o	First quarter 2010 shareholders’ net income was $283 million, or $1.02 per share, compared to $208 million, or $0.76 per share, for the same period last year.

o	Adjusted income from operations1 in the quarter was $281 million, or $1.01 per share, reflecting the strength of our diversified global portfolio, with each of our ongoing businesses reporting year over year earnings growth.

o	The Company's estimate for full year 2010 adjusted income from operations1,2 for the Group Disability and Life and International segments has been increased to a range of $475 million to $505 million.

o	The Company continues to estimate full year 2010 earnings per share, on an adjusted income from operations1,2 basis, to be in the range of $3.75 to $4.15 per share.

2

 

 

 

·	Consolidated revenues were $5.2 billion and $4.8 billion for the first quarters of 2010 and 2009, respectively.  Year over year growth was driven by strong retention and new sales in market segments that align with our global growth strategy.

·	Health care medical claims payable7 were approximately $1.1 billion at March 31, 2010 and $715 million at December 31, 2009, primarily due to membership growth in our risk businesses, including Medicare Advantage Private Fee for Service and Medicare Part D.

·	Cash and short term investments at the parent company were approximately $700 million at March 31, 2010 and $475 million at December 31, 2009.

 

3

·	“Adjusted segment earnings (loss)” are adjusted income (loss) from operations1, as applicable, for each segment (see Exhibit 2).

·

This segment includes medical and specialty health care products and services provided on guaranteed cost, retrospectively experience-rated and service-only funding bases.  Specialty health care includes behavioral, dental, disease and medical management, stop-loss, and pharmacy-related products and services.

 

·	Overall, results in our Health Care segment reflect focused execution of our growth strategy, driven by strong retention and new sales in our key customer segments and geographies, while achieving further operating expense efficiencies.

·	First quarter 2010 adjusted segment earnings reflect a higher mix of commercial risk business, which is highly penetrated with our specialty products.  The guaranteed cost medical care ratio was in line with our expectations.

·	Premiums and fees in the first quarter 2010 increased approximately 14% relative to first quarter 2009, primarily due to a change in membership mix, which includes a higher percentage of commercial and Medicare related risk business.

4

 

·	This segment includes CIGNA’s group disability, life, and accident insurance operations that are managed separately from the health care business.

 

·	Segment results reflect strong growth in disability premiums, driven by the sustained value we deliver to our customers from our disability management programs.

·	First quarter 2010 adjusted segment earnings include the net favorable impact of $10 million after-tax related to a reserve study on our life book of business. First quarter 2009 results also included the net favorable impact related to reserve studies of $9 million after-tax.

·	This segment includes CIGNA’s supplemental health, life, and accident insurance and expatriate benefits businesses operating in select international markets.

 

·	Our International business delivered a very strong quarter, driven by effective execution of our global growth strategy, reflecting strong renewals and new sales, particularly in our Health, Life and Accident business.

·

Adjusted segment earnings in the quarter also benefited from favorable claims experience in the expatriate benefits business, due in part to rate execution on renewals, and a favorable adjustment of $5 million after-tax related to the implementation of a capital management strategy.  The net favorable after-tax impact from foreign currency movements was $7 million in the quarter compared to the same period last year, which was in line with expectations.

5

·	Adjusted segment earnings (losses) for CIGNA's remaining operations are presented below (after-tax, dollars in millions):

·

As a result of continued stability in the equity markets, no VADBe3 reserve strengthening was required in the Run-off Reinsurance operations this quarter.  Results for the first quarter 2009 included reserve strengthening of $47 million after-tax related to the VADBe5 business, primarily due to a decline in the equity markets.

·	The Corporate results include the unfavorable charge of $5 million after-tax from the impact of health care reform legislation regarding limitations on the future tax deductibility of certain retiree benefit programs and compensation.

·

CIGNA continues to estimate full year 2010 consolidated adjusted income from operations1,2 to be in the range of $1.05 billion to $1.15 billion, or $3.75 to $4.15 per share.  This outlook includes an assumption that VADBe3 results will be approximately break-even for full-year 2010, reflective of management’s view that the long-term reserve assumptions are appropriate and that capital markets remain stable during the year.

 

·	CIGNA continues to estimate full year 2010 adjusted income from operations1,2 for the Health Care segment to be in the range of $720 million to $790 million.

 

·	CIGNA’s outlook for full year 2010 adjusted income from operations1,2 for the Group Disability and Life and International segments has been increased to a range of $475 million to $505 million.

 

·	CIGNA’s earnings and earnings per share outlooks exclude the impact of any future stock repurchase9.

 

·	CIGNA's full year 2010 medical membership outlook has been updated to reflect membership growth in the first quarter and is now a range of 2% to 3%.

 

 

 

6

1.

CIGNA measures the financial results of its segments using Segment Earnings (Loss), which is defined as shareholders’ income (loss) from continuing operations before net realized investment results.  Adjusted income (loss) from operations is defined as segment earnings excluding special items (which are identified and quantified in Note 5) and excludes results of CIGNA's GMIB3 business.  Adjusted income (loss) from operations is a measure of profitability used by CIGNA’s management because it presents the underlying results of operations of CIGNA’s businesses and permits analysis of trends in underlying revenue, expenses and shareholders’ net income.  This measure is not determined in accordance with generally accepted accounting principles (GAAP) and should not be viewed as a substitute for the most directly comparable GAAP measures, which are segment earnings (loss), shareholders’ income from continuing operations, and shareholders’ net income.  See Exhibit 2 for a reconciliation of adjusted income (loss) from operations to segment earnings (loss), shareholders’ income from continuing operations, and consolidated shareholders’ net income.

2.

Information is not available for management to (1) reasonably estimate future net realized investment gains (losses) or (2) reasonably estimate future GMIB3 business results due in part to interest rate and stock market volatility and other internal and external factors; therefore it is not possible to provide a forward-looking reconciliation of adjusted income from operations to shareholders’ income from continuing operations.  Special items for the remainder of 2010 may include potential adjustments associated with cost reduction, litigation and tax related items.  Information is not available for management to identify, other than these items, or reasonably estimate additional 2010 special items.

3.	The Guaranteed Minimum Income Benefits (GMIB) business and Guaranteed Minimum Death Benefits business, also known as Variable Annuity Death Benefits (VADBe), are included in our Run-off Reinsurance operations.  These businesses have been in run-off since 2000.

4.

The application of the FASB’s fair value disclosure and measurement guidance (ASC 820-10), which impacts reinsurance contracts covering GMIB3, does not represent management's expectation of the ultimate payout.  Changes in underlying contract holder account values, interest rates, stock market volatility, and other factors may result in changes to the fair value assumptions, and/or amount that will be required to ultimately settle the Company’s obligations, which could result in a material adverse or favorable impact on the Run-off Reinsurance segment and CIGNA's results of operations.

5.	Special items included in shareholders’ net income and segment earnings (loss), but excluded from adjusted income (loss) from operations, adjusted segment earnings, and the calculation of segment margins are:

o	After-tax benefit of $20 million related to completion of an IRS examination.

o	After-tax charge of $13 million related to CIGNA's previously announced cost reduction plan.

6.	The discontinued operations included in shareholders’ net income are:

o	Primarily due to after-tax benefit of $1 million related to past divestitures.

7.	Health care medical claims payable are presented net of reinsurance and other recoverables.  The gross health care medical claims payable balance was $1.3 billion as of March 31, 2010 and $921 million as of December 31, 2009.

7

 

8.

Segment margins in this press release are calculated by dividing adjusted segment earnings by segment revenues.  Segment margins including special items for Health Care were 4.4% for the three months ended March 31, 2010, 4.7% for the three months ended March 31, 2009, and 5.6% for the three months ended December 31, 2009.  Segment margins including special items for Disability and Life were 9.3% for the three months ended March 31, 2010, 8.3% for the three months ended March 31, 2009, and 8.7% for the three months ended December 31, 2009.  Segment margins including special items for International were 13.0% for the three months ended March 31, 2010, 9.2% for the three months ended March 31, 2009, and 7.3% for the three months ended December 31, 2009.

9.	Repurchases may from time to time be made pursuant to written trading plans under Rule 10b5-1, which permit shares to be repurchased when CIGNA might otherwise be precluded from doing so under insider trading laws or because of self-employed trading blackout periods.

1.	increased medical costs that are higher than anticipated in establishing premium rates in the Company’s Health Care operations, including increased use and costs of medical services;
2.	increased medical, administrative, technology or other costs resulting from new legislative and regulatory requirements imposed on the Company’s employee benefits businesses;
3.	challenges and risks associated with implementing operational improvement initiatives and strategic actions in the ongoing operations of the businesses, including those related to: (i) growth in targeted geographies, product lines, buying segments and distribution channels, (ii) offering products that meet emerging market needs, (iii) strengthening underwriting and pricing effectiveness, (iv) strengthening medical cost and medical membership results, (v) delivering quality member and provider service using effective technology solutions, (vi) lowering administrative costs and (vii) transitioning to an integrated operating company model, including operating efficiencies related to the transition;
4.	risks associated with pending and potential state and federal class action lawsuits, disputes regarding reinsurance arrangements, other litigation and regulatory actions challenging the Company’s businesses, including disputes related to payments to providers, government investigations and proceedings, and tax audits and related litigation;
5.	heightened competition, particularly price competition, which could reduce product margins and constrain growth in the Company’s businesses, primarily the Health Care business;
6.	risks associated with the Company’s mail order pharmacy business which, among other things, includes any potential operational deficiencies or service issues as well as loss or suspension of state pharmacy licenses;
7.	significant changes in interest rates and deterioration in the loan to value ratios of commercial real estate investments for a sustained period of time;
8.	downgrades in the financial strength ratings of the Company’s insurance subsidiaries, which could, among other things, adversely affect new sales, retention of current business as well as a downgrade in financial strength

	ratings of reinsurers which could result in increased statutory reserve or capital requirements;
9.	limitations on the ability of the Company’s insurance subsidiaries to dividend capital to the parent company as a result of downgrades in the subsidiaries’ financial strength ratings, changes in statutory reserve or capital requirements or other financial constraints;
10.	inability of the program adopted by the Company to substantially reduce equity market risks for reinsurance contracts that guarantee minimum death benefits under certain variable annuities (including possible market difficulties in entering into appropriate futures contracts and in matching such contracts to the underlying equity risk);
11.	adjustments to the reserve assumptions (including lapse, partial surrender, mortality, interest rates and volatility) used in estimating the Company’s liabilities for reinsurance contracts covering guaranteed minimum death benefits under certain variable annuities;
12.	adjustments to the assumptions (including annuity election rates and amounts collectible from reinsurers) used in estimating the Company’s assets and liabilities for reinsurance contracts covering guaranteed minimum income benefits under certain variable annuities;
13.	significant stock market declines, which could, among other things, result in increased expenses for guaranteed minimum income benefit contracts, guaranteed minimum death benefit contracts and the Company’s pension plans in future periods as well as the recognition of additional pension obligations;
14.	unfavorable claims experience related to workers’ compensation and personal accident exposures of the run-off reinsurance business, including losses attributable to the inability to recover claims from retrocessionaires;
15.	significant deterioration in economic conditions and significant market volatility, which could have an adverse effect on the Company’s operations,  investments, liquidity and access to capital markets;
16.	significant deterioration in economic conditions and significant market volatility, which could have an adverse effect on the businesses of our customers (including the amount and type of health care services provided to their workforce, loss in workforce and our customers' ability to pay receivables) and our vendors (including their ability to provide services);
17.	adverse changes in state and federal laws and regulations, including health care reform legislation and regulation which could, among other items, affect the way the Company does business, increase cost, limit the ability to effectively estimate, price for and manage medical costs, and affect the Company’s health care products, services, technology and processes;
18.	amendments to income tax laws, which could affect the taxation of employer provided benefits and certain insurance products such as corporate-owned life insurance;
19.	potential public health epidemics, pandemics and bio-terrorist activity, which could, among other things, cause the Company’s covered medical and disability expenses, pharmacy costs and mortality experience to rise significantly, and cause operational disruption, depending on the severity of the event and number of individuals affected;
20.	risks associated with security or interruption of information systems, which could, among other things, cause operational disruption;
21.	challenges and risks associated with the successful management of the Company’s outsourcing projects or key vendors, including the agreement with IBM for provision of technology infrastructure and related services;
22.	the ability to successfully integrate and operate the businesses acquired from Great-West by, among other things, renewing insurance and administrative services contracts on competitive terms, retaining and growing membership, realizing revenue, expense and other synergies, successfully leveraging the information technology platform of the acquired businesses, and retaining key personnel; and
23.	the ability of the Company to execute its growth plans by successfully managing Great-West Healthcare’s outsourcing projects and leveraging the Company's capabilities and those of the businesses acquired from Great-West to further enhance the combined organization’s network access position, underwriting effectiveness, delivery of quality member and provider service, and increased penetration of its membership base with differentiated product offerings.

 

 

CIGNA  CORPORATION COMPARATIVE  SUMMARY  OF  FINANCIAL  RESULTS  (unaudited) (Dollars in millions, except per share amounts)
		Three Months Ended
		March 31,
		2010				2009
REVENUES
Premiums and fees		$	4,543			$	4,051
Net investment income			266				229
Mail order pharmacy revenues			348				312
Other revenues (1)			54				217
Net realized investment losses			(6	)			(36	)
Total		$	5,205			$	4,773
ADJUSTED INCOME (LOSS) FROM OPERATIONS (2)
Health Care		$	167			$	154
Disability and Life			70				58
International			72				41
Run-off Reinsurance			(1	)			(49	)
Other Operations			19				18
Corporate			(46	)			(34	)
Total		$	281			$	188
SHAREHOLDERS' NET INCOME
Segment Earnings (Loss)
Health Care (3)		$	167			$	155
Disability and Life (3)			70				63
International (3)			72				42
Run-off Reinsurance			4				(26	)
Other Operations (3)			19				19
Corporate (3)			(46	)			(22	)
Total			286				231
Net realized investment losses, net of taxes			(3	)			(24	)
Shareholders' income from continuing operations			283				207
Shareholders' income from discontinued operations			-				1
Shareholders' net income		$	283			$	208
DILUTED EARNINGS PER SHARE (4):
Adjusted income from operations (2)		$	1.01			$	0.69
Results of guaranteed minimum income benefits business, after-tax			0.02				0.08
Net realized investment losses, net of taxes			(0.01	)			(0.09	)
Special item(s), after-tax (3)			-				0.08
Shareholders' income from continuing operations			1.02				0.76
Shareholders' income from discontinued operations			-				-
Shareholders' net income		$	1.02			$	0.76
Weighted average shares   (in thousands) (4)			278,100				272,868
SHAREHOLDERS' EQUITY at March 31:		$	5,801			$	3,831
SHAREHOLDERS' EQUITY PER SHARE at March 31:		$	20.97			$	14.04

 

 

 

CIGNA CORPORATION
SUPPLEMENTAL FINANCIAL INFORMATION (unaudited)	Exhibit 2
RECONCILIATION OF ADJUSTED INCOME (LOSS) FROM OPERATIONS TO SHAREHOLDERS' NET INCOME
(Dollars in millions, except per share amounts)

 

						Run-off				Other
		International				Reinsurance				Operations				Corporate
Three Months Ended December 31, 2009
Adjusted income (loss) from operations (1)		$	38			$	9			$	23			$	(45	)
Results of guaranteed minimum income benefits business			-				60				-				-
Special item(s), after-tax:
Charge for cost reduction plan (3)			1				-				-				-
Segment earnings (loss) (1)		$	39			$	69			$	23			$	(45	)