40 million and $300 million for international operations. CIGNA's future results of operations could be volatile, depending on the frequency and severity of future catastrophes. Premiums and fees decreased 2% in 1994 and 11% in 1993. The decline for 1994 reflects a decrease of $388 million for CIGNA's domestic commercial business, particularly commercial packages and high-deductible workers' compensation, and reinsurance business. This decline reflects price competition, strengthened underwriting standards and domestic agency force reduction in certain lines of business. These declines were partially offset by growth in international lines of business ($315 million). Approximately half of the decline for 1993 was attributable to reduced writings of workers' compensation that involves risk transfer and high-deductible workers' compensation business. The remaining decrease primarily reflects reduced writings due to worldwide price competition in CIGNA's core commercial lines, particularly domestic commercial packages and casualty lines and the international property lines. The decline in 1993 premiums and fees was partially offset by growth in international life business. 13 9 Premiums in 1995 will be depressed as a result of (1) the continued unfavorable pricing environment in the domestic market, (2) the effect of the withdrawal from certain lines of business, particularly reinsurance and (3) the adverse effect, if any, from Best's rating downgrades. Net investment income for 1994 was level with 1993. Net investment income for 1993 decreased 11%, compared with 1992, reflecting an overall decline in interest rates, negative cash flows due to underwriting losses and a decline in business volume. CIGNA has taken steps to improve its results by reorganizing its domestic property and casualty operations and by adopting initiatives to improve the quality of its underwriting. The domestic operations' strategy is to emphasize specialty lines of business and, in certain commercial lines, to write business on a group basis, as opposed to individual risks. In addition, the domestic operations are emphasizing writings of workers' compensation that involve standard risk transfer in states with regulatory climates where CIGNA believes it can operate profitably. Also, CIGNA has essentially eliminated writing domestic voluntary personal automobile coverage and domestic and international property and casualty reinsurance coverages with the objective of improving its results. Restructuring charges in 1993 of $97 million after-tax ($150 million pre-tax) represented restructuring initiatives associated with the domestic and international businesses. These restructuring charges consisted of the following on a pre-tax basis: severance -- $75 million, representing costs associated with nonvoluntary employee terminations; real estate -- $35 million, primarily related to office lease terminations; legal and consulting fees -- $18 million, associated with completing restructuring initiatives; and other costs -- $22 million, primarily for employee relocation and outplacement services. The cash outlays associated with the restructuring initiatives began in the fourth quarter of 1993 and will continue through 1995. Approximately half of the cash outlays occurred in 1994. CIGNA has funded and will continue to fund the restructuring costs through liquid assets, and such funding has not and will not have a material adverse effect on its liquidity. CIGNA expects that the restructuring initiatives, when completed, will result in annual cost savings of approximately $50 million to $70 million after-tax, primarily based on elimination of certain payroll costs and, to a lesser extent, lease costs. Results for 1993 included a charge of $40 million after-tax ($60 million pre-tax) for a reserve increase for CIGNA's self-insurance programs (primarily errors and omissions and workers' compensation). In addition, 1993 results included an after-tax gain of approximately $20 million from the sale of insurance subsidiaries. Results for 1992 were favorably affected by a $150 million reduction in other operating expenses for a closed book of reinsurance business. LOSS RESERVES AND REINSURANCE RECOVERABLES CIGNA's reserving methodology and significant issues affecting the estimation of loss reserves are described in its Form 10-K, and additional information is included in Note 16 to the Financial Statements. In summary, CIGNA's loss reserves are an estimate of future payments for reported and unreported claims for losses and related expenses with respect to insured events that have occurred. The basic assumption underlying the many standard actuarial and other methods used in the estimation of property and casualty loss reserves is that past experience is an appropriate basis for predicting future events. However, current trends and other factors that would modify past experience are also considered. Estimating property and casualty reserves is a complex process that relies heavily on judgment and is subject to uncertainties that are normal, recurring and inherent. CIGNA revises its estimate of the liability for insured events of prior years as new data become available. CIGNA continually attempts to improve its loss estimation process by refining its process of analyzing loss development patterns, claims payments and other information, but there remain many reasons for adverse development of estimated ultimate liabilities. For example, the uncertainties inherent in estimating losses have grown in the last decade because of changes in social and legal trends that expand the liability of insureds, establish new liabilities and reinterpret insurance contracts long after the policies were written to provide coverage unanticipated by CIGNA. Such changes from past experience significantly affect the ability of insurers to estimate liabilities for unpaid losses and related expenses. CIGNA manages its loss exposure through the use of reinsurance. While reinsurance arrangements are designed to limit losses from large exposures and to permit recovery of a portion of direct losses, reinsurance does not relieve CIGNA of liability to its insureds. Accordingly, CIGNA's loss reserves represent total gross losses, and reinsurance recoverables represent anticipated recoveries of a portion of these losses. 14 10 The following table shows CIGNA's gross losses for incurred claims and claim adjustment expenses ("gross"), amounts ceded to reinsurers ("reinsurance") and net losses for incurred claims and claim adjustment expenses ("net") for the years ended December 31, 1994, 1993 and 1992. The table also categorizes those amounts as they relate to insured events of the current year and of prior years ("prior year development"). Gross and Reinsurance amounts for 1993 and 1992 have been revised to conform with the 1994 presentation; there was no effect on net losses.
----------------------------------------------------------------------------------------------------------------------------- 1994 1993 1992 ----------------------------------------------------------------------------------------------------------------------------- (In millions) GROSS REINSURANCE NET Gross Reinsurance Net Gross Reinsurance Net ----------------------------------------------------------------------------------------------------------------------------- Current year $ 4,212 $ (1,187) $ 3,025 $ 4,959 $ (1,495) $ 3,464 $ 6,939 $ (2,491) $ 4,448 ----------------------------------------------------------------------------------------------------------------------------- Prior year development: Asbestos-related 64 (4) 60 303 (132) 171 142 (73) 69 Environmental pollution 280 (65) 215 482 (88) 394 197 (70) 127 Other long-term exposure 57 (26) 31 155 (79) 76 34 (18) 16 Reinsurance 70 (11) 59 84 (15) 69 597 (290) 307 Unrecoverable reinsurance -- 29 29 -- 28 28 -- 89 89 Other (103) 247 144 225 (174) 51 95 (47) 48 ----------------------------------------------------------------------------------------------------------------------------- Total prior year development 368 170 538 1,249 (460) 789 1,065 (409) 656 ----------------------------------------------------------------------------------------------------------------------------- Total incurred claims and claim adjustment expenses $ 4,580 $ (1,017) $ 3,563 $ 6,208 $ (1,955) $ 4,253 $ 8,004 $ (2,900) $ 5,104 -----------------------------================================================================================================
CIGNA's reserves for unpaid claims and claim expenses were approximately $16.7 billion and $17.7 billion as of December 31, 1994 and 1993, respectively. CIGNA's loss reserves reflect the effects of gross property and casualty losses for incurred claims and claim adjustment expenses, net of related payments. Declines in gross and net losses for insured events of the current year for 1994 and 1993 reflect improvements in the quality of underwriting and reduced premium volume in certain lines of business (as addressed more fully on page 13). CIGNA expects that strengthened underwriting will result in continued reductions in losses for insured events of current years, relative to premiums. CIGNA continues to receive asbestos-related, environmental pollution and other long-term exposure claims asserting a right to recovery under insurance policies issued by CIGNA. A significant amount of prior year development on both a gross and net basis in recent years has been for losses related to such claims. In 1993, following a re-evaluation, reserves of $489 million ($375 million, net of reinsurance; $244 million after-tax) were recorded for future legal and associated expenses for reported asbestos- related claims ($72 million), environmental pollution claims ($268 million) and other long-term exposure claims ($35 million). Standard actuarial methods cannot be used in the estimation of liabilities for asbestos-related, environmental pollution and certain other long-term exposure claims because developed case law and adequate history do not exist for such claims. In addition, CIGNA and the insurance industry are litigating issues that will ultimately determine, in many cases, whether insurance coverage exists. Determination that coverage exists would result in the emergence of additional liabilities. CIGNA has been a major writer of commercial insurance policies, which are subject to these types of claims. In 1992, CIGNA conducted a review of its London property and casualty reinsurance exposures related to large catastrophes occurring in recent years. As a result of this review, reserves of $474 million ($228 million, net of reinsurance) were established in 1992; $55 million ($31 million, net of reinsurance) of reserves were established in 1993 resulting from an update of that review. In 1994, certain reinsurance lines of business, other than London reinsurance, were reviewed, resulting in additional reserves of $48 million ($40 million, net of reinsurance). 15 11 Gross and net losses for other prior year development included losses for workers' compensation and general and excess liability lines of business in 1994, losses for the commercial packages line of business in 1993 and 1992, and, for 1992, workers' compensation. In addition in 1994, CIGNA performed an actuarial review of certain businesses, including captives, that are substantially reinsured. Such review resulted in a reduction in gross loss reserves of approximately $250 million, with a corresponding decrease in reinsurance recoverables. CIGNA expects adverse prior year development to continue in future years, primarily for losses and related loss adjustment expenses for asbestos-related, environmental pollution and other long-term exposure claims. For the reasons noted above and in the Business section of its Form 10-K, CIGNA is unable to reasonably estimate the additional losses and expenses that will be incurred for asbestos-related, environmental pollution and other long-term exposure claims and, therefore, is unable to determine whether such amounts will be material to its future results of operations, liquidity or financial condition. CIGNA's reinsurance recoverables were approximately $7.1 billion and $8 billion as of December 31, 1994 and 1993, net of allowances for unrecoverable reinsurance of approximately $435 million and $405 million, respectively. CIGNA recognized significant recoveries in 1994, 1993 and 1992 from reinsurance arrangements, as shown in the table on page 15. Reinsurance recoveries for all periods presented, including for asbestos-related, environmental pollution and other long-term exposure claims, increased or decreased as a result of comparable increases or decreases in gross losses. CIGNA expects to continue to have significant recoveries from its reinsurance arrangements, including recoveries of asbestos-related and environmental pollution losses. However, the extent of recoveries in the aggregate, including for asbestos- related and environmental pollution losses, will depend on future gross loss experience and the particular reinsurance arrangements to which future losses relate. Losses for unrecoverable reinsurance noted in the table on page 15 are principally due to the failure of reinsurers to indemnify CIGNA, primarily because of reinsurer insolvencies and disputes under reinsurance contracts. Losses for unrecoverable reinsurance for 1992 included $62 million for London reinsurance exposures. Reinsurance disputes have increased in recent years, particularly on larger and more complex claims such as those related to professional liability, asbestos and London reinsurance market exposures. Reinsurance disputes may increase in the future, and are likely to include disputes related to environmental pollution. Allowances have been established for amounts deemed uncollectible. While future charges for unrecoverable reinsurance may materially affect results of operations in future periods, such amounts are not expected to have a material adverse effect on CIGNA's liquidity or financial condition. Approximately 12% of CIGNA's reinsurance recoverables relate to paid claims. The timing and collectibility of such recoverables have not had, and are not expected to have, a material adverse effect on its liquidity. In management's judgement, information currently available has been appropriately considered in estimating CIGNA's loss reserves and reinsurance recoverables. OTHER OPERATIONS Other Operations primarily includes unallocated investment income, expenses, principally debt service, and taxes. Also included in Other Operations are the results of CIGNA's settlement annuity business and non-insurance operations engaged primarily in investment and real estate activities. For 1993 and 1992, Other Operations also included the California personal automobile and homeowners insurance businesses that CIGNA retained from the 1989 sale of the Horace Mann companies. In 1994, the California businesses were sold, resulting in a gain of approximately $20 million after-tax. Losses for Other Operations were $85 million, $94 million and $74 million for 1994, 1993 and 1992, respectively. After-tax realized investment results included in these amounts were losses of $4 million and $16 million in 1994 and 1993, respectively, compared with gains of $2 million for 1992. Excluding after-tax realized investment results, losses were $81 million for 1994, $78 million for 1993 and $76 million for 1992. Increased losses for 1994 reflect a charge of $16 million after-tax resulting from reserve strengthening in the settlement annuity business and a loss of $8 million after-tax for an oil and gas divestiture. Partially offsetting these items was a $20 million after-tax gain on the sale of the California businesses. Losses for 1993 were slightly higher than 1992, primarily reflecting higher interest expense of $4 million after-tax offset by reduced losses on investment and real estate operations. LIQUIDITY AND CAPITAL RESOURCES
(In millions) ------------------------------------------------------------------------------------------- FINANCIAL SUMMARY 1994 1993 1992 ------------------------------------------------------------------------------------------- Short-term investments $ 853 $ 1,357 $ 3,133 Cash and cash equivalents 1,693 1,211 1,011 Short-term debt 271 351 475 Long-term debt 1,389 1,235 929 Shareholders' equity 5,811 6,575 5,744 -------------------------------------------------------------------------------------------
CIGNA's operations have liquidity requirements that vary among the principal product lines. Life insurance and pension plan reserves are primarily long-term liabilities. Property and 16 12 casualty, as well as accident and health reserves, including long-term disability, consist of both short-term and long-term liabilities. Life insurance and pension plan reserve requirements are usually stable and predictable, and are supported primarily by long-term, fixed-income investments. Property and casualty claim demands are less predictable in nature, requiring greater liquidity in the investment portfolio. Accident and health claim demands are stable and predictable but generally shorter term, requiring greater liquidity. Generally, CIGNA has met its operating requirements by maintaining appropriate levels of liquidity in its investment portfolio and utilizing overall positive cash flows. Overall cash flows have been constrained by negative cash flows in the property and casualty business, resulting from operating losses. Liquidity for CIGNA and its insurance subsidiaries has remained strong, as evidenced by significant amounts of short-term investments and cash equivalents in the aggregate. The decrease in short-term investments in 1993 reflects the reclassification of amounts previously included in short-term investments to fixed maturities as a result of implementing SFAS No. 115. During 1994, cash and cash equivalents increased $482 million from $1.2 billion as of December 31, 1993. This increase primarily reflects the issuance of long-term debt ($158 million); deposits and interest credited, net of withdrawals, to contractholder deposit funds ($2.2 billion); and cash flows from operating activities ($475 million), primarily resulting from earnings and the timing of cash receipts and cash disbursements. The increase in cash flows was partially offset by cash used for investing activities ($2.1 billion), primarily net investment purchases ($2.0 billion); payments of dividends on CIGNA common stock ($219 million); and debt repayments ($46 million). Cash flow from operating activities was constrained by negative cash flow from the property and casualty business of approximately $200 million resulting from operating losses. The 1993 increase primarily reflects deposits and interest credited, net of withdrawals, to contractholder deposit funds; issuance of long-term debt; and cash flows from operating activities, primarily resulting from earnings and the timing of cash receipts and cash disbursements. The increase was partially offset by net investment purchases and payments of dividends on CIGNA common stock. The 1992 decline in cash and cash equivalents of $852 million reflects net investment purchases, primarily of longer-term securities, and payments of dividends on CIGNA common stock, partially offset by deposits and interest credited, net of withdrawals, to contractholder deposit funds; issuance of long-term debt; proceeds from sales of equity interests in MBIA and Paine Webber, and a mutual fund advisory business; and cash flows from operating activities. Cash flows from operating activities primarily resulted from earnings; timing of cash receipts reflecting, in part, an increased emphasis on receivable collections; and timing of cash disbursements, including income tax payments and payment of insurance and other liabilities relating to lines of business that are being de-emphasized. Funds provided from premiums and fees, investment income and maturities of investment assets are reasonably predictable and normally exceed liquidity requirements for payments of claims, benefits and expenses. However, since the timing of available funds cannot always be matched precisely to commitments, imbalances may arise when demands for funds exceed those on hand. Also, a demand for funds may arise as a result of CIGNA taking advantage of current investment opportunities. CIGNA's insurance subsidiaries are subject to various regulatory restrictions that can limit the amount of internal dividends and other distributions, including loans, that can be utilized to manage liquidity needs. However, CIGNA's size and diversity generally provide the flexibility to manage liquidity needs, either internally or externally, through short-term borrowings. At December 31, 1994, CIGNA had available approximately $660 million of committed and uncommitted lines of credit with banks. CIGNA's capital resources represent funds available for long-term business commitments and primarily consist of retained earnings and proceeds from the issuance of long-term debt and equity securities. Capital resources provide protection for policyholders and the financial strength to support the underwriting of insurance risks, and allow for continued business growth. The amount of capital resources that may be needed is determined by CIGNA's senior management and Board of Directors, as well as by regulatory requirements. The allocation of resources to new long-term business commitments is designed to achieve an attractive return, tempered by considerations of risk and the need to support CIGNA's existing businesses. CIGNA's financial strength provides the capacity and flexibility to enable it to raise funds in the capital markets through the issuance of long-term debt and equity securities. CIGNA continues to be well capitalized, with sufficient borrowing capacity to meet the anticipated needs of its businesses. CIGNA had $1.4 billion of long-term debt outstanding at December 31, 1994, compared with $1.2 billion at December 31, 1993. This increase primarily reflects issuance in January 1994 of $100 million of unsecured 6 3/8% Notes due in 2006 and $12 million of Medium-term Notes. The proceeds from these issues were used for general corporate purposes. In 1993, CIGNA issued $100 million of 7.4% unsecured Notes due in 2003, $100 million of 8.3% unsecured Notes due in 2023, $100 million of 7.65% unsecured Notes due in 2023 17 13 and $27 million of Medium-term Notes. The proceeds from these issues were used for general corporate purposes, including the repayment of certain debt at maturity. In 1992, CIGNA issued $100 million of 8 1/4% unsecured Notes due in 2007 and $11 million of Medium-term Notes, the proceeds of which were used for general corporate purposes, including the repayment at maturity of Medium-term Notes. At December 31, 1994, CIGNA had approximately $840 million remaining under shelf registration statements that may be issued as debt, equity securities or both, depending upon market conditions and CIGNA's capital requirements. CIGNA contributed approximately $250 million of capital during 1994 and $150 million during 1993 to the domestic property and casualty operations, as a result of continued losses. In 1995, CIGNA committed to contribute $125 million of capital to its domestic property and casualty operations, by the end of the year. Also, additional amounts may be needed depending upon the extent of property and casualty losses; however, such amounts and timing are not reasonably estimable at this time. INVESTMENT ASSETS
-------------------------------------------------------------------------------------------- As of December 31, (In millions) 1994 1993 ------------------------------------------------------------------------------------------- Fixed maturities: at fair value $ 18,521 $ 19,380 Fixed maturities: at amortized cost 12,296 12,375 Equity securities 1,806 1,849 Mortgage loans 9,970 10,021 Real estate 1,747 1,780 Other 6,579 5,323 ------------------------------------------------------------------------------------------- Total investment assets $ 50,919 $ 50,728 ----------------------------------------------------------------===========================
CIGNA's investment strategy is to manage investment assets to reflect the underlying characteristics of the related insurance and contractholder liabilities, such as liquidity, currency, yield and duration which vary among CIGNA's principal product lines. In connection with this investment strategy, CIGNA utilizes derivative instruments through hedging applications to manage market risk. Additional information regarding CIGNA's investment assets and related accounting policies is included in Notes 1, 3, 4 and 18 to the Financial Statements and in CIGNA's Form 10-K. Significant amounts of CIGNA's investment assets are attributable to experience-rated contracts with policyholders (policyholder contracts). Approximate percentages of investments attributable to policyholder contracts as of December 31 were as follows:
------------------------------------------------------------------------------------------- 1994 1993 ------------------------------------------------------------------------------------------- Fixed maturities 32% 33% Mortgage loans 57% 59% Real estate 55% 56% -------------------------------------------------------------------------------------------
Under the experience-rating process, net investment income and gains and losses on assets related to policyholder contracts generally accrue to the policyholders. Consequently, write-downs, changes in valuation reserves and non-accruals on investments attributable to policyholder contracts do not affect CIGNA's net income, except under unusual circumstances. FIXED MATURITIES Investments in fixed maturities (bonds) include publicly traded and private placement debt securities; asset-backed securities, including collateralized mortgage obligations (CMOs); and redeemable preferred stocks. As of December 31, 1993, CIGNA adopted SFAS No. 115; accordingly, fixed maturities classified as held to maturity are carried at amortized cost, net of impairments, and those classified as available for sale are carried at fair value, with unrealized appreciation or depreciation included in shareholders' equity. As of December 31, 1994, fixed maturities classified as available for sale had an aggregate fair value, including policyholder share, that was greater (less) than amortized cost by approximately ($378) million, compared with approximately $1.76 billion as of December 31, 1993. The decline in unrealized appreciation primarily reflects the upward movement in interest rates since December 31, 1993. QUALITY RATINGS The quality ratings of bonds classified as available for sale (primarily public bonds) and as held to maturity (primarily private placement investments) as of December 31, 1994 were as follows:
------------------------------------------------------------------------------------------- AVAILABLE HELD TO (In millions) FOR SALE MATURITY TOTAL ------------------------------------------------------------------------------------------- Aaa $ 8,659 $ 927 $ 9,586 Aa 1,850 1,431 3,281 A 4,338 2,928 7,266 Baa 3,274 5,657 8,931 ------------------------------------------------------------------------------------------- Investment grade 18,121 10,943 29,064 ------------------------------------------------------------------------------------------- Ba 259 969 1,228 B 117 308 425 C 18 49 67 In/near default 7 149 156 ------------------------------------------------------------------------------------------- Below investment grade 401 1,475 1,876 ------------------------------------------------------------------------------------------- Total bonds before cumulative write-downs 18,522 12,418 30,940 Less cumulative write-downs 1 122 123 ------------------------------------------------------------------------------------------- Total $ 18,521 $ 12,296 $ 30,817 ------------------------------------------------------=====================================
18 14 Public bonds were rated by outside rating agencies; private placement investments were rated by CIGNA on a basis that it believes is generally consistent with methodologies of outside rating agencies. As of December 31, 1994, the NAIC rated approximately 7% of CIGNA's bonds as below investment grade, compared with 6% based on the above ratings. Approximately 31% of the below investment grade securities relate to policyholder contracts. All private placement investments are made after credit analysis, and are diversified by industry and issuer. Private placement investments are generally less marketable than public bonds, and yields are generally higher for comparable credit risk. Further, private placement investments generally contain financial and other covenants that allow CIGNA to monitor the debtor for early signs of deteriorating financial strength so it can take remedial actions, if warranted. As a result of the higher yields and the inherent risk associated with below investment grade securities, gains or losses could significantly affect future results of operations, although such effects are not expected to be material to CIGNA's liquidity or financial condition. PROBLEM BONDS* Bonds that are delinquent or restructured as to terms, typically interest rate and, in certain cases, maturity date, are considered problem bonds. As of December 31, problem bonds, including amounts attributable to policyholder contracts, and related cumulative write-downs were as follows:
------------------------------------------------------------------------------------------- (In millions) 1994 1993 ------------------------------------------------------------------------------------------- Delinquent bonds $ 156 $ 131 Less cumulative write-downs 54 52 ---- ---- 102 79 ---- ---- Restructured bonds 270 383 Less cumulative write-downs 65 55 ---- ---- 205 328 ------------------------------------------------------------------------------------------- Problem bonds $ 307 $ 407 -------------------------------------------------------------------------==================
Problem bonds attributable to policyholder contracts represented 37% and 35% of total problem bonds at December 31, 1994 and 1993, respectively. POTENTIAL PROBLEM BONDS* Potential problem bonds are fully current but judged by management to have certain characteristics that increase the likelihood of problem classification. As of December 31, 1994, potential problem bonds, including amounts attributable to policyholder contracts, were $141 million and, for 1993, $214 million, net of cumulative write-downs of $11 million. Potential problem bonds attributable to policyholder contracts represented 17% and 30% of total potential problem bonds at December 31, 1994 and 1993, respectively. *Bonds in these categories are principally classified as held to maturity. CUMULATIVE WRITE-DOWNS FOR BONDS The activity in cumulative write-downs for bonds for the year ended December 31 was as follows:
------------------------------------------------------------------------------------------------------------------------------- 1994 1993 ------------------------------------------------------------------------------------------------------------------------------- POLICYHOLDER Policyholder (In millions) CONTRACTS CIGNA TOTAL Contracts CIGNA Total ------------------------------------------------------------------------------------------------------------------------------- Beginning balance -- January 1 $ 54 $ 69 $ 123 $ 89 $ 81 $ 170 Additions to cumulative write-downs 22 28 50 15 27 42 Charge-offs upon sales, repayments and other (22) (22) (44) (2) (1) (3) Transfers to equity securities (4) (2) (6) (48) (38) (86) ------------------------------------------------------------------------------------------------------------------------------- Ending balance -- December 31 $ 50 $ 73 $ 123 $ 54 $ 69 $ 123 ---------------------------------------------------============================================================================
Included in the total ending balances above as of December 31, 1994 and 1993 were $4 million and $5 million, respectively, for bonds no longer classified as problem or potential problem bonds. The adverse after-tax effect of write-downs on CIGNA's net income was $19 million, $18 million and $29 million for 1994, 1993 and 1992, respectively. In 1994 and 1993, certain bonds were restructured into equity securities. Accordingly, assets of $27 million and $102 million, which were net of cumulative write-downs of $6 million and $86 million, respectively, were transferred from bonds to equity securities. In addition, during 1994 and 1993, $12 million and $15 million, respectively, of write-downs were established for equity securities, including $1 million attributable to policyholder contracts for 1994 and 1993. As of December 31, 1994 and 1993, CIGNA had cumulative write-downs for equity securities of $57 million and $78 million, respectively, including $14 million and $39 million attributable to policyholder contracts. 19 15 EFFECT OF NON-ACCRUALS FOR BONDS Interest income is recognized on problem bonds only when payment is received. The adverse effect of non-accruals for bonds (in total and by type) on policyholder contracts and on CIGNA's net income for the year ended December 31 is shown in the following table:
-------------------------------------------------------------------------------------------------------------------------------- 1994 1993 1992 -------------------------------------------------------------------------------------------------------------------------------- POLICYHOLDER Policyholder Policyholder (In millions) CONTRACTS CIGNA Contracts CIGNA Contracts CIGNA -------------------------------------------------------------------------------------------------------------------------------- Net investment income under original contract terms $ 23 $ 40 $ 35 $ 46 $ 46 $ 50 Less net investment income received 11 15 19 27 22 19 --- --- --- --- --- --- Forgone investment income 12 25 16 19 24 31 Tax effect -- (9) -- (7) -- (11) -------------------------------------------------------------------------------------------------------------------------------- Net effect of non-accruals $ 12 $ 16 $ 16 $ 12 $ 24 $ 20 ---------------------------------------------------============================================================================= Forgone investment income by type: Delinquent bonds $ 5 $ 13 $ 4 $ 8 $ 11 $ 16 Restructured bonds 7 12 12 11 13 15 --- --- --- --- --- --- Forgone investment income 12 25 16 19 24 31 Tax effect -- (9) -- (7) -- (11) -------------------------------------------------------------------------------------------------------------------------------- Net effect of non-accruals $ 12 $ 16 $ 16 $ 12 $ 24 $ 20 ---------------------------------------------------=============================================================================
MORTGAGE LOANS
-------------------------------------------------------------------------------------------- As of December 31, 1994 1993 ------------------------------------------------------------------------------------------- Mortgage loans (in millions) $ 9,970 $ 10,021 Property type: Office buildings 37% 40% Retail facilities 39 37 Apartment buildings 11 10 Hotels 7 7 Other 6 6 ------------------------------------------------------------------------------------------- Total 100% 100% -----------------------------------------------------------------==========================
CIGNA's investment strategy requires diversification of the mortgage loan portfolio. This strategy includes guidelines relative to property type, location and borrower to reduce its exposure to potential losses. CIGNA routinely monitors and evaluates the status of its mortgage loans through the review of loan and property-related information, including cash flows, expiring leases, financial health of the borrower and major tenants, loan payment history, occupancy and room rates for hotels and, for all commercial properties, significant new competition. CIGNA evaluates this information in light of current economic conditions as well as geographic and property type considerations. Adverse conditions in real estate markets and more stringent lending practices by financial institutions have affected scheduled maturities of mortgage loans. During 1994, approximately $925 million of mortgage loans was scheduled to mature, of which $149 million was paid in full, $242 million was extended at existing loan rates for a weighted average of 16 months, and $395 million was refinanced at current market rates. Mortgage loan extensions and refinancings are loans in good standing. The remainder of the scheduled maturities was problem mortgage loans or foreclosure properties, including $39 million that were restructured and $63 million that were foreclosed or in the process of foreclosure. The effect of not receiving timely cash payments on maturing mortgage loans is not expected to have a material adverse effect on CIGNA's future results of operations, liquidity or financial condition. PROBLEM MORTGAGE LOANS CIGNA's problem mortgage loans include delinquent and restructured mortgage loans. Delinquent mortgage loans include those on which payment is overdue generally 60 days or more. Restructured mortgage loans are those whose basic financial terms have been modified, typically to reduce the interest rate or extend the maturity. As of December 31, 1994, restructured mortgage loans with a carrying value of approximately $407 million had their original maturity date extended, with an average extension of five years. Restructured mortgage loans generated annualized cash returns averaging approximately 7 1/2% as of December 31, 1994. 20 16 As of December 31, problem mortgage loans, including amounts attributable to policyholder contracts, and related valuation reserves were as follows:
------------------------------------------------------------------------------------------- (In millions) 1994 1993 ------------------------------------------------------------------------------------------- Delinquent mortgage loans $ 249 $ 162 Less valuation reserves 58 32 ---- ---- 191 130 ---- ---- Restructured mortgage loans 671 839 Less valuation reserves 66 105 ---- ---- 605 734 ------------------------------------------------------------------------------------------- Problem mortgage loans $ 796 $ 864 -------------------------------------------------------------------------==================
Problem mortgage loans attributable to policyholder contracts represented 57% and 56% of total problem mortgage loans at December 31, 1994 and 1993, respectively. As of December 31, delinquent and restructured mortgage loans by property type and by geographic region, including amounts attributable to policyholder contracts, were as follows:
------------------------------------------------------------------------------------------- 1994 1993 -------------------------------------------------------------------------------------------- (In millions) DELINQUENT RESTRUCTURED Delinquent Restructured ------------------------------------------------------------------------------------------- PROPERTY TYPE: Office buildings $ 57 $ 336 $ 105 $ 376 Hotels 31 159 13 237 Apartment buildings 4 46 2 51 Retail facilities 51 36 2 41 Other 48 28 8 29 ------------------------------------------------------------------------------------------- Total $ 191 $ 605 $ 130 $ 734 ----------------------------------------=================================================== GEOGRAPHIC REGION: Central $ 24 $ 191 $ 22 $ 245 Middle Atlantic 72 156 67 181 Pacific 50 67 30 84 South Atlantic 7 63 9 110 New England 14 100 1 85 Other 24 28 1 29 ------------------------------------------------------------------------------------------- Total $ 191 $ 605 $ 130 $ 734 ----------------------------------------===================================================
POTENTIAL PROBLEM MORTGAGE LOANS Potential problem mortgage loans include: 1) fully current loans that are judged by management to have certain characteristics that increase the likelihood of problem classification; 2) fully current loans for which the borrower has requested restructuring; and 3) loans that are 30 to 59 days delinquent with respect to interest or principal payments. As of December 31, 1994, potential problem mortgage loans were fully current under their original terms. As of December 31, potential problem mortgage loans, including amounts attributable to policyholder contracts, and related valuation reserves were as follows:
------------------------------------------------------------------------------------------- (In millions) 1994 1993 ------------------------------------------------------------------------------------------- Potential problem mortgage loans $ 405 $ 627 Less valuation reserves 55 79 ------------------------------------------------------------------------------------------- Potential problem mortgage loans $ 350 $ 548 -------------------------------------------------------------------------==================
Potential problem mortgage loans attributable to policyholder contracts represented 57% and 59% of total potential problem mortgage loans at December 31, 1994 and 1993, respectively. VALUATION RESERVES FOR MORTGAGE LOANS The activity in valuation reserves for mortgage loans during the year ended December 31 was as follows:
-------------------------------------------------------------------------------------------------------------------------------- 1994 1993 -------------------------------------------------------------------------------------------------------------------------------- POLICYHOLDER Policyholder (In millions) CONTRACTS CIGNA Total Contracts CIGNA Total -------------------------------------------------------------------------------------------------------------------------------- Beginning balance -- January 1 $ 105 $ 111 $ 216 $ 106 $ 78 $ 184 Net increase in valuation reserves 24 8 32 48 62 110 Charge-offs upon sales, repayments and other (24) (16) (40) (13) (10) (23) Transfers to real estate (10) (19) (29) (36) (19) (55) -------------------------------------------------------------------------------------------------------------------------------- Ending balance -- December 31 $ 95 $ 84 $ 179 $ 105 $ 111 $ 216 --------------------------------------------------==============================================================================
21 17 The adverse after-tax effect of the net increase in valuation reserves on CIGNA's net income was $5 million, $40 million and $21 million for 1994, 1993 and 1992, respectively. Valuation reserves for mortgage loans include reserves for loans which are in-substance foreclosures (classified as problem mortgage loans), and such loans are carried at the fair value of the underlying property. As of December 31, 1994, the carrying value of such loans was $98 million, net of valuation reserves of $38 million. The carrying value of such loans was $17 million, net of valuation reserves of $17 million, as of December 31, 1993. EFFECT OF NON-ACCRUALS FOR MORTGAGE LOANS Interest income is recognized on problem mortgage loans only when payment is received. The adverse effect of non-accruals for mortgage loans (in total and by type) on policyholder contracts and on CIGNA's net income for the year ended December 31 is shown in the following table:
-------------------------------------------------------------------------------------------------------------------------------- 1994 1993 1992 -------------------------------------------------------------------------------------------------------------------------------- POLICYHOLDER Policyholder Policyholder (In millions) CONTRACTS CIGNA Contracts CIGNA Contracts CIGNA -------------------------------------------------------------------------------------------------------------------------------- Net investment income under original contract terms $ 76 $ 46 $ 96 $ 54 $ 135 $ 55 Less net investment income received 52 29 68 30 80 31 --- --- --- --- ---- --- Forgone investment income 24 17 28 24 55 24 Tax effect -- (6) -- (8) -- (8) -------------------------------------------------------------------------------------------------------------------------------- Net effect of non-accruals $ 24 $ 11 $ 28 $ 16 $ 55 $ 16 ---------------------------------------------------============================================================================= Forgone investment income by type: Delinquent mortgage loans $ 16 $ 10 $ 13 $ 11 $ 33 $ 16 Restructured mortgage loans 8 7 15 13 22 8 --- --- --- --- ---- --- Forgone investment income 24 17 28 24 55 24 Tax effect -- (6) -- (8) -- (8) -------------------------------------------------------------------------------------------------------------------------------- Net effect of non-accruals $ 24 $ 11 $ 28 $ 16 $ 55 $ 16 ---------------------------------------------------=============================================================================
REAL ESTATE Investment real estate includes real estate held for the production of income and properties acquired as a result of foreclosure of mortgage loans (foreclosure properties). As of December 31, investment real estate, including amounts attributable to policyholder contracts, and related cumulative write-downs and valuation reserves, were as follows:
------------------------------------------------------------------------------------------- (In millions) 1994 1993 ------------------------------------------------------------------------------------------- Foreclosure properties $ 1,228 $ 1,289 Less cumulative write-downs 281 301 Less valuation reserves 55 59 ------ ------ 892 929 ------ ------ Real estate held for the production of income 904 890 Less valuation reserves 49 39 ------ ------ 855 851 ------------------------------------------------------------------------------------------- Investment real estate $ 1,747 $ 1,780 -----------------------------------------------------------------------====================
Foreclosure properties attributable to policyholder contracts represented 59% and 56% of total foreclosure properties at December 31, 1994 and 1993, respectively. As of December 31, foreclosure properties by property type and by geographic region, including amounts attributable to policyholder contracts, were as follows:
------------------------------------------------------------------------------------------- (In millions) 1994 1993 ------------------------------------------------------------------------------------------- PROPERTY TYPE: Office buildings $ 629 $ 638 Hotels 173 202 Retail facilities 52 62 Other 38 27 ------------------------------------------------------------------------------------------- Total $ 892 $ 929 -------------------------------------------------------------------------================== GEOGRAPHIC REGION: Pacific $ 219 $ 232 South Atlantic 213 201 Central 180 212 Middle Atlantic 145 128 New England 63 85 Other 72 71 ------------------------------------------------------------------------------------------- Total $ 892 $ 929 -------------------------------------------------------------------------==================
22 18 REAL ESTATE WRITE-DOWNS AND RESERVES The activity in cumulative write-downs and valuation reserves for real estate during the year ended December 31 was as follows:
-------------------------------------------------------------------------------------------------------------------------------- 1994 1993 -------------------------------------------------------------------------------------------------------------------------------- POLICYHOLDER Policyholder (In millions) CONTRACTS CIGNA Total Contracts CIGNA Total -------------------------------------------------------------------------------------------------------------------------------- Beginning balance -- January 1 $ 239 $ 160 $ 399 $ 184 $ 108 $ 292 Additions to cumulative write-downs 22 14 36 30 29 59 Net increase in valuation reserves 6 6 12 21 8 29 Charge-offs upon sales and other (65) (26) (91) (32) (4) (36) Transfers from mortgage loans 10 19 29 36 19 55 -------------------------------------------------------------------------------------------------------------------------------- Ending balance -- December 31 $ 212 $ 173 $ 385 $ 239 $ 160 $ 399 --------------------------------------------------==============================================================================
The after-tax adverse effect of write-downs and the net increase in valuation reserves on CIGNA's net income was $13 million, $24 million and $26 million for 1994, 1993 and 1992, respectively. SUMMARY The adverse effects of non-accruals as well as write-downs and changes in valuation reserves ("write-downs and reserves") on policyholder contracts and on CIGNA's net income for the year ended December 31 were as follows:
-------------------------------------------------------------------------------------------------------------------------------- 1994 1993 1992 -------------------------------------------------------------------------------------------------------------------------------- POLICYHOLDER Policyholder Policyholder (In millions) CONTRACTS CIGNA Contracts CIGNA Contracts CIGNA -------------------------------------------------------------------------------------------------------------------------------- Write-downs and reserves: Bonds $ 22 $ 19 $ 15 $ 18 $ 41 $ 29 Mortgage loans 24 5 48 40 51 21 Real estate 28 13 51 24 82 26 -------------------------------------------------------------------------------------------------------------------------------- Total $ 74 $ 37 $ 114 $ 82 $ 174 $ 76 ---------------------------------------------------============================================================================= Non-accruals: Bonds $ 12 $ 16 $ 16 $ 12 $ 24 $ 20 Mortgage loans 24 11 28 16 55 16 -------------------------------------------------------------------------------------------------------------------------------- Total $ 36 $ 27 $ 44 $ 28 $ 79 $ 36 ---------------------------------------------------=============================================================================
Economic conditions, including real estate market conditions, have improved. However, additional losses from problem investments are expected to occur for specific investments in the normal course of business, particularly due to continuing weak conditions in certain office building markets. CIGNA does not expect additional non-accruals, write-downs and reserves to materially affect future results of operations, liquidity or financial condition, or to result in a significant decline in the aggregate carrying value of its assets. 23 19 CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
-------------------------------------------------------------------------------------------------------------------------------- (In millions, except per share amounts) -------------------------------------------------------------------------------------------------------------------------------- For the year ended December 31, 1994 1993 1992 -------------------------------------------------------------------------------------------------------------------------------- REVENUES Premiums and fees $ 13,912 $ 13,712 $ 13,924 Net investment income 3,946 3,902 3,914 Other revenues 492 506 579 Realized investment gains 42 282 165 ------- ------- ------- Total revenues 18,392 18,402 18,582 ------- ------- ------- BENEFITS, LOSSES AND EXPENSES Benefits, losses and settlement expenses 12,926 13,419 13,857 Policy acquisition expenses 1,166 1,210 1,280 Other operating expenses 3,495 3,608 3,266 ------- ------- ------- Total benefits, losses and expenses 17,587 18,237 18,403 ------- ------- ------- INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGES 805 165 179 ------- ------- ------- Income taxes (benefits): Current 224 413 136 Deferred 27 (482) (294) ------- ------- ------- Total taxes 251 (69) (158) ------- ------- ------- INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGES 554 234 337 Cumulative effect of accounting changes for postemployment and postretirement benefits other than pensions, net of taxes -- -- (530) Cumulative effect of accounting change for income taxes -- -- 504 ------- ------- ------- NET INCOME 554 234 311 Common dividends declared (219) (219) (218) RETAINED EARNINGS, BEGINNING OF YEAR 3,717 3,702 3,609 -------------------------------------------------------------------------------------------------------------------------------- RETAINED EARNINGS, END OF YEAR $ 4,052 $ 3,717 $ 3,702 -------------------------------------------------------------------------------------------===================================== EARNINGS PER SHARE Income before cumulative effect of accounting changes $ 7.66 $ 3.25 $ 4.70 Cumulative effect of accounting changes for postemployment and postretirement benefits other than pensions, net of taxes -- -- (7.39) Cumulative effect of accounting change for income taxes -- -- 7.03 -------------------------------------------------------------------------------------------------------------------------------- NET INCOME $ 7.66 $ 3.25 $ 4.34 -------------------------------------------------------------------------------------------=====================================
The Notes to Financial Statements are an integral part of these statements. 24 20 CONSOLIDATED BALANCE SHEETS
-------------------------------------------------------------------------------------------------------------------------------- (In millions, except per share amounts) -------------------------------------------------------------------------------------------------------------------------------- As of December 31, 1994 1993 -------------------------------------------------------------------------------------------------------------------------------- ASSETS Investments: Fixed maturities: Available for sale, at fair value (amortized cost, $18,899; $17,618) $ 18,521 $ 19,380 Held to maturity, at amortized cost (fair value, $12,276; $13,807) 12,296 12,375 Equity securities, at fair value (cost, $1,651; $1,626) 1,806 1,849 Mortgage loans 9,970 10,021 Policy loans 5,355 3,663 Real estate 1,747 1,780 Other long-term investments 371 303 Short-term investments 853 1,357 ------- ------- Total investments 50,919 50,728 Cash and cash equivalents 1,693 1,211 Accrued investment income 835 764 Premiums, accounts and notes receivable 3,986 4,065 Reinsurance recoverables 7,486 8,338 Deferred policy acquisition costs 1,128 1,085 Property and equipment, net 914 930 Deferred income taxes, net 2,264 1,703 Other assets 1,161 1,209 Goodwill 1,165 1,262 Separate account assets 14,551 13,680 -------------------------------------------------------------------------------------------------------------------------------- Total $ 86,102 $ 84,975 ----------------------------------------------------------------------------------------------------------====================== LIABILITIES Contractholder deposit funds $ 27,000 $ 25,328 Unpaid claims and claim expenses 19,145 20,144 Future policy benefits 10,554 9,935 Unearned premiums 2,575 2,711 ------- ------- Total insurance and contractholder liabilities 59,274 58,118 Accounts payable, accrued expenses and other liabilities 4,726 4,555 Current income taxes 156 468 Short-term debt 271 351 Long-term debt 1,389 1,235 Separate account liabilities 14,475 13,673 -------------------------------------------------------------------------------------------------------------------------------- Total liabilities 80,291 78,400 -------------------------------------------------------------------------------------------------------------------------------- CONTINGENCIES -- NOTE 17 SHAREHOLDERS' EQUITY Common stock (shares issued, 83) 83 83 Additional paid-in capital 2,248 2,222 Net unrealized appreciation (depreciation) -- fixed maturities (122) 961 Net unrealized appreciation -- equity securities 141 211 Net translation of foreign currencies (27) (74) Retained earnings 4,052 3,717 Less treasury stock, at cost (564) (545) -------------------------------------------------------------------------------------------------------------------------------- Total shareholders' equity 5,811 6,575 -------------------------------------------------------------------------------------------------------------------------------- Total $ 86,102 $ 84,975 ----------------------------------------------------------------------------------------------------------====================== SHAREHOLDERS' EQUITY PER SHARE $ 80.46 $ 91.30 ----------------------------------------------------------------------------------------------------------======================
The Notes to Financial Statements are an integral part of these statements. 25 21 CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------------------------------------------------------------------------------------------------- (In millions) -------------------------------------------------------------------------------------------------------------------------------- For the year ended December 31, 1994 1993 1992 -------------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Income before cumulative effect of accounting changes $ 554 $ 234 $ 337 Adjustments to reconcile income before cumulative effect of accounting changes to net cash provided by (used in) operating activities: Insurance liabilities (853) 575 957 Reinsurance recoverables 862 380 (278) Premiums, accounts and notes receivable (10) 94 239 Accounts payable, accrued expenses, other liabilities and current income taxes (119) 608 (77) Deferred income taxes, net 27 (479) (335) Realized investment gains (42) (282) (165) Gain on sale of subsidiaries and other equity interests (28) (29) (85) Other, net 84 19 103 ------- ------- ------- Net cash provided by operating activities 475 1,120 696 ------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from investments sold: Fixed maturities--available for sale 4,868 -- -- Fixed maturities--held to maturity 12 1,012 1,420 Equity securities 681 2,259 1,199 Mortgage loans 601 1,182 435 Other (primarily short-term investments) 16,076 19,317 16,064 Investment maturities and repayments: Fixed maturities--available for sale 1,946 -- -- Fixed maturities--held to maturity 2,624 5,162 4,517 Mortgage loans 194 210 298 Investments purchased: Fixed maturities--available for sale (7,809) -- -- Fixed maturities--held to maturity (2,477) (8,553) (7,440) Equity securities (606) (1,587) (1,395) Mortgage loans (953) (1,005) (946) Other (primarily short-term investments) (17,109) (21,133) (16,775) Proceeds from sale of subsidiaries and other equity interests 58 36 147 Other, net (193) (105) (154) ------- ------- ------- Net cash used in investing activities (2,087) (3,205) (2,630) ------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES Deposits and interest credited to contractholder deposit funds 6,424 7,565 5,344 Withdrawals from contractholder deposit funds (4,217) (5,166) (4,080) Net change in commercial paper (38) (48) 92 Issuance of long-term debt 158 327 111 Repayment of debt (46) (148) (135) Common dividends paid (219) (219) (218) ------- ------- ------- Net cash provided by financing activities 2,062 2,311 1,114 ------- ------- ------- Effect of foreign currency rate changes on cash 32 (26) (32) -------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents 482 200 (852) Cash and cash equivalents, beginning of year 1,211 1,011 1,863 -------------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents, end of year $ 1,693 $ 1,211 $ 1,011 -------------------------------------------------------------------------------------------===================================== Supplemental Disclosure of Cash Information: Income taxes paid, net of refunds $ 531 $ 121 $ 319 Interest paid $ 117 $ 116 $ 96 --------------------------------------------------------------------------------------------------------------------------------
The Notes to Financial Statements are an integral part of these statements. 26 22 NOTES TO FINANCIAL STATEMENTS NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A) BASIS OF PRESENTATION: The consolidated financial statements include the accounts of CIGNA Corporation (CIGNA) and all significant subsidiaries. These consolidated financial statements have been prepared in conformity with generally accepted accounting principles. Certain reclassifications have been made to prior years' amounts to conform with the 1994 presentation. B) RECENT ACCOUNTING PRONOUNCEMENTS: In 1993, CIGNA implemented Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities." SFAS No. 115 requires that debt and equity securities be classified into different categories and carried at fair value if they are not classified as held to maturity. SFAS No. 115 does not permit retroactive application of its provisions. The effect of implementing SFAS No. 115 as of December 31, 1993 resulted in an increase in investment assets of $1.6 billion and an increase in shareholders' equity of $882 million resulting from the classification of certain fixed maturities previously carried at amortized cost to available for sale. The increase in shareholders' equity is net of policyholder share of $307 million and deferred income taxes of $452 million. See Note 3 for additional information. In 1993, the Financial Accounting Standards Board (FASB) issued SFAS No. 114, "Accounting by Creditors for Impairment of a Loan," which provides guidance on the accounting and disclosure for impaired loans, and must be implemented by the first quarter of 1995, with the cumulative effect of implementation included in net income. In October 1994, the FASB issued SFAS No. 118, "Accounting by Creditors for Impairment of a Loan -- Income Recognition and Disclosures," which eliminates the income recognition requirements of SFAS No. 114. CIGNA will adopt SFAS Nos. 114 and 118 in 1995. The effect on CIGNA's results of operations and financial condition upon adoption is not expected to be material. In 1992, CIGNA implemented SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions"; SFAS No. 109, "Accounting for Income Taxes"; and SFAS No. 112, "Employers' Accounting for Postemployment Benefits." These accounting changes were implemented as of January 1, 1992 through cumulative effect adjustments. Prior year financial statements were not restated. The cumulative effect of implementing SFAS Nos. 106, 109 and 112 as of January 1, 1992 resulted in non-cash after-tax charges (benefit) to net income of $517 million, ($504) million and $13 million, respectively. In addition, the implementation of SFAS No. 106 increased 1992 other operating expenses by $52 million ($34 million after-tax) and implementation of SFAS No. 109 resulted in a $29 million decrease to income tax expense for 1992, net of a tax benefit of $59 million related to realized investment results. There was no incremental effect on 1992 net income from adopting SFAS No. 112. For additional information on SFAS No. 109, see Note 8; for additional information on SFAS Nos. 106 and 112, see Note 9. In 1992, CIGNA adopted the American Institute of Certified Public Accountants' Statement of Position (SOP) 92-3, "Accounting for Foreclosed Assets," which resulted in a realized investment loss of $8 million ($6 million after-tax). C) FINANCIAL INSTRUMENTS: In the normal course of business, CIGNA enters into transactions involving various types of financial instruments, including debt; investments such as fixed maturities and equity securities; and off-balance-sheet financial instruments such as investment and loan commitments, financial guarantees, and interest rate swap and futures contracts. These instruments have credit risk and also may be subject to risk of loss due to interest rate and market fluctuations. However, risk of loss due to interest rate fluctuations is reduced through the use of certain derivative instruments. CIGNA evaluates and monitors each financial instrument individually and, where appropriate, obtains collateral or other forms of security to minimize risk of loss. D) INVESTMENTS: Investments in fixed maturities include bonds; asset-backed securities, including collateralized mortgage obligations (CMOs); and redeemable preferred stocks. Fixed maturities classified as held to maturity are carried at amortized cost, net of impairments, and those classified as available for sale are carried at fair value, with unrealized appreciation or depreciation included in Shareholders' Equity. Fixed maturities are considered impaired and written down to fair value when a decline in value is considered to be other than temporary. Mortgage loans are carried principally at unpaid principal balances, net of valuation reserves. Generally, mortgage loans are considered impaired and a valuation reserve is established when a decline in the fair value of the collateral below the carrying value is other than temporary. Fixed maturities and mortgage loans that are delinquent or restructured to modify basic financial terms, typically to reduce the interest rate and, in certain cases, extend the term, are placed on non-accrual status, and thereafter interest income is recognized only when payment is received. Real estate investments are either held for the production of income or held for sale. Real estate investments held for the production of income are carried at depreciated cost less valuation reserves when a decline in value is other than temporary. Depreciation is generally calculated using the 27 23 straight-line method based on the estimated useful lives of the assets. Real estate investments held for sale are those which are acquired through the foreclosure of mortgage loans. These assets are valued at their fair value at the time of foreclosure. The fair value is established as the new cost basis and the asset acquired is reclassified from mortgage loans to real estate held for sale. Subsequent to foreclosure, these investments are carried at the lower of depreciated cost or current fair value less estimated costs to sell. Adjustments to the carrying value as a result of changes in fair value subsequent to foreclosure are recorded as valuation reserves, and reported in realized investment gains and losses. CIGNA considers several methods in determining fair value for real estate acquired through foreclosure, with greater emphasis placed on the use of discounted cash flow analyses and, in some cases, the use of third-party appraisals. Assets held for sale are depreciated using the straight-line method based on the estimated useful lives of the assets. Equity securities, which include common and non-redeemable preferred stocks, are carried at fair value. Short-term investments are carried at fair value, which approximates cost. Equity securities and short-term investments are classified as available for sale. Policy loans generally are carried at unpaid principal balances. Realized investment gains and losses result from sales, investment asset write-downs and changes in valuation reserves, after deducting amounts attributable to experience-rated pension policyholders' contracts and participating life policies ("policyholder share"). Generally, realized investment gains and losses are based upon specific identification of the investment assets. Unrealized investment gains and losses, after deducting policyholder share and net of deferred income taxes, if applicable, for investments carried at fair value are included in Shareholders' Equity. See Note 3(F) for a discussion of CIGNA's accounting policies for derivative financial instruments. E) CASH AND CASH EQUIVALENTS: Short-term investments with a maturity of three months or less at the time of purchase are reported as cash equivalents. F) REINSURANCE RECOVERABLES: Reinsurance recoverables are estimates of amounts to be received from reinsurers. Allowances are established for amounts deemed uncollectible. G) DEFERRED POLICY ACQUISITION COSTS: Acquisition costs consist of commissions, premium taxes and other costs, which vary with, and are primarily related to, the production of revenues. Property and casualty, group life and a portion of group health insurance business acquisition costs are deferred and amortized over the terms of the insurance policies. Acquisition costs related to universal life products and contractholder deposit funds are deferred and amortized in proportion to total estimated gross profits over the expected life of the contracts. Acquisition costs related to annuity and other life insurance businesses are deferred and amortized, generally in proportion to the ratio of annual revenue to the estimated total revenues over the contract periods. Acquisition costs related to prepaid health and dental products are expensed as incurred. Deferred acquisition costs are reviewed to determine if they are recoverable from future income, including investment income. If such costs are determined to be unrecoverable, they are expensed at the time of determination. H) PROPERTY AND EQUIPMENT: Property and equipment are carried at cost less accumulated depreciation. When applicable, cost includes interest and real estate taxes incurred during construction and other construction-related costs. Depreciation is calculated principally on the straight-line method based on the estimated useful lives of the assets. Accumulated depreciation was $977 million and $862 million at December 31, 1994 and 1993, respectively. I) OTHER ASSETS: Other Assets consists of various insurance-related assets, principally ceded unearned premiums and reinsurance deposits. J) GOODWILL: Goodwill represents the excess of the cost of businesses acquired over the fair value of their net assets. These costs are amortized on systematic bases over periods, not exceeding 40 years, that correspond with the benefits expected to be derived from the acquisition. CIGNA evaluates the carrying amount of goodwill by analyzing historical and expected future income and undiscounted cash flows of the related businesses. Write-downs of goodwill are recognized when impaired. Also, amortization periods are revised if it is determined that the remaining period of benefit of the goodwill has changed. Accumulated amortization was $862 million and $778 million at December 31, 1994 and 1993, respectively. K) SEPARATE ACCOUNTS: Separate account assets and liabilities are principally carried at market value, with less than 4% carried at amortized cost, and represent policyholder funds maintained in accounts having specific investment objectives. The investment income, gains and losses of these accounts generally accrue to the policyholders and, therefore, are not included in CIGNA's net income. 28 24 L) CONTRACTHOLDER DEPOSIT FUNDS: Contractholder Deposit Funds are liabilities for investment-related and universal life products which were $18.9 billion and $8.1 billion as of December 31, 1994, respectively, compared with $19.3 billion and $6 billion as of December 31, 1993, respectively. These liabilities consist of deposits received from customers and investment earnings on their fund balances, less administrative charges and, for universal life fund balances, mortality and surrender charges. M) UNPAID CLAIMS AND CLAIM EXPENSES: Liabilities for unpaid claims and claim expenses are estimates of payments to be made on property and casualty and health insurance and prepaid health and dental claims for reported losses and estimates of losses incurred but not reported, except as discussed further in Note 16. Estimated amounts of salvage and subrogation are deducted from the liability for unpaid claims. N) FUTURE POLICY BENEFITS: Future policy benefits are liabilities for life, health and annuity products. Such liabilities are established in amounts adequate to meet the estimated future obligations of policies in force. These liabilities are computed using premium assumptions for group annuity policies and the net level premium method for individual life and annuity policies, and are based upon estimates as to future investment yield, mortality and withdrawals that include provisions for adverse deviation. Future policy benefits for individual life insurance and annuity policies are computed using interest rates ranging from approximately 2% to 11%, generally graded down after 10 to 30 years. Mortality, morbidity and withdrawal assumptions for all policies are based on either CIGNA's own experience or various actuarial tables. O) UNEARNED PREMIUMS: Premiums for property and casualty and group life, accident and health insurance are reported as earned on a pro-rata basis over the contract period. The unexpired portion of these premiums is recorded as Unearned Premiums. P) OTHER LIABILITIES: Other Liabilities consists principally of postretirement and postemployment benefits and various insurance-related liabilities, including amounts related to reinsurance contracts, the present value of obligations related to a closed book of reinsurance business acquired in 1984, and guaranty fund assessments that can be reasonably estimated. Q) TRANSLATION OF FOREIGN CURRENCIES: Foreign operations primarily utilize the local currencies as their functional currencies, and assets and liabilities are translated at the rates of exchange as of the balance sheet date. Revenues and expenses are translated at average rates of exchange prevailing during the year. The translation gain or loss on such functional currencies is generally reflected in Shareholders' Equity, net of applicable taxes. R) PREMIUMS AND FEES, REVENUES AND RELATED EXPENSES: Premiums for property and casualty insurance, group life, accident and health insurance, and prepaid health and dental coverages are recognized as revenue on a pro-rata basis over their contract periods. Premiums for individual life and health insurance as well as individual and group annuity products, excluding universal life and investment-related products, are recognized as revenue when due. Benefits, losses and expenses are matched with premiums. Revenues for universal life products consist of net investment income and mortality, administration and surrender fees assessed against the fund values during the period. Benefit expenses for universal life products consist of benefit claims in excess of fund values and net investment income credited to fund values. Revenues for investment-related products consist of net investment income and contract charges assessed against the fund values during the period. Benefit expenses for investment-related products primarily consist of net investment income credited to the fund values after deduction for investment and risk fees. S) PARTICIPATING BUSINESS: Certain life insurance policies contain dividend payment provisions that enable the policyholder to participate in the earnings of the life insurance subsidiaries of CIGNA. The participating insurance in force accounted for 4.6% of total insurance in force at December 31, 1994, compared with 3.2% at December 31, 1993 and 0.4% at December 31, 1992. T) INCOME TAXES: CIGNA and its domestic subsidiaries file a consolidated United States federal income tax return. Included in tax returns for domestic subsidiaries are the taxable income and taxes paid for certain foreign subsidiaries. Entities included within the consolidated group are segregated into either a life insurance or non-life insurance company subgroup. The consolidation of these subgroups is subject to certain statutory restrictions on the percentage of eligible non-life tax losses that can be applied to offset life company taxable income. Deferred income taxes are generally recognized when assets and liabilities have different values for financial statement and tax reporting purposes. These differences result primarily from loss reserves, policy acquisition expenses, reserves for postretirement benefits and unrealized appreciation or depreciation on investments. 29 25 NOTE 2 -- ACQUISITIONS AND DISPOSITIONS During 1994, CIGNA sold the California personal automobile and homeowners insurance business that it had retained from the 1989 sale of the Horace Mann insurance companies. A gain on the sale of approximately $20 million after-tax was recognized in 1994. CIGNA had other acquisitions and dispositions during 1994, 1993 and 1992, including the substantial withdrawal from the property and casualty reinsurance business in 1994, the effects of which were not material to the financial statements. NOTE 3 -- INVESTMENTS A) FIXED MATURITIES: Fixed maturities are net of cumulative write-downs of $123 million, including policyholder share, as of December 31, 1994 and 1993. The amortized cost and fair value by contractual maturity periods for fixed maturities, including policyholder share, as of December 31, 1994 were as follows:
------------------------------------------------------------------------------------------- AMORTIZED FAIR (In millions) COST VALUE ------------------------------------------------------------------------------------------- HELD TO MATURITY (CARRIED AT AMORTIZED COST) Due in one year or less $ 305 $ 309 Due after one year through five years 2,947 2,956 Due after five years through ten years 4,201 4,132 Due after ten years 2,550 2,657 Asset-backed securities 2,293 2,222 ------------------------------------------------------------------------------------------- Total $ 12,296 $ 12,276 ----------------------------------------------------------------------===================== AVAILABLE FOR SALE (CARRIED AT FAIR VALUE) Due in one year or less $ 481 $ 489 Due after one year through five years 4,605 4,537 Due after five years through ten years 5,182 5,014 Due after ten years 3,856 3,884 Asset-backed securities 4,775 4,597 ------------------------------------------------------------------------------------------- Total $ 18,899 $ 18,521 ----------------------------------------------------------------------=====================
Actual maturities could differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Also, CIGNA may extend maturities in some cases. Gross unrealized appreciation (depreciation) for fixed maturities, including policyholder share, by type of issuer was as follows:
------------------------------------------------------------------------------------------- DECEMBER 31, 1994 ------------------------------------------------------------------------------------------- AMORTIZED FAIR (In millions) COST APPRECIATION DEPRECIATION VALUE ------------------------------------------------------------------------------------------- HELD TO MATURITY (CARRIED AT AMORTIZED COST) State and local government bonds $ 82 $ 5 $ (3) $ 84 Foreign government bonds 59 1 (2) 58 Corporate securities 9,862 349 (299) 9,912 Asset-backed securities 2,293 55 (126) 2,222 ------------------------------------------------------------------------------------------- Total $ 12,296 $ 410 $ (430) $ 12,276 -------------------------------------====================================================== AVAILABLE FOR SALE (CARRIED AT FAIR VALUE) Federal government bonds $ 1,323 $ 53 $ (47) $ 1,329 State and local government bonds 1,396 171 (55) 1,512 Foreign government bonds 1,950 24 (69) 1,905 Corporate securities 9,455 149 (426) 9,178 Asset-backed securities 4,775 143 (321) 4,597 ------------------------------------------------------------------------------------------- Total $ 18,899 $ 540 $ (918) $ 18,521 -------------------------------------====================================================== ------------------------------------------------------------------------------------------- December 31, 1993 ------------------------------------------------------------------------------------------- HELD TO MATURITY (CARRIED AT AMORTIZED COST) State and local government bonds $ 82 $ 13 $ (2) $ 93 Foreign government bonds 43 2 -- 45 Corporate securities 10,461 1,318 (8) 11,771 Asset-backed securities 1,789 127 (18) 1,898 ------------------------------------------------------------------------------------------- Total $ 12,375 $ 1,460 $ (28) $ 13,807 -------------------------------------====================================================== AVAILABLE FOR SALE (CARRIED AT FAIR VALUE) Federal government bonds $ 1,124 $ 57 $ (5) $ 1,176 State and local government bonds 1,527 313 (1) 1,839 Foreign government bonds 1,620 109 (9) 1,720 Corporate securities 9,277 924 (41) 10,160 Asset-backed securities 4,070 446 (31) 4,485 ------------------------------------------------------------------------------------------- Total $ 17,618 $ 1,849 $ (87) $ 19,380 -------------------------------------======================================================
30 26 Asset-backed securities include investments in CMOs as of December 31, 1994 of $2.5 billion carried at fair value (amortized cost, $2.7 billion) and $162 million carried at amortized cost (fair value, $172 million). As of December 31, 1993, investments in CMOs consisted of $2.6 billion carried at fair value (amortized cost, $2.5 billion) and $316 million carried at amortized cost (fair value, $356 million). Certain of these securities are backed by Aaa/AAA-rated government agencies. All other CMO securities have high quality standards through use of credit enhancement provided by subordinated securities or mortgage insurance from an Aaa/AAA-rated insurance company. CMO holdings are concentrated in securities with limited prepayment, extension and default risk, such as planned amortization class bonds. CIGNA's investments in interest-only and principal-only CMOs, which are also subject to interest rate risk resulting from accelerated prepayments, represent approximately 5% and 8% of total CMO investments at December 31, 1994 and 1993. At December 31, 1994, contractual fixed maturity investment commitments approximated $277 million. The majority of investment commitments are for the purchase of investment grade fixed maturities, bearing interest at a fixed market rate, and require no collateral. These commitments are diversified by issuer and maturity date, and it is estimated that the full amount will be disbursed in 1995, with the majority occurring within the first three months. B) SHORT-TERM INVESTMENTS: As of December 31, 1994 and 1993, short-term investments included debt securities, principally corporate securities of $649 million and $954 million, respectively; federal government securities of $65 million and $257 million, respectively; and foreign government securities of $29 million and $104 million, respectively. C) MORTGAGE LOANS AND REAL ESTATE: CIGNA's mortgage loans and real estate investments are diversified by property type and location and, for mortgage loans, by borrower. Mortgage loans are collateralized by the related properties and generally approximate 80% of the property's value at the time the original loan is made. At December 31, the carrying values of mortgage loans and real estate investments, including policyholder share, were as follows:
------------------------------------------------------------------------------------------- (In millions) 1994 1993 ------------------------------------------------------------------------------------------- Mortgage loans $ 9,970 $ 10,021 ------- ------- Real estate: Held for sale 892 929 Held for production of income 855 851 ------- ------- Total real estate 1,747 1,780 ------------------------------------------------------------------------------------------- Total $ 11,717 $ 11,801 ----------------------------------------------------------------------=====================
Valuation reserves for mortgage loans, including policyholder share, were $179 million and $216 million as of December 31, 1994 and 1993, respectively. Valuation reserves and cumulative write-downs related to real estate, including policyholder share, were $385 million and $399 million as of December 31, 1994 and 1993, respectively. During 1994, 1993 and 1992, non-cash investing activities included real estate acquired through foreclosure of mortgage loans, which totaled $169 million, $460 million and $461 million, respectively. At December 31, mortgage loans and real estate investments comprised the following property types and geographic regions:
------------------------------------------------------------------------------------------- (In millions) 1994 1993 ------------------------------------------------------------------------------------------- PROPERTY TYPE: Office buildings $ 4,638 $ 4,868 Retail facilities 4,372 4,225 Apartment buildings 1,135 1,056 Hotels 839 909 Other 733 743 ------------------------------------------------------------------------------------------- Total $ 11,717 $ 11,801 ----------------------------------------------------------------------===================== GEOGRAPHIC REGION: Central $ 3,534 $ 3,493 Pacific 2,902 3,049 Middle Atlantic 1,835 1,896 South Atlantic 1,794 1,780 New England 1,108 1,095 Other 544 488 ------------------------------------------------------------------------------------------- Total $ 11,717 $ 11,801 ----------------------------------------------------------------------=====================
At December 31, 1994, scheduled mortgage loan maturities were as follows: 1995 -- $796 million; 1996 -- $1.2 billion; 1997 -- $1.2 billion; 1998 -- $822 million; 1999 -- $1.4 billion; and $4.6 billion thereafter. Actual maturities could differ from contractual maturities because borrowers may have the right to prepay obligations, with or without prepayment penalties, and loans may be refinanced. During 1994 and 1993, CIGNA refinanced approximately $600 million and $900 million of its mortgage loans relating to borrowers that were unable to obtain alternative financing. At December 31, 1994, contractual commitments to extend credit under commercial mortgage loan agreements amounted to approximately $300 million, all of which were at a fixed market rate of interest. These commitments generally expire within one year, in most cases within three months, and are diversified by property type and geographic region. Included in these commitments is approximately $180 million of commitments to refinance mortgage loans, currently in a separate account, relating to borrowers that are not expected to be able to obtain alternative financing. 31 27 D) NET UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENTS: Unrealized appreciation and depreciation for investments carried at fair value as of December 31, 1994 and 1993 were as follows:
------------------------------------------------------------------------------------------- (In millions) 1994 1993 ------------------------------------------------------------------------------------------- Unrealized appreciation: Fixed maturities $ 540 $ 1,849 Equity securities 320 287 Other investments -- 14 ------ ------ 860 2,150 ------ ------ Unrealized depreciation: Fixed maturities (918) (87) Equity securities (165) (64) ------ ------ (1,083) (151) ------ ------ (223) 1,999 Less policyholder net unrealized appreciation (depreciation) (169) 310 ------ ------ Shareholder net unrealized appreciation (depreciation) (54) 1,689 Deferred income (taxes) benefits 73 (517) ------------------------------------------------------------------------------------------- Net unrealized appreciation $ 19 $ 1,172 -----------------------------------------------------------------------====================
Net unrealized appreciation (depreciation) on investments that are carried at fair value is included as a separate component of Shareholders' Equity, net of policyholder share and deferred income taxes. The increase (decrease) in net unrealized appreciation/depreciation was ($1.2) billion, $835 million and ($149) million for the years ended December 31, 1994, 1993 and 1992, respectively, including ($1.1) billion, $949 million and ($14) million for fixed maturities that are carried at fair value. The net unrealized appreciation on fixed maturities that are carried at amortized cost is not recorded in the financial statements. The increase (decrease) in such net unrealized appreciation was ($1.5) billion, ($657) million and $110 million in 1994, 1993 and 1992, respectively. E) NON-INCOME PRODUCING INVESTMENTS: At December 31, the carrying values of investments that were non-income producing during the preceding 12 months, including policyholder share, were as follows:
------------------------------------------------------------------------------------------- (In millions) 1994 1993 ------------------------------------------------------------------------------------------- Fixed maturities $ 99 $ 123 Mortgage loans 88 91 Real estate 330 356 Other long-term investments 34 5 ------------------------------------------------------------------------------------------- Total $ 551 $ 575 -------------------------------------------------------------------------==================
F) DERIVATIVE FINANCIAL INSTRUMENTS: CIGNA's investment strategy is to manage investment assets to reflect the underlying characteristics of related insurance and contract holder liabilities such as liquidity, currency, yield and duration, which vary among CIGNA's principal product lines. In connection with this investment strategy, CIGNA uses derivative instruments through hedging applications to manage market risk. Generally, CIGNA uses interest rate swap contracts to create, when combined with cash flows from variable rate bonds, fixed rate cash flows that meet its portfolio investment strategy. Currency swaps are used to match the currency of individual investments to that of the associated liabilities. Interest rate futures are used to temporarily hedge against changes in market values of bonds and mortgage loans to be purchased or sold, and stock index futures may be used to hedge the temporary cash position of equity accounts. Interest rate futures also are used to hedge interest rate risk associated with withdrawals by contractholders over a scheduled time period. Cash requirements arise as a result of CIGNA's derivative activities. Under interest rate swaps, CIGNA agrees with other parties to exchange, at specified intervals, the difference between fixed rate and variable rate interest amounts calculated by reference to an agreed-upon notional principal amount. Under futures contracts, initial margin requirements are settled with cash or other instruments and changes in the contract values are settled in cash daily with the exchange on which the instrument is traded. Under currency swaps, the parties generally exchange a principal amount in the two relevant currencies, agreeing to re-exchange principal amounts at a specified future date using an agreed-upon exchange rate, and agreeing to periodically exchange amounts equal to interest payments using the agreed-upon exchange rate. Because CIGNA's use of derivatives is limited to hedging applications, changes in the market value of the derivatives are substantially offset by changes in the market value of the hedged assets or underlying liabilities, minimizing market risk. CIGNA routinely monitors, by individual counterparty, exposure to credit risk associated with swap contracts. Futures contracts are exchange-traded and, therefore, credit risk is limited since the exchange assumes the obligations. 32 28 CIGNA manages legal risks by following industry standardized documentation procedures, by monitoring legal developments and, consistent with its credit exposure policies, by limiting risks associated with counterparty failure by diversifying the swaps portfolio among approved dealers of high credit quality. Changes in the market value of futures contracts that qualify as hedges are deferred and recorded as adjustments to the carrying value of the related bond or mortgage loan. Deferred gains and losses are amortized into net investment income over the life of the investments purchased or recognized in full as realized investment gains and losses in the event that the investment or futures contract is sold prior to maturity. Futures contracts totaled $142 million and $129 million as of December 31, 1994 and 1993, respectively, and were accounted for as hedges. At December 31, 1994, gains and losses on futures contracts deferred in anticipation of investment purchases were $1 million and $3 million, respectively. Net interest received or paid on an interest rate swap contract is recognized currently as an adjustment to net investment income. Underlying notional principal amounts associated with interest rate swap contracts outstanding were $755 million and $781 million at December 31, 1994 and 1993, respectively. The interest payment cash flows received in U.S. dollars from currency swaps related to foreign currency denominated investment securities (primarily Canadian dollars, pound sterling, Swiss francs and Japanese yen) are recognized as net investment income when received. Gains and losses from changes in exchange rates related to foreign currency swaps are recognized in realized investment gains and losses, offset by exchange rate gains and losses on the related investments. Underlying principal amounts associated with currency swap contracts outstanding were $414 million and $388 million at December 31, 1994 and 1993, respectively. As of December 31, 1994, CIGNA's variable rate investments consisted of approximately $1.2 billion of fixed maturities and CIGNA's fixed rate investments consisted of $29.6 billion of fixed maturities and $10 billion of mortgage loans. For the year ended December 31, 1994, the average yield on CIGNA's investments in fixed maturities and mortgage loans was 7.9% and 8.7%, respectively. For the year ended December 31, 1994, net investment income on bonds and mortgage loans was increased by $7 million and $1 million, respectively, as a result of recognizing amortization of deferred market value changes in futures contracts. In addition, the increase in net investment income for bonds resulting from interest rate swap contracts was $17 million, $26 million and $25 million for the years ended December 31, 1994, 1993 and 1992, respectively. G) OTHER: As of December 31, 1994 and 1993, CIGNA had no concentration of investments in a single investee exceeding 10% of Shareholders' Equity. NOTE 4 -- INVESTMENT INCOME AND GAINS AND LOSSES A) NET INVESTMENT INCOME: The components of net investment income, including policyholder share, for the year ended December 31 were as follows:
------------------------------------------------------------------------------------------- (In millions) 1994 1993 1992 ------------------------------------------------------------------------------------------- Fixed maturities $ 2,465 $ 2,257 $ 2,301 Equity securities 67 80 71 Mortgage loans 873 1,006 1,065 Policy loans 371 255 165 Real estate 346 287 173 Other long-term investments 73 62 57 Short-term investments 128 291 313 ------ ------ ------ 4,323 4,238 4,145 Less investment expenses 377 336 231 ------------------------------------------------------------------------------------------- Net investment income $ 3,946 $ 3,902 $ 3,914 --------------------------------------------------------===================================
Net investment income attributable to policyholder contracts, which is included in CIGNA's revenues and is primarily offset by amounts included in Benefits, Losses and Settlement Expenses, was approximately $1.5 billion for 1994, and $1.6 billion for 1993 and 1992. Net investment income for separate accounts, which is not reflected in CIGNA's revenues, was $699 million, $611 million and $660 million for 1994, 1993 and 1992, respectively. As of December 31, 1994, fixed maturities and mortgage loans on non-accrual status, including policyholder share, were $307 million and $796 million, including restructured investments of $205 million and $605 million, respectively. Amounts on non-accrual status as of December 31, 1993 were $407 million of fixed maturities and $864 million of mortgage loans, including restructurings of $328 million and $734 million, respectively. If interest on these investments had been recognized in accordance with their original terms, net income would have been increased by $27 million, $28 million and $36 million in 1994, 1993 and 1992, respectively. 33 29 B) REALIZED INVESTMENT GAINS AND LOSSES: Realized gains and losses on investments, excluding policyholder share, for the year ended December 31 were as follows:
------------------------------------------------------------------------------------------- (In millions) 1994 1993 1992 ------------------------------------------------------------------------------------------- Realized investment gains (losses): Fixed maturities $ (6) $ 50 $ 48 Equity securities 38 257 142 Mortgage loans (1) (51) (29) Real estate 10 (46) (38) Other 1 72 42 ----- ----- ----- 42 282 165 Income taxes (benefits) 14 58 (27) ------------------------------------------------------------------------------------------- Net realized investment gains $ 28 $ 224 $ 192 ---------------------------------------------------------==================================
Impairments in the value of investments, net of recoveries, that are included in realized investment gains and losses were $51 million, $100 million and $97 million in 1994, 1993 and 1992, respectively. Realized investment gains (losses) for separate accounts, which are not reflected in CIGNA's revenues, were ($51) million, $612 million and $244 million for the years ended December 31, 1994, 1993 and 1992, respectively. Realized investment gains (losses) attributable to policyholder contracts, which also are not reflected in CIGNA's revenues, were $5 million, $3 million and ($103) million for the years ended December 31, 1994, 1993 and 1992, respectively. During 1994, proceeds from sales of available-for-sale fixed maturities and equities, including policyholder share, were $5.5 billion. Such sales resulted in gross realized gains and gross realized losses of $232 million and $222 million, respectively. During 1994, CIGNA also sold $14 million of held-to-maturity fixed maturities, including policyholder share, resulting in gross proceeds of $12 million and a pre-tax realized loss of $2 million. In addition, $102 million of fixed maturities classified as held to maturity, including policyholder share, were transferred to the available-for-sale category, at fair value, which was not significantly different from the carrying value. The sales of fixed maturities classified as held-to-maturity and the transfer of such securities to the available-for-sale category were the result of significant credit deterioration of the issuers of the affected investments. Prior to the adoption of SFAS No. 115, proceeds from voluntary sales of investments in fixed maturities, including policyholder share, were $1.0 billion and $1.4 billion in 1993 and 1992, respectively. Such sales resulted in gross realized gains and gross realized (losses), including policyholder share, of $44 million and ($22) million in 1993, compared with $80 million and ($18) million in 1992. These amounts exclude the effects of sales of fixed maturities that, prior to the implementation of SFAS No. 115, were classified as short-term investments. NOTE 5 -- DEBT Short and long-term debt consisted of the following at December 31:
------------------------------------------------------------------------------------------- (In millions) 1994 1993 ------------------------------------------------------------------------------------------- SHORT-TERM Commercial paper $ 266 $ 304 Current maturities of long-term debt 5 47 ------------------------------------------------------------------------------------------- Total short-term debt $ 271 $ 351 -----------------------------------------------------------------------==================== LONG-TERM Unsecured Debt: 8.2% Convertible Subordinated Debentures due 2010 $ 248 $ 248 8% Notes due 1996 150 150 8 3/4% Notes due 2001 100 100 7.4% Notes due 2003 100 100 6 3/8% Notes due 2006 100 -- 8 1/4% Notes due 2007 100 100 7.65% Notes due 2023 100 100 8.3% Notes due 2023 100 100 Medium-term Notes 215 202 ------------------------------------------------------------------------------------------- Total unsecured debt 1,213 1,100 ------------------------------------------------------------------------------------------- Secured Debt (principally by real estate): Capitalized leases 8 8 Other secured obligations 168 127 ------------------------------------------------------------------------------------------- Total secured debt 176 135 ------------------------------------------------------------------------------------------- Total long-term debt $ 1,389 $ 1,235 -----------------------------------------------------------------------====================
CIGNA issues commercial paper primarily to manage imbalances between operating cash flows and existing commitments, to meet working capital needs and to take advantage of current investment opportunities. Commercial paper borrowing arrangements are supported by various lines of credit. As of December 31, 1994 and 1993, the weighted average interest rate on commercial paper was approximately 6% and approximately 3 1/4%, respectively. Medium-term notes have original maturity dates ranging from approximately two to ten years and interest rates ranging from 5 3/4% to 9 3/4%. As of December 31, 1994 and 1993, the weighted average interest rate on medium-term notes was 9.7% and 9.1%, respectively. The 8.2% Convertible Subordinated Debentures are subject to sinking fund provisions, commencing in 1999, and are convertible into CIGNA common stock at the rate of .7326 shares for each $50 of principal. 34 30 In 1994, CIGNA issued $100 million of unsecured 6 3/8% Notes due in 2006. The proceeds from this issue were used for general corporate purposes. In addition, in 1994, CIGNA issued $12 million in medium-term notes. In 1993, CIGNA issued $100 million of unsecured 7.4% Notes due in 2003, $100 million of unsecured 8.3% Notes due in 2023 and $100 million of unsecured 7.65% Notes due in 2023. The proceeds from these issues were used for general corporate purposes, including the repayment of certain debt at maturity. In addition, in 1993, CIGNA issued $27 million in medium-term notes. As of December 31, 1994, CIGNA had approximately $660 million in unused committed and uncommitted lines of credit provided by U.S. and foreign banks. These lines of credit generally have terms ranging from one to two years and are paid for using a combination of fees and bank balances. Interest that CIGNA would be charged for usage of these lines of credit is based upon negotiated arrangements. As of December 31, 1994, CIGNA had approximately $840 million remaining under effective shelf registration statements filed with the Securities and Exchange Commission that may be issued as debt, equity securities or both, depending upon market conditions and CIGNA's capital requirements. Maturities of long-term debt for each of the next five years are as follows: 1995 -- $5 million; 1996 -- $160 million; 1997 -- $43 million; 1998 -- $86 million; and 1999 -- $78 million. Interest expense was $121 million, $124 million and $100 million in 1994, 1993 and 1992, respectively. NOTE 6 -- COMMON AND PREFERRED STOCK
------------------------------------------------------------------------------------------- (Shares in thousands) 1994 1993 1992 ------------------------------------------------------------------------------------------- Common: Par value $1 200,000 shares authorized Outstanding -- January 1 72,015 71,720 71,563 Issued for stock option and benefit plans 210 295 157 ------ ------ ------ Outstanding -- December 31 72,225 72,015 71,720 Treasury shares 10,844 10,615 10,612 ------------------------------------------------------------------------------------------- Issued -- December 31 83,069 82,630 82,332 --------------------------------------------------------===================================
Stock issued under benefit plans resulted in increases in Additional Paid-in Capital of $26 million, $16 million and $13 million in 1994, 1993 and 1992, respectively. Such stock issuances also resulted in net increases in Treasury Stock of $19 million, $8 million and $3 million in 1994, 1993 and 1992, respectively. Under CIGNA's shareholder rights plan, Preferred Stock Purchase Rights (Rights) attach to all outstanding shares of CIGNA common stock. The Rights, which expire in 1997, trade with the stock until the Rights become exercisable. They are exercisable only if a party acquires, or announces a tender offer to acquire, 20% or more of the outstanding common stock. Each Right entitles the shareholder to buy for a $200 exercise price 1/100 of a share of Junior Participating Preferred Stock Series D, having dividend and voting rights approximately equal to one share of common stock. Under certain circumstances, including the acquisition of 20% or more of the outstanding common stock by an acquirer, all Rights holders except the acquirer may purchase shares of common stock worth twice the exercise price. If CIGNA is acquired in a merger after the acquisition of 20% of outstanding common stock, Rights holders may purchase the acquirer's shares at a similar discount. CIGNA may redeem the Rights for five cents each at any time before an acquirer acquires 20% of its outstanding common stock, and thereafter under certain circumstances. CIGNA has authorized a total of 25 million shares of $1 par value preferred stock. No shares of preferred stock were outstanding at December 31, 1994, 1993 and 1992. NOTE 7 -- SHAREHOLDERS' EQUITY AND DIVIDEND RESTRICTIONS The insurance departments of various jurisdictions in which CIGNA's insurance subsidiaries are domiciled recognize as net income and surplus (shareholders' equity) those amounts determined in conformity with statutory accounting practices prescribed or permitted by the departments, which differ in certain respects from generally accepted accounting principles. As of December 31, 1994, there were no permitted accounting practices utilized by CIGNA's insurance subsidiaries that were materially different from those prescribed by the domiciliary insurance departments. The amounts of statutory net income (loss) for the year ended, and surplus as of, December 31 were as follows:
------------------------------------------------------------------------------------------- (In millions) 1994 1993 1992 ------------------------------------------------------------------------------------------- LIFE INSURANCE COMPANIES: Net income $ 544 $ 668 $ 512 Surplus 2,789 2,920 2,460 PROPERTY AND CASUALTY INSURANCE COMPANIES: Net income (loss) $ 21 $ (428) $ (132) Surplus 1,340 1,285 1,320 -------------------------------------------------------------------------------------------
35 31 As a result of property and casualty losses, CIGNA contributed $250 million and $150 million of capital in 1994 and 1993, respectively, to enhance the capital base of the domestic property and casualty operations. Also during 1993, management expanded the use of discounting for certain statutory loss reserves and modified the assumptions used to discount other reserves, in accordance with state insurance regulations, which increased statutory surplus by approximately $290 million. In 1995, CIGNA committed to contribute $125 million of capital to its domestic property and casualty operations by the end of the year. Also, additional amounts may be needed depending upon the extent of property and casualty losses; however, such amounts and timing are not reasonably estimable at this time. CIGNA's insurance subsidiaries are subject to various regulatory restrictions that limit the maximum amount of annual dividends or other distributions, including loans or cash advances, available to shareholders without prior approval of the insurance regulatory authorities. The maximum dividend distribution that may be made by CIGNA's insurance subsidiaries during 1995 without prior approval is approximately $720 million. The amount of restricted net assets as of December 31, 1994 was approximately $5.1 billion. NOTE 8 -- INCOME TAXES In accordance with SFAS No. 109, CIGNA adopted the liability method of accounting for income taxes as discussed in Note 1. CIGNA's deferred tax asset is net of valuation allowances of $47 million and $53 million as of December 31, 1994 and 1993, respectively. The valuation allowance reflects management's assessment, based on available information, that it is more likely than not that a portion of the deferred tax asset for certain foreign operations will not be realized. Adjustments to the valuation allowance will be made if there is a change in management's assessment of the amount of the deferred tax asset that is realizable. During 1994, 1993 and 1992, the valuation allowance was increased (decreased) by ($6) million, ($29) million and $44 million, respectively, to reflect management's assessment of changes related to certain foreign operations. Management believes, based on CIGNA's earnings history and its future expectations, that CIGNA's taxable income in future years will be sufficient to realize the net deferred tax asset. In determining the adequacy of future taxable income, management considered the future reversal of its existing taxable temporary differences and available tax planning strategies that could be implemented, if necessary. Deferred taxes of $165 million for unrealized appreciation on investments established with the adoption of SFAS No. 109 at January 1, 1992 were included in the cumulative effect adjustment. Included in 1994, 1993 and 1992 deferred income taxes were benefits of $5 million, $63 million and $59 million, respectively, attributable to unrealized appreciation on individual securities held as of January 1, 1992 and sold during the respective years. Deferred tax benefits of $38 million will be recognized in future years as securities held as of January 1, 1992 are sold. As of December 31, 1994 and 1993, the net deferred tax asset included a benefit of $125 million and $97 million, respectively, resulting from tax basis net operating loss carryforwards of $357 million and $278 million, respectively. Subject to statutory limitations, these carryforwards are available to offset taxable income through the year 2009. In accordance with the Life Insurance Company Income Tax Act of 1959, a portion of CIGNA's life insurance companies' statutory income was not subject to current income taxation but was accumulated in an account designated Policyholders' Surplus Account. Under the Tax Reform Act of 1984, no further additions may be made to the Policyholders' Surplus Account for tax years ending after December 31, 1983. The balance in the account of approximately $450 million at December 31, 1994 would result in a tax liability of $158 million (at a 35% rate), only if distributed to shareholders or if the account balance exceeded a prescribed maximum. No income taxes have been provided on this amount because, in management's opinion, the likelihood that these conditions will be met is remote. CIGNA's federal income tax returns are routinely audited by the Internal Revenue Service (IRS), and provisions are made in the financial statements in anticipation of the results of these audits. The IRS has completed audits of the years 1982 through 1990. Except for two issues which are being contested, CIGNA resolved all issues arising out of the audits, which resulted in an increase to net income of $7 million, $3 million and $182 million for 1994, 1993 and 1992, respectively. One issue, relating only to years prior to 1989, could result in an assessment of approximately $220 million for those years. The other issue, which relates to years 1989 and 1990, and for years thereafter, could result in an assessment of approximately $130 million. CIGNA is contesting the first issue in court and appealing the second issue with the IRS. Although the outcomes of both issues are uncertain, management believes that CIGNA should prevail. In management's opinion, adequate tax liabilities have been established for all years. 36 32 The tax effect of temporary differences which give rise to deferred income tax assets and liabilities as of December 31 were as follows:
------------------------------------------------------------------------------------------- (In millions) 1994 1993 ------------------------------------------------------------------------------------------- DEFERRED TAX ASSETS: Loss reserve discounting $ 700 $ 716 Other insurance and contractholder liabilities 752 838 Employee and retiree benefit plans 421 384 Investments, net 279 158 Operating loss carryforwards 125 97 Bad debt expense 77 62 Unrealized depreciation on investments 74 -- Other 168 351 ------ ------ Deferred tax assets before valuation allowance 2,596 2,606 Valuation allowance for deferred tax assets (47) (53) ------ ------ Deferred tax assets, net of valuation allowance 2,549 2,553 ------ ------ DEFERRED TAX LIABILITIES: Policy acquisition expenses 60 71 Depreciation 140 117 Unrealized appreciation on investments -- 584 Other 85 78 ------ ------ Total deferred tax liabilities 285 850 ------------------------------------------------------------------------------------------- Deferred income taxes, net $ 2,264 $ 1,703 -----------------------------------------------------------------------====================
The components of income tax expense for each year were as follows:
------------------------------------------------------------------------------------------- (In millions) 1994 1993 1992 ------------------------------------------------------------------------------------------- CURRENT TAXES: U.S. income $ 182 $ 373 $ 121 Foreign income 42 40 15 ----- ----- ----- 224 413 136 ----- ----- ----- DEFERRED TAXES (BENEFITS): U.S. income 22 (499) (296) Foreign income 5 17 2 ----- ----- ----- 27 (482) (294) ------------------------------------------------------------------------------------------- Total income taxes (benefits) $ 251 $ (69) $ (158) ---------------------------------------------------------==================================
As a result of the Omnibus Budget Reconciliation Act of 1993 (OBRA), the federal corporate income tax rate increased by one percent to 35%, retroactive to January 1, 1993. Deferred tax benefits for 1993 included $48 million related to an increase in CIGNA's net deferred tax asset as of January 1, 1993, due to the effect of the tax rate increase. Total income tax expense was less than the amount computed using the nominal federal income tax rate for the following reasons:
------------------------------------------------------------------------------------------- (In millions) 1994 1993 1992 ------------------------------------------------------------------------------------------- Tax expense at nominal rate (35% for 1994 and 1993, 34% for 1992) $ 282 $ 58 $ 61 Tax-exempt interest income (37) (45) (45) Dividends received deduction (10) (14) (14) Amortization of goodwill 30 43 34 Interest on provisions 10 9 10 Resolved federal tax audit issues (7) (3) (182) Other foreign (4) 24 -- Valuation allowance (6) (29) 44 Realized investment gains (5) (63) (59) Federal tax rate change -- (48) -- Other (2) (1) (7) ------------------------------------------------------------------------------------------- Total income taxes (benefits) $ 251 $ (69) $ (158) ---------------------------------------------------------==================================
Temporary and other differences which resulted in the deferred tax benefit for the year ended December 31 were as follows:
------------------------------------------------------------------------------------------- (In millions) 1994 1993 1992 ------------------------------------------------------------------------------------------- Operating loss carryforwards $ (28) $ (10) $ (87) Loss reserve discounting 16 (71) 12 Other insurance and contractholder liabilities 86 (284) (131) Realized investment gains (5) (63) (59) Policy acquisition expenses (11) (65) (51) Investments, net (121) 4 (42) Other foreign 61 80 23 Restructuring 25 (41) (9) Valuation allowance (6) (29) 44 Other 10 (3) 6 ------------------------------------------------------------------------------------------- Deferred taxes (benefits) $ 27 $ (482) $ (294) ---------------------------------------------------------==================================
37 33 NOTE 9 -- PENSION AND OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS PLANS A) PENSION PLANS: CIGNA and certain of its subsidiaries provide retirement benefits to eligible employees and agents. These benefits are provided through a single integrated plan (the Plan) covering most domestic employees and by several separate pension plans for various subsidiaries, agents and foreign employees. The Plan is a non-contributory, defined benefit, trusteed plan available to eligible domestic employees. Benefits are based on employees' years of service and compensation during the highest three or, if service commenced after December 31, 1988, five consecutive years of employment, offset by a portion of the Social Security benefit for which they are eligible. CIGNA funds at least the minimum amount required by the Employee Retirement Income Security Act of 1974. Components of net pension cost for the year ended December 31 were as follows:
------------------------------------------------------------------------------------------- (In millions) 1994 1993 1992 ------------------------------------------------------------------------------------------- Service cost -- benefits earned during the year $ 104 $ 94 $ 83 Interest accrued on projected benefit obligation 151 138 122 Actual return on assets (26) (194) (64) Net amortization and deferral (121) 55 (73) ------------------------------------------------------------------------------------------- Net pension cost $ 108 $ 93 $ 68 ---------------------------------------------------------==================================
The following table summarizes the status as of December 31 of pension plans for which assets exceeded accumulated benefit obligations:
------------------------------------------------------------------------------------------- (In millions) 1994 1993 ------------------------------------------------------------------------------------------- Actuarial present value of benefit obligations: Vested benefit obligation $ 1,513 $ 1,533 ------ ------ Accumulated benefit obligation $ 1,546 $ 1,570 ------ ------ Pension liability included in Other Liabilities: Projected benefit obligation $ 1,896 $ 2,028 Less plan assets at fair value 1,775 1,752 ------ ------ Plan assets less than projected benefit obligations 121 276 Unrecognized net loss from past experience (117) (298) Unrecognized prior service cost (66) (54) Unamortized SFAS 87 transition asset 69 79 ------------------------------------------------------------------------------------------- Pension liability $ 7 $ 3 -----------------------------------------------------------------------====================
At December 31, 1994 and 1993, plans under which accumulated benefits exceeded assets had projected benefit obligations of $179 million and $143 million, respectively, and related assets at fair value of $27 million for both 1994 and 1993. The accumulated benefit obligation as of December 31, 1994 and 1993 related to these plans was $135 million and $115 million, respectively. The pension liability included in Other Liabilities related to these plans was $108 million and $94 million, respectively. Determination of the projected benefit obligation was based on an assumed discount rate of 8.1% and 7.1% for 1994 and 1993, respectively, and an assumed long-term rate of compensation increase of 4.7% for both 1994 and 1993. The assumed long-term rate of return on assets was 9% for both 1994 and 1993. Substantially all Plan assets are invested in either the separate accounts of Connecticut General Life Insurance Company (CGLIC), which is a CIGNA subsidiary, or immediate participation guaranteed investment contracts issued by CGLIC. Plan assets also include 0.3 million and 1.1 million shares of CIGNA common stock with a market value of $19 million and $69 million at December 31, 1994 and 1993, respectively. B) OTHER POSTRETIREMENT BENEFITS PLANS: In addition to providing pension benefits, CIGNA and certain of its subsidiaries provide certain health care and life insurance benefits to retired employees, spouses and other eligible dependents through various plans. A substantial portion of CIGNA's employees may become eligible for these benefits upon retirement. As of January 1, 1992, the health care benefit plans required nominal contributions by retirees. In August 1992, CIGNA amended its plans effective January 1, 1993, whereby CIGNA's contributions for health care benefits will depend upon a retiree's date of retirement, age and years of service. In addition, the plan amendments increased the level of other cost-sharing features, such as deductibles and coinsurance. The effect of the plan amendments was to reduce the accumulated benefit obligation by approximately $195 million. The reduction of the liability is being amortized into income over the average remaining employee service period, approximately 19 years. Under the terms of the benefit plans, benefit provisions and cost-sharing features can continue to be adjusted. In general, retiree health care benefits are not funded and are paid as covered expenses are incurred. Retiree life insurance benefits are paid from plan assets or as covered expenses are incurred. Effective January 1, 1992, CIGNA adopted SFAS No. 106 for its domestic postretirement benefit plans (see Note 1). CIGNA will implement SFAS No. 106 for its non-U.S. plans in 1995; the effect on net income is not expected to be material. 38 34 Components of net periodic other postretirement benefit cost for the year ended December 31 were as follows:
------------------------------------------------------------------------------------------- (In millions) 1994 1993 1992 ------------------------------------------------------------------------------------------- Service cost -- benefits earned during the year $ 23 $ 27 $ 24 Interest accrued on benefit obligation 49 47 58 Actual return on assets 2 (5) (4) Net amortization and deferral (16) (9) (4) ------------------------------------------------------------------------------------------- Net other postretirement benefit cost $ 58 $ 60 $ 74 ----------------------------------------------------------=================================
Under SFAS No. 106, an employer's postretirement benefit liability is primarily measured by determining the present value of the projected future costs of health benefits based on an estimate of health care cost trend rates. The following table summarizes the underfunded plans' benefit obligations reconciled with the other postretirement benefit liability included in Other Liabilities as of December 31:
------------------------------------------------------------------------------------------- (In millions) 1994 1993 ------------------------------------------------------------------------------------------- Actuarial present value of benefit obligations: Retirees $ 456 $ 397 Other fully eligible plan participants 34 58 Other active plan participants 178 269 ---- ---- Total accumulated benefit obligations 668 724 Less plan assets at fair value 46 49 ---- ---- Plan assets less than accumulated benefit obligations 622 675 Unrecognized prior service cost 167 185 Unrecognized net gain from past experience 105 9 ------------------------------------------------------------------------------------------- Other postretirement benefit liability $ 894 $ 869 -------------------------------------------------------------------------==================
At December 31, 1994 and 1993, plan assets of $46 million and $49 million, respectively, represented partial funding for retiree life insurance plans with accumulated benefit obligations of $112 million and $113 million, respectively, and such plan assets were invested in the general account assets of CGLIC, with an expected long-term rate of return of 7% for both 1994 and 1993. Determination of the accumulated other postretirement benefit obligations for 1994 and 1993 was based on an assumed discount rate of 8.2% and 7.1%, respectively, and an assumed long-term rate of compensation increase of 4.5% and 4.7%, respectively. The assumed rate of future increases in per capita cost of health care benefits (the health care cost trend rate) was 12.2% decreasing ratably to 5.5% over eight years, which reflects CIGNA's current claim experience and management's expectation that future rates of growth will decline. Increasing the health care cost trend rate by one percentage point for each future year would increase accumulated other postretirement benefit obligations by $56 million and the annual service and interest cost by $10 million, before taxes. Gains and losses that occur because actual experience differs from that assumed are amortized over the average future service period of employees. C) OTHER POSTEMPLOYMENT BENEFITS: CIGNA and certain of its subsidiaries provide certain salary continuation (severance and disability), health care and life insurance benefits to inactive and former employees, spouses and other eligible dependents through various employee benefit plans. Those plans are unfunded and non-contributory, except for the life insurance and health care plans. Although severance benefits accumulate with additional service, CIGNA recognizes severance expense when severance is probable and the costs can be reasonably estimated. Postemployment benefits other than severance generally do not vest or accumulate; therefore, the estimated cost of benefits are accrued when determined to be probable and estimable, generally upon disability or termination. See Note 1 for additional information regarding implementation of SFAS No. 112. D) CAPITAL ACCUMULATION PLANS: CIGNA sponsors various capital accumulation plans in which employee contributions on a before-tax basis (401(k)) are supplemented by CIGNA matching contributions. Contributions are invested, at the election of the employee, in one or more of the following investments: CIGNA common stock fund, several non-CIGNA stock and bond portfolios and a fixed-income fund. CIGNA's expense for such plans totaled $34 million for 1994, compared with $33 million for both 1993 and 1992. NOTE 10 -- EMPLOYEE INCENTIVE PLANS The People Resources Committee of the Board of Directors can award to certain key employees stock options, stock appreciation rights (SARs) only in tandem with stock options, restricted stock, dividend equivalent rights or common stock in lieu of cash payable under other incentive plans. As of December 31, 1994, 1993 and 1992, stock available for award aggregated 1,746,135 shares, 3,020,098 shares and 3,365,402 shares, respectively. Grants of restricted shares of CIGNA common stock during 1994, 1993 and 1992 totaled 331,757 shares, 164,994 shares and 182,228 shares, respectively. Restricted stock grants of 752,760 shares for 1,354 employees were outstanding at December 31, 1994. 39 35 Options to purchase CIGNA common stock are awarded at market price on the date of grant and expire 10 years after that date. SARs permit the holders to receive in cash or stock the excess of the current market price of the underlying stock over the option price. Either the stock option or the SAR, but not both, may be exercised. Options and SARs may be subject to vesting periods. For options with SARs, changes in the market price of the stock, to the extent it exceeds the option price, are reflected as an expense. The following table summarizes the changes in common stock options outstanding for the year ended December 31:
------------------------------------------------------------------------------------------- 1994 1993 1992 ------------------------------------------------------------------------------------------- Outstanding -- January 1 745,614 776,617 744,727 Granted 1,095,200 183,550 238,650 Expired or canceled (111,922) (25,895) (109,963) Exercised (116,943) (188,658) (96,797) ------------------------------------------------------------------------------------------- Outstanding -- December 31 1,611,949 745,614 776,617 ----------------------------------------------------======================================= Average exercise price of options exercised $ 52.46 $ 49.45 $ 47.82 ----------------------------------------------------=======================================
As of December 31, 1994, 486,917 options outstanding were exercisable. As of December 31, 1994, the exercise price for options outstanding (covering 1,611,949 shares of common stock held by 709 individuals) ranged from $48.00 to $73.88. NOTE 11 -- EARNINGS PER SHARE Earnings per share were based on income before cumulative effect of accounting changes, and net income amounts divided by weighted average common shares, including common share equivalents, of 72.3 million, 72.0 million and 71.7 million for 1994, 1993 and 1992, respectively. There was no significant difference between earnings per share on a primary and a fully diluted basis. NOTE 12 -- SEGMENT INFORMATION CIGNA operates principally in four segments: Property and Casualty, Employee Life and Health Benefits, Employee Retirement and Savings Benefits, and Individual Financial Services. Other Operations includes unallocated investment income, expenses, principally debt service, and taxes. Also included in Other Operations are the results of CIGNA's settlement annuity business, non-insurance subsidiaries engaged primarily in investment and real estate activities, and the California personal automobile and homeowners insurance businesses that CIGNA retained from the 1989 sale of the Horace Mann insurance companies and sold to Horace Mann in January 1994. Summarized financial information with respect to the business segments for the year ended and as of December 31 was as follows:
------------------------------------------------------------------------------------------- (In millions) 1994 1993 1992 ------------------------------------------------------------------------------------------- REVENUES Property and Casualty: Domestic $ 2,871 $ 3,275 $ 3,970 International 2,610 2,365 2,277 Other, primarily reinsurance 549 688 728 ------- ------- ------- Total Property and Casualty 6,030 6,328 6,975 Employee Life and Health Benefits 8,650 8,392 8,021 Employee Retirement and Savings Benefits 1,935 2,111 2,148 Individual Financial Services 1,637 1,447 1,250 Other Operations 140 124 188 ------------------------------------------------------------------------------------------- Total $ 18,392 $ 18,402 $ 18,582 ------------------------------------------------------===================================== INCOME (LOSS) BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGES Property and Casualty: Domestic $ (417) $ (884) $ (302) International 76 4 (78) Other, primarily reinsurance (76) (82) (249) ------- ------- ------- Total Property and Casualty (417) (962) (629) Employee Life and Health Benefits 829 851 515 Employee Retirement and Savings Benefits 287 223 256 Individual Financial Services 210 164 108 Other Operations (104) (111) (71) ------------------------------------------------------------------------------------------- Total $ 805 $ 165 $ 179 ------------------------------------------------------===================================== IDENTIFIABLE ASSETS Property and Casualty: Domestic $ 16,181 $ 16,968 $ 17,215 International 6,541 6,192 5,148 Other, primarily reinsurance 2,913 3,309 3,462 ------- ------- ------- Total Property and Casualty 25,635 26,469 25,825 Employee Life and Health Benefits 11,331 11,398 10,058 Employee Retirement and Savings Benefits 33,939 34,384 32,654 Individual Financial Services 12,195 9,368 6,789 Other Operations 3,002 3,356 2,708 ------------------------------------------------------------------------------------------- Total $ 86,102 $ 84,975 $ 78,034 ------------------------------------------------------=====================================
During 1993, CIGNA announced restructuring initiatives in the Property and Casualty segment (both the domestic and international operations) and the Employee Life and Health Benefits segment. These actions were taken to reduce operating expenses. Income (loss) before income taxes and cumulative effect of accounting changes for 1993 reflected a pre-tax 40 36 charge of $165 million for the estimated costs of these restructuring actions, of which $80 million and $70 million relate to Domestic and International Property and Casualty operations, respectively. The remaining $15 million relates to the Employee Life and Health Benefits segment. As discussed in Note 1, CIGNA implemented SFAS No. 115, which increased segment identifiable assets as of December 31, 1993 as follows: Property and Casualty, $370 million (primarily Domestic); Employee Life and Health Benefits, $90 million; Employee Retirement and Savings Benefits, $444 million; Individual Financial Services, $43 million; and Other Operations, $241 million. Also, as discussed in Note 1, CIGNA adopted new accounting pronouncements in 1992, which resulted in a charge to income (loss) before income taxes and cumulative effect of accounting changes in 1992 with respect to the business segments reported above as follows: Property and Casualty, $20 million (primarily Domestic); Employee Life and Health Benefits, $29 million; Employee Retirement and Savings Benefits, $4 million; and Individual Financial Services, $7 million. The increase (decrease) in 1992 net income for the segments due to the cumulative effect for prior years and the incremental effect, respectively, for the implementation of SFAS Nos. 106, 109 and 112 was as follows: Employee Life and Health Benefits, ($146) million and $5 million; Employee Retirement and Savings Benefits, ($25) million and ($1) million; Individual Financial Services, ($37) million and ($3) million; Property and Casualty, $179 million and ($5) million; and Other Operations, $3 million and ($1) million. NOTE 13 -- FOREIGN OPERATIONS CIGNA provides international property and casualty and life and health insurance coverages on a direct and reinsured basis, primarily in Canada, Europe, the Pacific region and Latin America. The change in Net Translation of Foreign Currencies reflects increases (decreases) of $47 million (net of tax benefit of $16 million), ($28) million (net of tax benefit of $7 million) and ($73) million (net of tax benefit of $8 million) for the years ended December 31, 1994, 1993 and 1992, respectively. Summary financial data of CIGNA's foreign operations for the year ended and as of December 31 were as follows:
------------------------------------------------------------------------------------------- (In millions) 1994 1993 1992 ------------------------------------------------------------------------------------------- Revenues $ 2,991 $ 2,821 $ 2,711 Income (loss) before income taxes and cumulative effect of accounting changes $ 32 $ 40 $ (271) Identifiable assets $ 9,579 $ 8,941 $ 8,005 -------------------------------------------------------------------------------------------
CIGNA's income (loss) before income taxes and cumulative effect of accounting changes included aggregate foreign exchange transaction losses of $5 million, $6 million and $5 million in 1994, 1993 and 1992, respectively. NOTE 14 -- LEASES AND RENTALS Rental expenses for operating leases, principally with respect to buildings, amounted to $255 million, $284 million and $283 million in 1994, 1993 and 1992, respectively. As of December 31, 1994, future net minimum rental payments under non-cancelable operating leases were approximately $957 million, payable as follows: 1995 -- $190 million; 1996 -- $164 million; 1997 -- $126 million; 1998 -- $99 million; 1999 -- $85 million; and $293 million thereafter. NOTE 15 -- REINSURANCE In the normal course of business, CIGNA's insurance subsidiaries enter into agreements, primarily relating to short-duration contracts, to assume and cede reinsurance with other insurance companies. Reinsurance is ceded primarily to limit losses from large exposures and to permit recovery of a portion of direct losses, although ceded reinsurance does not relieve the originating insurer of liability. CIGNA evaluates the financial condition of its reinsurers and monitors concentrations of credit risk arising from similar geographic regions, activities or economic characteristics of its reinsurers. Failure of reinsurers to indemnify CIGNA, as a result of reinsurer insolvencies or disputes, could result in losses. Allowances for uncollectible amounts were $435 million and $405 million as of December 31, 1994 and 1993, respectively. While future charges for unrecoverable reinsurance may materially affect results of operations in future periods, such amounts are not expected to have a material adverse effect on CIGNA's liquidity or financial condition. As of December 31, 1994 and 1993, approximately 9% of reinsurance recoverables were due from certain syndicates affiliated with Lloyd's of London. The effects of reinsurance on net earned premiums and fees for the year ended December 31 were as follows:
------------------------------------------------------------------------------------------- (In millions) 1994 1993 1992 ------------------------------------------------------------------------------------------- SHORT-DURATION CONTRACTS Premiums and fees: Direct $ 12,281 $ 11,493 $ 12,166 Assumed 2,039 2,564 2,742 Ceded (2,236) (2,098) (2,473) ------------------------------------------------------------------------------------------- Net earned premiums and fees $ 12,084 $ 11,959 $ 12,435 ------------------------------------------------------===================================== LONG-DURATION CONTRACTS Premiums and fees: Direct $ 1,983 $ 1,635 $ 1,329 Assumed 154 216 262 Ceded (309) (98) (102) ------------------------------------------------------------------------------------------- Net earned premiums and fees $ 1,828 $ 1,753 $ 1,489 -----------------------------------------------------======================================
41 37 The effects of reinsurance on written premiums and fees for short-duration contracts were not materially different from the amounts shown in the table on page 41. Benefits, losses and settlement expenses for 1994, 1993 and 1992 were net of reinsurance recoveries of $1.2 billion, $2.1 billion and $3.3 billion, respectively. NOTE 16 -- PROPERTY AND CASUALTY UNPAID CLAIMS AND CLAIM EXPENSE RESERVES AND REINSURANCE RECOVERABLES As described in Note 1, CIGNA establishes loss reserves, which are estimates of future payments of reported and unreported claims for losses and related expenses, with respect to insured events that have occurred. Activity in the reserve for unpaid claims and claim adjustment expenses for the year ended December 31 was as follows:
------------------------------------------------------------------------------------------- (In millions) 1994 1993 1992 ------------------------------------------------------------------------------------------- Gross reserve -- January 1 $ 17,654 $ 17,831 $ 17,223 Less reinsurance recoverable 7,104 7,364 7,035 ------- ------- ------- Net reserve -- January 1 10,550 10,467 10,188 ------- ------- ------- Plus incurred claims and claim adjustment expenses: Provision for insured events of the current year 3,025 3,464 4,448 Increase in provision for insured events of prior years 538 789 656 ------- ------- ------- Total incurred claims and claim adjustment expenses 3,563 4,253 5,104 ------- ------- ------- Less payments for claims and claim adjustment expenses attributable to: Insured events of the current year 1,016 1,153 1,371 Insured events of prior years 2,591 3,017 3,454 ------- ------- ------- Total payments for claims and claim adjustment expenses 3,607 4,170 4,825 ------- ------- ------- Net reserve -- December 31 10,506 10,550 10,467 Plus reinsurance recoverable 6,190 7,104 7,364 ------------------------------------------------------------------------------------------- Gross reserve -- December 31 $ 16,696 $ 17,654 $ 17,831 ------------------------------------------------------=====================================
The process of establishing loss reserves is subject to uncertainties that are normal, recurring and inherent in the property and casualty business. The process requires reliance upon estimates based on available data that reflect past experience, current trends and other information, and the exercise of informed judgment. As information develops that varies from experience, provides additional data or, in some cases, augments data that previously were not considered sufficient for use in determining reserves, changes in CIGNA's estimate of ultimate liabilities may be required. The effects of these changes, net of reinsurance, are charged or credited to income for the periods in which they are determined. Charges to income for increases in the Property and Casualty segment's liability for insured events of prior years (prior year development) other than for asbestos-related, environmental pollution and other long-term exposure claims and charges for unrecoverable reinsurance, were $203 million, $120 million and $355 million for the years ended December 31, 1994, 1993 and 1992, respectively. The 1992 charges include $290 million ($62 million for unrecoverable reinsurance) for losses in the London reinsurance market arising from large catastrophes occurring in recent years. The charge resulted from an extensive review of CIGNA's London property and casualty reinsurance exposures. This review also related to obligations (reported in Other Liabilities) of a closed book of reinsurance business acquired in 1984, which resulted in a decrease in such liabilities of $150 million (reported as a reduction in Other Operating Expenses). Prior year development for asbestos-related, environmental pollution and other long-term exposure losses and charges for unrecoverable reinsurance in the aggregate were $335 million, $669 million and $301 million for the years ended December 31, 1994, 1993 and 1992, respectively. In 1993, CIGNA re-evaluated its reported asbestos-related, environmental pollution and other long-term exposure claims to determine if future legal expenses could be reasonably estimated and reserves established. Based on this review, CIGNA added $489 million ($375 million, net of reinsurance) to its reserves in the third quarter of 1993, which resulted in an after-tax charge of $244 million for future legal and associated expenses for reported claims. Reserving for asbestos-related, environmental pollution and other long-term exposure claims is subject to significant uncertainties that are not generally present for other types of claims. Developed case law and adequate claim history do not exist for such claims. CIGNA and the insurance industry dispute coverage for the environmental pollution and some asbestos-related liabilities of their policyholders. In addition to the coverage lawsuits, CIGNA shares in the expense of defending underlying litigation against its policyholders. The 42 38 outcome of the coverage litigation will assist in the determination of amounts that might be paid in the future for similar claims. The legal costs associated with these coverage lawsuits constitute a significant portion of CIGNA's losses for these claims to date. These claims differ from almost all others in that it is often not clear that an insurable event has occurred and which, if any, of multiple policy years and insurers may be liable. These uncertainties prevent identification of applicable policies and policy limits until after a claim is reported to CIGNA and substantial time is spent (many years, in some cases) resolving contract issues and determining facts necessary to evaluate the claim. Estimating liabilities and reinsurance recoveries for asbestos-related, environmental pollution and other long-term exposure claims that will be asserted under reinsurance policies is also subject to similar uncertainties as those affecting such claims under direct policies. CIGNA expects recoveries from ceded reinsurance to reduce its future losses, although the amount of recoveries cannot be reasonably estimated. Under current law, CIGNA expects asbestos-related, environmental pollution and other long-term exposure claims to continue to be reported for the foreseeable future. The claims to be paid, if any, and timing of any such payments, depend on resolution of the uncertainties associated with them, and could extend over several decades under current law. For asbestos-related claims, CIGNA carries reserves related to certain insurance policies issued for certain major asbestos manufacturers ("targets"), under which CIGNA expects to pay the full limits of liability in most cases. These reserves (including amounts for unreported claims) are generally equal to the policy limits of liability, minus payments made to date, plus an estimate of the associated future legal expenses, and were approximately $229 million ($103 million, net of reinsurance) and $256 million ($93 million, net of reinsurance) at December 31, 1994 and 1993, respectively. In addition, CIGNA establishes reserves for reported asbestos-related, environmental pollution and other long-term exposure claims as information permits, and for future legal and associated expenses for such reported claims. Total reserves, including amounts attributable to targets, were $1.5 billion ($906 million, net of reinsurance) and $1.5 billion ($832 million, net of reinsurance) at December 31, 1994 and 1993, respectively. Except for asbestos-related claims under the target policies discussed above, CIGNA does not establish reserves for unreported asbestos-related, environmental pollution or certain other long-term exposure claims or for future legal and associated expenses related to such unreported claims because of the uncertainties involved. CIGNA expects that its future results of operations will continue to be adversely affected by losses and legal expenses for asbestos-related, environmental pollution and other long-term exposure claims. Because of the significant uncertainties involved, as discussed above, and the likelihood that these uncertainties will not be resolved in the near future, CIGNA is unable to reasonably estimate the additional losses and expenses and, therefore, is unable to determine whether such amounts will be material to its future results of operations, liquidity or financial condition. In management's judgment, information currently available has been appropriately considered in estimating CIGNA's loss reserves and reinsurance recoverables. NOTE 17 -- CONTINGENCIES FINANCIAL GUARANTEES CIGNA, through its subsidiaries, is contingently liable for various financial guarantees provided in the ordinary course of business. These include guarantees for the repayment of industrial revenue bonds as well as other debt instruments. The contractual amounts of financial guarantees reflect CIGNA's maximum exposure to credit loss in the event of nonperformance. To limit CIGNA's exposure in the event of default of any guaranteed obligation, various programs are in place to ascertain the creditworthiness of guaranteed parties and to monitor this status on a periodic basis. Risk is further reduced through reinsurance and, in certain programs, use of letters of credit and other types of security. The industrial revenue bonds guaranteed directly by CIGNA have remaining maturities of up to 21 years. The guarantees provide for payment of debt service only as it becomes due; consequently, an event of default would not cause an acceleration of scheduled principal and interest payments. The principal amount of the bonds guaranteed by CIGNA at December 31, 1994 and 1993 was $296 million and $323 million, respectively. Revenues in connection with industrial revenue bond guarantees are derived principally from equity participations in the related projects and are included in Net Investment Income as earned. During 1994 and 1992, losses for industrial revenue bonds were $1 million and $4 million, respectively. There were no such losses in 1993. In addition, CIGNA is liable for guarantee business of $1.7 billion and $2.2 billion at December 31, 1994 and 1993, respectively, fully reinsured through a subsidiary of MBIA Inc., a corporation that guarantees the scheduled payment of principal and interest for many types of municipal obligations, including general obligation and special revenue bonds, which have maturities of up to 38 years. The nature of this guarantee business is similar to the reinsurance transactions described in Note 15. Municipal guarantees provide for payment of debt service only as it becomes due; consequently, an event of default would not cause an acceleration of scheduled principal and interest payments. 43 39 Generally, premiums for insurance provided by guarantees are recognized as income ratably over the policy period. Amounts included in Unearned Premiums under these programs were approximately $1 million as of December 31, 1994 and 1993. Loss reserves for financial guarantees are established when a default has occurred or when CIGNA believes that a loss has been incurred. Loss reserves included in Unpaid Claims and Claim Expenses were $3 million as of December 31, 1994 and 1993. CIGNA also guarantees a minimum level of benefits for certain separate account contracts and, in the event that separate account assets are insufficient to fund minimum policy benefits, CIGNA is obligated to fund the difference. As of December 31, 1994 and 1993, the amount of minimum benefit guarantees for separate account contracts was $4.8 billion and $4.9 billion, respectively. Reserves in addition to the separate account liabilities are established when CIGNA believes a payment will be required under one of these guarantees. As of December 31, 1994 and 1993, reserves of $6 million were recorded. Guarantee fees are part of the overall management fee charged to separate accounts and are recognized in income as earned. Although the ultimate outcome of any loss contingencies arising from CIGNA's financial guarantees may adversely affect results of operations in future periods, they are not expected to have a material adverse effect on CIGNA's liquidity or financial condition. REGULATORY AND INDUSTRY DEVELOPMENTS CIGNA's businesses are subject to a changing social, economic, legal, legislative and regulatory environment which could affect them. Some of the changes include initiatives to: revise the system of funding cleanup of environmental damages; develop standards for estimating currently unquantifiable liabilities; reinterpret insurance contracts long after the policies were written to provide coverage unanticipated by CIGNA; restrict insurance pricing and the application of underwriting standards; reform health care; restrict investment practices; and expand regulation. Some of the more significant issues are discussed below. Superfund, originally enacted in 1980, was under review by Congress in 1994. Congress recessed in 1994 without completing action on Superfund legislation. New legislation could be introduced in Congress in 1995, in part because the existing Superfund legislation expires in 1995. Any changes in Superfund relating to: (1) allocating responsibility; (2) funding cleanup costs; or (3) establishing cleanup standards could affect the liabilities of potentially responsible parties and insurers. Due to uncertainties associated with the timing and content of any future Superfund legislation, the effect on CIGNA's results of operations, liquidity or financial condition cannot be reasonably estimated at this time. The American Academy of Actuaries has initiated a project to develop standards for estimating currently unquantifiable liabilities. The project may examine unreported claims for asbestos-related, environmental pollution and certain other long-term exposures. In addition, various industry-related parties are attempting to develop methods to estimate pollution liabilities, including estimates based on a market share analysis. CIGNA is evaluating these methods to determine if they could be used in establishing reasonable estimates of reserves for unreported claims for asbestos-related, environmental pollution or other long-term exposures. The outcome and effect, if any, of these initiatives on CIGNA are not determinable at this time. Proposals on national health care reform were under consideration in 1994 which could have significantly changed the way health care is financed and delivered in the United States. Congress recessed in 1994 without enacting health care reform. New legislation could be introduced in Congress in 1995; however, comprehensive national reform is not likely to be proposed in 1995. Instead, CIGNA expects federal and state proposals seeking modest insurance reform and limitations on the formation and operation of efficient health care networks. Due to uncertainties associated with the timing and content of any health care legislation, the effect on CIGNA's future results of operations, liquidity or financial condition cannot be reasonably estimated at this time. The National Association of Insurance Commissioners (NAIC) has developed model solvency-related guidelines ("risk-based capital" rules) to strengthen solvency regulation of insurance companies. Depending on the ratio of the insurer's surplus to its risk-based capital, the insurer could be subject to various regulatory actions ranging from increased scrutiny to conservatorship. As of December 31, 1994, CIGNA's life insurance and property and casualty insurance subsidiaries were adequately capitalized under the risk-based capital rules. As the risk-based capital guidelines for property and casualty insurers become more stringent in future years, additional capital for the property and casualty subsidiaries may be needed; however, the amount and timing of additional capital contributions will depend on future results of operations. Also, the NAIC is addressing risk-based capital guidelines for health maintenance organizations (HMOs) and a proposal that would limit the types and amounts of investment assets that can be held. CIGNA does not expect such guidelines to have a material adverse effect on its future results of operations, liquidity or financial condition. 44 40 Unfavorable economic conditions have contributed to an increase in the number of insurance companies that are impaired or insolvent. This is expected to result in an increase in mandatory assessments by state guaranty funds of, or voluntary payments by, solvent insurance companies to cover losses to policyholders of insolvent or rehabilitated companies. Mandatory assessments, which are subject to statutory limits, can be partially recovered through a reduction in future premium taxes in some states. Assessments against CIGNA's insurance subsidiaries were $27 million, $28 million and $23 million for 1994, 1993 and 1992, respectively, before giving effect to future premium tax recoveries. Although future assessments and payments may adversely affect results of operations in future periods, such amounts are not expected to have a material adverse effect on CIGNA's liquidity or financial condition. The eventual effect on CIGNA of the changing environment in which it operates remains uncertain. LITIGATION CIGNA is continuously involved in numerous lawsuits arising, for the most part, in the ordinary course of business, either as a liability insurer defending third-party claims brought against its insureds or as an insurer defending coverage claims brought against it by its policyholders or other insurers. In 1988, a number of state attorneys general and private plaintiffs filed lawsuits against a number of insurance companies and others, including CIGNA, alleging violations of federal and state antitrust laws. Subject to final approval, an agreement in principle to settle these cases has been reached. CIGNA's portion of the settlement is not material to its results of operations. While the outcome of all litigation involving CIGNA, including insurance-related litigation, cannot be determined, litigation (other than that related to asbestos, environmental pollution and other long-term exposure claims) is not expected to result in losses that differ from recorded reserves by amounts that would be material to results of operations, liquidity or financial condition. Also, reinsurance recoveries related to claims in litigation, net of the allowance for uncollectible reinsurance, are not expected to result in recoveries that differ from recorded recoveries by amounts that would be material to results of operations, liquidity or financial condition. CIGNA is involved in lawsuits regarding policy coverage and judicial interpretation of legal liability for asbestos-related, environmental pollution and other long-term exposure claims. The lack of developed case law, as evidenced by the coverage lawsuits, is one of the significant uncertainties that affects CIGNA's ability to estimate future losses for these types of claims. Litigation involving asbestos-related, environmental pollution and other long-term exposure claims is discussed in Note 16. NOTE 18 -- FAIR VALUE OF FINANCIAL INSTRUMENTS Financial instruments that are subject to fair value disclosure requirements (insurance contracts, real estate, goodwill and taxes are excluded) are carried in the financial statements at amounts that approximate fair value, unless otherwise indicated in the table below. The fair values used for financial instruments are estimates that in many cases may differ significantly from the amounts that could be realized upon immediate liquidation. In cases where market prices are not available, estimates of fair value are based on discounted cash flow analyses which utilize current interest rates for similar financial instruments with comparable terms and credit quality. The fair value of liabilities for contractholder deposit funds was estimated using the amount payable on demand and, for those not payable on demand, discounted cash flow analyses. The following table presents carrying amounts and estimated fair values as of December 31 for CIGNA's financial instruments that are not carried in the financial statements at amounts approximating fair value.
------------------------------------------------------------------------------------------- 1994 1993 ------------------------------------------------------------------------------------------- CARRYING FAIR Carrying Fair (In millions) AMOUNT VALUE Amount Value ------------------------------------------------------------------------------------------- Fixed maturities-- held to maturity $ 12,296 $ 12,276 $ 12,375 $ 13,807 Mortgage loans $ 9,970 $ 9,638 $ 10,021 $ 10,197 Contractholder deposit funds-- non-insurance products $ 18,866 $ 18,817 $ 19,287 $ 20,494 Long-term debt $ 1,389 $ 1,347 $ 1,235 $ 1,317 -------------------------------------------------------------------------------------------
For additional information on fair values of fixed maturities, see Note 3(A). Fair values of off-balance-sheet financial instruments as of December 31, 1994 and 1993 were not material. 45 41 REPORT OF INDEPENDENT ACCOUNTANTS PRICE WATERHOUSE LLP [LOGO] THE BOARD OF DIRECTORS AND SHAREHOLDERS CIGNA CORPORATION FEBRUARY 13, 1995 In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income and retained earnings and of cash flows present fairly, in all material respects, the financial position of CIGNA Corporation and its subsidiaries at December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. The Company implemented certain new accounting pronouncements as discussed in Note 1 to the consolidated financial statements. /s/ PRICE WATERHOUSE LLP Philadelphia, Pennsylvania 46 42 QUARTERLY FINANCIAL DATA (UNAUDITED) The following unaudited quarterly financial data are presented on a consolidated basis for each of the two years ended December 31, 1994 and 1993. Quarterly financial results necessarily rely heavily on estimates. This and certain other factors, such as the seasonal nature of portions of the insurance business, require caution in drawing specific conclusions from quarterly consolidated results.
-------------------------------------------------------------------------------------------------------------- (In millions, except per share amounts) Three Months Ended -------------------------------------------------------------------------------------------------------------- March 31 June 30 Sept. 30 Dec. 31 -------------------------------------------------------------------------------------------------------------- CONSOLIDATED RESULTS 1994 Total revenues $ 4,531 $ 4,538 $ 4,600 $ 4,723 Income before income taxes 170 204 178 253 Net income 114 135 123 182 Net income per share 1.58 1.86 1.70 2.52 1993 * Total revenues $ 4,374 $ 4,563 $ 4,525 $ 4,940 Income (loss) before income taxes 40 122 (261) 264 Net income (loss) 46 88 (94) 194 Net income (loss) per share .64 1.22 (1.31) 2.70 STOCK AND DIVIDEND DATA 1994 Price range of common stock $ 70 1/2-58 $ 74-57 $ 74-59 3/8 $ 69 3/8-59 Dividends declared per common share .76 .76 .76 .76 1993 Price range of common stock $ 68-57 1/4 $ 63 1/2-56 7/8 $ 65 7/8-56 1/2 $ 68 3/8-61 5/8 Dividends declared per common share .76 .76 .76 .76 --------------------------------------------------------------------------------------------------------------
* The third quarter of 1993 reflects a $244 million after-tax charge for future legal and associated expenses for reported claims related to asbestos, environmental pollution and other long-term exposures, and $107 million in after-tax restructuring charges. In addition, third quarter 1993 reflects a benefit of $48 million relating to the effect of the federal income tax rate change on CIGNA's net deferred tax asset. 47 STOCK LISTING CIGNA's common shares are listed on the New York, Pacific and Philadelphia stock exchanges. The ticker symbol is CI. EX-21 5 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT Listed below are subsidiaries of CIGNA Corporation as of December 31, 1994 with their jurisdictions of organization shown in parentheses. 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(v) of Regulation S-X. CIGNA Holdings, Inc. (Delaware) I. Connecticut General Corporation (Connecticut) A. CG Trust Company (Illinois) B. CIGNA Associates, Inc. (Connecticut) C. CIGNA Benefits Processing Ireland Ltd. (Delaware) D. CIGNA Dental Health, Inc. (Florida) (1) CIGNA Dental Health of California, Inc. (California) (2) CIGNA Dental Health of Colorado, Inc. (Colorado) (3) CIGNA Dental Health of Delaware, Inc. (Delaware) (4) CIGNA Dental Health of Florida, Inc. (Florida) (5) CIGNA Dental Health of Illinois, Inc. (Illinois) (6) CIGNA Dental Health of Kansas, Inc. (Kansas) (7) CIGNA Dental Health of Kentucky, Inc. (Kentucky) (8) CIGNA Dental Health of Maryland, Inc. (Delaware) (9) CIGNA Dental Health of New Jersey, Inc. (New Jersey) (10) CIGNA Dental Health of New Mexico, Inc. (New Mexico) (11) CIGNA Dental Health of North Carolina, Inc. (North Carolina) (12) CIGNA Dental Health of Ohio, Inc. (Ohio) (13) CIGNA Dental Health of Pennsylvania, Inc. (Pennsylvania) (14) CIGNA Dental Health of Texas, Inc. (Texas) E. CIGNA Financial Partners, Inc. (Connecticut) F. CIGNA Health Corporation (Delaware) (1) CIGNA HealthCare, Inc. (Delaware) (a) CIGNA HealthCare Mid-Atlantic, Inc. (Maryland) (b) CIGNA HealthCare of Arizona, Inc. (Arizona) (i) CIGNA Community Choice, Inc. (Arizona) (c) CIGNA HealthCare of California, Inc. (California) (i) Ross-Loos Healthplan of California, Inc. (California) (d) CIGNA HealthCare of Colorado, Inc. (Colorado) (e) CIGNA HealthCare of Connecticut, Inc. (Connecticut) (f) CIGNA HealthCare of Delaware, Inc. (Delaware) (g) CIGNA HealthCare of Florida, Inc. (Florida) (h) CIGNA HealthCare of Georgia, Inc. (Georgia) (i) CIGNA HealthCare of Illinois, Inc. (Delaware) (99.6%) (j) CIGNA HealthCare of Kansas/Missouri, Inc. (Kansas) (k) CIGNA Healthplan of Louisiana, Inc. (Louisiana) (l) CIGNA HealthCare of Massachusetts, Inc. (Massachusetts) (m) CIGNA HealthCare of New Jersey, Inc. (New Jersey) (n) CIGNA HealthCare of New York, Inc. (New York) (o) CIGNA HealthCare of North Carolina, Inc. (North Carolina) (p) CIGNA HealthCare of North Louisiana, Inc. (Louisiana) (q) CIGNA HealthCare of Northern New Jersey, Inc. (New Jersey) (r) CIGNA HealthCare of Ohio, Inc. (Ohio) (s) CIGNA HealthCare of Oklahoma, Inc. (Oklahoma)
2 (t) CIGNA HealthCare of Pennsylvania, Inc. (Pennsylvania) (u) CIGNA HealthCare of St. Louis, Inc. (Missouri) (v) CIGNA HealthCare of Tennessee, Inc. (Tennessee) (w) CIGNA HealthCare of Texas, Inc. (Texas) (x) CIGNA HealthCare of Utah, Inc. (Utah) (y) CIGNA HealthCare of Virginia, Inc. (Virginia) (z) Lovelace Health Systems, Inc. (New Mexico) (aa) Ross-Loos Hospital, Inc. (California) (bb) Temple Insurance Company Limited (Bermuda) G. CIGNA RE Corporation (Delaware) H. CIGNA Financial Advisors, Inc. (Connecticut) I. Connecticut General Life Insurance Company (Connecticut) (1) CIGNA Life Insurance Company (Connecticut) (2) ICO, INC. (Delaware) (3) Quebec Street Investments, Inc. (Delaware) J. Connecticut General Pension Services, Inc. (Connecticut) K. INA Life Insurance Company of New York (New York) L. International Rehabilitation Associates, Inc. d/b/a Intracorp (Delaware) M. Life Insurance Company of North America (Pennsylvania) (1) CIGNA Life Insurance Company of Canada (Canada) (2) CIGNA Private Equities, Inc. (Delaware) (3) CIGNA Road & Travel Club, Inc. (Texas) (4) INA Life Insurance Co., Ltd. (Japan) (90%) N. MCC Behavioral Care, Inc. (Minnesota) (1) MCC Behavioral Care of California, Inc. (California) O. TEL-DRUG, INC. (South Dakota) II. INA Corporation (Pennsylvania) A. INA Financial Corporation (Delaware) (1) Allied Insurance Company (California) (2) CIGNA International Holdings, Ltd. (Delaware) (a) Afia Finance Corporation (Delaware) (i) CIGNA Reinsurance New Zealand Limited (New Zealand) (ii) Delaware Reinsurance Company (Delaware) (b) CIGNA Brasil Empreendimentos Ltda. (Brazil) (i) CIGNA Seguradora S.A. (Brazil) (85.8% with 13.792% owned by other CIGNA subsidiaries) (c) CIGNA Compania de Seguros (Chile) S.A. (Chile) (99.06%) (d) CIGNA G.B. Holdings, Ltd. (Delaware) (i) CIGNA Reinsurance Company (UK) Limited (United Kingdom) (ii) Insurance Company of North America (U.K.) Limited (United Kingdom) (e) CIGNA Insurance Australia Limited (Australia) (i) CIGNA Life Insurance Australia Limited (Australia) (f) CIGNA Insurance Company (Hellas) S.A. (Greece) (99.58% with balance owned by another CIGNA subsidiary) (g) CIGNA Insurance Company of Puerto Rico (Puerto Rico) (h) CIGNA Insurance New Zealand Limited (New Zealand) (i) CIGNA Life Insurance New Zealand Limited (New Zealand) (i) CIGNA International Reinsurance Company Ltd. (Bermuda) (i) CIGNA Insurance Company of Europe S.A.-N.V. (Belgium) (A) CIGNA Life Insurance Company of Europe S.A.-N.V. (Belgium) (B) CIGNA SICAV I (France) (99.97% with balance owned by another CIGNA subsidiary) (j) CIGNA Overseas Finance N.V. (Netherlands Antilles)
3 (k) CIGNA International Corporation (Delaware) (l) Delpanama S.A. (Panama) (i) CIGNA Compania de Seguros de Panama S.A. (Panama) (m) Inversiones INA Limitada (Chile) (98.603% with balance owned by another CIGNA subsidiary) (i) Administradora de Fondos de Pensiones Qualitas S.A. (Chile) (99.947% with balance owned by another CIGNA subsidiary) (ii) CIGNA Compania de Seguros de Vida (Chile) S.A. (Chile) (98.64% with balance owned by non-affiliate) (iii) CIGNA Salud Isapre S.A. (Chile) (99.994% with balance owned by another CIGNA subsidiary) (n) LATINA Holdings, Ltd. (Delaware) (i) CIGNA Seguros de Colombia S.A. (Colombia) (85.763% with balance owned by other CIGNA subsidiaries and non-affiliate) (ii) Colina Insurance Company Limited (Bahamas) (iii) Empresa Guatemalteca CIGNA de Seguros, Sociedad Anonima (Guatemala) (o) Seguros CIGNA, S.A. (Mexico) (49%) (3) CIGNA Property and Casualty Insurance Company (Connecticut) (a) AFIA (CIGNA) Corporation, Limited (Delaware) (b) ALIC, Incorporated (Texas) (Management Company and Attorney-In-Fact) (i) CIGNA Lloyds Insurance Company (A sponsored Lloyds association) (Texas) (c) Century Indemnity Company (Connecticut) (d) Century Reinsurance Company (Delaware) (e) CIGNA Fire Underwriters Insurance Company (Connecticut) (f) CIGNA Insurance Company (California) (i) Pacific Employers Insurance Company (California) (A) CIGNA Insurance Company of Texas (Texas) (B) Illinois Union Insurance Company (Illinois) (g) CIGNA Insurance Company of the Midwest (Indiana) (h) CIGNA Real Estate, Inc. (Delaware) (i) Congen Properties, Inc. (Delaware) (i) Connecticut General Fire and Casualty Insurance Company (Connecticut) (4) CIGNA Reinsurance Company (Delaware) (a) Bankers Standard Insurance Company (Florida) (i) Bankers Standard Fire and Marine Company (Texas) (b) CIGNA Worldwide Insurance Company (Delaware) (i) CIGNA Reinsurance Company S.A.-N.V. (Belgium) (ii) P.T. Asuransi Niaga CIGNA Life (Indonesia) (60% with balance owned by non-affiliates) (5) Cravens, Dargan & Company, Pacific Coast (Delaware) (6) ESIS, Inc. (California) (7) ESIS International, Inc. (Delaware) (8) INAC Corp. (Delaware) (9) INAC Corp. of California (California) (10) Insurance Company of North America (Pennsylvania) (a) AFIA (INA) Corporation, Limited (Delaware) (i) AFIA (Unincorporated Association) (60% with balance owned by AFIA (CIGNA) Corporation, Limited) (b) Atlantic Employers Insurance Company (New Jersey) (c) CIGNA Employers Insurance Company (Delaware) (d) CIGNA Insurance Company of Ohio (Ohio)
4 (e) Coast to Coast Corporation (Texas) (i) INA County Mutual Insurance Company (Managed Mutual Insurer) (Texas) (f) INACAN Holdings Ltd. (Canada) (i) CIGNA Insurance Company of Canada (Ontario) (99.96% with balance owned by another CIGNA affiliate) (g) Indemnity Insurance Company of North America (New York) (i) Alaska Pacific Assurance Company (Alaska) (ii) CIGNA Insurance Company of Illinois (Illinois) (iii) CIGNA Specialty Insurance Company (11) MarketDyne International, Inc. (Delaware) (12) Recovery Services International, Inc. (Delaware) (13) Trans Asian Insurance Services, Inc. (California) III. CIGNA Investment Group, Inc. (Delaware) A. CIGNA International Finance Inc. (Delaware) (1) CIGNA International Investment Advisors, Ltd. (Delaware) (a) CIGNA International Investment Advisors Australia Limited (Australia) (b) CIGNA International Investment Advisors K.K. (Japan) B. CIGNA Investment Advisory Company, Inc. (Delaware) C. CIGNA Investments, Inc. (Delaware) (1) CIGNA Advisory Partners, Inc. (Delaware) (2) CIGNA Leveraged Capital Fund, Inc. (Delaware) D. Philadelphia Investment Corporation of Delaware (Delaware)
EX-23 6 CONSENT OF PRICE WATERHOUSE LLP 1 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 2-77343, No. 2-91972, No. 2-97899, No. 2-98673, No. 33-39269 and No. 33-65396) and Form S-8 (No. 2-76445, No. 2-76444, No. 33-44371 and No. 33-51791) of CIGNA Corporation, of our report dated February 13, 1995 appearing on Page 46 of the 1994 Annual Report to Shareholders of CIGNA Corporation which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference in such Registration Statements of our report on the Financial Statement Schedules, which appears on page FS-2 of this Form 10-K. /s/ PRICE WATERHOUSE LLP Philadelphia, Pennsylvania March 29, 1995 EX-24.1 7 POWERS OF ATTORNEY 1 EXHIBIT 24.1 2 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of CIGNA Corporation, a Delaware corporation ("CIGNA"), hereby makes, designates, constitutes and appoints THOMAS J. WAGNER, CAROL J. WARD and ROBERT A. LUKENS, and each of them (with full power to act without the other), as the undersigned's true and lawful attorneys-in-fact and agents, with full power and authority to act in any and all capacities for and in the name, place and stead of the undersigned (A) in connection with the filing with the Securities and Exchange Commission pursuant to the Securities Act of 1933 or the Securities Exchange Act of 1934, both as amended, of: (i) CIGNA's Annual Report on Form 10-K and all amendments thereto (collectively, "CIGNA's Form 10-K"); (ii) any and all registration statements pertaining to employee benefit or director compensation plans of CIGNA or its subsidiaries or pertaining to the secondary offering of CIGNA securities by its officers and directors, and all amendments thereto, including, without limitation, a registration statement on Form S-8 pertaining to offerings by CIGNA of Common Stock pursuant to the proposed CIGNA Long-Term Incentive Plan; CIGNA's registration statements on Form S-8 (Registration Numbers 2-76444, 2-76445, 33-51791 and 33-44371); and its registration statements on Form S-3 (Registration Numbers 2-91972 and 2-97899); (iii) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 33-65396) relating to $900 million of debt securities, Preferred Stock and Common Stock; (iv) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 33-39269) relating to $300 million of debt securities; (v) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 2-77343) pertaining to an offering of CIGNA Common Stock; (vi) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 2-98673) relating to put options; and (B) in connection with the preparation, delivery and filing of any and all registrations, amendments, qualifications or notifications under the applicable securities laws of any and all states and other jurisdictions with respect to securities of CIGNA, of whatever class or series, offered, sold, issued, distributed, placed or resold by CIGNA, any of its subsidiaries, or any other person or entity. Such attorneys-in-fact and agents, or any of them, are also hereby granted full power and authority, on behalf of and in the name, place and stead of the undersigned, to execute and deliver all such registration statements, registrations, amendments, qualifications and notifications, and CIGNA's Form l0-K, to execute and deliver any and all such other documents, and to take further action as they, or any of them, deem appropriate. The powers and authorities granted herein to such attorneys-in-fact and agents, and each of them, also include the full right, power and authority to effect necessary or appropriate substitutions or revocations. The undersigned hereby ratifies, confirms, and adopts, as his own act and deed, all action lawfully taken by such attorneys-in-fact and agents, or any of them, or by their respective substitutes, pursuant to the powers and authorities herein granted. This Power of Attorney expires by its terms and shall be of no further force and effect on May 15, 1996. IN WITNESS WHEREOF, the undersigned has executed this document as of the 22nd day of February, 1995. /s/ ROBERT P. BAUMAN ----------------------------------- Robert P. Bauman 3 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of CIGNA Corporation, a Delaware corporation ("CIGNA"), hereby makes, designates, constitutes and appoints THOMAS J. WAGNER, CAROL J. WARD and ROBERT A. LUKENS, and each of them (with full power to act without the other), as the undersigned's true and lawful attorneys-in-fact and agents, with full power and authority to act in any and all capacities for and in the name, place and stead of the undersigned (A) in connection with the filing with the Securities and Exchange Commission pursuant to the Securities Act of 1933 or the Securities Exchange Act of 1934, both as amended, of: (i) CIGNA's Annual Report on Form 10-K and all amendments thereto (collectively, "CIGNA's Form 10-K"); (ii) any and all registration statements pertaining to employee benefit or director compensation plans of CIGNA or its subsidiaries or pertaining to the secondary offering of CIGNA securities by its officers and directors, and all amendments thereto, including, without limitation, a registration statement on Form S-8 pertaining to offerings by CIGNA of Common Stock pursuant to the proposed CIGNA Long-Term Incentive Plan; CIGNA's registration statements on Form S-8 (Registration Numbers 2-76444, 2-76445, 33-51791 and 33-44371); and its registration statements on Form S-3 (Registration Numbers 2-91972 and 2-97899); (iii) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 33-65396) relating to $900 million of debt securities, Preferred Stock and Common Stock; (iv) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 33-39269) relating to $300 million of debt securities; (v) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 2-77343) pertaining to an offering of CIGNA Common Stock; (vi) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 2-98673) relating to put options; and (B) in connection with the preparation, delivery and filing of any and all registrations, amendments, qualifications or notifications under the applicable securities laws of any and all states and other jurisdictions with respect to securities of CIGNA, of whatever class or series, offered, sold, issued, distributed, placed or resold by CIGNA, any of its subsidiaries, or any other person or entity. Such attorneys-in-fact and agents, or any of them, are also hereby granted full power and authority, on behalf of and in the name, place and stead of the undersigned, to execute and deliver all such registration statements, registrations, amendments, qualifications and notifications, and CIGNA's Form 10-K, to execute and deliver any and all such other documents, and to take further action as they, or any of them, deem appropriate. The powers and authorities granted herein to such attorneys-in-fact and agents, and each of them, also include the full right, power and authority to effect necessary or appropriate substitutions or revocations. The undersigned hereby ratifies, confirms, and adopts, as his own act and deed, all action lawfully taken by such attorneys-in-fact and agents, or any of them, or by their respective substitutes, pursuant to the powers and authorities herein granted. This Power of Attorney expires by its terms and shall be of no further force and effect on May 15, 1996. IN WITNESS WHEREOF, the undersigned has executed this document as of the 22nd day of February, 1995. /s/ EVELYN BEREZIN ----------------------------------- Evelyn Berezin 4 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of CIGNA Corporation, a Delaware corporation ("CIGNA"), hereby makes, designates, constitutes and appoints THOMAS J. WAGNER, CAROL J. WARD and ROBERT A. LUKENS, and each of them (with full power to act without the other), as the undersigned's true and lawful attorneys-in-fact and agents, with full power and authority to act in any and all capacities for and in the name, place and stead of the undersigned (A) in connection with the filing with the Securities and Exchange Commission pursuant to the Securities Act of 1933 or the Securities Exchange Act of 1934, both as amended, of: (i) CIGNA's Annual Report on Form l0-K and all amendments thereto (collectively, "CIGNA's Form l0-K"); (ii) any and all registration statements pertaining to employee benefit or director compensation plans of CIGNA or its subsidiaries or pertaining to the secondary offering of CIGNA securities by its officers and directors, and all amendments thereto, including, without limitation, a registration statement on Form S-8 pertaining to offerings by CIGNA of Common Stock pursuant to the proposed CIGNA Long-Term Incentive Plan; CIGNA's registration statements on Form S-8 (Registration Numbers 2-76444, 2-76445, 33-51791 and 33-44371); and its registration statements on Form S-3 (Registration Numbers 2-91972 and 2-97899); (iii) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 33-65396) relating to $900 million of debt securities, Preferred Stock and Common Stock; (iv) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 33-39269) relating to $300 million of debt securities; (v) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 2-77343) pertaining to an offering of CIGNA Common Stock; (vi) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 2-98673) relating to put options; and (B) in connection with the preparation, delivery and filing of any and all registrations, amendments, qualifications or notifications under the applicable securities laws of any and all states and other jurisdictions with respect to securities of CIGNA, of whatever class or series, offered, sold, issued, distributed, placed or resold by CIGNA, any of its subsidiaries, or any other person or entity. Such attorneys-in-fact and agents, or any of them, are also hereby granted full power and authority, on behalf of and in the name, place and stead of the undersigned, to execute and deliver all such registration statements, registrations, amendments, qualifications and notifications, and CIGNA's Form l0-K, to execute and deliver any and all such other documents, and to take further action as they, or any of them, deem appropriate. The powers and authorities granted herein to such attorneys-in-fact and agents, and each of them, also include the full right, power and authority to effect necessary or appropriate substitutions or revocations. The undersigned hereby ratifies, confirms, and adopts, as his own act and deed, all action lawfully taken by such attorneys-in-fact and agents, or any of them, or by their respective substitutes, pursuant to the powers and authorities herein granted. This Power of Attorney expires by its terms and shall be of no further force and effect on May 15, 1996. IN WITNESS WHEREOF, the undersigned has executed this document as of the 22nd day of February, 1995. /s/ ROBERT H. CAMPBELL ----------------------------------- Robert H. Campbell 5 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of CIGNA Corporation, a Delaware corporation ("CIGNA"), hereby makes, designates, constitutes and appoints THOMAS J. WAGNER, CAROL J. WARD and ROBERT A. LUKENS, and each of them (with full power to act without the other), as the undersigned's true and lawful attorneys-in-fact and agents, with full power and authority to act in any and all capacities for and in the name, place and stead of the undersigned (A) in connection with the filing with the Securities and Exchange Commission pursuant to the Securities Act of 1933 or the Securities Exchange Act of 1934, both as amended, of: (i) CIGNA's Annual Report on Form 10-K and all amendments thereto (collectively, "CIGNA's Form 10-K"); (ii) any and all registration statements pertaining to employee benefit or director compensation plans of CIGNA or its subsidiaries or pertaining to the secondary offering of CIGNA securities by its officers and directors, and all amendments thereto, including, without limitation, a registration statement on Form S-8 pertaining to offerings by CIGNA of Common Stock pursuant to the proposed CIGNA Long-Term Incentive Plan; CIGNA's registration statements on Form S-8 (Registration Numbers 2-76444, 2-76445, 33-51791 and 33-44371); and its registration statements on Form S-3 (Registration Numbers 2-91972 and 2-97899); (iii) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 33-65396) relating to $900 million of debt securities, Preferred Stock and Common Stock; (iv) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 33-39269) relating to $300 million of debt securities; (v) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 2-77343) pertaining to an offering of CIGNA Common Stock; (vi) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 2-98673) relating to put options; and (B) in connection with the preparation, delivery and filing of any and all registrations, amendments, qualifications or notifications under the applicable securities laws of any and all states and other jurisdictions with respect to securities of CIGNA, of whatever class or series, offered, sold, issued, distributed, placed or resold by CIGNA, any of its subsidiaries, or any other person or entity. Such attorneys-in-fact and agents, or any of them, are also hereby granted full power and authority, on behalf of and in the name, place and stead of the undersigned, to execute and deliver all such registration statements, registrations, amendments, qualifications and notifications, and CIGNA's Form 10-K, to execute and deliver any and all such other documents, and to take further action as they, or any of them, deem appropriate. The powers and authorities granted herein to such attorneys-in-fact and agents, and each of them, also include the full right, power and authority to effect necessary or appropriate substitutions or revocations. The undersigned hereby ratifies, confirms, and adopts, as his own act and deed, all action lawfully taken by such attorneys-in-fact and agents, or any of them, or by their respective substitutes, pursuant to the powers and authorities herein granted. This Power of Attorney expires by its terms and shall be of no further force and effect on May 15, 1996. IN WITNESS WHEREOF, the undersigned has executed this document as of the 22nd day of February, 1995. /s/ ALFRED C. DECRANE, JR. ----------------------------------- Alfred C. DeCrane, Jr. 6 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of CIGNA Corporation, a Delaware corporation ("CIGNA"), hereby makes, designates, constitutes and appoints THOMAS J. WAGNER, CAROL J. WARD and ROBERT A. LUKENS, and each of them (with full power to act without the other), as the undersigned's true and lawful attorneys-in-fact and agents, with full power and authority to act in any and all capacities for and in the name, place and stead of the undersigned (A) in connection with the filing with the Securities and Exchange Commission pursuant to the Securities Act of 1933 or the Securities Exchange Act of 1934, both as amended, of: (i) CIGNA's Annual Report on Form 10-K and all amendments thereto (collectively, "CIGNA's Form 10-K"); (ii) any and all registration statements pertaining to employee benefit or director compensation plans of CIGNA or its subsidiaries or pertaining to the secondary offering of CIGNA securities by its officers and directors, and all amendments thereto, including, without limitation, a registration statement on Form S-8 pertaining to offerings by CIGNA of Common Stock pursuant to the proposed CIGNA Long-Term Incentive Plan; CIGNA's registration statements on Form S-8 (Registration Numbers 2-76444, 2-76445, 33-51791 and 33-44371); and its registration statements on Form S-3 (Registration Numbers 2-91972 and 2-97899); (iii) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 33-65396) relating to $900 million of debt securities, Preferred Stock and Common Stock; (iv) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 33-39269) relating to $300 million of debt securities; (v) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 2-77343) pertaining to an offering of CIGNA Common Stock; (vi) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 2-98673) relating to put options; and (B) in connection with the preparation, delivery and filing of any and all registrations, amendments, qualifications or notifications under the applicable securities laws of any and all states and other jurisdictions with respect to securities of CIGNA, of whatever class or series, offered, sold, issued, distributed, placed or resold by CIGNA, any of its subsidiaries, or any other person or entity. Such attorneys-in-fact and agents, or any of them, are also hereby granted full power and authority, on behalf of and in the name, place and stead of the undersigned, to execute and deliver all such registration statements, registrations, amendments, qualifications and notifications, and CIGNA's Form 10-K, to execute and deliver any and all such other documents, and to take further action as they, or any of them, deem appropriate. The powers and authorities granted herein to such attorneys-in-fact and agents, and each of them, also include the full right, power and authority to effect necessary or appropriate substitutions or revocations. The undersigned hereby ratifies, confirms, and adopts, as his own act and deed, all action lawfully taken by such attorneys-in-fact and agents, or any of them, or by their respective substitutes, pursuant to the powers and authorities herein granted. This Power of Attorney expires by its terms and shall be of no further force and effect on May 15, 1996. IN WITNESS WHEREOF, the undersigned has executed this document as of the 22nd day of February, 1995. /s/ JAMES F. ENGLISH, JR. ----------------------------------- James F. English, Jr. 7 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of CIGNA Corporation, a Delaware corporation ("CIGNA"), hereby makes, designates, constitutes and appoints THOMAS J. WAGNER, CAROL J. WARD and ROBERT A. LUKENS, and each of them (with full power to act without the other), as the undersigned's true and lawful attorneys-in-fact and agents, with full power and authority to act in any and all capacities for and in the name, place and stead of the undersigned (A) in connection with the filing with the Securities and Exchange Commission pursuant to the Securities Act of 1933 or the Securities Exchange Act of 1934, both as amended, of: (i) CIGNA's Annual Report on Form 10-K and all amendments thereto (collectively, "CIGNA's Form 10-K"); (ii) any and all registration statements pertaining to employee benefit or director compensation plans of CIGNA or its subsidiaries or pertaining to the secondary offering of CIGNA securities by its officers and directors, and all amendments thereto, including, without limitation, a registration statement on Form S-8 pertaining to offerings by CIGNA of Common Stock pursuant to the proposed CIGNA Long-Term Incentive Plan; CIGNA's registration statements on Form S-8 (Registration Numbers 2-76444, 2-76445, 33-51791 and 33-44371); and its registration statements on Form S-3 (Registration Numbers 2-91972 and 2-97899); (iii) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 33-65396) relating to $900 million of debt securities, Preferred Stock and Common Stock; (iv) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 33-39269) relating to $300 million of debt securities; (v) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 2-77343) pertaining to an offering of CIGNA Common Stock; (vi) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 2-98673) relating to put options; and (B) in connection with the preparation, delivery and filing of any and all registrations, amendments, qualifications or notifications under the applicable securities laws of any and all states and other jurisdictions with respect to securities of CIGNA, of whatever class or series, offered, sold, issued, distributed, placed or resold by CIGNA, any of its subsidiaries, or any other person or entity. Such attorneys-in-fact and agents, or any of them, are also hereby granted full power and authority, on behalf of and in the name, place and stead of the undersigned, to execute and deliver all such registration statements, registrations, amendments, qualifications and notifications, and CIGNA's Form 10-K, to execute and deliver any and all such other documents, and to take further action as they, or any of them, deem appropriate. The powers and authorities granted herein to such attorneys-in-fact and agents, and each of them, also include the full right, power and authority to effect necessary or appropriate substitutions or revocations. The undersigned hereby ratifies, confirms, and adopts, as his own act and deed, all action lawfully taken by such attorneys-in-fact and agents, or any of them, or by their respective substitutes, pursuant to the powers and authorities herein granted. This Power of Attorney expires by its terms and shall be of no further force and effect on May 15, 1996. IN WITNESS WHEREOF, the undersigned has executed this document as of the 22nd day of February, 1995. /s/ BERNARD M. FOX ----------------------------------- Bernard M. Fox 8 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of CIGNA Corporation, a Delaware corporation ("CIGNA"), hereby makes, designates, constitutes and appoints THOMAS J. WAGNER, CAROL J. WARD and ROBERT A. LUKENS, and each of them (with full power to act without the other), as the undersigned's true and lawful attorneys-in-fact and agents, with full power and authority to act in any and all capacities for and in the name, place and stead of the undersigned (A) in connection with the filing with the Securities and Exchange Commission pursuant to the Securities Act of 1933 or the Securities Exchange Act of 1934, both as amended, of: (i) CIGNA's Annual Report on Form 10-K and all amendments thereto (collectively, "CIGNA's Form 10-K"); (ii) any and all registration statements pertaining to employee benefit or director compensation plans of CIGNA or its subsidiaries or pertaining to the secondary offering of CIGNA securities by its officers and directors, and all amendments thereto, including, without limitation, a registration statement on Form S-8 pertaining to offerings by CIGNA of Common Stock pursuant to the proposed CIGNA Long-Term Incentive Plan; CIGNA's registration statements on Form S-8 (Registration Numbers 2-76444, 2-76445, 33-51791 and 33-44371); and its registration statements on Form S-3 (Registration Numbers 2-91972 and 2-97899); (iii) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 33-65396) relating to $900 million of debt securities, Preferred Stock and Common Stock; (iv) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 33-39269) relating to $300 million of debt securities; (v) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 2-77343) pertaining to an offering of CIGNA Common Stock; (vi) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 2-98673) relating to put options; and (B) in connection with the preparation, delivery and filing of any and all registrations, amendments, qualifications or notifications under the applicable securities laws of any and all states and other jurisdictions with respect to securities of CIGNA, of whatever class or series, offered, sold, issued, distributed, placed or resold by CIGNA, any of its subsidiaries, or any other person or entity. Such attorneys-in-fact and agents, or any of them, are also hereby granted full power and authority, on behalf of and in the name, place and stead of the undersigned, to execute and deliver all such registration statements, registrations, amendments, qualifications and notifications, and CIGNA's Form 10-K, to execute and deliver any and all such other documents, and to take further action as they, or any of them, deem appropriate. The powers and authorities granted herein to such attorneys-in-fact and agents, and each of them, also include the full right, power and authority to effect necessary or appropriate substitutions or revocations. The undersigned hereby ratifies, confirms, and adopts, as his own act and deed, all action lawfully taken by such attorneys-in-fact and agents, or any of them, or by their respective substitutes, pursuant to the powers and authorities herein granted. This Power of Attorney expires by its terms and shall be of no further force and effect on May 15, 1996. IN WITNESS WHEREOF, the undersigned has executed this document as of the 22nd day of February, 1995. /s/ FRANK S. JONES ----------------------------------- Frank S. Jones 9 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of CIGNA Corporation, a Delaware corporation ("CIGNA"), hereby makes, designates, constitutes and appoints THOMAS J. WAGNER, CAROL J. WARD and ROBERT A. LUKENS, and each of them (with full power to act without the other), as the undersigned's true and lawful attorneys-in-fact and agents, with full power and authority to act in any and all capacities for and in the name, place and stead of the undersigned (A) in connection with the filing with the Securities and Exchange Commission pursuant to the Securities Act of 1933 or the Securities Exchange Act of 1934, both as amended, of: (i) CIGNA's Annual Report on Form 10-K and all amendments thereto (collectively, "CIGNA's Form 10-K"); (ii) any and all registration statements pertaining to employee benefit or director compensation plans of CIGNA or its subsidiaries or pertaining to the secondary offering of CIGNA securities by its officers and directors, and all amendments thereto, including, without limitation, a registration statement on Form S-8 pertaining to offerings by CIGNA of Common Stock pursuant to the proposed CIGNA Long-Term Incentive Plan; CIGNA's registration statements on Form S-8 (Registration Numbers 2-76444, 2-76445, 33-51791 and 33-44371); and its registration statements on Form S-3 (Registration Numbers 2-91972 and 2-97899); (iii) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 33-65396) relating to $900 million of debt securities, Preferred Stock and Common Stock; (iv) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 33-39269) relating to $300 million of debt securities; (v) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 2-77343) pertaining to an offering of CIGNA Common Stock; (vi) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 2-98673) relating to put options; and (B) in connection with the preparation, delivery and filing of any and all registrations, amendments, qualifications or notifications under the applicable securities laws of any and all states and other jurisdictions with respect to securities of CIGNA, of whatever class or series, offered, sold, issued, distributed, placed or resold by CIGNA, any of its subsidiaries, or any other person or entity. Such attorneys-in-fact and agents, or any of them, are also hereby granted full power and authority, on behalf of and in the name, place and stead of the undersigned, to execute and deliver all such registration statements, registrations, amendments, qualifications and notifications, and CIGNA's Form 10-K, to execute and deliver any and all such other documents, and to take further action as they, or any of them, deem appropriate. The powers and authorities granted herein to such attorneys-in-fact and agents, and each of them, also include the full right, power and authority to effect necessary or appropriate substitutions or revocations. The undersigned hereby ratifies, confirms, and adopts, as his own act and deed, all action lawfully taken by such attorneys-in-fact and agents, or any of them, or by their respective substitutes, pursuant to the powers and authorities herein granted. This Power of Attorney expires by its terms and shall be of no further force and effect on May 15, 1996. IN WITNESS WHEREOF, the undersigned has executed this document as of the 22nd day of February, 1995. /s/ GERALD D. LAUBACH ----------------------------------- Gerald D. Laubach 10 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of CIGNA Corporation, a Delaware corporation ("CIGNA"), hereby makes, designates, constitutes and appoints THOMAS J. WAGNER, CAROL J. WARD and ROBERT A. LUKENS, and each of them (with full power to act without the other), as the undersigned's true and lawful attorneys-in-fact and agents, with full power and authority to act in any and all capacities for and in the name, place and stead of the undersigned (A) in connection with the filing with the Securities and Exchange Commission pursuant to the Securities Act of 1933 or the Securities Exchange Act of 1934, both as amended, of: (i) CIGNA's Annual Report on Form 10-K and all amendments thereto (collectively, "CIGNA's Form 10-K"); (ii) any and all registration statements pertaining to employee benefit or director compensation plans of CIGNA or its subsidiaries or pertaining to the secondary offering of CIGNA securities by its officers and directors, and all amendments thereto, including, without limitation, a registration statement on Form S-8 pertaining to offerings by CIGNA of Common Stock pursuant to the proposed CIGNA Long-Term Incentive Plan; CIGNA's registration statements on Form S-8 (Registration Numbers 2-76444, 2-76445, 33-51791 and 33-44371); and its registration statements on Form S-3 (Registration Numbers 2-91972 and 2-97899); (iii) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 33-65396) relating to $900 million of debt securities, Preferred Stock and Common Stock; (iv) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 33-39269) relating to $300 million of debt securities; (v) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 2-77343) pertaining to an offering of CIGNA Common Stock; (vi) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 2-98673) relating to put options; and (B) in connection with the preparation, delivery and filing of any and all registrations, amendments, qualifications or notifications under the applicable securities laws of any and all states and other jurisdictions with respect to securities of CIGNA, of whatever class or series, offered, sold, issued, distributed, placed or resold by CIGNA, any of its subsidiaries, or any other person or entity. Such attorneys-in-fact and agents, or any of them, are also hereby granted full power and authority, on behalf of and in the name, place and stead of the undersigned, to execute and deliver all such registration statements, registrations, amendments, qualifications and notifications, and CIGNA's Form 10-K, to execute and deliver any and all such other documents, and to take further action as they, or any of them, deem appropriate. The powers and authorities granted herein to such attorneys-in-fact and agents, and each of them, also include the full right, power and authority to effect necessary or appropriate substitutions or revocations. The undersigned hereby ratifies, confirms, and adopts, as his own act and deed, all action lawfully taken by such attorneys-in-fact and agents, or any of them, or by their respective substitutes, pursuant to the powers and authorities herein granted. This Power of Attorney expires by its terms and shall be of no further force and effect on May 15, 1996. IN WITNESS WHEREOF, the undersigned has executed this document as of the 22nd day of February, 1995. /s/ MARILYN W. LEWIS ----------------------------------- Marilyn W. Lewis 11 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of CIGNA Corporation, a Delaware corporation ("CIGNA"), hereby makes, designates, constitutes and appoints THOMAS J. WAGNER, CAROL J. WARD and ROBERT A. LUKENS, and each of them (with full power to act without the other), as the undersigned's true and lawful attorneys-in-fact and agents, with full power and authority to act in any and all capacities for and in the name, place and stead of the undersigned (A) in connection with the filing with the Securities and Exchange Commission pursuant to the Securities Act of 1933 or the Securities Exchange Act of 1934, both as amended, of: (i) CIGNA's Annual Report on Form 10-K and all amendments thereto (collectively, "CIGNA's Form 10-K"); (ii) any and all registration statements pertaining to employee benefit or director compensation plans of CIGNA or its subsidiaries or pertaining to the secondary offering of CIGNA securities by its officers and directors, and all amendments thereto, including, without limitation, a registration statement on Form S-8 pertaining to offerings by CIGNA of Common Stock pursuant to the proposed CIGNA Long-Term Incentive Plan; CIGNA's registration statements on Form S-8 (Registration Numbers 2-76444, 2-76445, 33-51791 and 33-44371); and its registration statements on Form S-3 (Registration Numbers 2-91972 and 2-97899); (iii) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 33-65396) relating to $900 million of debt securities, Preferred Stock and Common Stock; (iv) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 33-39269) relating to $300 million of debt securities; (v) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 2-77343) pertaining to an offering of CIGNA Common Stock; (vi) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 2-98673) relating to put options; and (B) in connection with the preparation, delivery and filing of any and all registrations, amendments, qualifications or notifications under the applicable securities laws of any and all states and other jurisdictions with respect to securities of CIGNA, of whatever class or series, offered, sold, issued, distributed, placed or resold by CIGNA, any of its subsidiaries, or any other person or entity. Such attorneys-in-fact and agents, or any of them, are also hereby granted full power and authority, on behalf of and in the name, place and stead of the undersigned, to execute and deliver all such registration statements, registrations, amendments, qualifications and notifications, and CIGNA's Form 10-K, to execute and deliver any and all such other documents, and to take further action as they, or any of them, deem appropriate. The powers and authorities granted herein to such attorneys-in-fact and agents, and each of them, also include the full right, power and authority to effect necessary or appropriate substitutions or revocations. The undersigned hereby ratifies, confirms, and adopts, as his own act and deed, all action lawfully taken by such attorneys-in-fact and agents, or any of them, or by their respective substitutes, pursuant to the powers and authorities herein granted. This Power of Attorney expires by its terms and shall be of no further force and effect on May 15, 1996. IN WITNESS WHEREOF, the undersigned has executed this document as of the 22nd day of February, 1995. /s/ PAUL F. OREFFICE ----------------------------------- Paul F. Oreffice 12 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of CIGNA Corporation, a Delaware corporation ("CIGNA"), hereby makes, designates, constitutes and appoints THOMAS J. WAGNER, CAROL J. WARD and ROBERT A. LUKENS, and each of them (with full power to act without the other), as the undersigned's true and lawful attorneys-in-fact and agents, with full power and authority to act in any and all capacities for and in the name, place and stead of the undersigned (A) in connection with the filing with the Securities and Exchange Commission pursuant to the Securities Act of 1933 or the Securities Exchange Act of 1934, both as amended, of: (i) CIGNA's Annual Report on Form 10-K and all amendments thereto (collectively, "CIGNA's Form 10-K"); (ii) any and all registration statements pertaining to employee benefit or director compensation plans of CIGNA or its subsidiaries or pertaining to the secondary offering of CIGNA securities by its officers and directors, and all amendments thereto, including, without limitation, a registration statement on Form S-8 pertaining to offerings by CIGNA of Common Stock pursuant to the proposed CIGNA Long-Term Incentive Plan; CIGNA's registration statements on Form S-8 (Registration Numbers 2-76444, 2-76445, 33-51791 and 33-44371); and its registration statements on Form S-3 (Registration Numbers 2-91972 and 2-97899); (iii) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 33-65396) relating to $900 million of debt securities, Preferred Stock and Common Stock; (iv) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 33-39269) relating to $300 million of debt securities; (v) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 2-77343) pertaining to an offering of CIGNA Common Stock; (vi) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 2-98673) relating to put options; and (B) in connection with the preparation, delivery and filing of any and all registrations, amendments, qualifications or notifications under the applicable securities laws of any and all states and other jurisdictions with respect to securities of CIGNA, of whatever class or series, offered, sold, issued, distributed, placed or resold by CIGNA, any of its subsidiaries, or any other person or entity. Such attorneys-in-fact and agents, or any of them, are also hereby granted full power and authority, on behalf of and in the name, place and stead of the undersigned, to execute and deliver all such registration statements, registrations, amendments, qualifications and notifications, and CIGNA's Form 10-K, to execute and deliver any and all such other documents, and to take further action as they, or any of them, deem appropriate. The powers and authorities granted herein to such attorneys-in-fact and agents, and each of them, also include the full right, power and authority to effect necessary or appropriate substitutions or revocations. The undersigned hereby ratifies, confirms, and adopts, as his own act and deed, all action lawfully taken by such attorneys-in-fact and agents, or any of them, or by their respective substitutes, pursuant to the powers and authorities herein granted. This Power of Attorney expires by its terms and shall be of no further force and effect on May 15, 1996. IN WITNESS WHEREOF, the undersigned has executed this document as of the 22nd day of February, 1995. /s/ CHARLES R. SHOEMATE ----------------------------------- Charles R. Shoemate 13 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of CIGNA Corporation, a Delaware corporation ("CIGNA"), hereby makes, designates, constitutes and appoints THOMAS J. WAGNER, CAROL J. WARD and ROBERT A. LUKENS, and each of them (with full power to act without the other), as the undersigned's true and lawful attorneys-in-fact and agents, with full power and authority to act in any and all capacities for and in the name, place and stead of the undersigned (A) in connection with the filing with the Securities and Exchange Commission pursuant to the Securities Act of 1933 or the Securities Exchange Act of 1934, both as amended, of: (i) CIGNA's Annual Report on Form 10-K and all amendments thereto (collectively, "CIGNA's Form 10-K"); (ii) any and all registration statements pertaining to employee benefit or director compensation plans of CIGNA or its subsidiaries or pertaining to the secondary offering of CIGNA securities by its officers and directors, and all amendments thereto, including, without limitation, a registration statement on Form S-8 pertaining to offerings by CIGNA of Common Stock pursuant to the proposed CIGNA Long-Term Incentive Plan; CIGNA's registration statements on Form S-8 (Registration Numbers 2-76444, 2-76445, 33-51791 and 33-44371); and its registration statements on Form S-3 (Registration Numbers 2-91972 and 2-97899); (iii) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 33-65396) relating to $900 million of debt securities, Preferred Stock and Common Stock; (iv) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 33-39269) relating to $300 million of debt securities; (v) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 2-77343) pertaining to an offering of CIGNA Common Stock; (vi) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 2-98673) relating to put options; and (B) in connection with the preparation, delivery and filing of any and all registrations, amendments, qualifications or notifications under the applicable securities laws of any and all states and other jurisdictions with respect to securities of CIGNA, of whatever class or series, offered, sold, issued, distributed, placed or resold by CIGNA, any of its subsidiaries, or any other person or entity. Such attorneys-in-fact and agents, or any of them, are also hereby granted full power and authority, on behalf of and in the name, place and stead of the undersigned, to execute and deliver all such registration statements, registrations, amendments, qualifications and notifications, and CIGNA's Form 10-K, to execute and deliver any and all such other documents, and to take further action as they, or any of them, deem appropriate. The powers and authorities granted herein to such attorneys-in-fact and agents, and each of them, also include the full right, power and authority to effect necessary or appropriate substitutions or revocations. The undersigned hereby ratifies, confirms, and adopts, as his own act and deed, all action lawfully taken by such attorneys-in-fact and agents, or any of them, or by their respective substitutes, pursuant to the powers and authorities herein granted. This Power of Attorney expires by its terms and shall be of no further force and effect on May 15, 1996. IN WITNESS WHEREOF, the undersigned has executed this document as of the 22nd day of February, 1995. /s/ LOUIS W. SULLIVAN, M.D. ----------------------------------- Louis W. Sullivan, M.D. 14 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director and Executive Officer of CIGNA Corporation, a Delaware corporation ("CIGNA"), hereby makes, designates, constitutes and appoints THOMAS J. WAGNER, CAROL J. WARD and ROBERT A. LUKENS, and each of them (with full power to act without the other), as the undersigned's true and lawful attorneys-in-fact and agents, with full power and authority to act in any and all capacities for and in the name, place and stead of the undersigned (A) in connection with the filing with the Securities and Exchange Commission pursuant to the Securities Act of 1933 or the Securities Exchange Act of 1934, both as amended, of: (i) CIGNA's Annual Report on Form 10-K and all amendments thereto (collectively, "CIGNA's Form 10-K"); (ii) any and all registration statements pertaining to employee benefit or director compensation plans of CIGNA or its subsidiaries or pertaining to the secondary offering of CIGNA securities by its officers and directors, and all amendments thereto, including, without limitation, a registration statement on Form S-8 pertaining to offerings by CIGNA of Common Stock pursuant to the proposed CIGNA Long-Term Incentive Plan; CIGNA's registration statements on Form S-8 (Registration Numbers 2-76444, 2-76445, 33-51791 and 33-44371); and its registration statements on Form S-3 (Registration Numbers 2-91972 and 2-97899); (iii) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 33-65396) relating to $900 million of debt securities, Preferred Stock and Common Stock; (iv) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 33-39269) relating to $300 million of debt securities; (v) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 2-77343) pertaining to an offering of CIGNA Common Stock; (vi) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 2-98673) relating to put options; and (B) in connection with the preparation, delivery and filing of any and all registrations, amendments, qualifications or notifications under the applicable securities laws of any and all states and other jurisdictions with respect to securities of CIGNA, of whatever class or series, offered, sold, issued, distributed, placed or resold by CIGNA, any of its subsidiaries, or any other person or entity. Such attorneys-in-fact and agents, or any of them, are also hereby granted full power and authority, on behalf of and in the name, place and stead of the undersigned, to execute and deliver all such registration statements, registrations, amendments, qualifications and notifications, and CIGNA's Form 10-K, to execute and deliver any and all such other documents, and to take further action as they, or any of them, deem appropriate. The powers and authorities granted herein to such attorneys-in-fact and agents, and each of them, also include the full right, power and authority to effect necessary or appropriate substitutions or revocations. The undersigned hereby ratifies, confirms, and adopts, as his own act and deed, all action lawfully taken by such attorneys-in-fact and agents, or any of them, or by their respective substitutes, pursuant to the powers and authorities herein granted. This Power of Attorney expires by its terms and shall be of no further force and effect on May 15, 1996. IN WITNESS WHEREOF, the undersigned has executed this document as of the 22nd day of February, 1995. /s/ WILSON H. TAYLOR ----------------------------------- Wilson H. Taylor 15 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of CIGNA Corporation, a Delaware corporation ("CIGNA"), hereby makes, designates, constitutes and appoints THOMAS J. WAGNER, CAROL J. WARD and ROBERT A. LUKENS, and each of them (with full power to act without the other), as the undersigned's true and lawful attorneys-in-fact and agents, with full power and authority to act in any and all capacities for and in the name, place and stead of the undersigned (A) in connection with the filing with the Securities and Exchange Commission pursuant to the Securities Act of 1933 or the Securities Exchange Act of 1934, both as amended, of: (i) CIGNA's Annual Report on Form 10-K and all amendments thereto (collectively, "CIGNA's Form 10-K"); (ii) any and all registration statements pertaining to employee benefit or director compensation plans of CIGNA or its subsidiaries or pertaining to the secondary offering of CIGNA securities by its officers and directors, and all amendments thereto, including, without limitation, a registration statement on Form S-8 pertaining to offerings by CIGNA of Common Stock pursuant to the proposed CIGNA Long-Term Incentive Plan; CIGNA's registration statements on Form S-8 (Registration Numbers 2-76444, 2-76445, 33-51791 and 33-44371); and its registration statements on Form S-3 (Registration Numbers 2-91972 and 2-97899); (iii) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 33-65396) relating to $900 million of debt securities, Preferred Stock and Common Stock; (iv) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 33-39269) relating to $300 million of debt securities; (v) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 2-77343) pertaining to an offering of CIGNA Common Stock; (vi) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 2-98673) relating to put options; and (B) in connection with the preparation, delivery and filing of any and all registrations, amendments, qualifications or notifications under the applicable securities laws of any and all states and other jurisdictions with respect to securities of CIGNA, of whatever class or series, offered, sold, issued, distributed, placed or resold by CIGNA, any of its subsidiaries, or any other person or entity. Such attorneys-in-fact and agents, or any of them, are also hereby granted full power and authority, on behalf of and in the name, place and stead of the undersigned, to execute and deliver all such registration statements, registrations, amendments, qualifications and notifications, and CIGNA's Form 10-K, to execute and deliver any and all such other documents, and to take further action as they, or any of them, deem appropriate. The powers and authorities granted herein to such attorneys-in-fact and agents, and each of them, also include the full right, power and authority to effect necessary or appropriate substitutions or revocations. The undersigned hereby ratifies, confirms, and adopts, as his own act and deed, all action lawfully taken by such attorneys-in-fact and agents, or any of them, or by their respective substitutes, pursuant to the powers and authorities herein granted. This Power of Attorney expires by its terms and shall be of no further force and effect on May 15, 1996. IN WITNESS WHEREOF, the undersigned has executed this document as of the 22nd day of February, 1995. /s/ EZRA K. ZILKHA ----------------------------------- Ezra K. Zilkha EX-24.2 8 CERTIFIED RESOLUTIONS 1 EXHIBIT 24.2 [CIGNA LOGO] Certified to be a true and correct copy of the resolutions adopted by the Board of Directors of CIGNA Corporation at a meeting held on February 22, 1995, a quorum being present, and such resolutions are still in full force and effect as of this date of certification, not having been amended, modified or rescinded since the date of their adoption. -------------------------------------------------------------------------------- Authorize Officers to Sign Annual Report on Form 10-K RESOLVED, That the Officers of the Corporation, and each of them, are hereby authorized to sign CIGNA Corporation's Annual Report on Form 10-K for the year ended December 31, 1994, and any amendments thereto, (the "Form 10-K") in the name and on behalf of and as attorneys for the Corporation and each of its Directors and Officers. RESOLVED, That each Officer and Director of the Corporation who be required to execute (whether on behalf of the Corporation or as an Officer or Director thereof) the Form 10-K, is hereby authorized to execute and deliver a power of attorney appointing such person or persons named therein as true and lawful attorneys and agents to execute in the name, place and stead (in any such capacity) of any such Officer or Director said Form 10-K and to file any such power of attorney together with the Form 10-K with the Securities and Exchange Commission. Date: March 15, 1995 /s/Carol J. Ward -------------- ------------------- Carol J. Ward Corporate Secretary EX-27 9 FINANCIAL DATA SCHEDULE
7 EXHIBIT 27 CIGNA CORPORATION FINANCIAL DATA SCHEDULE The Schedule contains summary financial information extracted from the financial statements incorporated by reference into CIGNA's Annual Report on Form 10-K for the year ended December 31, 1994, and is qualified in its entirety by reference to such financial statements. 1,000,000 YEAR DEC-31-1994 JAN-01-1994 DEC-31-1994 18,521 12,296 12,276 1,806 9,970 1,747 50,919 1,693 7,486 1,128 86,102 10,554 2,575 19,145 27,000 1,660 83 0 0 5,728 86,102 13,912 3,946 42 492 12,926 1,166 3,495 805 251 554 0 0 0 554 7.66 0 10,550 3,025 538 1,016 2,591 10,506 538 Amount includes recoverables on paid and unpaid losses. Amounts are net of reinsurance recoverables.
EX-28.1 10 RECON. OF SCHEDULE P TO TOTAL STATUTORY RESERVES 1 EXHIBIT 28.1 CIGNA CORPORATION PROPERTY AND CASUALTY STATUTORY RESERVES RECONCILIATION OF SCHEDULE P TO TOTAL STATUTORY RESERVES 1994
(DOLLARS IN MILLIONS) --------------------- Schedule P: Part 1, Column 34, Line 12................................... $ 6,017 Part 1, Column 35, Line 12.................................. 1,259 ------- Total statutory reserves as reported in consolidated annual statement balance sheet........................................... 7,276 Reconciliation to amounts reported in Form 10-K: Foreign subsidiaries not included in consolidated domestic annual statement............................................................... 2,133 Other..................................................................... 105 ------- Total statutory reserves as reported in Form 10-K......................... $ 9,514 ===============