<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1995
--------------
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from to
----- -----
Commission file number 1-8323
------
CIGNA Corporation
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 06-1059331
- -------------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
ONE LIBERTY PLACE, PHILADELPHIA, PA. 19192-1550
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (215) 761-1000
Not Applicable
-------------------------------------------------------
(Former name, former address and former fiscal year, if
changed since last report)
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
----- -----
As of April 30, 1995, 72,464,521 shares of the issuer's Common Stock
were outstanding.
<PAGE> 2
CIGNA CORPORATION
INDEX
<TABLE>
<CAPTION>
Page No.
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Income 1
Consolidated Balance Sheets 2
Consolidated Statements of Cash 3
Flows
Notes to Financial Statements 4
Item 2. Management's Discussion and 9
Analysis of Financial Condition
and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. 28
Item 4. Submission of Matters to a Vote
of Security Holders. 29
Item 6. Exhibits and Reports on Form 8-K. 30
SIGNATURE 31
EXHIBIT INDEX 32
</TABLE>
<PAGE> 3
Part I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CIGNA CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(In millions, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1995 1994
=======================================================================================
<S> <C> <C>
REVENUES
Premiums and fees $ 3,418 $ 3,366
Net investment income 1,027 992
Other revenues 127 152
Realized investment gains 182 21
---------- -----------
Total revenues 4,754 4,531
---------- -----------
BENEFITS, LOSSES AND EXPENSES
Benefits, losses and settlement expenses 3,197 3,279
Policy acquisition expenses 306 286
Other operating expenses 849 796
---------- -----------
Total benefits, losses and expenses 4,352 4,361
---------- -----------
INCOME BEFORE INCOME TAXES 402 170
---------- -----------
Income taxes:
Current 36 54
Deferred 76 2
---------- -----------
Total income taxes 112 56
---------- -----------
NET INCOME 290 114
Dividends declared (53) (55)
Retained earnings, beginning of period 4,052 3,717
- ---------------------------------------------------------------------------------------
RETAINED EARNINGS, END OF PERIOD $ 4,289 $ 3,776
- --------------------------------------------------------------=========================
EARNINGS PER SHARE INFORMATION:
Primary $ 4.00 $ 1.58
Fully Diluted $ 3.85 $ 1.54
- --------------------------------------------------------------=========================
DIVIDENDS DECLARED PER SHARE $ 0.76 $ 0.76
- --------------------------------------------------------------=========================
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
1
<PAGE> 4
CIGNA CORPORATION
CONSOLIDATED BALANCE SHEETS
(In millions, except per share amounts)
<TABLE>
<CAPTION>
AS OF AS OF
MARCH 31, DECEMBER 31,
1995 1994
=========================================================================================
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Available for sale, at fair value
(amortized cost, $20,337; $18,899) $ 20,488 $ 18,521
Held to maturity, at amortized cost
(fair value, $12,276; $12,276) 11,959 12,296
Equity securities, at fair value (cost,
$900; $1,651) 975 1,806
Mortgage loans 9,902 9,970
Policy loans 5,786 5,355
Real estate 1,666 1,747
Other long-term investments 495 371
Short-term investments 985 853
------------ ------------
Total investments 52,256 50,919
Cash and cash equivalents 2,243 1,693
Accrued investment income 920 835
Premiums, accounts and notes receivable 4,202 3,986
Reinsurance recoverables 7,497 7,486
Deferred policy acquisition costs 1,131 1,128
Property and equipment, net 901 914
Deferred income taxes, net 2,085 2,264
Other assets 1,264 1,161
Goodwill 1,152 1,165
Separate account assets 15,196 14,551
- -----------------------------------------------------------------------------------------
Total $ 88,847 $ 86,102
- --------------------------------------------------=======================================
LIABILITIES
Contractholder deposit funds $ 28,112 $ 27,000
Unpaid claims and claim expenses 18,956 19,246
Future policy benefits 11,024 10,453
Unearned premiums 2,498 2,575
------------ ------------
Total insurance and contractholder
liabilities 60,590 59,274
Accounts payable, accrued expenses and
other liabilities 5,111 4,726
Current income taxes 179 156
Short-term debt 232 271
Long-term debt 1,426 1,389
Separate account liabilities 15,122 14,475
- -----------------------------------------------------------------------------------------
Total liabilities 82,660 80,291
- -----------------------------------------------------------------------------------------
CONTINGENCIES - NOTE 7
SHAREHOLDERS' EQUITY
Common stock (shares issued, 83) 83 83
Additional paid-in capital 2,265 2,248
Net unrealized appreciation (depreciation) -
fixed maturities 91 (122)
Net unrealized appreciation - equity securities 64 141
Net translation of foreign currencies (30) (27)
Retained earnings 4,289 4,052
Less treasury stock, at cost (575) (564)
- -----------------------------------------------------------------------------------------
Total shareholders' equity 6,187 5,811
- -----------------------------------------------------------------------------------------
Total $ 88,847 $ 86,102
- --------------------------------------------------=======================================
SHAREHOLDERS' EQUITY PER SHARE $ 85.45 $ 80.46
- --------------------------------------------------=======================================
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
2
<PAGE> 5
CIGNA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1995 1994
=================================================================================================
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 290 $ 114
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Insurance liabilities 142 188
Reinsurance recoverables (12) (13)
Premiums, accounts and notes receivable 256 302
Accounts payable, accrued expenses,
other liabilities and current income
taxes 46 40
Deferred income taxes, net 76 2
Realized investment gains (182) (21)
Other, net (141) (67)
----------- -----------
Net cash provided by operating
activities 475 545
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from investments sold:
Fixed maturities - available for sale 1,531 1,476
Fixed maturities - held to maturity - -
Equity securities 975 227
Mortgage loans 102 135
Other (primarily short-term investments) 3,261 4,795
Investment maturities and repayments:
Fixed maturities - available for sale 251 516
Fixed maturities - held to maturity 589 834
Mortgage loans 57 48
Investments purchased:
Fixed maturities - available for sale (3,130) (2,204)
Fixed maturities - held to maturity (323) (744)
Equity securities (63) (209)
Mortgage loans (190) (186)
Other (primarily short-term investments) (3,874) (4,999)
Other, net (28) (32)
----------- -----------
Net cash used in investing activities (842) (343)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Deposits and interest credited to contractholder
deposit funds 2,424 1,370
Withdrawals from contractholder deposit funds (1,455) (1,432)
Net change in commercial paper (46) (41)
Issuance of long-term debt 47 144
Repayment of debt - (20)
Dividends paid (53) (55)
----------- -----------
Net cash provided by (used in)
financing activities 917 (34)
----------- -----------
Effect of foreign currency rate changes on cash - 2
- -------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 550 170
Cash and cash equivalents, beginning of period 1,693 1,211
- -------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 2,243 $ 1,381
- -----------------------------------------------------------======================================
Supplemental Disclosure of Cash Information:
Income taxes paid, net of refunds $ 26 $ 154
Interest paid $ 42 $ 36
- -------------------------------------------------------------------------------------------------
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
<PAGE> 6
CIGNA CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1-BASIS OF PRESENTATION
The consolidated financial statements include the accounts of CIGNA Corporation
and all significant subsidiaries (CIGNA). These consolidated financial
statements have been prepared in conformity with generally accepted accounting
principles. Certain reclassifications have been made to conform with the 1995
presentation.
The interim financial statements are unaudited but include all adjustments
(consisting of normal recurring adjustments) necessary, in the opinion of
management, for a fair statement of financial position and results of
operations for the periods reported.
The preparation of interim financial statements necessarily relies heavily on
estimates. This and certain other factors, such as the seasonal nature of
portions of the insurance business as well as competitive and other market
conditions, call for caution in drawing specific conclusions from interim
results.
NOTE 2-NEW ACCOUNTING PRONOUNCEMENTS
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. 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. In accordance with these standards, a mortgage
loan is considered to be impaired when it is probable that CIGNA will be unable
to collect all amounts due according to the contractual terms of the loan
agreement. CIGNA adopted SFAS Nos. 114 and 118 in the first quarter of 1995,
which resulted in an $8 million increase in net income.
In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 121
requires write-down to fair value when long-lived assets to be held and used
are impaired. Long-lived assets to be disposed, including real estate held for
sale, must be carried at the lower of cost or fair value less costs to sell.
In addition, SFAS No. 121 prohibits depreciation of long-lived assets to be
disposed. SFAS No. 121 must be implemented by the first quarter of 1996 with
the cumulative effect of implementation for assets being held for disposal
reported in net income. CIGNA has not determined the timing or effect of
adoption of this standard; however, the effect is not expected to be material.
4
<PAGE> 7
NOTE 3-INVESTMENTS
REALIZED GAINS AND LOSSES
Realized gains and losses on investments, excluding policyholder share, were as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
(in millions) 1995 1994
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Realized gains (losses):
Fixed maturities $7 $16
Equity securities 153 4
Mortgage loans 9 --
Real estate 12 (1)
Other investments 1 2
--------------------
182 21
Income taxes 38 7
- ---------------------------------------------------------------------------------------
Net realized gains $144 $14
- -------------------------------------------------------------------====================
</TABLE>
FIXED MATURITIES
During the first quarter of 1995 and 1994, proceeds from sales of
available-for-sale fixed maturities and equities, including policyholder share,
were $2.5 billion and $1.7 billion, respectively. The 1995 sales resulted in
gross gains of $180 million and gross losses of $19 million. The 1994 sales
resulted in gross gains of $56 million and gross losses of $47 million.
During the first quarter of 1995, $87 million of fixed maturities classified as
held to maturity were transferred to the available for sale category, resulting
in the recognition in Shareholders' Equity of unrealized depreciation of $5
million, net of taxes, as of March 31, 1995. Such transfers were the result of
significant credit deterioration of the issuers of the affected investments.
There were no sales of held-to-maturity fixed maturities during the first
quarter of 1995 or 1994.
During the first quarter of 1995 and 1994, Net Unrealized Appreciation - Fixed
Maturities included in Shareholders' Equity, which is net of policyholder share
and deferred income taxes, increased by approximately $213 million and
decreased by approximately $490 million, respectively.
MORTGAGE LOANS
As of March 31, 1995, CIGNA's total investment in impaired mortgage loans was
$991 million, including $613 million, before valuation reserves totalling $112
million, and $378 million which had no valuation reserves. During the first
quarter of 1995, valuation reserves for mortgage loans, including policyholder
share, decreased from $179 million as of December 31, 1994 to $112 million as
of March 31, 1995. The net decrease for the quarter reflects: (1) a $13
million net decrease in valuation reserves, (2) $16 million of charge-offs, and
(3) $38 million of reserves transferred to real estate for foreclosed mortgage
loans that were reclassified to real estate investments.
For the first quarter of 1995, the average recorded investment in impaired
mortgage loans (average calculated using impaired mortgage loans, before
reserves, as of the beginning and end of the period) was approximately $1.2
billion, and interest income recorded on these loans was
5
<PAGE> 8
approximately $17 million ($12 million was recorded on a cash basis and $5
million was recorded on an accrual basis).
NOTE 4-EARNINGS PER SHARE
Earnings per share were based on net income divided by weighted average common
shares, including common share equivalents, as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
(in thousands) 1995 1994
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Weighted average common shares - primary 72,441 72,199
Weighted average common shares - fully diluted 76,119 75,826
- ---------------------------------------------------------------------------------------
</TABLE>
For purposes of computing fully diluted earnings per share, CIGNA's 8.2%
Convertible Subordinated Debentures are considered to have been converted to
CIGNA common stock (3.6 million shares as of March 31, 1995 and 1994) and the
related interest expense, $3 million after-tax, has been excluded from net
income for the three months ended March 31, 1995 and 1994.
Common shares held as Treasury shares were 10,912,241 and 10,702,522 as of
March 31, 1995 and 1994, respectively.
NOTE 5-INCOME TAXES
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. One issue, relating only
to years prior to 1989, could result in an assessment of approximately $185
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.
As of March 31, 1995, CIGNA had tax basis operating loss carryforwards of $350
million.
NOTE 6-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
$440 million and $435 million as of March 31, 1995 and December 31, 1994,
respectively. While future charges for unrecoverable reinsurance may
materially affect results of operations in future
6
<PAGE> 9
periods, such amounts are not expected to have a material adverse effect on
CIGNA's liquidity or financial condition.
For the first quarter of 1995 and 1994, premiums and fees were net of ceded
premiums of $395 million and $492 million, respectively. In addition,
benefits, losses and settlement expenses for the first quarter of 1995 and 1994
were net of reinsurance recoveries of $280 million and $603 million,
respectively.
NOTE 7-CONTINGENCIES AND OTHER MATTERS
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. 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.
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 this year. 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 will 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 environmental pollution liabilities,
including estimates based on a market share analysis and estimates reached by
analyzing profiles of specific policyholders and the policy coverages and
limits issued to them historically. 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 formation and operation of efficient health care networks. Due
to uncertainties
7
<PAGE> 10
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. At March 31, 1995, 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.
The eventual effect on CIGNA of the changing environment in which it operates
remains uncertain.
ASBESTOS-RELATED, ENVIRONMENTAL POLLUTION AND OTHER LONG-TERM EXPOSURE CLAIMS
Reserving for asbestos-related, environmental pollution and certain other
long-term exposure claims is subject to significant uncertainties that are not
generally present for other types of claims, as described in CIGNA's 1994 Form
10-K. 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
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. Reinsurance for these types of claims
may become subject to similar contested coverage issues.
CIGNA expects that its future results of operations 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 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.
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.
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 above) 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
recoverables by amounts that would be material to results of operations,
liquidity or financial condition.
8
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The following discussion addresses the financial condition of CIGNA Corporation
(CIGNA) as of March 31, 1995, compared with December 31, 1994, and its results
of operations for the three months ended March 31, 1995, compared with the same
period last year. This discussion should be read in conjunction with the
Management's Discussion and Analysis section included in CIGNA's 1994 Annual
Report to Shareholders (pages 8 through 23), to which the reader is directed
for additional information. Due to the seasonality of certain aspects of
CIGNA's business, caution should be used in estimating results for the full
year based on interim results of operations.
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. The eventual
effect on CIGNA of the changing environment in which it operates remains
uncertain. For more detailed information on these and other contingencies, see
Note 7 to the Financial Statements. Also, see Note 5 regarding proposed IRS
assessments of approximately $315 million. CIGNA is currently contesting the
assessments and believes it should prevail.
In early 1995, A.M. Best Company, Inc. ("Best") assigned the rating of A-,
which is under review with "developing implications," to CIGNA's new domestic
property and casualty pool group and downgraded its other pool of companies to
a B+ rating, which is under review with "negative implications". CIGNA is
working to remove the "under review" status of the ratings for its property and
casualty companies.
During 1993, CIGNA restructured the operations of 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 the elimination of certain payroll and lease costs in future years.
As of March 31, 1995, there were no material changes to the costs associated
with, or the anticipated annual savings related to, these initiatives.
As a result of premium declines in its domestic property and casualty
operations, CIGNA will continue assessing ways to reduce operating expenses.
Additional costs and potential savings related to any such actions cannot be
reasonably estimated at this time. Costs associated with these actions could
be material to CIGNA's results of operations; however, they are not expected to
have a material adverse effect on its liquidity or financial condition.
Based on a review of its business strategies, CIGNA substantially withdrew from
the property and casualty reinsurance business in late 1994. 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 the first quarter of 1995, CIGNA adopted Statement of Financial Accounting
Standards (SFAS) No. 114, "Accounting by Creditors for Impairment of a Loan"
and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan -- Income
Recognition and Disclosures," which resulted in an $8 million increase in
after-tax realized investment results. SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
was issued in the first quarter of 1995, and is effective for 1996 financial
statements. CIGNA has not yet determined the timing or effect of adoption of
this standard; however, the effect is not expected to be material. See Note 2
to the Financial Statements for additional information.
9
<PAGE> 12
CONSOLIDATED RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
========================================================================================================
FINANCIAL SUMMARY THREE MONTHS
ENDED MARCH 31,
(In millions) 1995 1994
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Premiums and fees $3,418 $3,366
Net investment income 1,027 992
Other revenues 127 152
Realized investment gains 182 21
Total revenues 4,754 4,531
Benefits and expenses 4,352 4,361
Income before taxes 402 170
Income taxes 112 56
Net income $290 $114
========================================================================================================
Realized investment gains, net of taxes $144 $14
========================================================================================================
</TABLE>
CIGNA's first quarter 1995 consolidated net income increased significantly from
the same period last year. Excluding after-tax realized investment gains,
earnings were $146 million, compared with $100 million for 1994. This
improvement primarily reflects lower losses in the Property and Casualty
segment.
After-tax realized investment gains increased significantly due to higher gains
on sales of equity securities resulting from a restructuring of a portion of
CIGNA's investment portfolio into fixed income securities, and, to a lesser
extent, higher gains on sales of real estate investments and a decrease in new
loss reserves, primarily for mortgage loans. For additional information, see
Note 3 to the Financial Statements.
Consolidated revenues, excluding realized investment gains, increased slightly
from the same period last year, primarily reflecting higher premiums and fees
for the Employee Life and Health Benefits and Individual Financial Services
segments, partially offset by lower premiums and fees for the Property and
Casualty segment.
Full year results for 1995 are expected to improve, compared with 1994.
However, such improvement could be materially affected by adverse developments
in the property and casualty operations, including major catastrophes, and the
effects, if any, of potential legislative actions.
10
<PAGE> 13
EMPLOYEE LIFE AND HEALTH BENEFITS
<TABLE>
<CAPTION>
==================================================================================================================
FINANCIAL SUMMARY THREE MONTHS
ENDED MARCH 31,
(In millions) 1995 1994
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Premiums and fees $2,065 $1,968
Net investment income 136 128
Other revenues 83 69
Realized investment gains 88 8
Total revenues 2,372 2,173
Benefits and expenses 2,126 1,985
Income before taxes 246 188
Income taxes 61 63
Net income $185 $125
==================================================================================================================
Realized investment gains, net of taxes $81 $6
==================================================================================================================
</TABLE>
Net income for the Employee Life and Health Benefits segment increased 48% for
the first quarter of 1995, compared with the same period last year. Excluding
after-tax realized investment gains, income for the first quarter of 1995 was
$104 million, compared with $119 million for the same period last year, a
decline of 13%. This decrease reflects declines in earnings of $13 million and
$2 million for the segment's indemnity operations and HMO operations,
respectively. The decline in the indemnity business is primarily due to
unfavorable claim experience, including a $6 million after-tax effect from
long-term disability business. The HMO decline is primarily due to lower
margins in certain locations resulting from cost pressures and mandated
California Medicaid rate reductions. Partially offsetting these factors were
increased earnings of approximately $7 million attributable to membership
growth.
Premiums and fees for the first quarter of 1995 increased 5% from the same
period last year. This improvement reflects an increase of $74 million in
group indemnity businesses due to new sales and rate increases for the medical
and life insurance lines of business. The increase also reflects higher
premiums and fees for HMOs due to membership growth, partially offset by the
effect on rates of lower medical costs. Growth in premiums is expected to be
constrained by competitive pressures in both the medical indemnity and HMO
markets and declining medical costs.
Total HMO membership increased 18%, compared with March 31, 1994, and 8%,
compared with December 31, 1994. Approximately 85% of membership growth in the
first quarter of 1995 was 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. Adjusted premiums and fees for the first quarter of 1995 were
approximately $4.6 billion, an increase of approximately $120 million, compared
with the same period last year. This increase primarily reflects the factors
noted previously for premiums and fees. Premium equivalents, as a percentage
of total adjusted premiums and fees, were 55% and 56% for the first quarters of
1995 and 1994, respectively. Administrative Services Only (ASO) plans
accounted for 45% and 46% of total adjusted premiums and fees for the first
quarters of 1995 and 1994, respectively.
11
<PAGE> 14
EMPLOYEE RETIREMENT AND SAVINGS BENEFITS
<TABLE>
<CAPTION>
==================================================================================================================
FINANCIAL SUMMARY THREE MONTHS
ENDED MARCH 31,
(In millions) 1995 1994
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Premiums and fees $42 $43
Net investment income 424 450
Realized investment gains (losses) 3 (3)
Total revenues 469 490
Benefits and expenses 394 422
Income before taxes 75 68
Income taxes 24 22
Net income $51 $46
==================================================================================================================
Realized investment gains (losses), net of taxes $2 ($2)
==================================================================================================================
</TABLE>
Net income for the Employee Retirement and Savings Benefits segment increased
11% for the first quarter of 1995, compared with the same period of 1994.
Excluding after-tax realized investment results, income for the first quarter
of 1995 was $49 million, compared with $48 million for the same period last
year. This improvement primarily reflects the favorable effects on earnings
from asset growth.
Premiums and fees for the first quarter of 1995 decreased slightly from the
same period last year. Net investment income declined 6% for the first quarter
of 1995, compared with the same period last year, primarily reflecting the
effects of lower yields on invested assets.
Assets under management is generally a key determinant of earnings for this
segment. For the quarter ended March 31, assets under management and related
activity, including amounts attributable to separate accounts, were as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
(in millions) 1995 1994
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance -- January 1 $33,882 $34,469
Premiums and deposits 1,213 722
Investment results 586 578
Increase (decrease) in fair value of assets 515 (524)
Customer withdrawals (673) (864)
Benefit payments and other (559) (442)
- ------------------------------------------------------------------------------------------------------------------
Balance -- March 31 $34,964 $33,939
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Approximately 60% and 54% of the premiums and deposits for 1995 and 1994,
respectively, were from new customers. The increase for 1995 in the fair value
of assets primarily reflects market appreciation for both equity securities and
fixed maturities.
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 $300
million to be made on several large contracts that will mature in 1995. In
addition, the fair value of assets under management will be affected by any
future change in interest rates.
12
<PAGE> 15
INDIVIDUAL FINANCIAL SERVICES
<TABLE>
<CAPTION>
==================================================================================================================
FINANCIAL SUMMARY THREE MONTHS
ENDED MARCH 31,
(In millions) 1995 1994
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Premiums and fees $209 $183
Net investment income 226 169
Other revenues 12 16
Realized investment gains 3 2
Total revenues 450 370
Benefits and expenses 399 328
Income before taxes 51 42
Income taxes 18 14
Net income $33 $28
==================================================================================================================
Realized investment gains, net of taxes $2 $2
==================================================================================================================
</TABLE>
Net income for the Individual Financial Services segment increased 18% for the
first quarter of 1995, compared with the same period of 1994. Excluding
after-tax realized investment results, income was $31 million for the first
quarter 1995 and $26 million for the same period last year, a 19% increase.
The increase is due to favorable claim experience and higher earnings from
interest-sensitive products, primarily reflecting business growth.
For the first quarter of 1995, premiums and fees increased 14% and net
investment income increased 34% from the same period of 1994. These increases,
as well as the 22% increase in benefits and expenses, reflect growth in
business, primarily of interest-sensitive products (principally corporate-owned
life insurance).
13
<PAGE> 16
PROPERTY AND CASUALTY
<TABLE>
<CAPTION>
==================================================================================================================
FINANCIAL SUMMARY THREE MONTHS
ENDED MARCH 31,
(In millions) 1995 1994
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Premiums and fees $1,102 $1,172
Net investment income 189 194
Other revenues 59 57
Realized investment gains 68 22
Total revenues 1,418 1,445
Benefits and expenses 1,386 1,577
Income (loss) before taxes 32 (132)
Income taxes (benefits) 6 (52)
Net income (loss) $26 ($80)
==================================================================================================================
</TABLE>
Results for the Property and Casualty segment for the periods presented above
included the following after-tax (charges)/benefits (in millions).
<TABLE>
<S> <C> <C>
Realized investment gains $45 $14
Prior year development:
Asbestos and environmental (45) (44)
Other (15) --
Catastrophe losses (10) (85)
Underlying operations 51 35
--------------------------
Net income (loss) $26 ($80)
==========================
</TABLE>
The improvement in "Underlying operations" for the first quarter of 1995,
compared with the same period last year, 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. Although its
results are improving, CIGNA's domestic business continues to reflect the
highly competitive pricing environment.
Pre-tax catastrophe losses, net of reinsurance, ("catastrophe losses") were $16
million and $130 million for the first quarter of 1995 and 1994, respectively.
Catastrophe losses for the first quarter of 1994 included $97 million for the
Los Angeles earthquake and $35 million for the severe winter weather. The
effects of reinsurance on catastrophe losses for the first quarter of 1995 and
1994 were not material.
Premiums and fees in the first quarter of 1995 decreased 6%, compared with the
same period last year. This decline primarily reflects a decrease of
approximately $98 million for CIGNA's domestic commercial business due to
continued competition, the application of stricter underwriting standards and,
to a lesser extent, conversions of workers' compensation business from standard
risk transfer to high-deductible policies, and the ratings downgrade by Best.
In addition, the decline reflects lower premiums and fees from the reinsurance
business ($36 million) due to CIGNA's withdrawal from this business late in
1994. The decline was partially offset by growth in international lines of
business ($71 million). Premiums and fees are expected to continue to be
depressed through 1995 for the reasons noted above; however, CIGNA does not
expect the effect of the premium decline to be material to its future results
of operations, liquidity or financial condition.
14
<PAGE> 17
Net investment income decreased 3% in the first quarter of 1995, compared with
the same period last year, primarily reflecting negative cash flows in the
domestic property and casualty operations.
LOSS RESERVES AND REINSURANCE RECOVERABLES
CIGNA's reserving methodology and significant issues affecting the estimation
of loss reserves are described in its 1994 Form 10-K.
In summary, CIGNA's loss reserves of $16.7 billion and $16.8 billion as of
March 31, 1995 and December 31, 1994, respectively, 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.
The following table shows the adverse (favorable) pre-tax effects on CIGNA's
results of operations from prior year development, net of reinsurance, for the
three months ended March 31:
<TABLE>
<CAPTION>
====================================================================================================================
(Dollars in millions) 1995 % 1994 %
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Asbestos-related $21 23 $3 4
Environmental pollution 48 52 64 94
Unrecoverable reinsurance 18 19 8 12
Other 6 6 (7) (10)
- --------------------------------------------------------------------------------------------------------------------
Total $93 100 $68 100
====================================================================================================================
</TABLE>
15
<PAGE> 18
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.
The majority of CIGNA's losses and legal expenses for asbestos-related,
environmental pollution and other long-term exposure claims arise from its
domestic property and casualty operations. As of March 31, 1995 and December
31, 1994, approximately 1,190 and 1,175 policyholders, respectively, had
asbestos-related claims outstanding with the domestic operations. CIGNA
continues to litigate certain asbestos-related coverage issues, with 31
lawsuits pending as of March 31, 1995, compared with 37 pending as of December
31, 1994. It is not possible to determine CIGNA'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.
The domestic operations had approximately 15,500 environmental pollution files
outstanding at March 31, 1995, compared with 15,000 at December 31, 1994. 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 454 coverage lawsuits as of March 31, 1995, compared with 450 as of
December 31, 1994. Accordingly, and because of the many unresolved legal and
factual issues related to environmental pollution cases, liabilities for these
types of claims cannot be estimated based on the number of environmental
pollution files outstanding.
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 this year. 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.
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.
The American Academy of Actuaries has initiated a project to develop standards
for estimating currently unquantifiable liabilities. The project will 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 environmental pollution liabilities,
including estimates based on a market share analysis and estimates reached by
analyzing profiles of specific policyholders and the policy coverages and
limits issued to them historically. 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.
For the reasons discussed in Note 16 to the 1994 Financial Statements and in
the 1994 Form 10-K, CIGNA expects that its future results 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 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 for these types of claims and, therefore, is
unable to determine whether such amounts will be material to its future results
of operations, liquidity or financial condition.
16
<PAGE> 19
Other prior year development in 1995 was primarily attributable to other
long-term exposure claims and workers' compensation, partially offset by
favorable reserve development on domestic property and aviation lines of
business. For the comparable period in 1994, other prior year development was
primarily attributable to favorable reserve development on the domestic
property line of business, partially offset by losses, primarily for long-term
exposure claims.
CIGNA's reinsurance recoverables were approximately $7 billion and $7.1 billion
as of March 31, 1995 and December 31, 1994, net of allowances of $440 million
and $435 million, respectively.
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 are principally due to the failure of
reinsurers to indemnify CIGNA, primarily because of reinsurer insolvencies and
disputes under reinsurance contracts. 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.
In management's judgement, information currently available has been
appropriately considered in estimating CIGNA's loss reserves and reinsurance
recoverables.
17
<PAGE> 20
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.
Other Operations had losses of $5 million for both the first quarter of 1995
and 1994. After-tax realized investment results for the first quarter of 1995
were gains of $14 million, compared with losses of $6 million for the first
quarter of 1994. Excluding after-tax realized investment results and a $20
million after-tax gain from the 1994 sale of a business, losses were $19
million for both the first quarter of 1995 and 1994.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity for CIGNA and its insurance subsidiaries has remained strong as
evidenced by significant amounts of short-term investments and cash and cash
equivalents in the aggregate. Generally, CIGNA has met its operating
requirements by maintaining appropriate levels of liquidity in its investment
portfolio and through utilization of overall positive cash flows.
For the first quarter of 1995, cash and cash equivalents increased $550 million
from $1.7 billion as of December 31, 1994. This increase primarily reflects
the issuance of long-term debt ($47 million); deposits and interest credited,
net of withdrawals, to contractholder deposit funds ($969 million); 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 ($842
million), primarily net investment purchases ($814 million); and payments of
dividends on CIGNA common stock ($53 million). In addition, cash flow from
operating activities was constrained by negative cash flow of approximately
$270 million from the property and casualty business reflecting claim payments
related to insurance reserves established in prior periods, and operating
losses.
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. CIGNA's financial strength
provides the capacity and flexibility to enable it to raise funds in the
capital markets through the issuance of such securities. CIGNA continues to be
well capitalized, with sufficient borrowing capacity to meet the anticipated
needs of its businesses.
CIGNA had $1.43 billion of long-term debt outstanding at March 31, 1995,
compared with $1.39 billion at December 31, 1994. This increase primarily
reflects issuance in the first quarter of $25 million of 8.16% Notes due in
2000 and $20 million of 8.76% medium-term notes. The proceeds from these
issuances were used for general corporate purposes. As of March 31, 1995,
CIGNA had approximately $820 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.
At March 31, 1995, CIGNA's short-term debt, primarily commercial paper,
amounted to $232 million, a decrease of $39 million from December 31, 1994.
CIGNA contributed approximately $250 million of capital during 1994 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.
18
<PAGE> 21
INVESTMENT ASSETS
<TABLE>
<CAPTION>
==================================================================================================================
MARCH 31, DECEMBER 31,
(In millions) 1995 1994
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Fixed maturities: at fair value $20,488 $18,521
Fixed maturities: at amortized cost 11,959 12,296
Equity securities 975 1,806
Mortgage loans 9,902 9,970
Real estate 1,666 1,747
Other 7,266 6,579
- ------------------------------------------------------------------------------------------------------------------
Total investment assets $52,256 $50,919
==================================================================================================================
</TABLE>
Additional information regarding CIGNA's investment assets is included in Note
3 to the first quarter 1995 Financial Statements and Notes 1, 3, 4 and 18 to
the 1994 Financial Statements as well as the 1994 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
were as follows:
<TABLE>
<CAPTION>
==================================================================================================================
MARCH 31, DECEMBER 31,
1995 1994
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Fixed maturities 32% 32%
Mortgage loans 57% 57%
Real estate 59% 55%
==================================================================================================================
</TABLE>
19
<PAGE> 22
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 March 31,
1995, fixed maturities classified as available for sale, including policyholder
share, had an aggregate fair value that was greater (less) than amortized cost
by approximately $151 million, compared with approximately ($378) million as of
December 31, 1994. The increase in unrealized appreciation primarily reflects
the downward movement in interest rates since December 31, 1994.
QUALITY RATINGS
Quality ratings for bonds were as follows (shown as a percentage of bonds):
<TABLE>
<CAPTION>
==================================================================================================================
MARCH 31, DECEMBER 31,
1995 1994
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment grade 94% 94%
Below investment grade:
Available for sale 1 1
Held to maturity 5 5
- ------------------------------------------------------------------------------------------------------------------
Total 100% 100%
==================================================================================================================
</TABLE>
The quality ratings of CIGNA's below investment grade bonds (BA and below, or
equivalent) are concentrated toward the higher end of the non-investment grade
spectrum. Approximately 31% of below investment grade securities relate to
policyholder contracts.
PROBLEM BONDS
Bonds that are delinquent or restructured as to terms, typically interest rate
and, in certain cases, maturity date, are considered problem bonds. Problem
bonds, including amounts attributable to policyholder contracts, and related
cumulative write-downs were as follows:
<TABLE>
<CAPTION>
==================================================================================================================
MARCH 31, DECEMBER 31,
(In millions) 1995 1994
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Delinquent bonds $152 $156
Less cumulative write-downs 58 54
-------- --------
94 102
-------- --------
Restructured bonds 266 270
Less cumulative write-downs 65 65
-------- --------
201 205
- ------------------------------------------------------------------------------------------------------------------
Problem bonds $295 $307
==================================================================================================================
</TABLE>
POTENTIAL PROBLEM BONDS
Potential problem bonds are fully current but judged by management to have
certain characteristics that increase the likelihood of problem classification.
Potential problem bonds, including amounts attributable to policyholder
contracts, were $197 million as of March 31, 1995, compared with $141 million
as of December 31, 1994. There were no cumulative write-downs for potential
problem bonds as of March 31, 1995 and December 31, 1994.
20
<PAGE> 23
CUMULATIVE WRITE-DOWNS FOR BONDS
The activity in cumulative write-downs for bonds during the three months ended
March 31 was as follows:
<TABLE>
<CAPTION>
===============================================================================================================================
1995 1994
-------------------------------------- -----------------------------------------
Policy- Policy-
holder holder
(In millions) Contracts CIGNA Total Contracts CIGNA Total
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Beginning balance -- January 1 $50 $73 $123 $54 $69 $123
Additions to cumulative
write-downs 3 3 6 2 2 4
Charge-offs upon sales,
repayments and other (1) -- (1) (2) (1) (3)
Transfers to equity securities (1) -- (1) -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Ending balance -- March 31 $51 $76 $127 $54 $70 $124
===============================================================================================================================
</TABLE>
Included in the total ending balances above as of March 31, 1995 and 1994 were
$4 million and $5 million, respectively, for bonds no longer classified as
problem or potential problem bonds. As of December 31, 1994, such cumulative
write-downs were $4 million.
The adverse after-tax effect of write-downs on CIGNA's net income for the three
months ended March 31, 1995 and 1994 was $2 million and $1 million,
respectively.
During the first quarter of 1995 and 1994, bonds with a carrying value of $2
million and $23 million, respectively, were restructured into equity
securities. As of March 31, 1995 and 1994, CIGNA had cumulative write-downs
for equity securities of $57 million (including $14 million attributable to
policyholder contracts), compared with $83 million (including $40 million
attributable to policyholder contracts). As of December 31, 1994, cumulative
write-downs were $57 million (including $14 million attributable to
policyholder contracts).
21
<PAGE> 24
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 three months ended
March 31 is shown in the following table:
<TABLE>
<CAPTION>
=========================================================================================================================
1995 1994
------------------------------- --------------------------------
Policyholder Policyholder
(In millions) Contracts CIGNA Contracts CIGNA
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net investment income under
original contract terms $6 $9 $6 $11
Less net investment income received 3 4 3 5
------------------------------- --------------------------------
Forgone investment income 3 5 3 6
Tax effect -- (2) -- (2)
- -------------------------------------------------------------------------------------------------------------------------
Net effect of non-accruals $3 $3 $3 $4
=========================================================================================================================
Forgone investment income by
type:
Delinquent bonds $1 $3 $1 $3
Restructured bonds 2 2 2 3
------------------------------- --------------------------------
Forgone investment income 3 5 3 6
Tax effect -- (2) -- (2)
- -------------------------------------------------------------------------------------------------------------------------
Net effect of non-accruals $3 $3 $3 $4
=========================================================================================================================
</TABLE>
22
<PAGE> 25
MORTGAGE LOANS
<TABLE>
<CAPTION>
=================================================================================================================
MARCH 31, DECEMBER 31,
1995 1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Mortgage loans (in millions) $9,902 $9,970
By property type:
Office buildings 37% 37%
Retail facilities 39 39
Apartment buildings 11 11
Hotels 7 7
Other 6 6
Total 100% 100%
=================================================================================================================
</TABLE>
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.
Adverse conditions in real estate markets and more stringent lending practices
by financial institutions have affected scheduled maturities of mortgage loans.
During the first three months of 1995, $283 million of mortgage loans was
scheduled to mature, of which $28 million was paid in full, $80 million was
extended at existing loan rates for a weighted average of 12 months and $137
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 ($28 million - restructured; and $10
million - delinquent). 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.
23
<PAGE> 26
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 March 31, 1995, restructured mortgage loans with a
carrying value of approximately $380 million had their original maturity date
extended, with an average extension of 4 1/2 years. Restructured mortgage
loans generated annualized cash returns averaging approximately 7 1/2% as of
March 31, 1995. During the first quarter of 1995, approximately $70 million of
restructured mortgage loans were reclassified to loans in good standing since
they were performing under the terms of the restructured loan agreement and, at
the time of restructure, such terms were generally equivalent to terms that
CIGNA was willing to accept for a comparable new loan.
Problem mortgage loans, including amounts attributable to policyholder
contracts, and related valuation reserves were as follows:
<TABLE>
<CAPTION>
=================================================================================================================
MARCH 31, DECEMBER 31,
(In millions) 1995 1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Delinquent mortgage loans $173 $249
Less valuation reserves 32 58
-------- --------
141 191
-------- --------
Restructured mortgage loans 584 671
Less valuation reserves 51 66
-------- --------
533 605
- -----------------------------------------------------------------------------------------------------------------
Problem mortgage loans $674 $796
=================================================================================================================
</TABLE>
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 March 31,
1995, substantially all potential problem mortgage loans were fully current
under their original terms. Potential problem mortgage loans, including
amounts attributable to policyholder contracts, and related valuation reserves
were as follows:
<TABLE>
<CAPTION>
==================================================================================================================
MARCH 31, DECEMBER 31,
(In millions) 1995 1994
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Potential problem mortgage loans before reserves $234 $405
Less valuation reserves 29 55
- ------------------------------------------------------------------------------------------------------------------
Potential problem mortgage loans $205 $350
==================================================================================================================
</TABLE>
As discussed in Note 2 to the financial statements, CIGNA adopted SFAS Nos. 114
and 118. CIGNA's problem and potential problem mortgage loans are considered
impaired under this guidance. Implementation of these standards as of January
1, 1995 resulted in a decline of $29 million in valuation reserves for
potential problem mortgage loans, $16 million attributable to policyholder
contracts and $13 million attributable to CIGNA.
24
<PAGE> 27
VALUATION RESERVES FOR MORTGAGE LOANS
The activity in valuation reserves for mortgage loans during the three months
ended March 31 was as follows:
<TABLE>
<CAPTION>
===============================================================================================================================
1995 1994
--------------------------------------- -------------------------------------
Policy- Policy-
holder holder
(In millions) Contracts CIGNA Total Contracts CIGNA Total
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Beginning balance -- January 1 $95 $84 $179 $105 $111 $216
Net increase (decrease) in
valuation reserves (5) (8) (13) 8 2 10
Charge-offs upon repayment
and other (3) (13) (16) (1) (1) (2)
Transfers to real estate (10) (28) (38) -- (4) (4)
- -------------------------------------------------------------------------------------------------------------------------------
Ending balance -- March 31 $77 $35 $112 $112 $108 $220
===============================================================================================================================
</TABLE>
The after-tax effect of the net increase (decrease) in valuation reserves on
CIGNA's net income was a charge (benefit) of ($5) million and $2 million for
the first quarters of 1995 and 1994, respectively.
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 three
months ended March 31 is shown in the following table:
<TABLE>
<CAPTION>
========================================================================================================================
1995 1994
------------------------------- -------------------------------
Policyholder Policyholder
(In millions) Contracts CIGNA Contracts CIGNA
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net investment income under
original contract terms $14 $9 $21 $12
Less net investment income received 10 8 14 7
------------------------------- -------------------------------
Forgone investment income 4 1 7 5
Tax effect -- -- -- (2)
- ------------------------------------------------------------------------------------------------------------------------
Net effect of non-accruals $4 $1 $7 $3
========================================================================================================================
Forgone investment income by
type:
Delinquent mortgage loans $2 $-- $4 $3
Restructured mortgage loans 2 1 3 2
------------------------------- -------------------------------
Forgone investment income 4 1 7 5
Tax effect -- -- -- (2)
- ------------------------------------------------------------------------------------------------------------------------
Net effect of non-accruals $4 $1 $7 $3
========================================================================================================================
</TABLE>
25
<PAGE> 28
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).
Investment real estate, including amounts attributable to policyholder
contracts, and related cumulative write-downs and valuation reserves were as
follows:
<TABLE>
<CAPTION>
==================================================================================================================
MARCH 31, DECEMBER 31,
(In millions) 1995 1994
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Foreclosure properties $1,286 $1,228
Less cumulative write-downs 318 281
Less valuation reserves 62 55
--------- ---------
906 892
--------- ---------
Real estate held for the production of income 809 904
Less valuation reserves 49 49
--------- ---------
760 855
- ------------------------------------------------------------------------------------------------------------------
Investment real estate $1,666 $1,747
==================================================================================================================
</TABLE>
REAL ESTATE WRITE-DOWNS AND RESERVES
The activity in cumulative write-downs and valuation reserves for real estate
during the three months ended March 31 was as follows:
<TABLE>
<CAPTION>
===============================================================================================================================
1995 1994
--------------------------------------- ------------------------------------------
Policy- Policy-
holder holder
(In millions) Contracts CIGNA Total Contracts CIGNA Total
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Beginning balance -- January 1 $212 $173 $385 $239 $160 $399
Additions to cumulative
write-downs 3 1 4 3 -- 3
Net increase in valuation
reserves 4 3 7 1 2 3
Charge-offs upon sales and
other (5) -- (5) (9) (3) (12)
Transfers from mortgage loans 10 28 38 -- 4 4
- -------------------------------------------------------------------------------------------------------------------------------
Ending balance -- March 31 $224 $205 $429 $234 $163 $397
===============================================================================================================================
</TABLE>
The adverse after-tax effect of write-downs and the net increase in valuation
reserves on CIGNA's net income for the three months ended March 31, 1995 and
1994 was $3 million and $1 million, respectively.
26
<PAGE> 29
SUMMARY
The adverse (favorable) 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 three months ended March 31 were as
follows:
<TABLE>
<CAPTION>
=======================================================================================================================
1995 1994
------------------------------- -------------------------------
Policyholder Policyholder
(In millions) Contracts CIGNA Contracts CIGNA
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Write-downs and reserves:
Bonds $3 $2 $2 $1
Mortgage loans (5) (5) 8 2
Real estate 7 3 4 1
- -----------------------------------------------------------------------------------------------------------------------
Total $5 $-- $14 $4
=======================================================================================================================
Non-accruals:
Bonds $3 $3 $3 $4
Mortgage loans 4 1 7 3
- -----------------------------------------------------------------------------------------------------------------------
Total $7 $4 $10 $7
=======================================================================================================================
</TABLE>
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.
27
<PAGE> 30
Part II. OTHER INFORMATION
Item 1. Legal Proceedings.
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 settled in March 1995. CIGNA's portion of the settlement is not
material to its results of operations.
-28-
<PAGE> 31
Item 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting of Shareholders of CIGNA Corporation was held on
April 26, 1995. At the meeting, 65,044,741 shares of Common Stock
were represented and entitled to vote; 72,441,624 shares of Common
Stock were outstanding and entitled to vote. CIGNA shareholders
elected nominees to the Board of Directors, ratified the appointment
of Price Waterhouse as independent accountants for 1995 and approved
the CIGNA Long-Term Incentive Plan by the votes shown in the table
below.
<TABLE>
<CAPTION>
Votes
Votes For Withheld
--------- --------
<S> <C> <C>
Election of nominees to
Board of Directors for
terms expiring in April
1996:
Carol Cox Wait 64,767,986 276,755
Election of nominees to
Board of Directors for
terms expiring in April
1998:
Robert P. Bauman 64,796,463 248,278
Robert H. Campbell 64,795,385 249,356
Charles R. Shoemate 64,801,585 243,156
Louis W. Sullivan, M.D. 64,754,560 290,181
-------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Votes For Votes Against Abstentions
--------- ------------- -----------
<S> <C> <C> <C>
Ratification of Price
Waterhouse as
independent accountants 64,809,611 166,111 69,019
-----------------------
<CAPTION>
Votes For Votes Against Abstentions Broker Non-Votes
--------- ------------- ----------- ----------------
<S> <C> <C> <C> <C>
Approval of CIGNA
Long-Term Incentive
Plan 41,629,883 19,484,902 1,216,850 2,713,106
</TABLE>
-29-
<PAGE> 32
Item 6. Exhibits and Reports on Form 8-K.
(a) See Exhibit Index.
(b) During the quarterly period ended March 31, 1995,
CIGNA filed the following Reports on Form 8-K:
- dated May 2, 1995 containing a news release
regarding its first quarter results;
- dated February 10, 1995 regarding revised
ratings and containing a news release
regarding its year-end 1994 results; and
- dated January 5, 1995 for the purpose of
incorporating certain documents related to
CIGNA's Medium-Term Notes, Series E into the
Registration Statement covering such Notes.
-30-
<PAGE> 33
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed by the undersigned duly
authorized officer, on its behalf and in the capacity indicated.
CIGNA CORPORATION
By /s/ Gary A. Swords
-------------------------
Gary A. Swords
Vice President and Chief
Accounting Officer
Date: May 15, 1995
-31-
<PAGE> 34
Exhibit Index
<TABLE>
<CAPTION>
Method of
Number Description Filing
- ------ ----------- ----------
<S> <C> <C>
10.1 Description of Amendment Filed herewith.
to the CIGNA Corporation
Strategic Performance Plan
10.2 Description of Amendment Filed herewith.
to the CIGNA Corporation
Severance Benefits Plan for
Members of the Executive Group
10.3 Form of Special Retention Filed herewith.
Agreement with certain
executive officers
10.4 Form of Special Deferral Filed herewith.
Agreement with certain
executive officers
10.5 CIGNA Long-Term Incentive Filed as Appendix A
Plan to the Registrant's
Definitive Proxy
Statement on
Schedule 14A dated
March 20, 1995 and
incorporated herein
by reference.
11 Computation of Earnings Filed herewith.
Per Share
12 Computation of Ratio of Filed herewith.
Earnings to Fixed Charges
27 Financial Data Schedule Filed herewith.
</TABLE>
-32-
<PAGE> 1
EXHIBIT 10.1
DESCRIPTION OF AMENDMENT TO THE CIGNA CORPORATION STRATEGIC PERFORMANCE PLAN
The CIGNA Corporation Strategic Performance Plan (As Amended and Restated March
25, 1992) (the "Plan") is amended, effective January 25, 1995, regarding
benefits available in the event of a Termination upon a Change of Control, as
follows:
- - The amount of the payment to a Participant under Section 4.3(d) of the
Plan shall be based upon the total number of SPP Units which a
Participant has outstanding on the date of his or her Termination Upon
a Change of Control; and
- - The amount of such payment for each such SPP Unit shall be the highest
of (1) the target value of each SPP Unit; (2) the SPP Unit value set
by the Committee for the twelve month period preceding the executive's
termination; or (3) the average of the values set by the Committee for
the last two payments of SPP Units preceding the executive's
termination.
<PAGE> 1
EXHIBIT 10.2
DESCRIPTION OF AMENDMENT TO THE CIGNA CORPORATION SEVERANCE BENEFITS PLAN
FOR MEMBERS OF THE EXECUTIVE GROUP
The CIGNA Corporation Severance Benefits Plan for Members of the Executive
Group (As Amended and Restated July 27, 1994) (the "Severance Plan") is
amended, effective January 25, 1995, regarding benefits available in the event
of a Termination upon a Change of Control, as follows:
- - Basic Severance Pay for a Participant shall be equal to one hundred
four (104) weeks of salary.
- - Benefit payments under the Severance Plan to a Participant shall be
reduced or eliminated if payments to the Participant under the
Severance Plan and any other plans or programs maintained by the
Corporation or its subsidiaries would create for such Participant an
excise tax liability under Section 4999 of the Internal Revenue Code
of 1986 (the "Code") for "excess parachute payments" as defined in
Section 280G of the Code; provided that, such reduction or elimination
would result in a higher amount of net payments to the Participant, as
a result of a reduction in, or elimination of, such excise tax
liability. In no event, however, shall the amount of such reduction
or elimination be any more than required to reduce the aggregate
present value of all payments to the Participant which are considered
under Section 280G(b)(2)(A)(i) of the Code to 2.99 times the "base
amount" as defined by Section 280G(b)(3) of the Code.
<PAGE> 1
EXHIBIT 10.3
FORM OF
SPECIAL RETENTION AGREEMENT
This Agreement is dated January 25, 1995, and is between
________________, who resides at _____________________, _______
___________________, (referred to as "Executive") and CIGNA Corporation, 1650
Market Street, Philadelphia, Pennsylvania 19192, a Delaware corporation
(referred to as "CIGNA").
Executive and CIGNA, intending to be legally bound and in
consideration of the promises in this Agreement, mutually agree as follows:
1. RETENTION CONDITIONS. CIGNA shall provide Executive with the benefits
and payments described in paragraphs 2 and 3 below if Executive:
(a) Complies with the provisions of paragraphs 4, 5 and 6
below; and
(b) Remains continuously employed by CIGNA or one of its
subsidiaries, affiliates or successors (collectively, the
"Company") until the Executive's Vesting Date.
(c) For purposes of this Agreement, the Executive's "Vesting Date"
shall be the earliest of the following dates:
(1) January 25, 2000;
(2) The date Executive dies;
(3) The date Executive's employment with the Company
terminates on account of his total and permanent
disability;
(4) The date Executive's employment with the Company
terminates, if the termination is at the Company's
initiative and is not a termination for Cause, as
defined in the CIGNA Corporation Severance Benefits
Plan for Members of the Executive Group (the
"Executive Severance Plan"); or
(5) The date Executive's employment with the Company
otherwise terminates, but only if:
(A) The People Resources Committee of CIGNA's
Board of Directors (the "Committee")
1
<PAGE> 2
determines that, despite the Executive's
termination, his right to the benefits and
payments under this Agreement should vest; or
(B) The termination is a Termination Upon a
Change of Control as described in
subparagraph 1.10(ii) of the Executive
Severance Plan.
2. SUPPLEMENTAL RETIREMENT BENEFITS.
(a) If Executive meets the conditions set forth in paragraph 1,
CIGNA shall pay Executive a supplemental retirement benefit
equal to the amount by which (1) exceeds (2), with:
(1) equal to the benefits Executive would be entitled to
receive under the CIGNA Pension Plan and the CIGNA
Supplemental Pension Plan (the "Pension Plans") if:
(A) the Pension Plans permitted the accrual of
benefits up to a maximum of thirty-five (35),
instead of thirty (30), Years of Credited
Service (as that term is defined in the CIGNA
Pension Plan); and
(B) the Pension Plans treated as eligible
earnings any compensation deferred under the
January 25, 1995, Special Deferral Agreement
between Executive and CIGNA that would have
been eligible earnings under the CIGNA
Supplemental Pension Plan had it been
deferred instead under the Deferred
Compensation Plan of CIGNA Corporation and
Participating Subsidiaries; and
(2) equal to the benefits Executive will actually be
entitled to receive under the Pension Plans.
(b) For purposes of determining Executive's Years of Credited
Service under paragraphs 2(a)(1) and 2(d):
(1) the accrual of service beyond the thirty-year maximum
permitted under the Pension Plans shall not begin
until January 25, 1995 [June 1, 1995 for one
executive]; and
(2) the accrual of Credited Service from and after
January 25, 1995 [or June 1, 1995], shall be based
2
<PAGE> 3
on the U.S. Department of Labor's elapsed time rules,
and Executive shall accrue one month of Credited
Service for each month that he remains continuously
employed by the Company.
(c) Any supplemental retirement benefit payable to Executive (or,
in the event of his death after retirement, to his surviving
spouse) under this paragraph 2 shall be paid at the same time
and in the same manner as benefit payments to Executive (or
his surviving spouse) under the CIGNA Supplemental Pension
Plan.
(d) In the event of a termination of Executive's employment as
described in subparagraph 1(c)(4), the supplemental retirement
benefits under sub-paragraph 2(a) above will be based upon the
Credited Service Executive would have accrued if Executive had
remained employed until January 25, 2000 [or June 1, 2000].
In the event of a termination of Executive's employment as
described in subparagraphs 1(c)(2), (3) or (5), the
supplemental retirement benefits under sub-paragraph 2(a)
above will be based upon the Credited Service Executive has
actually accrued as of his date of termination.
3. SUPPLEMENTAL SURVIVING SPOUSE BENEFITS. If Executive (a) meets the
conditions set forth in paragraph 1; (b) dies while employed by the Company;
(c) dies on or after the date he reaches age fifty-five (55); and (d) is
survived by a spouse to whom he has been married for at least the twelve-month
period ending on his date of death (his "Spouse"), then CIGNA shall pay his
Spouse a supplemental surviving spouse benefit equal to the amount by which (1)
exceeds (2), with:
(1) equal to the benefits his Spouse would receive under the
Pension Plans and paragraph 2 of this Agreement if Executive
had retired from the Company on the day before he died and met
the condition in subparagraph 1(b); and
(2) equal to the benefits his Spouse will actually be entitled to
receive under the Pension Plans.
Any supplemental surviving spouse benefit payable to Executive's Spouse under
this paragraph 3 shall be paid at the same time and in the same manner as any
benefit payments to the Spouse under the CIGNA Supplemental Pension Plan.
3
<PAGE> 4
4. NON-DISCLOSURE.
(a) Executive shall not at any time during or after the term of
his employment with the Company (other than in the good faith
performance of the duties and responsibilities of his position
with the Company) reveal or make known to any person (other
than the Company) or use for his own benefit (or for the
benefit of any other person or entity unrelated to the
Company) any Company Information made known (whether or not
with the knowledge and permission of the Company) to Executive
by reason of his employment by the Company; provided however,
that after such knowledge, information and materials have
become public knowledge, Executive shall have no further
obligation under this paragraph 4 with respect to same so long
as Executive was in no manner responsible, directly or
indirectly, for permitting such information to become public
knowledge without the consent of the Company.
(b) For purposes of subparagraph 4(a) the term "Company
Information" shall mean any knowledge, information or
materials about the Company's products, services, know-how,
customers, business plans, or confidential information about
financial, marketing, pricing, compensation and other
proprietary matters relating to the Company, whether or not
subject to trademark, copyright, trade secret or other
protection, whether or not developed, devised or otherwise
created in whole or in part by the efforts of Executive, and
whether or not a matter of public knowledge (unless as a
result of authorized disclosure).
(c) Executive shall retain all Company Information which he may
acquire or develop during the term of his employment with the
Company in trust for the sole benefit of the Company.
5. COVENANT TO REPORT. All written materials, records and documents made
by Executive or coming into his possession during the term of his employment
with the Company and concerning the business or affairs of the Company or any
of its affiliates shall be and remain the property of the Company and, upon the
termination of Executive's employment with the Company or upon the request of
the Company, Executive shall promptly deliver the same to the Company.
Executive agrees to render to the Company such reports of the activities
undertaken by Executive or conducted under Executive's direction pursuant
hereto during the term of his employment as the Company may request.
4
<PAGE> 5
6. COVENANT NOT TO COMPETE.
(a) Executive agrees that, during the term of his employment with
the Company and, if he meets the conditions in subparagraphs
1(c)(1), (3), (4) or (5), for a period of twenty-four (24)
months following the termination of his employment with the
Company, he will not, within any part of the United States
where the Company is doing business or has, within the twelve
(12) month period before the termination of his employment,
been actively planning to do business:
(1) engage directly or indirectly, in any capacity
(including but not limited to owner, sole proprietor,
partner, shareholder (unless his holding is for
investment purposes only and is limited to less than
1% of the total combined voting power of all shares),
employee, agent, consultant, officer or director) in
any business which competes with the Company;
(2) solicit or attempt to solicit any customers of the
Company on behalf of such competing businesses,
without prior written consent of the President of the
Company; or
(3) employ, engage for hire, solicit the employment or
engagement for hire, or otherwise attempt to employ
or engage for hire, by or on behalf of any such
competing businesses, without the prior written
consent of the Company, any person who within the
prior twelve (12) month period has been an officer or
employee of the Company, unless such officer or
employee has been terminated by the Company.
(b) The provisions of paragraph 6(a) will be of no force or effect
in the event of Executive's Termination upon a Change of
Control, as defined in the CIGNA Corporation Severance
Benefits Plan for Members of the Executive Group.
7. JUDICIAL REMEDIES.
(a) Executive acknowledges that the Company or its affiliates will
have no adequate remedy at law if Executive violates the terms
of paragraphs 4, 5 and 6. In such event, the Company shall
have the right, in addition to any other rights it may have,
to obtain in any court of competent jurisdiction injunctive
relief
5
<PAGE> 6
to restrain any breach or threatened breach of specific
performance of this Agreement.
(b) If the scope of the restrictions on the Executive under
paragraph 6 are found by a court of competent jurisdiction to
be unreasonably broad and unenforceable, it is the intent of
the parties that the court not void the restrictions but
reformulate them so they are reasonable and enforceable, while
adhering as closely as possible to the original scope of the
restrictions.
8. RECOVERY. If the Executive violates any of the provisions of
paragraphs 4, 5 or 6:
(a) CIGNA shall have no obligation to pay Executive (or
Executive's surviving spouse) any amounts described in
paragraphs 2 or 3 of the Agreement; and
(b) If Executive has already received any payments under paragraph
2, Executive agrees that the amount of such payments shall be
repaid to CIGNA as follows:
(1) CIGNA shall immediately offset such amounts from any
payments which may be owing to the Executive; and
(2) If such offset is insufficient, Executive agrees to
repay any remaining amounts to CIGNA within thirty
(30) days of receipt of CIGNA's written demand for
such repayment. If CIGNA must commence any
arbitration or other legal action to enforce
Executive's obligations under this subparagraph 8(b),
Executive further agrees to pay CIGNA its costs and
attorneys' fees in such action.
9. LIMITED SCOPE. This Agreement is not a contract of employment for any
specified term, and nothing herein is intended to, nor shall be construed as,
changing the nature of Executive's employment from an at-will relationship.
This Agreement is limited to the terms and conditions set forth herein and does
not otherwise address Executive's compensation or benefits, the duties and
responsibilities of his position, or any of the Company's other rights as
employer.
10. The Agreement is made and entered into in the Commonwealth of
Pennsylvania, and at all times and for all purposes shall be interpreted,
enforced and governed under its laws.
6
<PAGE> 7
11. Without in any way affecting the terms of paragraph 7 above, it is
agreed that any controversy or claim arising out of or relating to this
Agreement shall be settled exclusively by arbitration in Philadelphia,
Pennsylvania, in accordance with the Commercial Arbitration Rules of the
American Arbitration Association, and judgment upon the award rendered by the
Arbitrator(s) may be entered in any court having jurisdiction thereof.
12. References in this Agreement to the Executive Severance Plan shall
mean such plan as amended through January 25, 1995, and shall not mean any
subsequent versions of such plan, or any successor plan, unless the Executive
agrees in writing that such subsequent version or successor shall be
applicable.
13. CIGNA's rights and obligations under this Agreement will inure to the
benefit of and be binding upon CIGNA's successors and assigns.
14. The Company's obligations under this Agreement shall be unfunded and
unsecured and shall be paid when due out of the general assets of the Company.
However, the Company's obligations may be funded through the CIGNA Corporation
Benefits Protection Trust or other "rabbi trust" arrangement which is a grantor
trust the assets of which are not subject to the claims of creditors of the
Company, except in the case of bankruptcy or insolvency of the Company.
15. This Agreement contains the entire agreement between Executive and
CIGNA with respect to the matters addressed herein and fully replaces and
supersedes any and all prior agreements or understandings between them related
to such matters. Any amendment to this Agreement must be in writing and signed
by both CIGNA and Executive.
7
<PAGE> 8
IN WITNESS WHEREOF, the persons named below have signed this Agreement
and Release on the dates shown below.
CIGNA Corporation
- -------------------------- ----------------------------
By
----------------------
Date ----------------------------
- -------------------------- ----------------------------
Date ------------------------
8
<PAGE> 1
EXHIBIT 10.4
FORM OF
SPECIAL DEFERRAL AGREEMENT
This Agreement is dated __________, 199_, and is between
________________, who resides at ___________________, _____, __________________
(referred to as "Executive") and CIGNA Corporation, 1650 Market Street,
Philadelphia, Pennsylvania, 19192, a Delaware corporation (referred to as
"CIGNA").
Executive and CIGNA, intending to be legally bound and in
consideration of the promises in this Agreement, mutually agree as follows:
1. (a) Executive agrees and acknowledges that, at the sole and
absolute discretion of the People Resources Committee of
CIGNA's Board of Directors (the "Committee"), the Committee
may direct that payment of all or any part of Executive's
compensation from CIGNA Corporation or any of its subsidiaries
(the "Company"), whether in cash or in shares of CIGNA stock,
and whether in the form of salary, annual incentive awards,
long term incentive awards or any other payments, that:
(i) is not paid under a performance based plan as
described in Section 162(m) of the Internal
Revenue Code (Section 162(m)); and
(ii) exceeds the limits, if any, on deductibility
of compensation to the Executive under
Section 162(m) (the "162(m) limits");
be deferred until the earlier of the calendar year of
Executive's termination of employment with the Company or the
calendar year in which payment of such compensation would be
deductible under Section 162(m).
(b) Any compensation deferred under subparagraph 1(a) will be
credited with interest until the date of payment. The
interest rate for any calendar year shall be equal to one
hundred twenty percent (120%) of the applicable federal
long-term rate for the month of January of the calendar year
for which the interest will be credited, with compounding on a
monthly basis.
(c) Any compensation deferred under subparagraph 1(a) and any
related interest (collectively, the "Deferred Amount") will be
paid to the Executive in a single lump sum in the January
following the date on which Executive's employment with the
Company terminates.
1
<PAGE> 2
(d) Notwithstanding subparagraph 1(c), the Executive may request
payment of the Deferred Amount in ten (10) substantially equal
annual installments with the first installment payable in
January of the year following the date on which Executive's
employment with the Company terminates. The Executive's
request for payment of the Deferred Amount in the form of ten
annual installments shall be made in writing to CIGNA's senior
human resources officer (the "SHRO"). The request must be
received by the SHRO no later than thirteen (13) months before
the date of payment. The Committee may, in its sole and
absolute discretion, waive the thirteen (13) month requirement
set forth above for an Executive whose termination of
employment occurs before January 1, 1996. The SHRO shall
forward any request made under this subparagraph 1(d) to the
Committee, which shall consider any such request. In
determining whether the request should be granted, the
Committee shall consider the Executive's financial needs,
including any other sources of retirement income, and the
needs and financial security of the Executive's dependents.
If the Committee, in its sole and absolute discretion,
determines that the request should be granted, payment of the
Deferred Amount shall be in the form of ten annual
installments.
(e) If any compensation deferred under subparagraph 1(a) results
in a reduction of amounts payable to the Executive under the
Savings and Investment Plus Supplemental Plan or any successor
plan or arrangement (SIP Supplement), the Deferred Amount
described in subparagraph 1(c) will include:
(1) the amount by which (A) exceeds (B) where:
(A) equals the amount of SIP Supplement payments
the Executive would have received after the
effective date of this Agreement had none of
the Executive's compensation been deferred
under subparagraph 1(a); and
(B) equals the actual amount of SIP Supplement
payments the Executive receives after the
effective date of this Agreement; and
(2) interest on the amount in subparagraph 1(e)(1)
computed from the date any applicable SIP Supplement
payment would have been made to the date of actual
payment, at the rate of interest described in
paragraph 1(b).
2
<PAGE> 3
(f) If Executive dies before his termination of employment with
the Company, any Deferred Amount not yet paid to the Executive
will be paid in a lump sum within ninety (90) days of his
death to his surviving spouse or, if she does not survive him,
to his estate.
2. This Agreement is not a contract of employment for any specified term,
and nothing herein is intended to, nor shall be construed as, changing the
nature of Executive's employment from an at-will relationship. This Agreement
is limited to the terms and conditions set forth herein and does not otherwise
address Executive's compensation or benefits, the duties and responsibilities
of his position, or any of the Company's other rights as employer.
3. The Agreement is made and entered into in the Commonwealth of
Pennsylvania, and at all times and for all purposes shall be interpreted,
enforced and governed under its laws.
4. It is agreed that any controversy or claim arising out of or relating
to this Agreement shall be settled exclusively by arbitration in Philadelphia,
Pennsylvania, in accordance with the Commercial Arbitration Rules of the
American Arbitration Association, and judgment upon the award rendered by the
Arbitrator(s) may be entered in any court having jurisdiction thereof.
5. CIGNA's rights and obligations under this Agreement will inure to the
benefit of and be binding upon CIGNA's successors and assigns.
6. The Company's obligations under this Agreement shall be unfunded and
unsecured and shall be paid when due out of the general assets of the Company.
However, the Company's obligations may be funded through the CIGNA Corporation
Benefits Protection Trust or other "rabbi trust" arrangement which is a grantor
trust the assets of which are not subject to the claims of creditors of the
Company, except in the case of bankruptcy or insolvency of the Company.
7. This Agreement contains the entire agreement between Executive and
CIGNA with respect to the matters addressed herein and fully replaces and
supersedes any and all prior agreements or understandings between them related
to such matters. Any amendment to this Agreement must be in writing and signed
by both CIGNA and Executive.
3
<PAGE> 4
IN WITNESS WHEREOF, the persons named below have signed this Agreement
and Release on the dates shown below.
CIGNA Corporation
- -------------------------- ---------------------------
By:
-------------------
Date ----------------------
- -------------------------- ----------------------------
Date ----------------
4
<PAGE> 1
CIGNA CORPORATION EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
(Dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1995 1994
==============================================================================================
<S> <C> <C>
PRIMARY EARNINGS PER SHARE
NET INCOME AVAILABLE TO
COMMON SHARES $ 290 $ 114
- -------------------------------------------------------------=================================
WEIGHTED AVERAGE SHARES:
Common shares 72,310,385 72,106,563
Common share equivalents applicable
to stock options 130,545 92,787
- ----------------------------------------------------------------------------------------------
Total 72,440,930 72,199,350
- -------------------------------------------------------------=================================
PRIMARY EARNINGS PER SHARE $ 4.00 $ 1.58
- -------------------------------------------------------------=================================
FULLY DILUTED EARNINGS PER SHARE
NET INCOME AVAILABLE TO
COMMON SHARES:
Net income $ 290 $ 114
Adjusted for:
Interest expense (net of tax) on
convertible debentures 3 3
- ----------------------------------------------------------------------------------------------
Net income available to common shares $ 293 $ 117
- -------------------------------------------------------------=================================
WEIGHTED AVERAGE SHARES:
Common shares 72,310,385 72,106,563
Common share equivalents applicable
to stock options 182,989 92,787
Assumed conversion of convertible debentures 3,625,956 3,626,395
- ----------------------------------------------------------------------------------------------
Total 76,119,330 75,825,745
- -------------------------------------------------------------=================================
FULLY DILUTED EARNINGS PER SHARE $ 3.85 $ 1.54
- -------------------------------------------------------------=================================
</TABLE>
<PAGE> 1
CIGNA CORPORATION EXHIBIT 12
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in millions)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1995 1994
=================================================================================
<S> <C> <C>
Income before income taxes $ 402 $ 170
------------ ------------
Fixed charges included in income:
Interest expense 32 30
Interest portion of rental expense 23 25
------------ ------------
Total fixed charges included in income 55 55
------------ ------------
Income available for fixed charges $ 457 $ 225
- ----------------------------------------------------=============================
RATIO OF EARNINGS TO FIXED CHARGES 8.3 4.1
- ----------------------------------------------------=============================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
EXHIBIT 27
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS INCLUDED IN ITEM 1 OF PART I TO CIGNA'S REPORT ON FORM 10-Q FOR THE
PERIOD ENDED MARCH 31, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<DEBT-HELD-FOR-SALE> 20,488
<DEBT-CARRYING-VALUE> 11,959
<DEBT-MARKET-VALUE> 12,276
<EQUITIES> 975
<MORTGAGE> 9,902
<REAL-ESTATE> 1,666
<TOTAL-INVEST> 52,256
<CASH> 2,243
<RECOVER-REINSURE> 7,497<F1>
<DEFERRED-ACQUISITION> 1,131
<TOTAL-ASSETS> 88,847
<POLICY-LOSSES> 11,024
<UNEARNED-PREMIUMS> 2,498
<POLICY-OTHER> 18,956
<POLICY-HOLDER-FUNDS> 28,112
<NOTES-PAYABLE> 1,658
<COMMON> 83
0
0
<OTHER-SE> 6,104
<TOTAL-LIABILITY-AND-EQUITY> 88,847
3,418
<INVESTMENT-INCOME> 1,027
<INVESTMENT-GAINS> 182
<OTHER-INCOME> 127
<BENEFITS> 3,197
<UNDERWRITING-AMORTIZATION> 306
<UNDERWRITING-OTHER> 849
<INCOME-PRETAX> 402
<INCOME-TAX> 112
<INCOME-CONTINUING> 290
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 290
<EPS-PRIMARY> 4.00
<EPS-DILUTED> 3.85
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>AMOUNT INCLUDES RECOVERABLES ON PAID AND UNPAID LOSSES.
</FN>
</TABLE>
