<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
------------------------
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
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)
------------------------
<TABLE>
<S> <C>
DELAWARE 06-1059331
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
ONE LIBERTY PLACE, PHILADELPHIA, PENNSYLVANIA 19192-1550
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (215) 761-1000
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<S> <C>
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------- ----------------
Common Stock, Par Value $1; New York Stock Exchange, Inc.
Preferred Stock Pacific Stock Exchange, Inc.
Purchase Rights Philadelphia Stock Exchange, Inc.
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of February 28, 1997, was approximately $11.2 billion.
As of February 28, 1997, 74,020,202 shares of the registrant's Common Stock
were outstanding.
Parts I and II of this Form 10-K incorporate by reference information from
the registrant's annual report to shareholders for the year ended December 31,
1996. Part III of this Form 10-K incorporates by reference information from the
registrant's proxy statement dated March 19, 1997.
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<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PART I
Item 1. Business..................................................................... 1
A. Description of Business................................................... 1
B. Financial Information about Industry Segments............................. 2
C. Employee Life and Health Benefits......................................... 2
D. Employee Retirement and Savings Benefits.................................. 8
E. Individual Financial Services............................................. 11
F. Property and Casualty..................................................... 15
G. Investments and Investment Income......................................... 28
H. Regulation................................................................ 32
I. Ratings.................................................................. 34
J. Miscellaneous............................................................ 36
Item 2. Properties................................................................... 36
Item 3. Legal Proceedings............................................................ 36
Item 4. Submission of Matters to a Vote of Security Holders.......................... 37
Executive Officers of the Registrant.................................................. 37
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters........ 38
Item 6. Selected Financial Data...................................................... 38
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................... 38
Item 8. Financial Statements and Supplementary Data.................................. 38
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure................................................................... 38
PART III
Item 10. Directors and Executive Officers of the Registrant........................... 38
A. Directors of the Registrant.............................................. 38
B. Executive Officers of the Registrant..................................... 38
Item 11. Executive Compensation....................................................... 38
Item 12. Security Ownership of Certain Beneficial Owners and Management............... 38
Item 13. Certain Relationships and Related Transactions............................... 39
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............. 39
Signatures............................................................................ 40
Index to Financial Statement Schedules................................................ FS-1
Index to Exhibits..................................................................... E-1
</TABLE>
<PAGE> 3
PART I
ITEM 1. BUSINESS
A. Description of Business
With shareholders' equity of $7.2 billion and assets of $98.9 billion as of
December 31, 1996 and revenues of $19 billion for the year then ended, CIGNA
Corporation and its subsidiaries constitute one of the largest investor-owned
insurance organizations in the United States and one of the principal United
States companies in the financial services industry. Unless the context
otherwise indicates, the terms "CIGNA" and the "Company," when used herein,
refer to one or more of CIGNA Corporation and its consolidated subsidiaries.
Although CIGNA Corporation is not an insurance company, its subsidiaries are
major providers of group life and health insurance, managed care products and
services, retirement products and services, individual financial services, and
property and casualty insurance. CIGNA is one of the largest international
insurance organizations based in the United States, measured by international
revenues, and one of the largest investor-owned health maintenance organizations
in the United States, based on the number of members. CIGNA's major insurance
subsidiaries, Connecticut General Life Insurance Company ("CG Life") and
Insurance Company of North America ("ICNA"), are among the oldest insurance
companies in the United States, with ICNA tracing its origins to 1792 and CG
Life to 1865. CIGNA Corporation was incorporated in the State of Delaware in
1981.
CIGNA's revenues are derived principally from premiums and fees and
investment income. CIGNA conducts its business through the following operating
divisions, the financial results of which are reported in the following
segments:
Employee Life and Health Benefits Segment (beginning on page 2)
CIGNA HealthCare
CIGNA Group Insurance: Life, Accident, Disability
Employee Retirement and Savings Benefits Segment (beginning on page 8)
CIGNA Retirement & Investment Services
Individual Financial Services Segment (beginning on page 11)
CIGNA Individual Insurance
CIGNA Reinsurance
Property and Casualty Segment (beginning on page 15)
CIGNA Property & Casualty
CIGNA International
Investment results produced by CIGNA Investment Management on behalf of
CIGNA's insurance operations are reported in each segment's results or in Other
Operations. The other businesses of CIGNA Investment Management are described on
page 32, and financial results for these businesses are reported in Other
Operations.
Recent Transaction
On February 27, 1997, CIGNA agreed to conduct a cash tender offer, through
CHC Acquisition Corp., an indirect, wholly owned subsidiary of CIGNA, for all of
the outstanding shares of Healthsource, Inc. ("Healthsource"). The tender offer
was commenced on March 6, 1997, at a price of $21.75 per share. Consummation of
the tender offer is subject to, among other things, at least a majority of the
shares of Healthsource common stock being tendered and not withdrawn prior to
the expiration of the tender offer and the receipt of all applicable regulatory
approvals.
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Healthsource operates health maintenance organizations in 15 states serving
approximately 1.1 million members. Healthsource also provides medical and dental
indemnity products, primarily self-insured products, which cover approximately 2
million and 2.5 million lives, respectively. In addition, Healthsource offers
point of service plans, preferred provider organization plans, utilization
review services, managed workers compensation services, pharmacy benefit
management services and other managed care consulting and administrative
services.
As soon as practicable after the consummation of the tender offer, CIGNA
intends to combine Healthsource's operations with its health care operations.
The combining of CIGNA's health care operations with those of Healthsource
would, among other things, involve consolidating certain operations and
reorganizing other businesses and operations.
B. Financial Information about Industry Segments
All financial information in the tables that follow is presented in
conformity with generally accepted accounting principles ("GAAP"), unless
otherwise indicated. Certain reclassifications have been made to 1995 and 1994
financial information to conform with the 1996 presentation. Industry rankings
and percentages set forth below are for the year ended December 31, 1995, unless
otherwise indicated. Unless otherwise noted, statements set forth in this
document concerning CIGNA's rank or position in an industry or particular line
of business have been developed internally, based on publicly available
information.
Revenues, income (loss) before income taxes, and identifiable assets
attributable to each of CIGNA's business segments and Other Operations are set
forth in Note 17 and those attributable solely to foreign operations are set
forth in Note 18 to CIGNA's 1996 Financial Statements included in its 1996
Annual Report to Shareholders ("Annual Report").
C. Employee Life and Health Benefits
Principal Products and Markets
CIGNA's Employee Life and Health Benefits operations offer a wide range of
traditional indemnity products and services and are a leading provider of
managed care and cost containment products and services.
The following table sets forth the principal products of this segment and
their related net earned premiums and fees.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Indemnity:
Medical................................................... $1,942 $1,973 $1,854
Life...................................................... 1,798 1,754 1,813
Long-term Disability...................................... 426 388 422
Dental.................................................... 397 384 374
Accidental Death and Dismemberment........................ 227 249 253
Short-term Disability..................................... 70 86 93
Other..................................................... 15 20 17
------ ------ ------
Total................................................... 4,875 4,854 4,826
Prepaid Medical and Dental Care............................. 3,466 3,281 3,018
------ ------ ------
Total Premiums and Fees..................................... $8,341 $8,135 $7,844
======= ======= =======
</TABLE>
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Amounts in table do not include "premium equivalents," which are described
below.
CIGNA's Employee Life and Health Benefits customers range in size from some
of the largest United States corporations to small enterprises, and include
employers, multiple employer groups, unions, professional and other
associations, government-sponsored Medicare and Medicaid programs, and other
groups. Products are marketed in all 50 states, the District of Columbia and
Puerto Rico. The segment's products are
2
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generally offered through traditional insurance and alternative funding
arrangements, and through arrangements that combine features of both.
Under traditional insurance funding arrangements, CIGNA charges a premium
and bears the risk for costs incurred. Traditional insurance arrangements may
include products offered on a retrospectively experience-rated basis. These are
arrangements in which the premium may be increased within limits or decreased
based on actual incurred costs of the policyholder over a certain period of time
with either additional premium paid to CIGNA or premium returned to the
policyholder. Further, traditional insurance arrangements include products
offered on a guaranteed-cost basis for which there is no retrospective
adjustment for actual incurred claims. Experience-rated business and
guaranteed-cost business constituted 92% and 8%, respectively, of CIGNA's
traditional insurance business in 1996.
Alternative funding arrangements consist primarily of administrative
services only ("ASO") plans and "minimum premium" programs. Under ASO plans,
CIGNA provides claims processing, health cost containment services (through its
provider networks) or utilization management programs, or a combination of these
services, in exchange for an administrative services fee. The plan sponsor is
responsible for self-funding all claims, but may purchase stop-loss insurance
from CIGNA or other insurers for claims in excess of some predetermined amount
in total or for specific types of claims or both. Minimum premium programs
combine traditional insurance protection with self-funding. The policyholder
self-funds claims up to a predetermined aggregate, maximum amount and CIGNA
bears the risk for claims in excess of that amount. Alternative funding programs
constituted approximately 55% of business volume (premiums and fees plus premium
equivalents) in 1996 and 1995. Premium equivalents generally represent paid
claims under ASO and minimum premium plans and are additional premiums that
would have been earned premium if they had been written as traditional
insurance. Alternative funding programs and their effect on CIGNA's results are
more fully described on page 10 of the Management's Discussion and Analysis
("MD&A") section of CIGNA's Annual Report.
Health Care Products and Services
- -------------------------------------
Based on premiums, including premium equivalents, health care products are
the segment's principal product line. CIGNA provides a wide array of health care
products including, indemnity products, medical cost and utilization management
products and services and comprehensive managed care products, such as:
- health maintenance organizations ("HMOs");
- preferred provider organizations ("PPOs");
- Medicare programs;
- managed dental programs;
- managed mental health and substance abuse products and services; and
- managed pharmacy programs.
This broad spectrum of products allows CIGNA to satisfy a customer's health
benefit needs.
Indemnity Products. At one end of the product spectrum, CIGNA offers medical and
dental indemnity products. These indemnity products place no restrictions on
provider choice. However, because there are no prior arrangements with
physicians or hospitals to control unit costs and limited management over the
utilization of services, the costs of such products are higher than managed care
products. Indemnity products are offered through traditional insurance and
alternative funding arrangements.
Managed Care Products. On the other end of the product spectrum, CIGNA offers
managed care products, including medical, dental and mental health products.
Managed care products promote effective, efficient use of health care services
by coordinating utilization of care and controlling unit costs through provider
contracts. Managed care products are offered on a guaranteed-cost basis (such as
commercial HMOs), on an experience-rated basis and through alternative funding
programs.
3
<PAGE> 6
Health Maintenance Organizations. HMOs are generally the most
cost-efficient form of managed care. CIGNA's HMOs include individual practice
association ("IPA") models, staff models and mixed models. The relationship
between the HMO and the health care providers distinguishes the models. Under an
IPA model, the HMO contracts with independent physicians and hospitals to
provide services. Some physicians and hospitals receive a monthly fixed fee
(capitation) for each HMO member, regardless of the medical services provided to
each member, while most others are paid on a contracted fee for service basis.
IPAs may cover wide geographic areas with low fixed costs, but must rely on
cost-effective contracts with providers and the appropriate utilization
management to influence medical costs. In a staff model, physicians and other
providers are employees of the HMO, and receive their compensation from the HMO.
The HMO either owns or contracts with the medical facilities where the services
are performed. Staff models offer a greater opportunity for direct influence
over medical costs, quality and service, but require more capital investment.
Staff models generally offer lower costs to the consumer, whereas IPAs may offer
broader provider choice. Mixed model HMOs offer participants a choice of staff
and IPA providers.
The table below shows the number of IPA, staff and mixed model HMOs as of
December 31:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
IPA Models........................................... 37 37 37
Staff Models......................................... 3 4 4
Mixed Models......................................... 5 5 5
</TABLE>
As of December 31, 1996, CIGNA's HMO networks included approximately
150,000 physicians and 2,000 hospitals.
To maintain and enhance the quality of health care delivered in its HMOs,
CIGNA has initiated the development of standard performance measurements for
affiliated physicians, hospitals and other providers. CIGNA is also in the
process of seeking accreditation of all of its HMOs by external accrediting
agencies as validation of its quality programs. To date, 89% of CIGNA's HMOs
have been accredited. The remainder are expected to be accredited in 1997.
CIGNA has also contracted with the federal Health Care Financing
Administration ("HCFA") to provide HMO coverage for Medicare beneficiaries.
These contracts provide for a fixed per member per month premium from HCFA based
upon a formula that calculates the projected cost of services for each Medicare
member. These amounts are updated annually, and reflect differences in expected
costs by location, age and other factors, which are predictive of medical costs.
As required by HCFA, CIGNA uses only providers who are part of its existing HMO
networks to provide services to enrolled Medicare members. In addition, CIGNA
has one contract with the state of Arizona to provide HMO coverage to
Medicaid-eligible individuals.
Other Managed Care Products. CIGNA offers managed care dental products
through networks of independent providers in most states. CIGNA also provides
managed mental health and substance abuse coverage and services to HMOs,
insurers and employers through a national network of mental health specialists,
some of whom are employees of CIGNA. Further, CIGNA offers managed pharmacy
benefit programs to HMO and indemnity customers.
In addition to the indemnity and managed care products, CIGNA also offers
products that combine features of both types of products. These products are
PPOs and point-of-service plans.
Preferred Provider Organizations. CIGNA has arrangements with doctors, hospitals
and other independent providers to form PPOs. CIGNA has both medical and dental
PPO networks. Under a typical PPO plan, a participant may choose any health care
provider, and CIGNA reimburses PPO participants at a higher percentage for the
costs of care obtained from contracted providers, who generally charge on a
discounted rate basis, than it does for care obtained from non-contracted
providers. As of December 31, 1996, 1995 and 1994, CIGNA had 86, 80 and 74
medical PPO networks. CIGNA has one national dental PPO network with
approximately 20,000 participating dentists.
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<PAGE> 7
When a medical PPO has a gatekeeper, a contracted primary care physician
("Gatekeeper PPO"), the higher reimbursement level is available only if
participants first consult their contracted primary care physician before
consulting a contracted specialist. As of December 31, 1996, 1995 and 1994,
CIGNA had 34, 29 and 25 Gatekeeper PPO networks.
Point-of-Service Product. Point-of-service products permit participants to use
CIGNA's network providers where services are received generally for a small,
fixed payment (co-pay) or go directly, without a referral, to non-network
providers, subject to certain deductibles and coinsurance that are generally
less favorable than those offered under traditional indemnity arrangements.
Participants in point-of-service plans are considered HMO members for purposes
of the table below.
As of December 31, 1996, CIGNA's HMOs and PPOs (including Gatekeeper PPOs)
served all or part of 43 states, the District of Columbia and Puerto Rico.
CIGNA's managed care and indemnity products covered the following lives for the
periods presented. Covered lives includes participants under traditional and
alternative funding programs.
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------
1996 1995 1994
------ ------ ------
APPROX. APPROX. APPROX.
NO. OF NO. OF NO. OF
COVERED COVERED COVERED
LIVES LIVES LIVES
------ ------ ------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Medical Covered Lives
HMOs:
Guaranteed Cost:
Commercial............................................. 1,148 1,137 1,046
Medicare............................................... 69 56 44
Medicaid............................................... 52 150 149
Experience-rated and alternative-funding (including
Gatekeeper PPOs)....................................... 3,046 2,587 2,262
------ ------ ------
- - -
Total HMOs........................................ 4,315 3,930 3,501
------ ------ ------
- - -
Indemnity:
Medical................................................... 3,392 3,719 4,550
Medical PPO
(excluding Gatekeeper PPOs)............................ 1,178 981 908
------ ------ ------
- - -
Total Indemnity................................... 4,570 4,700 5,458
------ ------ ------
- - -
Total Medical Covered Lives................................. 8,885 8,630 8,959
====== ====== ======
Dental Covered Lives
Dental Managed Care......................................... 2,548 2,290 1,993
Dental Indemnity............................................ 7,901 8,032 8,173
------ ------ ------
- - -
Total Dental Covered Lives.................................. 10,449 10,322 10,166
====== ====== ======
</TABLE>
5
<PAGE> 8
Life, Accident and Disability Insurance Products and Services
- -----------------------------------------------------------------
CIGNA also offers group life insurance, accidental death and dismemberment,
and long-term and short-term disability insurance products and services. These
products are offered under traditional insurance plans and alternative funding
arrangements. Group insurance products are marketed to employers, multiple
employer groups, unions, professional and other associations and other groups.
Group life insurance products offered include both group term life and
group universal life insurance. Approximately 8,000 group life insurance
policies covering approximately 12.7 million lives were outstanding as of
December 31, 1996. The following table shows group life insurance in force and
termination data.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------
1996 1995 1994
---- ---- ----
(DOLLARS IN BILLIONS)
<S> <C> <C> <C>
In force, end of year............................................ $519 $522 $523
==== ==== ====
Cancellations (lapses and expirations)........................... $ 55 $ 51 $ 44
==== ==== ====
</TABLE>
CIGNA markets long-term and short-term disability products in all states
and statutorily required disability plans in certain states. These products
generally provide a fixed level of income to replace a portion of wages lost
because of disability. Disability management services provided by CIGNA help
insurers and employers reduce the cost of their benefit programs. CIGNA provides
personal accident coverages, which consist primarily of accidental death and
dismemberment and travel accident insurance, to employers, associations and
other groups.
Distribution
CIGNA's group sales representatives distribute the indemnity and managed
health care products of this segment through national and other insurance
brokers and insurance consultants. CIGNA also has a dedicated sales force to
sell its Medicare product directly to consumers. Salaried representatives sell
disability management, medical and disability cost containment, and managed
mental health and substance abuse services directly to insurance companies, HMOs
and employer groups. As of December 31, 1996, the field sales force for the
products of this segment consisted of approximately 632 sales representatives in
117 field locations.
Pricing and Reserves
Premiums and fees charged for group indemnity and managed care products
reflect assumptions about future claims, expenses, credit risk, investment
returns, competitive considerations and target profit margins. Premiums and fees
charged for products utilizing networks of contracted providers also reflect
assumptions about the impact of provider contracts and utilization management.
HCFA determines Medicare premiums, and its rate decisions may affect the
product's profit margin. Most of the premium volume for the indemnity business
is established on an experience-rated basis. All other premiums are based on a
guaranteed-cost method. Most contracts permit annual rate adjustments.
In addition to paying current benefits and expenses, CIGNA establishes
reserves in amounts estimated to be sufficient to settle reported claims not yet
paid, as well as claims incurred but not yet reported. Also, reserves are
established for estimated experience refunds based on the results of
retrospectively experience-rated policies.
As of December 31, 1996, approximately $2.4 billion, or 40%, of the
reserves comprise liabilities that will be paid within one year, primarily for
medical and dental indemnity and managed care health claims, as well as group
life claims. The remainder primarily includes liabilities for long-term
disability benefits, group life insurance benefits for disabled and retired
individuals, and benefits paid in the form of annuities to survivors.
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<PAGE> 9
Interest on reserve and fund balances is credited to experience-rated
policyholders through rates that are either set at the Company's discretion or
based on actual investment performance. Generally, for interest-crediting rates
set at the Company's discretion, higher rates are credited to long-term funds
than to short-term funds, reflecting the fact that higher yields are generally
available on investments with longer maturities. For 1996, the rates of interest
credited ranged from 4.5% to 8.0%, with a weighted average rate of 6.1%.
The profitability of medical and dental indemnity and managed care products
is largely dependent upon the accuracy of projections for health care cost
inflation and utilization, the adequacy of fees charged for administration and
risk assumption and, in the case of managed care products, effective medical
cost management. The profitability of other indemnity products depends on the
adequacy of premiums charged relative to claims and expenses, and also, for
disability products, effective medical and rehabilitation management.
CIGNA reduces its exposure to large individual and catastrophe losses under
group life, disability and accidental death contracts by purchasing reinsurance
from unaffiliated insurers.
Competition
Group indemnity insurance and managed care businesses are highly
competitive. No one competitor or small number of competitors is dominant across
the country, although in certain locations some HMOs dominate the sales of
commercial HMO products. A large number of insurance companies and other
entities compete in offering similar products. Competition exists both for
employer-policyholders and for the employees in those instances where the
employer offers employees the choice of products of more than one company. Most
group policies are subject to Company review and renewal on an annual basis, and
policyholders may seek competitive quotations prior to renewal.
The principal competitive factors that affect this segment are price;
quality of service; scope, cost-effectiveness and quality of provider networks;
product responsiveness to customers' needs; cost-containment services; and
effectiveness of marketing and sales. Being responsive to the needs of employee-
consumers as well as of employers is also important. For certain products with
longer-term liabilities, financial strength of the insurer as indicated by
ratings issued by nationally recognized rating agencies is also a competitive
factor. For more information concerning insurance ratings, see "Ratings" on
pages 34 to 36.
The principal competitors of CIGNA's group indemnity and managed care
businesses are the large life and health insurance companies that provide group
insurance, Blue Cross and Blue Shield organizations, stand-alone HMOs, and HMOs
affiliated with major insurance companies and hospitals. Competition also arises
from smaller regional or specialty companies with strength in a particular
geographic area or product line, administrative service firms and, indirectly,
self-insurers.
CIGNA is one of the largest investor-owned providers of group life and
health indemnity insurance, based on premiums and premium equivalents, and one
of the largest investor-owned HMOs, based on the number of members. It is the
leading provider of group accident insurance, and one of the largest providers
of group long-term disability coverages, based on premiums.
Health Care Reform
Federal and state proposals have been made (and, in some states, adopted)
to place limitations on the ability of managed care companies to form and
operate efficient networks of doctors, hospitals and pharmacies. Because the
measures that may ultimately be adopted are not known, CIGNA cannot predict the
effect that these and other health care reforms will have on its business
operations.
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<PAGE> 10
D. Employee Retirement and Savings Benefits
General
CIGNA's Employee Retirement and Savings Benefits businesses provide
investment products and professional services primarily to sponsors of qualified
pension, profit-sharing and retirement savings plans.
Deposits for this segment for the year ended December 31 were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Deposits:
Defined Contribution.................................. $3,895 $3,255 $2,870
Defined Benefit....................................... 1,262 1,422 1,351
Other, including GICs................................. 646 359 166
Investment Advisory Accounts.......................... 41 85 61
------ ------ ------
Total Deposits...................................... $5,844 $5,121 $4,448
====== ====== ======
</TABLE>
Assets under management for this segment as of December 31 were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C>
By Account:
General Account(1):
Guaranteed....................................... $ 4,289 $ 4,489 $ 3,934
Experience-rated................................. 16,048 17,087 16,380
------- ------- -------
20,337 21,576 20,314
Separate Accounts.................................. 19,401 15,784 12,917
Investment Advisory Accounts....................... 849 823 651
------- ------- -------
Total(1)......................................... $40,587 $38,183 $33,882
======= ======= =======
By Plan Type:
Defined Contribution(1)............................ $20,017 $17,741 $14,456
Defined Benefit(1)................................. 18,182 18,077 16,777
Other, including GICs(1),(2)....................... 1,539 1,542 1,998
Investment Advisory Accounts(2).................... 849 823 651
------- ------- -------
Total(1)......................................... $40,587 $38,183 $33,882
======= ======= =======
</TABLE>
- ---------------
Assets under management include assets managed by third-party managers.
(1) Assets under management (Defined Contribution, Defined Benefit and Other,
including GICs in the General Account) reflect unrealized appreciation
(depreciation) of $423 million, $1.0 billion and ($233) million as of
December 31, 1996, 1995 and 1994, respectively.
(2) Other, including GICs and Investment Advisory Accounts also support defined
benefit and defined contribution plans.
Principal Products and Markets
CIGNA offers a broad range of products to both defined benefit and defined
contribution pension plans, profit-sharing plans and retirement savings plans.
CIGNA's primary marketing emphasis is on defined contribution plans, which
provide for participant accounts with benefits based upon the value of
contributions to, and investment returns on, the individual's account. This has
been the fastest growing portion of the pension marketplace in recent years.
Defined contribution plan assets amounted to 49% of assets under
8
<PAGE> 11
management for this segment as of December 31, 1996, compared with 46% as of
December 31, 1995. The second largest category of this segment's assets under
management relate to defined benefit plans, under which annual retirement
benefits are fixed or defined by a benefit formula.
CIGNA sells investment products and investment management services, either
separately or as full-service packages with administrative and other
professional services, to pension plan sponsors. CIGNA markets full-service
products that include investment management and pension services to small,
middle and large market customers. In addition, CIGNA sells products to sponsors
of larger plans that look to more than one entity to provide actuarial,
administrative or investment services and products, or combinations thereof.
For defined contribution plans, principally 401(k) plans, CIGNA markets
products that offer investment management services and plan level and
participant recordkeeping, as well as employee communications, enrollment, plan
design, technological support and other consulting services. For defined benefit
plans, CIGNA offers investment, administrative and professional services,
including recordkeeping, plan documentation, and actuarial valuation and
consulting. Investment management services for CIGNA's defined contribution and
defined benefit products are provided by CIGNA and by third-party managers,
including Fidelity Investments, Warburg Pincus, INVESCO and American Century. A
new broker-dealer operation also offers benefit plan participants a range of IRA
rollover investments and retail brokerage services. In addition, CIGNA offers
single premium annuities, both on guaranteed and experience-rated bases, and
guaranteed investment contracts ("GICs"), which provide guarantees of principal
and interest with a fixed maturity date.
Both defined benefit and defined contribution pension products are
supported by the general asset account ("General Account") and segregated
accounts ("Separate Accounts") of CG Life. The General Account supports both
guaranteed and experience-rated contracts. As of December 31, 1996, General
Account supported contracts accounted for 47% and 52% of the underlying
investments in the defined benefit plans and defined contribution plans,
respectively, compared with 52% and 60% as of December 31, 1995.
Guaranteed contracts comprise single premium annuities and GICs. As of
December 31, 1996, guaranteed single premium annuities accounted for $2.8
billion and GICs accounted for $1.5 billion of this segment's General Account
assets under management, compared with $3.0 billion and $1.5 billion as of
December 31, 1995.
For 1996, the interest rate on reserves for guaranteed single premium
annuities ranged from 3.25% to 12.75%, with a weighted average of 8.65%. The
rate of interest credited in 1996 on CIGNA's GICs ranged from 5.45% to 10.00%,
with a weighted average rate of 7.25%. CIGNA's single premium annuities and GICs
generally do not permit withdrawal by the plan sponsor prior to maturity, except
that GICs permit withdrawal at market value in the event of plan termination.
None of the GICs include renewal clauses. Payouts associated with GICs have not
been material to the Company's liquidity or capital resources.
Experience-rated contracts that are supported by the General Account have
no fixed maturity dates and provide for transfer of net investment experience
(including impairments and non-accruals) to policyholders through credited
interest and termination provisions.
Effective January 1, 1996, credited interest rates for pooled
experience-rated defined contribution contracts are declared in advance for six
months and may be changed at the expiration of the six month period. Pooled
contracts are contracts that are combined for purposes of crediting interest
rates and tracking investment performance. Credited interest rates on other
experience-rated contracts supported by the General Account are generally
declared annually in advance and may be changed prospectively by the Company
from time to time. Credited interest rates reflect investment income and
realized gains and losses. Credited interest rates for 1996 ranged from 6.00% to
9.00%, with a weighted average rate of 6.75%.
The termination provisions of $3.9 billion, or 100%, of the Company's
liability for experience-rated defined benefit contracts supported by the
General Account that are subject to withdrawal, and the termination provisions
of $3.5 billion, or 36%, of the Company's liability for experience-rated defined
contribution contracts supported by the General Account, provide the
policyholder with essentially two options for withdrawal of assets upon election
to terminate: (a) a lump sum at market value; or (b) annual
9
<PAGE> 12
installments. Under the market value option, the Company determines the market
value of the underlying investments by discounting expected future investment
cash flows from investment income (including the effect of non-accruals) and
repayment of principal, including the effect of impaired assets. The discount
rate assumed is based on current market interest rates. Under the installment
option, 100% of the contractholder book value is paid, usually over not more
than 10 years. Interest is credited over the installment period under a formula
designed to pass investment gains and losses (reflecting non-accruals and
impairments) through to policyholders.
The termination provisions of $6.4 billion, or 64%, of the Company's
liability for experience-rated defined contribution contracts (all of which are
pooled) supported by the General Account contain a book value mechanism for
withdrawal at policyholder termination. Under certain circumstances, payout of
book value is subject to deferral and the rate of interest credited during the
deferral period may be reduced for the recovery of investment losses (including
non-accruals and impairments).
The Separate Accounts allow customers the flexibility to invest in specific
portfolios and participate directly in the investment results. Investment
options include publicly traded bonds, private placement bonds, equities, real
estate, mutual funds (managed by third-party managers) and short-term
securities. As of December 31, 1996, Separate Account investments accounted for
53% and 48% of the underlying investments in defined benefit and defined
contribution plans, compared with 48% and 40% as of December 31, 1995. As of
December 31, 1996, approximately $14.9 billion, or 77%, of the assets in the
Separate Accounts support experience-rated contracts under which the risks and
benefits of investment performance generally accrue to the customers, compared
to approximately $11.5 billion, or 73% of assets as of December 31, 1995.
The remaining assets in the Separate Accounts are held under
experience-rated contracts that guarantee a minimum level of benefits. As of
December 31, 1996 and 1995, the amount of minimum benefit guarantees under these
contracts was $4.5 billion and $4.3 billion, respectively. Reserves in addition
to the Separate Account liabilities are established when CIGNA believes a
payment will be required under one of these guarantees. For additional
information, see Note 19 to CIGNA's 1996 Financial Statements included in its
Annual Report.
CIGNA monitors contract termination experience on an ongoing basis. Of
those assets subject to withdrawal, persistency for 1996 was 92% compared with
93% for 1995 and 1994.
Distribution
CIGNA's retirement products and services are distributed primarily through
salaried retirement plan specialists, independent insurance agents and brokers,
pension plan consultants, investment advisors and other service providers. As of
December 31, 1996, the sales organization consisted of 65 retirement plan
specialists and sales associates and 87 client service representatives and
administrative personnel located in offices across the United States. In
addition, a new broker-dealer operation also offers benefit plan participants a
range of IRA rollover investments and retail brokerage services.
Pricing and Reserves
CIGNA establishes reserves for experience-rated contracts in an amount
equivalent to the contractholder funds on deposit with it, including, for
non-pooled contracts, liability for estimated experience refunds based upon the
results of each contract. Profitability on these contracts is based primarily on
margins included in charges for investment and administrative services and risk
assumption. Premiums and fees for annuity products are based on assumptions as
to mortality experience, investment returns, expenses and target profit margins.
For guaranteed-cost contracts, the reserve established is the present value of
expected future obligations based on the same assumptions, with a margin for
adverse deviation. Profitability on guaranteed-cost contracts is affected by the
degree to which future experience deviates from these assumptions.
10
<PAGE> 13
Competition
The retirement plan marketplace is highly competitive. CIGNA's competitors
include mutual funds, other insurance companies, banks, investment advisors, and
certain service and professional organizations. No one competitor or small
number of competitors is dominant. Competition focuses on service, technology,
cost, variety of investment options, investment performance and insurer
financial strength as indicated by ratings issued by nationally recognized
agencies. For more information concerning insurance ratings, see "Ratings" on
pages 34 to 36. Business growth, as measured by assets under management, has
been and is expected to continue to be constrained, as a result of decisions by
retirement plan sponsors to diversify assets and fund management, and lack of
growth in the defined benefit market resulting from customers' preference for
defined contribution products.
The largest single retirement plan manager holds less than a 5% market
share, as measured by assets under management. According to a survey published
in "Pensions & Investments," CIGNA ranked 3rd among insurers, and 17th among
retirement plan managers overall, in terms of pension and employee retirement
savings plan assets under management.
E. Individual Financial Services
Principal Products and Markets
CIGNA's Individual Financial Services businesses market a broad range of
insurance and investment products and services to individuals and corporations.
They also assume reinsurance of certain risks under policies written by other
insurance companies.
The following table sets forth the net earned premiums and fees and
deposits for this segment.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1996 1995 1994
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Premiums and Fees:
Life.............................................. $ 590 $ 585 $ 568
Health............................................ 59 56 55
Reinsurance....................................... 293 240 201
------ ------ ------
Total premiums and fees........................ $ 942 $ 881 $ 824
====== ====== ======
Deposits:
Life.............................................. $1,407 $2,351 $2,349
Annuity........................................... 644 849 659
------ ------ ------
Total deposits................................. $2,051 $3,200 $3,008
====== ====== ======
</TABLE>
11
<PAGE> 14
The following table provides data on sales of new policies and additions to
existing policies, terminations and life insurance in force for this segment,
including assumed reinsurance, and reinsurance ceded to other companies.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1996 1995 1994
-------- -------- --------
(DOLLAR AMOUNTS IN MILLIONS EXCEPT
AVERAGE SIZE POLICY IN FORCE)
<S> <C> <C> <C>
In force, beginning of the year.................. $108,536 $ 93,327 $ 81,273
-------- -------- --------
Sales and Additions(1):
Permanent.................................... 5,445 18,186 15,248
Term......................................... 3,655 3,896 4,291
-------- -------- --------
Total.......................................... 9,100 22,082 19,539
-------- -------- --------
Less Terminations:
Surrenders and conversions................... 4,044 1,625 2,068
Lapses....................................... 2,744 2,962 3,226
Decrease in coverage......................... 1,190 1,700 1,549
Other........................................ 548 586 642
-------- -------- --------
Total.......................................... 8,526 6,873 7,485
-------- -------- --------
In force, end of the year:
Permanent...................................... 89,725 88,656 73,028
Term........................................... 19,385 19,880 20,299
-------- -------- --------
Total(2)..................................... $109,110 $108,536 $ 93,327
========= ========= =========
Reinsurance ceded included above................. $ 41,251 $ 24,754 $ 15,664
========= ========= =========
Number of policies in force:
Participating.................................. 139,739 149,639 113,382
Non-participating.............................. 391,896 392,507 393,818
-------- -------- --------
Total........................................ 531,635 542,146 507,200
========= ========= =========
Average size policy in force:
By type:
Participating.................................. $270,806 $269,450 $256,491
========= ========= =========
Non-participating.............................. $181,853 $173,799 $163,136
========= ========= =========
By division:
CIGNA Individual Insurance..................... $227,324 $215,717 $195,636
========= ========= =========
CIGNA Reinsurance: Life, Accident, Health...... $127,236 $140,254 $142,978
========= ========= =========
By segment:
Individual Financial Services.................. $205,234 $200,200 $184,005
========= ========= =========
</TABLE>
- ---------------
(1) For 1996, all sales and additions were non-participating. For 1995 and 1994,
$11 billion and $10 billion of sales and additions, respectively, were
participating, with the remainder non-participating. For 1996, 1995 and
1994, sales and additions included assumed reinsurance of $1.9 billion, $2.5
billion and $3.3 billion, respectively.
(2) For 1996, 1995 and 1994, total life insurance in force for this segment
included assumed reinsurance of approximately $15.0 billion, $16.4 billion
and $16.6 billion, respectively.
Individual Products
CIGNA's individual insurance products include permanent and term life
insurance, annuities and disability insurance. Term life insurance provides
coverage for a stated period and pays a death benefit only if the insured dies
within the period. Permanent life insurance, offered on a participating or
non-participating
12
<PAGE> 15
basis, provides coverage that does not expire after a term of years and builds a
cash value that may equal the full policy amount if the insured is alive on the
policy maturity date. In participating insurance, policyholders directly
participate in policy earnings through dividends. Non-participating insurance
does not pay dividends, but deviations from assumed experience may be reflected
in the policyholder's future premium payments.
Products that provide permanent coverages include whole life, universal
life and variable universal life. Whole life provides fixed benefits and level
premium payments. For universal life and variable universal life, premiums and
benefits fluctuate with the design of the benefits being funded. Universal life
provides benefits that fluctuate with the amount of variable premiums paid,
mortality and expense charges made, and interest credited to the policy.
Variable universal life provides benefits that also fluctuate with the amount of
variable premiums paid and mortality and expense charges made and, in addition,
with the performance of underlying investments.
CIGNA offers both fixed and variable annuity products. Fixed annuities
accumulate value at a fixed rate of interest on the invested payments. Variable
annuities accumulate value at levels determined by the contractholder's
allocation of payments among a portfolio of mutual funds and fixed rate accounts
and the underlying investment performance of the selected funds (less applicable
expense and contract charges). Annuity sales totaled approximately $645 million
in 1996 and $850 million in 1995. CIGNA also markets a number of individual
investment products (including mutual funds) and fee-based financial planning
services.
Principal markets for life insurance products and services sold to
individuals are affluent executives, professionals and small business owners
(typically with income above $100,000 and net worth of $1.5 million or more).
Annuities are generally marketed to upper-middle to affluent customers of banks
and stock brokerage firms and clients of financial advisors.
Individual insurance products are also sold to corporations to provide
coverage on the lives of certain of their employees. Principal markets for
corporate-owned life insurance ("COLI") are Fortune 1000 companies. The market
and sales volume for COLI products tend to be volatile.
In August 1996, Congress passed tax legislation that has affected premium
and earnings growth of COLI business on which policy loans are outstanding,
including participating COLI universal life business. The legislation phases out
the interest deduction for corporate-owned life insurance policy loans through
1998 and eliminates it thereafter. The effect of this legislation on the income
of the Individual Financial Services segment is not expected to be material
through 1998. Beginning in 1999, the effect of this legislation is uncertain;
however, it could have a material adverse effect on the segment's income. The
effect of this legislation is not expected to be material to CIGNA's
consolidated results of operations, liquidity or financial condition. For
additional information on the impact of the legislation, see page 11 of the MD&A
section of CIGNA's Annual Report.
During 1995 and 1994, the face amount of new sales (as shown in the
preceding table) included participating COLI universal life business on which
policy loans were outstanding of approximately $11 billion and $10 billion,
respectively. There were no new sales of this product in 1996. Changes in
permanent sales and in force, surrenders and conversions, reinsurance ceded, and
the number and average size of participating policies are primarily attributable
to COLI.
As of December 31, 1996 and 1995, approximately 60% and 57%, respectively,
of CIGNA's individual life insurance in force was non-participating permanent,
which includes interest-sensitive products such as universal life.
Interest credited on whole life products is equal to or above a minimum
guaranteed rate. For interest-sensitive products, credited interest rates vary
with the characteristics of each product and the anticipated investment results
of the assets backing these products. Where the credited interest rate exceeds
the guaranteed rate, the excess is used to purchase additional insurance or
increase cash values. Credited interest rates on interest-sensitive products for
1996 ranged from 5.0% to 9.2%, with a weighted average rate of 6.9%.
13
<PAGE> 16
Interest rates for policy loans on individual life insurance products are
defined in the contract and are either variable or fixed. Variable interest
rates are tied to an external index and may be subject to a specified minimum
rate. The interest rates charged to the policyholder on borrowed funds ("loan
rates") are generally greater than the interest rates credited to the
policyholder on those funds, and such loan rates and the related credited
interest rates tend to move in tandem as interest rates fluctuate. A large
portion of the contracts that provide for fixed rates also provide for a
relatively constant spread between the policy loan rate and the related credited
interest rate.
Most life insurance products sold to individuals have surrender charges to
recover policy acquisition costs and to encourage persistency. Persistency for
these products was approximately 95% in 1996, 1995 and 1994.
Reinsurance Products
Reinsurance products sold through this segment include coverages for part
or all of the risks under policies written by other insurance companies for
group life and health; individual life, health and annuity; and special risks,
such as personal accident, catastrophe and workers' compensation coverages. The
principal markets for these products are individual and group life, accident and
health insurers; special risk and workers' compensation units of
property-casualty insurers; companies that offer immediate and deferred
annuities; health care providers; managing general underwriters of health care;
and self-insured employers.
Reinsurance coverages generally extend for the same duration as the
underlying direct policies: from one year or less for group, special risk and
individual life term policies, to time of lapse or expiration at death for
permanent individual life and individual health policies. Most permanent
reinsurance coverages have recapture charges to recover policy acquisition costs
and to encourage persistency.
Distribution
As of December 31, 1996, CIGNA sold individual insurance products primarily
through approximately 600 full-time career agents and through independent agents
and brokers. Corporate-owned life insurance products are sold primarily through
a limited number of brokers. Investment products are sold through the career
agents, who are also registered representatives of a CIGNA broker-dealer.
Annuities are distributed through stockbrokers and banks as well as through the
career agents.
Reinsurance products are sold principally in the United States, Canada,
Europe, Asia and Latin America through a small sales force and through domestic
and foreign intermediaries.
Pricing, Reserves and Reinsurance
Premiums for life and disability insurance, annuities and assumed
reinsurance are based on assumptions about mortality, morbidity, persistency,
expenses and target profit margins as well as interest rates and competitive
considerations. The long-term profitability of individual products is affected
by the degree to which future experience deviates from these assumptions. Fees
for universal life insurance products consist of mortality, administrative and
surrender charges assessed against the policyholder's fund balance. Interest
credited and mortality charges for universal life, and mortality charges on
variable premium products, may be adjusted prospectively to reflect expected
interest and mortality experience. Dividends on participating insurance products
may be adjusted to reflect prior experience.
For individual traditional and variable premium life insurance, disability
insurance and annuities, and for individual life and health reinsurance in
force, CIGNA establishes policy reserves that reflect the present value of
expected future obligations less the present value of expected future premiums.
For universal life insurance and deferred annuities, CIGNA establishes reserves
for deposits received and interest credited to the policyholder, less mortality
and administrative charges assessed against the policyholder's fund balance. In
addition, for all individual and reinsurance products, CIGNA establishes loss
reserves for claims received but not yet paid, based on the amount of the claim
received, and for losses incurred but not reported, based on prior claim
experience.
14
<PAGE> 17
CIGNA maintains a variety of ceded reinsurance agreements with
non-affiliated insurers to limit its exposure to large life, accident and health
losses and to multiple losses arising out of a single occurrence. Although such
reinsurance does not discharge CIGNA from its obligations on insured risks,
CIGNA's exposure to losses is reduced by the amount of reinsurance ceded,
provided that reinsurers are able to meet their obligations.
Competition
The individual insurance, annuity and investment businesses are highly
competitive. No one competitor or small number of competitors dominates. More
than 1,000 domestic life insurance companies may offer one or more individual
insurance and annuity products, and approximately 40 companies may offer one or
more reinsurance products, similar to those offered by CIGNA. In addition, some
of CIGNA's individual financial businesses compete with non-insurance
organizations, including commercial and savings banks, investment advisory
services, investment companies and securities brokers. Competition focuses on
product, service, price, distribution method and the financial strength of the
insurer as indicated by ratings issued by nationally recognized agencies. For
more information concerning insurance ratings, see "Ratings" on pages 34 to 36.
CIGNA has benefited competitively from CG Life's financial strength and
stability and from the quality of its distribution systems.
The corporate-owned life insurance marketplace is also highly competitive.
The Company principally competes with approximately half of the 25 largest
domestic life insurance companies that may offer one or more corporate-owned
life insurance products. Competition in this market focuses primarily on product
design, underwriting, price, administrative servicing capabilities and insurer
financial strength, as indicated by ratings issued by nationally recognized
agencies.
Based on information published by A.M. Best, CG Life was the 5th largest
U.S. individual life insurer in terms of direct premiums.
F. Property and Casualty
CIGNA's Property and Casualty segment consists of domestic, international
and run-off operations. Each of these operations is discussed below.
Domestic Operations
Principal Products and Markets
The domestic operations had approximately 38% of total earned premiums and
fees for this segment during 1996. The domestic operations have become over the
past several years a specialist property and casualty organization. In doing so,
they have reunderwritten much of the business and focused on lines of business
that have contributed to improved operating results. The table on page 20 lists
the principal product lines of the domestic operations and their associated
earned premiums and fees, and the table on page 21 shows their underwriting
results and combined ratios.
These operations are organized into three units: Special Risk Facilities,
Specialty Insurance Services and Commercial Insurance Services. Special Risk
Facilities provides multi-line and mono-line coverages to large-risk property
and casualty customers. It focuses on loss sensitive casualty coverages,
including workers' compensation, commercial auto and general liability programs
for customers willing to retain significant risk and implement alternative risk
financing programs. It also focuses on large, complex property coverages for
petroleum, utility, independent power and industrial companies, as well as
general property coverages. Special Risk Facilities also markets loss control,
risk information and claims services to large corporate customers on a
fee-for-service basis.
Specialty Insurance Services provides insurance products and related
services designed to meet the needs of businesses, groups and individuals with
specialized insurance needs that require sophisticated underwriting and risk
management expertise. Targeted markets include aviation, recreational and ocean
15
<PAGE> 18
marine, financial institutions, agribusiness, excess casualty and other programs
in which specialist agents and brokers share underwriting and processing
expertise with the division.
Commercial Insurance Services provides insurance and related services to
customers in the standard insurance market, with an emphasis on customers
interested in total loss cost containment. It targets individual commercial
risks and seeks to increase production of group business through affinity
groups, associations and national broker blocks of business. Commercial
Insurance Services seeks to increase writings of inland marine and workers'
compensation business that involves standard risk transfer in states with
favorable regulatory climates.
Regulatory authorities require the participation of CIGNA's domestic
property and casualty subsidiaries in various joint underwriting authorities,
pools and other arrangements, including workers' compensation pools, created to
provide insurance coverage to the residual market. These subsidiaries also
participate in voluntary underwriting associations and syndicates.
Competition
The principal competitive factors that affect the domestic operations are
pricing, underwriting, producer relations, quality of claims and policyholder
services, operating efficiencies and product differentiation and availability.
Perception of financial strength, as reflected in the ratings assigned to an
insurance company, especially by A.M. Best, is also a competitive factor. In
early 1996, A.M. Best affirmed the A- ("excellent") rating for the domestic
operations. For more information concerning insurance ratings, see "Ratings" on
pages 34 to 36.
Competition, particularly over price, has intensified because of increased
capacity in the market resulting from growth in capital supporting the industry.
In the highly competitive environment of the past several years, the domestic
operations reduced their premium volume in some lines rather than maintain
business at inadequate prices, resulting in a decline in market share.
The National Association of Insurance Commissioners ("NAIC") has adopted
risk-based capital rules for domestic property and casualty companies. The
property and casualty subsidiaries of CIGNA's ongoing domestic operations were
adequately capitalized under the rules as of December 31, 1996. Additional
information is contained on pages 32 and 33.
The domestic operations pursue a specialist strategy and focus on those
market segments where they can compete effectively based on service levels and
product design and achieve an adequate level of profitability. They benefit from
experienced claims handling, loss control and risk management staffs with proven
expertise in specialty fields, including large risk, ocean and recreational
marine, and workers' compensation. A competitive strength of all of the domestic
units, especially Special Risk Facilities, is the ability to deliver global
products and coverages to large risk customers in concert with the international
operations. In 1996, Special Risk Facilities increased its competitive
advantages by beginning to provide with X.L. Insurance Company, Ltd. multi-year,
multi-line insurance packages for complex international and domestic risks.
Property and casualty insurance can be obtained in the United States
through national and regional companies that use an agency distribution system,
direct writers (that may have an employed agency force) and brokers. Some
potential customers elect to self-insure, which in the case of many corporations
involves the use of subsidiary captive insurers. Over 3,000 companies compete
for property and casualty business in the United States and no single company or
group of affiliated companies is dominant. In 1996 and 1995, CIGNA's domestic
property and casualty statutory net written premiums amounted to approximately
0.6% and 0.7%, respectively, of the total market.
Based on information published by A.M. Best, CIGNA's domestic property and
casualty insurance subsidiaries rank 20th in annual net premiums written for
commercial coverages. They are the 12th largest U.S. writer of commercial
multiperil coverages, 14th of workers' compensation, 31st of commercial auto
coverages, fourth of ocean marine, 15th of inland marine and first of aviation.
16
<PAGE> 19
Distribution
Special Risk Facilities writes business mainly through regional, national
and global brokers. Specialty Insurance Services and Commercial Insurance
Services write business through independent agents and brokers. Specialty
Insurance Services also markets its business through alternate distribution
channels, including financing companies and managing general agents.
The following table shows the geographic distribution of GAAP net earned
premiums and fees for the domestic operations' products.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1996 1995
--------------- ---------------
(DOLLAR AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C>
California............................................ $ 219 13% $ 238 14%
New York.............................................. 137 8 162 9
Texas................................................. 112 7 127 7
Florida............................................... 99 6 103 6
Pennsylvania.......................................... 89 5 105 6
New Jersey............................................ 85 5 152 9
Illinois.............................................. 51 3 63 4
Massachusetts......................................... 49 3 60 3
North Carolina........................................ 49 3 46 2
Connecticut........................................... 47 3 40 2
Wisconsin............................................. 38 2 30 2
All other............................................. 695 42 623 36
------ --- ------ ---
Total Domestic..................................... $1,670 100% $1,749 100%
====== === ====== ===
</TABLE>
- ---------------
For 1996 and 1995, earned premiums and fees were substantially the same as
written premiums.
International Operations
Principal Products and Markets
CIGNA's international operations provide insurance coverages and services
outside the United States through three business units: property and casualty;
individual life and accident and health; and group and employee benefits. The
international operations produced approximately 58% of total earned premiums and
fees for the Property and Casualty segment during 1996.
The international property and casualty operations are a specialist
insurance organization offering capacity and technical expertise in the
underwriting of large and unique risks for targeted commercial customer
segments. Its property insurance products include traditional commercial fire
coverage as well as energy industry-related and other technical coverages.
Principal casualty products are commercial general liability and liability
coverage for multinational organizations. Marine cargo and hull coverages are
written in the London market as well as in marine markets throughout the world.
The division also designs and implements risk financing alternatives for
customers whose approach to risk management includes some form of self
insurance.
The international individual life and accident and health insurance
operations provide products that are designed to meet the insurance, savings and
investment needs of consumers outside of U.S. insurance markets. Life and
accident and health insurance is provided to individuals and groups. Traditional
life insurance products include term, whole life, endowment and products with
variable investment return. Supplemental products include accidental death,
medical, hospital indemnity and income protection coverages.
The international group and employee benefit operations provide
government-mandated medical benefits in some markets and offer an alternative or
supplement to governmental programs in others. To
17
<PAGE> 20
meet the needs of the group market, life and medical insurance products are
provided through group and employee benefit programs providing employers with
benefit options for their employees.
In 1996, the international operations formed several joint ventures in
developing markets where it already had a presence. These ventures, which are
principally with major, local financial institutions, are intended to accelerate
penetration into these markets. The international operations have also
established representative offices in selected emerging markets to facilitate
the development of profitable business opportunities.
CIGNA's international operations are diversified by line of business and
geographic spread of risk. A global approach to risk management allows each
local operation to underwrite and accept large insurance accounts. Centrally
controlled internal reinsurance mechanisms facilitate appropriate risk transfer
and efficient, cost effective use of external reinsurance markets.
CIGNA reduces exposure to economic loss arising from foreign exchange in
its international operations by maintaining invested assets abroad in the same
currency as the related liabilities. For information on the effect of foreign
exchange exposure, see page 13 of the MD&A section and Notes 2(Q) and 18 to
CIGNA's 1996 Financial Statements included in its Annual Report.
Competition
The principal competitive factors that affect the international operations
are underwriting and pricing, relative operating efficiency, product
differentiation, producer relations and the quality of claims and policyholder
services. Perception of financial strength, as reflected in the ratings assigned
to an insurance company, is also a competitive factor. For example, in 1996,
Standard & Poor's assigned a rating of "A" to CIGNA Insurance Company of Europe,
S.A., N.V., which produced approximately 24% of the international operations'
1996 written premiums.
Maintaining strict underwriting discipline is reflected in loss and
combined ratios for the international operations. The combined ratio is shown in
the table on page 21. The operations' global network and breadth of insurance
and benefit programs assisting individuals and business organizations in meeting
their risk management objectives provide competitive advantages.
Based on revenues, the international operations are the second largest
U.S.-based provider of foreign insurance products and services. Across all lines
of business, the operations' primary competitors include U.S.-based companies
with global operations, as well as other, non-U.S. global carriers and
indigenous companies in regional and local markets. For the individual life and
accident and health lines of business, locally-based competitors include
financial institutions and bank-owned insurance subsidiaries.
Distribution
The international operations maintain a sales or operational presence in
over 45 jurisdictions. The following table shows the geographic distribution of
GAAP net earned premiums and fees for the operations' insurance products, which
are sold through branches and subsidiaries of CIGNA entities in all of the
world's major insurance markets:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1996 1995
---------------- ----------------
(DOLLAR AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C>
Japan................................................. $1,042 41% $1,134 42%
United Kingdom........................................ 387 15 439 16
Continental Europe.................................... 363 14 374 14
Americas.............................................. 299 12 324 12
Other Pacific......................................... 310 12 288 10
All other............................................. 167 6 157 6
------ --- ------ ---
Total International................................ $2,568 100% $2,716 100%
====== === ====== ===
</TABLE>
- ---------------
For 1996 and 1995, earned premiums and fees were substantially the same as
written premiums.
18
<PAGE> 21
International property and casualty business is generally written, on both
a direct and assumed basis, through major international and local brokers.
Individual life and accident and health products are distributed through agents,
financial institutions and various direct marketing channels. Group and employee
benefit programs are sold on a direct basis, as well as through brokers and
agents.
Run-off Operations
Effective December 31, 1995, the Insurance Commissioner of Pennsylvania
(the "Commissioner") approved a restructuring of CIGNA's domestic property and
casualty businesses into two separate operations, ongoing and run-off. The
run-off operations, which do not actively sell insurance products, manage
run-off policies and related claims, including those for asbestos-related and
environmental pollution exposures. For additional information on the
restructuring, see Note 16 to CIGNA's 1996 Financial Statements included in its
Annual Report.
Certain competitors and policyholders of CIGNA are challenging the
Commissioner's action. In March 1997, the Commonwealth Court of Pennsylvania
ruled on certain procedural issues, including that the competitors lack standing
in the matter and that certain issues be remanded to the Insurance Department
for further proceedings. The ruling will be appealed. Pending appeal, the
Insurance Department has confirmed that CIGNA's restructuring remains in place.
Although CIGNA expects the matter to be involved in litigation for some time, it
expects to ultimately prevail.
The risk-based capital ratios of the subsidiaries in the run-off operations
are at the mandatory control level, as described on page 33. However, because
the Commissioner determined that these subsidiaries have sufficient assets to
meet their obligations, they are running off their liabilities consistent with
the terms of an Order by the Commissioner, which include periodic reporting
obligations to the Pennsylvania Insurance Department.
Pricing and Underwriting Results
CIGNA's property and casualty insurance subsidiaries provide loss
protection to insureds in exchange for premiums. If earned premiums exceed the
sum of losses, commissions to agents or brokers, other operating expenses and
policyholders' dividends, underwriting profits are realized. The "combined
ratio" is a frequently used measure of property and casualty underwriting
performance. On a GAAP basis, this ratio is the sum of (i) the ratio of incurred
losses and associated loss expenses to earned premiums (the "loss and loss
expense ratio"), (ii) the ratio of expenses incurred for sales commissions,
premium taxes, administrative and other operating expenses to earned premiums
(the "expense ratio") and (iii) the ratio of policyholders' dividends to earned
premiums (the "policyholder dividend ratio"), each of these three ratios being
expressed as a percentage. When the combined ratio is over 100%, underwriting
results are not profitable. The GAAP combined ratios for CIGNA's property and
casualty product lines and total property and casualty operations are shown in
the table on page 21.
Because time normally elapses between the receipt of premiums and the
payment of claims and certain related expenses, funds become available for
investment by CIGNA. The combined ratio does not reflect investment income from
these funds, investment gains and losses, results of non-insurance business, or
federal income taxes. Such items, when added to underwriting profits or losses,
produce net income or loss. For information concerning investment income, see
"Investments and Investment Income -- Property and Casualty Investments" on
pages 31 and 32.
19
<PAGE> 22
The following table sets forth GAAP net earned premiums and fees for the
operations of this segment for the year ended December 31.
<TABLE>
<CAPTION>
PRO FORMA
1996(1) 1995(1) 1994(1)
-------------------- ---------------- ---------------------------
(DOLLAR AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Premiums and Fees/Percent of Total
Premiums and Fees:
Domestic:
Workers' compensation......... $ 380 8% $ 470 10%
Commercial packages........... 228 5 274 6
Casualty...................... 298 7 263 6
Property...................... 382 9 311 7
Marine and aviation........... 258 6 237 5
Homeowners.................... 72 2 78 2
Other......................... 52 1 116 2
------- ----- ------- -----
Total Domestic Ongoing...... 1,670 38 1,749 38
Total Domestic -- pre-
restructuring............ $ 2,650 53%
International:
Accident and health........... 647 15 626 14 528 10
Property...................... 484 11 515 11 441 9
Casualty...................... 264 6 252 5 231 4
Auto.......................... 207 5 244 5 233 5
Marine........................ 143 3 151 3 152 3
Other......................... 12 -- 17 1 12 --
------- ----- ------- ----- ------- -----
Subtotal.................... 1,757 40 1,805 39 1,597 31
International life and health... 812 18 911 19 796 16
------- ----- ------- ----- ------- -----
Total International Ongoing..... 2,569 58 2,716 58 2,393 47
------- ----- ------- -----
Total Ongoing Operations........ 4,239 96 4,465 96
Run-off operations.............. 159 4 175 4
------- ----- ------- ----- ------- -----
Total Premiums and
Fees................... $4,398 100% $4,640 100% $ 5,043 100%
======= ===== ======= ===== ======= =====
</TABLE>
- ---------------
(1) CIGNA's domestic property and casualty operations were restructured into
ongoing and run-off operations effective December 31, 1995. Amounts shown
for the Property and Casualty segment's ongoing and run-off operations for
1995 are reported on a pro forma basis as though the restructuring was in
place at the beginning of 1995. These pro forma results are not necessarily
indicative of the results that would have been reported had the
restructuring actually occurred as of January 1, 1995. Information for the
Property and Casualty segment on a pro forma basis is not available prior to
1995. Consolidated Property and Casualty segment amounts, including
International, did not change as a result of the restructuring.
20
<PAGE> 23
The following table sets forth GAAP underwriting results, combined ratios
and net investment income for the operations of this segment for the year ended
December 31.
<TABLE>
<CAPTION>
PRO FORMA
1996(1) 1995(1) 1994(1)
-------------------- ---------------- ------------------------
(DOLLAR AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Underwriting Gain (Loss)/Combined Ratios:
Domestic:
Workers' compensation................... $ (22) 105.7% $ (130) 127.7%
Commercial packages..................... (37) 116.3 (54) 119.6
Casualty................................ (48) 116.2 (59) 122.5
Property................................ (43) 111.3 (20) 106.4
Marine and aviation..................... 5 97.9 35 85.1
Homeowners.............................. (23) 132.4 (12) 115.4
Other................................... (5) 109.1 (15) 113.5
------- -------
Total Domestic Ongoing................ (173) 110.4 (255) 114.6
===== =====
Total Domestic -- pre-restructuring... $(1,047) 139.5%
=====
International:
Accident and health..................... 57 91.2 41 93.4 40 92.4
Property................................ 68 86.0 73 85.8 1 99.9
Casualty................................ 24 91.0 15 93.8 -- 99.9
Auto.................................... (5) 102.5 (6) 102.4 (12) 105.2
Marine.................................. (10) 106.6 1 99.7 3 98.3
Other................................... (14) 214.2 (16) 192.7 -- 94.8
------- ------- -------
Total International Ongoing........... 120 93.2 108 94.0 32 98.0
===== ===== =====
------- -------
Total Ongoing operations.................. (53) 101.6 (147) 104.1
===== =====
Run-off operations........................ (317) (1,512)
------- ------- -------
Total underwriting loss after
policyholders'dividends................. $ (370) $(1,659) $(1,015)
======= ======= =======
Before Policyholders'
Dividends.................... $ (339) $(1,604) $ (925)
======= ======= =======
Net investment income, pre-tax:
Domestic.................................. $ 259 $ 240
Domestic -- pre-restructuring............. $ 549
International............................. 243 268 207
Run-off................................... 302 286
------- ------- -------
Total................................. $ 804 $ 794 $ 756
======= ======= =======
</TABLE>
- ---------------
(1) CIGNA's domestic property and casualty operations were restructured into
ongoing and run-off operations effective December 31, 1995. Amounts shown
for the Property and Casualty segment's ongoing and run-off operations for
1995 are reported on a pro forma basis as though the restructuring was in
place at the beginning of 1995. These pro forma results are not necessarily
indicative of the results that would have been reported had the
restructuring actually occurred as of January 1, 1995. Information for the
Property and Casualty segment on a pro forma basis is not available prior to
1995. Consolidated Property and Casualty segment amounts, including
International, did not change as a result of the restructuring.
21
<PAGE> 24
Ceded Reinsurance
To protect against losses greater than the amount that it is willing to
retain on any one risk or event, CIGNA purchases reinsurance from unaffiliated
insurance companies. Beginning in 1997, the Company is revising the reinsurance
program for the domestic operations and, as a result, expects to have higher
premium retention with little or no increase in earnings volatility. Although
reinsurance does not discharge CIGNA from its obligations on insured risks,
CIGNA's exposure to losses is reduced by the amount ceded, and thus will be
limited to the amount of risk retained, provided that reinsurers meet their
obligations.
The Company is not substantially dependent upon any single reinsurer. The
Company's largest aggregation of domestic and international reinsurance
recoverables as of December 31, 1996 and 1995, at approximately 7% and 8%,
respectively, was with more than 100 syndicates affiliated with Lloyd's of
London. Approximately 26% of CIGNA's reinsurance recoverables as of December 31,
1996 relate to pools and captives, under which CIGNA's assets are generally
protected through future industry assessments or by some form of collateral. In
addition, 16% relate to international direct and reinsurance operations
(excluding recoverables with Lloyd's noted above) for which an independent
rating agency evaluation is typically not available. Of the remaining
recoverables, which relate primarily to domestic ongoing and run-off operations,
86% relate to individual reinsurers that carry a very good or higher financial
rating from an independent rating agency. A significant portion of the
international and remaining domestic recoverables is due from reinsurers that
continue to meet CIGNA's internal security standards and selection criteria, as
described in the following paragraph.
The collectibility of reinsurance is largely a function of the solvency of
reinsurers. CIGNA cedes risk to reinsurers that meet certain financial security
standards. It relies on independent ratings of reinsurers, when available, and
otherwise examines its reinsurers' financial performance and reserve adequacy.
When deemed appropriate, CIGNA seeks collateral from reinsurers; reassumes, in
return for a settlement, risks for which it had previously purchased
reinsurance; and establishes allowances for potentially unrecoverable
reinsurance. CIGNA's allowance for unrecoverable reinsurance was $711 million
and $700 million at December 31, 1996 and 1995, respectively.
Reinsurance disputes can delay recovery of reinsurance and, in some cases,
affect its collectibility. Reinsurance disputes have increased in recent years,
particularly on larger and more complex claims such as those related to asbestos
and London reinsurance market exposures. Reinsurance disputes may increase in
the future, and are likely to include disputes related to environmental
pollution claims.
As of December 31, 1996, approximately 86% of CIGNA's reinsurance
recoverable balance related to unpaid reported claims and incurred but not
reported claims, and the remaining 14% related to paid losses. The timing and
collectibility of reinsurance recoverables have not had, and are not expected to
have, a material adverse effect on CIGNA's liquidity.
For additional information on reinsurance, including on CIGNA's property
catastrophe reinsurance program, see page 13 of the MD&A section and Notes 13
and 14 to CIGNA's 1996 Financial Statements included in its Annual Report.
Reserves
General
Significant periods of time may elapse between the occurrence of an insured
loss, the reporting of the loss to the insurer and the insurer's payment of that
loss. To recognize liabilities for unpaid losses, insurers establish "reserves,"
which are liabilities representing estimates of future amounts needed to pay
claims and related expenses with respect to insured events that have occurred,
including events that have not been reported to the insurer.
After a claim is reported, except for a class of very small claims that
typically are settled quickly, a "case reserve" is established by claims
personnel for the estimated amount of the ultimate payment. The estimate
22
<PAGE> 25
reflects the informed judgment of such personnel, based on their experience and
knowledge regarding the nature and value of the specific claim. Claims personnel
review and update their estimates as additional information becomes available
and claims proceed toward resolution.
"Bulk reserves" are established on an aggregate basis (i) to provide for
losses incurred but not yet reported to and recorded by the insurer; (ii) to
provide for the estimated expenses of settling claims, including legal and other
fees and general expenses of administering the claims adjustment process; and
(iii) to adjust for the fact that, in the aggregate, case reserves may not
accurately estimate the ultimate liability for reported claims. As part of the
bulk reserving process, CIGNA's historical claims data and other information are
reviewed and consideration is given to the anticipated impact of various factors
such as legal developments, economic conditions and changes in social attitudes.
Insurance industry experience is also considered.
The reserving process relies on the basic assumption that past experience
is an appropriate basis for predicting future events. The probable effects of
current developments, trends and other relevant matters are also considered.
Because the eventual deficiency or redundancy of reserves is affected by many
factors, some of which are interdependent, there is no precise method for
evaluating the adequacy of the consideration given to inflation or to any other
specific factor affecting claims payments. However, the reserving process
provides implicit recognition of the impact of inflation and other factors by
taking into account changes in historic claims reporting and payment patterns. A
number of analytical reserving techniques are used, which often yield differing
results.
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 favorable or adverse
development of estimated ultimate liabilities. For example, unanticipated
changes in worker's compensation and product liability laws have at times
significantly affected the ability of insurers to estimate liabilities for
unpaid losses and related expenses.
CIGNA implemented a new methodology for estimating asbestos-related and
environmental pollution reserves in the third quarter of 1995, as discussed on
page 15 of the MD&A section of CIGNA's Annual Report. CIGNA's reserves for
asbestos-related and environmental pollution claims are a reasonable estimate of
its liability for these claims, based on currently known facts, reasonable
assumptions where the facts are not known, current law and methodologies
currently available.
Reserving for property and casualty claims continues to be a complex and
uncertain process. Because available claims data and other information are
rarely definitive, the evaluation of such data's implications with respect to
future losses requires the use of informed estimates and judgments. CIGNA's
estimates and judgments may be revised as additional experience and other data
become available and are reviewed, as new or improved methodologies are
developed or as current law changes. Any such revisions could result in future
changes in estimates of losses and would be reflected in CIGNA's results of
operations for the period in which the estimates are changed. While the effect
of any such changes in estimates of losses could be material to future results
of operations, CIGNA does not expect such changes to have a material effect on
its liquidity or financial condition. In management's judgment, information
currently available has been appropriately considered in estimating CIGNA's loss
reserves.
Prior Year Development
The adverse pre-tax effects, net of reinsurance, during 1996, 1995 and 1994
on CIGNA's results of operations from insured events of prior years (prior year
development) were $177 million, $1.5 billion and $538 million, respectively. Of
the prior year loss development during 1995, 81% was attributable to
asbestos-related and environmental pollution claims. Prior year development is
discussed on pages 15 and 16 of the MD&A section of CIGNA's Annual Report.
23
<PAGE> 26
Reserve changes for asbestos-related claims before ("Gross") and after
("Net") the effects of reinsurance were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1996 1995 1994
--------------- --------------- -------------
GROSS NET GROSS NET GROSS NET
------ ------ ------ ------ ----- -----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Asbestos Claims:
Beginning reserves........................... $ 749 $ 457 $ 594 $ 281 $ 732 $ 313
Plus incurred claims and claim adjustment
expenses................................... 115 62 298 255 64 60
Less payments for claims and claim adjustment
expenses................................... (93) (36) (143) (79) (202) (92)
---- ---- ---- ---- ---- ----
Ending reserves.............................. $ 771 $ 483 $ 749 $ 457 $ 594 $ 281
==== ==== ==== ==== ==== ====
</TABLE>
Total asbestos incurred claims and claim adjustment expenses for 1995
include reserve strengthening of $255 million ($194 million, net of reinsurance)
related to CIGNA's comprehensive reserve review completed in the third quarter
of 1995.
Reserve changes for environmental pollution claims before ("Gross") and
after ("Net") the effects of reinsurance were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1996 1995 1994
--------------- --------------- -------------
GROSS NET GROSS NET GROSS NET
------ ------ ------ ------ ----- -----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Environmental Pollution Claims:
Beginning reserves........................... $1,665 $1,268 $ 707 $ 542 $ 593 $ 430
Plus incurred claims and claim adjustment
expenses................................... 58 32 1,265 955 280 215
Less payments for claims and claim adjustment
expenses................................... (231) (139) (307) (229) (166) (103)
---- ---- ---- ---- ---- ----
Ending reserves.............................. $1,492 $1,161 $1,665 $1,268 $ 707 $ 542
==== ==== ==== ==== ==== ====
</TABLE>
Total environmental pollution incurred claims and claim adjustment expenses
for 1995 include reserve strengthening of $1.2 billion ($861 million, net of
reinsurance) related to CIGNA's comprehensive reserve review completed in the
third quarter of 1995.
Reserves for environmental pollution claims and related incurred expense
and payment activity include internal costs to manage claims and disputes with
policyholders over insurance coverage issues as well as external
litigation-related costs for such disputes. Payments associated with disputed
coverage issues will decline in the future, and eventually end, as the disputes
or related issues are resolved. The following table excludes the internal costs
to manage claims and disputes with policyholders and the external litigation-
related costs for such disputes, in order to provide CIGNA's environmental
pollution reserves and related activity that more directly relates to indemnity
costs and costs to defend policyholders against environmental pollution claims.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1996 1995 1994
--------------- --------------- ------------
GROSS NET GROSS NET GROSS NET
------ ------ ------ ------ ----- ----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Beginning reserves............................. $1,468 $1,075 $ 558 $ 397 $ 444 $285
Plus incurred claims and claim adjustment
expenses..................................... 5 (15) 1,144 836 207 142
Less payments for claims and claim adjustment
expenses..................................... (154) (68) (234) (158) (93) (30)
---- ---- ---- ---- ---- ----
Ending reserves................................ $1,319 $ 992 $1,468 $1,075 $ 558 $397
==== ==== ==== ==== ==== ====
</TABLE>
24
<PAGE> 27
Since the mid-1980s, when CIGNA established a separate unit to handle its
asbestos-related and environmental pollution claims, it has followed an
aggressive resolution strategy for these claims. When appropriate, it has
settled claims with its policyholders, often obtaining full policy releases.
While CIGNA believes that its ultimate asbestos-related and environmental
pollution exposure has been reduced by this strategy, it also resulted in
accelerating the recognition of incurred and paid claims and claim adjustment
expenses. A significant portion of the payments shown in the above table for
1995 are due to substantial settlements made pursuant to CIGNA's aggressive
resolution strategy. Paid asbestos-related and environmental pollution claims
are expected to continue to be significant for the foreseeable future, but will
vary depending on the level of settlement activity.
The principal federal statute that requires cleanup of environmental damage
is the Comprehensive Environmental Response, Compensation and Liability Act
("Superfund"), passed in 1980. It imposes liability on responsible parties,
subjecting them to liability for cleanup costs regardless of fault, time period
and relative contribution of pollutants. Proposals to change the law's method of
assigning responsibility for, or funding, cleanup are pending before Congress.
Any such changes could affect the liabilities of policyholders and insurers. Due
to uncertainties associated with the timing and content of any future Superfund
legislation, CIGNA is not able to determine what effect, if any, such
legislation would have on its results of operations, liquidity or financial
condition.
A reconciliation of total beginning and ending reserve balances of the
property and casualty operations for unpaid claims and claim adjustment expenses
for the years ended December 31, 1996, 1995 and 1994 is provided in Note 14 to
CIGNA's 1996 Financial Statements included in its Annual Report.
The table on page 26 presents the subsequent development of the estimated
year-end property and casualty reserve, net of reinsurance ("net reserve"), for
the 10 years prior to 1996. The first section of the table shows the estimated
net reserve that was recorded at the end of each of the indicated years for all
current and prior year unpaid claims and claim adjustment expenses. The second
section shows the cumulative percentages of such previously recorded net reserve
paid in succeeding years. The third section shows, as a percentage of such net
reserve, the re-estimates of the net reserve made in each succeeding year.
The cumulative deficiency as shown in the table represents the aggregate
change in the reserve estimates from the original balance sheet dates through
1996; an increase in a loss estimate that related to a prior year occurrence
generates a deficiency in each intervening year. For example, a deficiency
recognized in 1994 relating to losses incurred in 1987 would be included in the
cumulative deficiency amount for the years 1987 through 1993. Yet, the
deficiency would be reflected in operating results in 1994 only.
Conditions and trends that have affected the reserve development reflected
in the table are likely to continue to change, and care should be exercised in
extrapolating future reserve redundancies or deficiencies
25
<PAGE> 28
from such development. Historically, asbestos-related and environmental
pollution losses had a significant effect on the net cumulative deficiency.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------------------
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
------ ------ ------ ------ ------- ------- ------- ------- ------- ------- -------
(DOLLAR AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net reserve for unpaid claims and
claim adjustment expenses......... $8,074 $8,832 $9,414 $9,789 $10,196 $10,272 $10,562 $10,660 $10,635 $11,159 $10,647
====== ====== ====== ====== ======= ======= ======= ======= ======= ======= =======
Cumulative percentage of net
reserve paid through:
One year later.................. 30.9% 30.2% 31.1% 34.3% 33.8% 34.0% 28.9% 24.7% 22.5% 19.8%
Two years later................. 50.0 49.5 52.7 54.3 53.9 53.6 45.9 40.4 37.4
Three years later............... 65.2 65.7 67.7 69.4 68.6 66.8 58.7 51.8
Four years later................ 78.8 77.0 78.9 80.8 78.9 77.3 67.8
Five years later................ 88.4 84.7 88.0 88.6 86.8 84.6
Six years later................. 95.1 92.8 94.4 95.4 93.0
Seven years later............... 102.9 98.5 100.4 100.7
Eight years later............... 108.3 104.4 105.1
Nine years later................ 114.5 108.7
Ten years later................. 118.8
Net reserve (percentage)
re-estimated as of:
One year later.................. 103.3% 102.6% 103.0% 103.1% 103.4% 106.4% 107.5% 105.0% 114.1% 101.6%
Two years later................. 106.2 105.0 105.8 106.9 107.4 115.4 113.5 119.7 115.6
Three years later............... 110.0 107.9 109.7 109.6 116.9 122.5 128.2 121.4
Four years later................ 114.8 111.3 112.3 119.5 123.5 138.9 130.1
Five years later................ 118.8 114.0 121.9 125.7 140.1 141.0
Six years later................. 122.1 123.9 127.9 142.9 142.5
Seven years later............... 132.5 129.6 144.5 145.0
Eight years later............... 138.1 146.6 146.4
Nine years later................ 156.7 148.5
Ten years later................. 158.7
Net cumulative deficiency: $4,741 $4,281 $4,369 $4,407 $ 4,330 $ 4,216 $ 3,174 $ 2,277 $ 1,661 $ 177
Gross reserve--December 31......... $17,926 $17,764 $16,825 $17,023 $16,482
Less: Reinsurance recoverable...... 7,364 7,104 6,190 5,864 5,835
------- ------- ------- ------- -------
Net reserve--December 31........... $10,562 $10,660 $10,635 $11,159 $10,647
======= ======= ======= ======= =======
Gross re-estimated reserve......... $21,911 $20,361 $18,835 $17,284
Less: Re-estimated reinsurance
recoverable....................... 8,175 7,424 6,539 5,948
------- ------- ------- -------
Net re-estimated reserve........... $13,736 $12,937 $12,296 $11,336
======= ======= ======= =======
Gross cumulative deficiency........ $ 3,985 $ 2,596 $ 2,009 $ 261
======= ======= ======= =======
</TABLE>
For additional information about gross loss development, amounts ceded to
reinsurers and net loss development, see pages 14 through 16 of the MD&A section
of CIGNA's Annual Report. On a GAAP basis, which is before the effects of
reinsurance, CIGNA's 1996 year-end reserves totaled $16.5 billion. For GAAP
purposes, CIGNA's reserves are generally carried at the full value of the
estimated liabilities. For state regulatory purposes, reserves are reported in
accordance with statutory accounting procedures ("SAP"), which is net of the
effects of reinsurance and discounting for certain lines of business, and, on
that basis, totaled $9.3 billion.
26
<PAGE> 29
The following table reconciles, as of year end, liabilities for unpaid
claims and claim adjustment expenses determined in accordance with SAP to those
determined in accordance with GAAP:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------------------
1996 1995 1994
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Statutory reserve for unpaid claims and claim adjustment expenses,
net of reinsurance................................................ $ 9,265 $ 9,704 $ 9,643
Adjustments:
Statutory Reinsurance Recoverable................................. 5,465 5,384 5,764
Discounting of Gross Reserves(1).................................. 1,752 1,935 1,418
-------- -------- --------
GAAP reserve for unpaid claims and claim adjustment expenses........ 16,482 17,023 16,825
Less GAAP Reinsurance Recoverable................................... 5,835 5,864 6,190
-------- -------- --------
GAAP reserve for unpaid claims and claim adjustment expenses,
net of reinsurance................................................ $ 10,647 $ 11,159 $ 10,635
======== ======== ========
</TABLE>
- ---------------
(1) Primarily for workers' compensation reserves and, beginning in 1995, certain
asbestos-related and environmental pollution reserves. For SAP purposes,
these reserves are discounted at 6%.
27
<PAGE> 30
G. Investments and Investment Income
CIGNA's investment operations primarily provide investment management and
related services in the United States and certain other countries for CIGNA's
corporate and insurance-related invested assets. In addition, the investment
operations provide fee-based investment management and advisory services to
large group pension plan sponsors, institutions, international investors and
other clients. CIGNA acquires or originates, directly or through intermediaries,
various investments including private placements, public securities, mortgage
loans, real estate and leveraged capital funds.
CIGNA's assets under management at year-end 1996 totaled $82.9 billion,
comprising CIGNA corporate and insurance-related invested assets ("invested
assets") of $56.5 billion and advisory portfolio assets of $26.4 billion.
Advisory portfolio assets included $22.6 billion in Separate Accounts of CIGNA's
life insurance subsidiaries. CIGNA's investment operations manage 100% of the
invested assets and 55% of the advisory portfolios. Use of outside investment
managers has increased, most significantly in retirement accounts where asset
allocations have shifted in part from fixed income investments in CIGNA's
General Account to equity securities in non-CIGNA managed advisory portfolios.
For additional information about the General Account and the Separate Accounts,
see "Employee Retirement and Savings Benefits--Principal Products and Markets"
beginning on page 8.
CIGNA invests in a broad range of asset classes, including domestic and
international fixed maturities and common stocks, mortgage loans, real estate
and short-term investments. Fixed maturity investments include publicly traded
and private placement corporate bonds, government bonds, publicly traded and
private placement asset-backed securities and redeemable preferred stocks.
Asset-backed securities are primarily mortgage-backed securities and secondarily
other asset-backed securities. Mortgage-backed securities include collateralized
mortgage obligations ("CMOs"). CMO holdings are concentrated in securities with
limited prepayment, extension and default risk, such as planned amortization
class bonds. For additional information about CMOs, see Note 4(A) to CIGNA's
1996 Financial Statements included in its Annual Report.
The major portfolios under management in CIGNA's General Account consist of
the combined assets of the Employee Life and Health Benefits, Employee
Retirement and Savings Benefits, and Individual Financial Services segments
(collectively, "Employee Benefits and Individual Financial portfolios") and the
assets of the Property and Casualty segment. CIGNA generally manages the
characteristics of its invested assets to reflect the underlying characteristics
of related insurance and contractholder liabilities, as well as regulatory and
tax considerations pertaining to those liabilities. CIGNA's insurance and
contractholder liabilities as of December 31, 1996 comprised the following:
property and casualty 33%, fully guaranteed 12%, experience-rated 24%,
interest-sensitive 17%, and other life and health 14%.
Property and casualty claim demands are somewhat unpredictable in nature
and require liquidity from the underlying invested assets, which are structured
to emphasize current investment income to the extent consistent with maintaining
appropriate portfolio quality and diversity. The liquidity requirements for
shorter-term liabilities are met primarily through operating cash flows and
shorter-term investments (less than two years) and, to a lesser extent, through
publicly traded fixed maturities. For longer-term liabilities, liquidity
requirements are met primarily through private and public fixed maturity
investments.
Fully guaranteed products primarily include GICs, single premium annuity
products and settlement annuities. Because these products generally do not
permit withdrawal by policyholders prior to maturity, the amount and timing of
future benefit cash flows can be reasonably estimated. Funds supporting these
products are invested in fixed income investments that generally match the
aggregate duration of the investment portfolio with that of the related benefit
cash flows. As of December 31, 1996, the duration of assets and liabilities for
GICs, single premium annuities and settlement annuities was approximately 2
years, 8 years and 10 years, respectively.
CIGNA's experience-rated products primarily consist of defined benefit and
defined contribution pension products. Investments for these products are
selected to support the yield and liquidity needs of the products and are
principally fixed income investments. Interest-sensitive products primarily
include universal life
28
<PAGE> 31
insurance and COLI. Invested assets supporting these products are primarily
fixed income investments and policy loans. Fixed income investments emphasize
investment yield while meeting the liquidity requirements of the related
liabilities.
Other life and health products consist of various group and individual life
and health products. The supporting invested assets are structured to emphasize
investment income, and the necessary liquidity is provided through cash flow,
short-term investments and common stocks.
Investment strategy and results are affected by the amount and timing of
cash available for investment, competition for investments (especially in
private asset classes), economic conditions, interest rates and asset allocation
decisions.
CIGNA routinely monitors and evaluates the status of its investments in
light of current economic conditions, trends in capital markets and other
factors. Such factors include industry segment considerations for fixed maturity
investments, and geographic and property-type considerations for mortgage loan
investments.
CIGNA's fixed maturity investments, including policyholder share, as of
December 31, 1996 constituted approximately 52% of the Employee Benefits and
Individual Financial portfolios and approximately 92% of the Property and
Casualty portfolios, respectively. As of that date, approximately 28% of fixed
maturity investments was attributable to experience-rated contracts. CIGNA
reduces credit risk for the portfolios as a whole by investing primarily in
investment grade fixed maturities rated by rating agencies (for public
investments), by CIGNA (for private investments) or by the Securities Valuation
Office of the NAIC (for both public and private investments). For information
about below investment grade holdings, see page 18 of the MD&A section of
CIGNA's Annual Report.
CIGNA's mortgage loan investments, including policyholder share,
constituted approximately 26% of the Employee Benefits and Individual Financial
portfolios and less than 1% of the Property and Casualty portfolios as of
December 31, 1996. As of that date, approximately 56% of mortgage loan
investments was attributable to experience-rated contracts. Mortgage loan
investments are subject to underwriting criteria addressing loan-to-value ratio,
debt service coverage, cash flow, tenant quality, leasing, market, location and
financial strength of the borrower. Such investments consist primarily of first
mortgage loans on commercial properties and are diversified relative to property
type, location and borrower. The Company invests in fully completed and
substantially leased commercial properties. Virtually all of the Company's
mortgage loans are bullet or balloon loans, under which all or a substantial
portion of the loan principal is due at the end of the loan term.
CIGNA manages properties obtained through foreclosure of mortgage loans
until such properties are sold. The Company's general policy is to rehabilitate
the foreclosed properties, re-lease them and sell them, which generally takes
two to four years, or less if circumstances indicate that an immediate sale is
in the best financial interests of the Company or policyholders.
In connection with its investment strategy, CIGNA's use of derivative
instruments is limited to hedging applications to minimize market risk.
Derivative instruments are not used for speculative purposes.
See pages 18 through 21 of the MD&A section and Notes 2, 4 and 5 to CIGNA's
1996 Financial Statements included in its Annual Report for additional
information about CIGNA's investments.
29
<PAGE> 32
Employee Benefits and Individual Financial Investments
The following tables summarize the distribution of investments attributable
to CIGNA's Employee Benefits and Individual Financial portfolios and the related
net investment income from such investments. Approximately 51% of the
investments in the Employee Benefits and Individual Financial portfolios is
attributable to experience-rated contracts with policyholders.
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------
INVESTMENTS 1996 1995 1994
- ----------- ------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C>
Fixed maturities
Bonds:
Finance.............................................................. $ 3,522 $ 3,726 $ 3,171
Consumer products.................................................... 2,776 3,102 2,996
Manufacturing........................................................ 2,559 2,747 2,302
Energy............................................................... 2,598 2,470 2,041
Public utilities..................................................... 1,476 1,941 1,654
Transportation....................................................... 933 1,046 1,011
States, municipalities and political subdivisions.................... 440 404 327
U.S. government and government agencies and authorities.............. 364 407 284
Foreign governments(1)............................................... 158 164 208
Other................................................................ 326 401 334
------- ------- -------
Total bonds..................................................... 15,152 16,408 14,328
Asset-backed securities................................................ 6,195 5,925 4,827
Redeemable preferred stocks............................................ 13 15 33
------- ------- -------
Total fixed maturities.......................................... 21,360 22,348 19,188
------- ------- -------
Equity securities
Common stocks:
Industrial and miscellaneous......................................... 255 238 1,118
Public utilities..................................................... 22 23 122
Banks, trust and insurance companies................................. 32 21 115
------- ------- -------
Total common stocks............................................. 309 282 1,355
Non-redeemable preferred stocks........................................ 6 11 55
------- ------- -------
Total equity securities......................................... 315 293 1,410
------- ------- -------
Mortgage loans
Commercial:
Retail facilities.................................................... 4,544 4,423 3,744
Office buildings..................................................... 3,546 3,685 3,387
Apartments........................................................... 1,315 1,281 1,022
Hotels............................................................... 681 692 662
Industrial........................................................... 390 399 403
Other................................................................ 94 98 109
------- ------- -------
Total commercial................................................ 10,570 10,578 9,327
Agricultural........................................................... 35 69 88
------- ------- -------
Total mortgages................................................. 10,605 10,647 9,415
------- ------- -------
Policy loans............................................................. 7,132 6,925 5,237
Real estate.............................................................. 1,010 1,138 1,481
Other long-term investments.............................................. 196 202 137
Short-term investments................................................... 501 380 306
------- ------- -------
Total investments............................................... $41,119 $41,933 $37,174
======== ======== ========
</TABLE>
- ---------------
See Note 2(D) to the Financial Statements of CIGNA's Annual Report for a
discussion of the method of valuation of investments. The above amounts do not
include Separate Account assets.
(1) Comprises fixed maturities of sovereign foreign governments.
30
<PAGE> 33
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
NET INVESTMENT INCOME 1996 1995 1994
- --------------------- ------- ------- -------
(DOLLAR AMOUNTS IN MILLIONS)
<S> <C> <C> <C>
Fixed maturities......................................................... $1,686 $1,706 $1,649
Equity securities........................................................ 5 34 55
Mortgage loans........................................................... 951 894 839
Policy loans............................................................. 548 499 365
Real estate.............................................................. 184 272 284
Other investments........................................................ 75 117 63
------- ------- -------
Total........................................................... 3,449 3,522 3,255
Less investment expenses................................................. 163 258 277
------- ------- -------
Net investment income, pre-tax........................................... $3,286 $3,264 $2,978
======== ======== ========
Net investment yield(1).................................................. 8.40% 8.66% 8.44%
======== ======== ========
</TABLE>
- ---------------
(1) The net investment yield is equal to (a) net investment income multiplied by
two, divided by (b) the sum, at the beginning and end of the year, of cash,
invested assets (at cost or amortized cost less impairments) and investment
income due and accrued, less borrowed money, less net investment income.
Property and Casualty Investments
The following tables summarize the distribution of investments attributable
to CIGNA's Property and Casualty segment and the related net investment income
from such investments.
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------
INVESTMENTS 1996 1995 1994
- ------------------------------------------------------------------------- ------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C>
Fixed maturities
Bonds:
Foreign governments(1)............................................... $ 2,256 $ 2,343 $ 1,757
Finance.............................................................. 1,484 1,655 1,700
States, municipalities and political subdivisions.................... 1,300 1,373 1,266
Public utilities..................................................... 945 906 682
Energy............................................................... 936 835 547
U.S. government and government agencies and authorities.............. 479 687 802
Consumer products.................................................... 749 679 381
Manufacturing........................................................ 715 627 353
Transportation....................................................... 368 310 139
Other................................................................ 295 240 644
------- ------- -------
Total bonds........................................................ 9,527 9,655 8,271
Asset-backed securities................................................ 1,894 1,921 1,716
Redeemable preferred stocks............................................ 3 4 11
------- ------- -------
Total fixed maturities............................................. 11,424 11,580 9,998
------- ------- -------
Equity securities
Common stocks:
Industrial and miscellaneous......................................... 268 271 333
Banks, trust and insurance companies................................. 85 53 45
Public utilities..................................................... 29 13 3
------- ------- -------
Total common stocks................................................ 382 337 381
Non-redeemable preferred stocks........................................ 1 16 8
------- ------- -------
Total equity securities............................................ 383 353 389
------- ------- -------
Other long-term investments.............................................. 237 320 693
Short-term investments................................................... 368 209 342
------- ------- -------
Total investments.................................................. $12,412 $12,462 $11,422
======== ======== ========
</TABLE>
- ------------
See Note 2(D) to the Financial Statements of CIGNA's Annual Report for a
discussion of the method of valuation of investments.
(1) Comprises fixed maturities of sovereign foreign governments.
31
<PAGE> 34
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
NET INVESTMENT INCOME 1996 1995 1994
- --------------------- ------ ------ ------
(DOLLAR AMOUNTS IN
MILLIONS)
<S> <C> <C> <C>
Interest:
Taxable.............................................................. $ 778 $ 782 $ 726
Tax-exempt........................................................... 66 70 77
----- ----- -----
Total........................................................... 844 852 803
Dividends from stocks.................................................... 14 11 12
----- ----- -----
Total investment income.................................................. 858 863 815
Less investment expenses................................................. 54 69 59
----- ----- -----
Net investment income, pre-tax........................................... $ 804 $ 794 $ 756
===== ===== =====
Net investment yield(1).................................................. 6.88% 6.93% 6.92%
===== ===== =====
</TABLE>
- ---------------
(1) The net investment yield is equal to (a) net investment income multiplied by
two, divided by (b) the sum, at the beginning and end of the year, of cash,
invested assets (at cost or amortized cost less impairments) and investment
income due and accrued, less borrowed money, less net investment income.
Other Investments and Operations
Invested assets for CIGNA's Other Operations totalled $3.0 billion and $3.3
billion as of December 31, 1996 and 1995. They include fixed maturities,
mortgage loans, real estate and investments maturing in less than one year.
These assets primarily support the settlement annuity and non-insurance
businesses. Net investment income for these investments was $243 million for
1996, $238 million for 1995 and $212 million for 1994.
H. Regulation
CIGNA's insurance subsidiaries are licensed to do business in, and are
subject to regulation and supervision by, the states of the United States, the
District of Columbia, certain U.S. territories and various foreign
jurisdictions. Although the extent of regulation varies, most jurisdictions have
laws and regulations governing rates, solvency, standards of business conduct,
and various insurance and investment products. Licensing of insurers and their
agents and the approval of policy forms are usually required. The form and
content of statutory financial statements and the type and concentration of
investments are also regulated. Each insurance subsidiary is required to file
periodic financial reports with supervisory agencies in most of the
jurisdictions in which it does business, and its operations and accounts are
subject to examination by such agencies at regular intervals.
Most states and the District of Columbia require licensed insurance
companies to support guaranty associations, which are organized to pay claims on
behalf of insolvent insurance companies. These associations levy assessments on
member insurers in a particular state to pay such claims on the basis of their
proportionate shares of the lines of business of the insolvent insurer. Maximum
assessments permitted by law in any one year generally range from 1% to 2% of
annual premiums written by each member in a particular state with respect to the
categories of business involved, and may be offset against premium taxes payable
in some states. For additional information about guaranty fund assessments, see
Note 19 to CIGNA's 1996 Financial Statements included in its Annual Report.
The increase in the number of insurance companies that are impaired or
insolvent has prompted state and federal initiatives to enhance solvency
regulation. For example, the NAIC has developed model solvency-related laws that
many states have adopted. In addition, risk-based capital rules have been
adopted for life insurance and property and casualty insurance companies that
recommend a specified level of capital depending on the types and quality of
investments held, the types of business written and the types of liabilities
maintained. Depending on the ratio of the insurer's adjusted surplus to its
risk-based capital, the insurer could be subject to various regulatory actions
ranging from increased scrutiny to conservatorship.
32
<PAGE> 35
Four levels of regulatory attention may be triggered if the ratio of
adjusted surplus to risk-based capital (the "RBC ratio") is insufficient. If an
insurance company's RBC ratio is between 75% and 100%, the "company action
level," the company must submit a plan to the regulator detailing corrective
action it proposes to undertake. If a company's RBC ratio is between 50% and
75%, the "regulatory action level," the company must also submit a plan, but a
regulator may also issue a corrective order requiring the insurer to comply
within a specified period. If a company's RBC ratio is between 35% and 50%, the
"authorized control level," the regulatory response is the same as at the
"regulatory action level," but in addition, the regulator may take action to
rehabilitate or liquidate the insurer. If the RBC ratio for a company is less
than 35%, the "mandatory control level," the regulator must rehabilitate or
liquidate the insurer. An insurance commissioner may allow a property and
casualty company at the mandatory control level that is writing no business and
is running off its existing business to continue its run-off. As of December 31,
1996, CIGNA's life insurance and ongoing domestic property and casualty
insurance subsidiaries were adequately capitalized under such rules, and the
run-off subsidiaries are running off their liabilities as described on page 19.
In the past, federal oversight of insurer solvency has also been proposed.
Among proposals that have been discussed are optional federal chartering, which
would preempt most state insurance regulations; minimum federal solvency
standards, which would be supervised by the states; federal licensing of all
reinsurers; and establishment of a national guaranty fund.
Recent state and federal regulatory scrutiny of life insurers' sales and
advertising practices, including the adequacy of disclosure regarding products
and their future performance, may result in increased regulations in this area.
CIGNA's insurance subsidiaries are subject to state laws regulating
insurers that are subsidiaries of insurance holding companies. Under such laws,
which are generally becoming more stringent, certain dividends, distributions
and other transactions between an insurance subsidiary and the holding company
or its other subsidiaries may require notification to, or be subject to the
approval of, one or more state insurance commissioners.
Federal and state proposals to reform health care are expected to continue
in 1997. Such proposals are discussed on page 7.
CIGNA's HMOs are subject to regulation and supervision by various
government agencies in the states in which they do business. The extent of
regulation varies, but most jurisdictions regulate licensing, solvency,
contracts and rates. Regulation of these entities also may include standards for
quality assurance, minimum levels of benefits that must be offered and
requirements for availability and continuity of care. A few states require HMOs
to participate in guaranty funds, and several state legislatures have recently
considered insolvency and guaranty fund legislation, a trend that is expected to
continue. Some of CIGNA's HMOs are also federally qualified and subject to
regulation as to benefits, solvency and rates under the federal HMO Act. CIGNA's
mental health and substance abuse clinics are licensed by the states in which
they operate for quality of treatment.
Regulatory concerns with insurance risk selection have increased
significantly in recent years. For example, some states have imposed
restrictions on the use of underwriting criteria related to AIDS. Also, various
interpretations under the Americans with Disabilities Act may affect the
provision of insurance benefits under certain types of policies.
Domestic property and casualty insurers are required to participate in
assigned risk plans, joint underwriting authorities, pools and other residual
market mechanisms to write coverages on risks not acceptable under normal
underwriting standards. In addition, states have responded to concerns about the
availability and affordability of commercial casualty insurance by proposing or
adopting legislation, regulations or positions to, among other things, limit
rate increases, require rate reductions or refunds, restrict nonrenewal and
cancellation with respect to commercial lines coverages or require the refunding
of "excess" profits, and by expanding regulatory examination of the
appropriateness of rates, non-renewals and cancellations.
33
<PAGE> 36
The extent of insurance regulation varies significantly among the countries
in which CIGNA conducts its international operations. As a foreign insurer,
CIGNA is, in many countries, faced with greater restrictions than domestic
competitors. Trade barriers include discriminatory licensing procedures,
compulsory cessions of reinsurance, required localization of records and funds,
higher premium and income taxes, and requirements for local participation in an
insurer's ownership. Where appropriate, CIGNA has incorporated insurance
subsidiaries locally to improve its position.
Depending upon their nature, CIGNA's investment management activities and
products with United States contacts are subject to the federal securities laws,
ERISA and other federal and state laws governing investment management
activities and products. Investments made by United States insurance companies
are subject to state insurance laws. Investment management activities and
products outside the United States, and investments made by non-United States
insurance companies outside the United States, are subject to local regulation.
Often, the investment management activities and investments of individual
insurance companies are subject to regulation by multiple jurisdictions.
Federal initiatives can have an impact on the insurance business in a
variety of ways. In addition to proposals discussed above related to Superfund,
health care reform and federal oversight of insurer solvency, current and
proposed federal measures that may significantly affect the insurance business
include: pension and other employee benefit regulation; tax legislation; Social
Security legislation; financial services regulation; amendment to the antitrust
exemption provided for the business of insurance by the McCarran-Ferguson Act;
and repeal of the Glass-Steagall Act.
The economic and competitive effects of the legislative and regulatory
proposals discussed above would depend upon the final form such legislation or
regulation might take.
I. Ratings
CIGNA and certain of its insurance subsidiaries are rated by nationally
recognized rating agencies. While the significance of individual ratings varies
from agency to agency, companies assigned ratings at the top end of the range
have, in the opinion of the rating agency, the strongest capacity for repayment
of debt or payment of claims, while companies at the bottom end of the range
have the weakest capacity.
Insurance ratings represent the opinions of the rating agencies on the
financial strength of the company and its capacity to meet the obligations of
insurance policies. Insurance rating scales of the principal agencies that rate
the Company's insurance subsidiaries are characterized as follows: A.M. Best,
A++ to F ("Superior" to "In Liquidation"); Moody's, Aaa to C ("Exceptional" to
"Lowest"); Standard & Poor's ("S&P"), AAA to R ("Superior" to "Regulatory
Action"); and Duff & Phelps, AAA to DD ("Highest" to "Order of Liquidation").
34
<PAGE> 37
As of March 10, 1997, the insurance rating for Life Insurance Company of
North America obtained from A.M. Best was A+ ("Superior," 2nd of 15), and the
insurance rating for CIGNA Insurance Company of Europe, S.A., N.V. obtained from
S&P was A ("Good", 6th of 18). The insurance ratings obtained for CG Life and
the domestic property and casualty ongoing and run-off operations were as
follows:
<TABLE>
<CAPTION>
INSURANCE RATINGS(1)
------------------------------------------------------
PROPERTY & CASUALTY
LIFE -----------------------------------
------------ ONGOING RUN-OFF
CG LIFE OPERATIONS(2) OPERATIONS(3)
------------ -------------- --------------
<S> <C> <C> <C>
A.M. Best....................... A+ A- B+
("Superior," ("Excellent," ("Very Good,"
2nd of 15) 4th of 15) 6th of 15)(4)
Moody's......................... Aa3 Baa1 Ba1
("Excellent," ("Adequate," ("Questionable,"
4th of 19) 8th of 19) 11th of 19)
S&P............................. AA BBB BBB
("Excellent," ("Adequate," ("Adequate,"
3rd of 18) 9th of 18) 9th of 18)
Duff & Phelps................... AAA A- BBB-
("Highest," ("High," ("Adequate,"
1st of 18) 7th of 18) 10th of 18)
</TABLE>
- ---------------
(1) Includes the rating assigned, the agency's characterization of the rating
and the position of the rating in the agency's rating scale (e.g., CG Life's
rating by A.M. Best Company, Inc. ("A.M. Best") is the 2nd highest rating
awarded in its scale of 15).
(2) The rated Ongoing Operations consist of CIGNA's domestic ongoing property
and casualty insurance subsidiaries. For further information, see "Domestic
Operations" on page 15.
(3) The rated Run-off Operations consist of domestic insurance subsidiaries that
manage run-off policies and related claims, including those for
asbestos-related and environmental pollution exposures. For further
information, see "Run-off Operations" on page 19.
(4) Although this is the sixth highest rating in the A.M. Best rating scale, it
is the second highest rating available for run-off operations.
Debt ratings are assessments of the likelihood that the Company will make
timely payments of principal and interest. The rating scales of the principal
agencies that rate CIGNA's senior debt are characterized as follows: Moody's,
Aaa to C ("Best" to "Lowest"); S&P, AAA to D ("Extremely Strong" to "Default");
and Duff & Phelps, AAA to DD ("Highest" to "Default"). The commercial paper
rating scales for Moody's, S&P, Duff & Phelps and Fitch Investors Service
("Fitch") are as follows: Moody's, Prime-1 to Not Prime ("Superior" to "Not
Prime"); S&P, A-1+ to D ("Extremely Strong" to "Default"); Duff & Phelps, D-1+
to D-5 ("Highest" to "Default"); and Fitch F-1+ to D ("Exceptional" to
"Default").
As of March 10, 1997, the debt ratings obtained from the following agencies
were as follows:
<TABLE>
<CAPTION>
DEBT RATINGS(1)
-----------------------------------
CIGNA CORPORATION
-----------------------------------
COMMERCIAL
SENIOR DEBT PAPER
--------------- ---------------
<S> <C> <C>
Moody's................................ A3 Prime-2
("Upper-Medium- ("Strong,"
grade," 2nd of 4)
7th of 19)
S&P.................................... A- A-2
("Strong," ("Satisfactory,"
7th of 22) 3rd of 7)
Duff & Phelps.......................... A D-1
("Adequate," ("Very high,"
6th of 18) 2nd of 7)
Fitch.................................. Not rated F-1
("Very Strong,"
2nd of 6)
</TABLE>
- ---------------
(1) Includes the rating assigned, the agency's characterization of the rating
and the position of the rating in the applicable agency's rating scale.
35
<PAGE> 38
The ratings are reviewed routinely by the rating agencies and may be
changed at their discretion. In connection with the Healthsource tender offer
described on page one, S&P placed CG Life's insurance rating and CIGNA's senior
debt rating on credit watch with negative implications, and Duff & Phelps placed
CIGNA's senior debt rating and commercial paper rating on rating watch with
developing implications.
J. Miscellaneous
Portions of CIGNA's insurance business are seasonal in nature. Reported
claims under group health and certain property and casualty products are
generally higher in the first quarter. Sales, particularly of individual life
products, are generally lowest in the first quarter and highest in the fourth
quarter.
CIGNA and its principal subsidiaries are not dependent on business from one
or a few customers. No customer accounted for 10% or more of CIGNA's
consolidated revenues in 1996. CIGNA and its principal subsidiaries are not
dependent on business from one or a few brokers or agents. In addition, CIGNA's
insurance businesses are generally not committed to accept a fixed portion of
the business submitted by independent brokers and agents, and generally all such
business is subject to its approval and acceptance.
CIGNA had approximately 42,800, 44,700 and 48,600 employees as of December
31, 1996, 1995 and 1994, respectively.
ITEM 2. PROPERTIES
CIGNA's headquarters are located in approximately 90,240 total square feet
of leased office space at One Liberty Place, Philadelphia, Pennsylvania. CIGNA
Property & Casualty, CIGNA Group Insurance: Life, Accident, Disability, and
CIGNA International are located in a leased building of approximately 1.25
million total square feet at Two Liberty Place, Philadelphia. CIGNA HealthCare,
CIGNA Individual Insurance, CIGNA Reinsurance and CIGNA Investment Management
are located in a complex of buildings owned by CIGNA, aggregating approximately
1.4 million total square feet of office space, located at 900-950 Cottage Grove
Road, Bloomfield, Connecticut. CIGNA's Retirement & Investment Services
operations are located in approximately 230,000 total square feet of leased
office space at Metro Center One, Hartford, Connecticut. In addition, CIGNA owns
or leases office buildings, or parts thereof, throughout the United States and
in other countries. For additional information concerning leases and property,
see Notes 2(H) and 15 to CIGNA's 1996 Financial Statements included in its 1996
Annual Report. This paragraph does not include information on investment
properties.
CIGNA's information processing resources include large mainframe computers
in major data centers, a multitude of personal computers connected through local
area networks and a nationwide backbone network that provides desktop computing
and office automation to CIGNA employees. CIGNA's policies regarding the
safeguarding of critical corporate data are disseminated to all employees. The
policies require data security through the use of appropriate identification and
password practices and data backup through appropriate offsite storage
techniques. Protection of CIGNA's major data centers, which house large amounts
of critical corporate data, involves access controls, fire detection and
suppression systems, and other hazard elimination processes. In addition, CIGNA
maintains a formal disaster contingency plan, which includes recovery services
in the event of a disaster in a CIGNA data center. Critical files are stored
offsite, to be available for recovery in the event of a disaster.
ITEM 3. LEGAL PROCEEDINGS
CIGNA is continuously involved in numerous lawsuits arising, for the most
part, in the ordinary course of business, either as a liability insurer
defending third-party claims brought against its insureds or an insurer
defending coverage claims brought against it by its policyholders or other
insurers. One such area of litigation involves policy coverage and judicial
interpretation of legal liability for asbestos-related and environmental
pollution claims.
While the outcome of all litigation involving CIGNA, including
insurance-related litigation, cannot be determined, litigation (including that
related to asbestos and environmental pollution claims) is not expected
36
<PAGE> 39
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 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
Reference is made below to CG Life, which is an indirect subsidiary of
CIGNA. All officers are elected to serve for a one-year term or until their
successors are elected. Principal occupations and employment during the past
five years are listed.
H. EDWARD HANWAY, 45, President of CIGNA HealthCare beginning February 1996;
President of CIGNA International from March 1994 until February 1996; and
President of CIGNA International: Property & Casualty from February 1989 until
March 1994.
GERALD A. ISOM, 58, President of CIGNA Property and Casualty since March 1993;
Group Vice President of Transamerica Corporation from 1990 until March 1993; and
Chief Executive Officer and President of Transamerica Insurance Group from
January 1985 until March 1993. Transamerica Corporation is a major provider of
financial and insurance products.
THOMAS C. JONES, 50, President of CIGNA Individual Insurance since February
1995; President of CG Life since March 1995; President of CIGNA Reinsurance
Property & Casualty from March 1994 until February 1995; Executive Vice
President, Chief Administrative Officer and member of the Boards of Directors of
NAC Re Corporation and NAC Reinsurance Corporation from November 1985 until
January 1994; and Chief Operating Officer of NAC Re Corporation and NAC
Reinsurance Corporation from June 1993 and September 1990, respectively, until
January 1994. NAC Re Corporation is the parent corporation of NAC Reinsurance
Corporation, a major provider of property and casualty reinsurance products.
JOHN K. LEONARD, 48, President of CIGNA Group Insurance: Life, Accident,
Disability since March 1992; and Senior Vice President of CIGNA from March 1989
until March 1992, with responsibility for Corporate Marketing and Strategy.
DONALD M. LEVINSON, 51, Executive Vice President of CIGNA since March 1988, with
responsibility for Human Resources and Services.
FRANCINE M. NEWMAN, 52, President of CIGNA Reinsurance since July 1984.
BYRON D. OLIVER, 54, President of CIGNA Retirement & Investment Services since
February 1988.
ARTHUR C. REEDS, III, 52, President of CIGNA Investment Management since March
1992; and Managing Director and Head of Portfolio Management, CIGNA's Investment
Division, from May 1986 until March 1992.
B. KINGSLEY SCHUBERT, 51, President of CIGNA International beginning February
1996; Senior Vice President of CIGNA International (Asia-Pacific) from March
1995 until February 1996; President of CIGNA Insurance Company in Japan from
June 1992 until February 1996; Senior Vice President of American International
Underwriters Corporation from September 1991 until April 1992. American
International Underwriters Corporation is a subsidiary of American International
Group, Inc., a major provider of insurance products.
JAMES G. STEWART, 54, Executive Vice President and Chief Financial Officer of
CIGNA since 1983.
WILSON H. TAYLOR, 53, Chairman of CIGNA since November 1989; and Chief Executive
Officer of CIGNA since November 1988 and President of CIGNA since May 1988.
37
<PAGE> 40
THOMAS J. WAGNER, 57, Executive Vice President and General Counsel of CIGNA
since January 1992; and Corporate Secretary of CIGNA from January 1988 until
April 1992.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The information under the caption "Quarterly Financial Data--Stock and
Dividend Data" on page 45 and under the caption "Stock Listing" on the inside
back cover of CIGNA's Annual Report is incorporated by reference, as is the
information from Note 8 to CIGNA's Consolidated Financial Statements and the
number of shareholders of record as of December 31, 1996 under the caption
"Highlights" on page one of CIGNA's Annual Report.
ITEM 6. SELECTED FINANCIAL DATA
The five-year financial information under the caption "Highlights" on page
one of CIGNA's Annual Report is incorporated by reference.
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information on pages eight through 21 of CIGNA's Annual Report is
incorporated by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CIGNA's Consolidated Financial Statements on pages 22 through 43 and the
report of its independent accountants on page 44 of CIGNA's Annual Report are
incorporated by reference, as is the unaudited information set forth under the
caption "Quarterly Financial Data--Consolidated Results" on page 45.
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
A. Directors of the Registrant
The information under the captions "Nominees for Election" and "Incumbent
Directors to Continue in Office" on pages 5 and 6 of CIGNA's proxy statement
dated March 19, 1997 are incorporated by reference.
B. Executive Officers of the Registrant
See PART I above.
ITEM 11. EXECUTIVE COMPENSATION
The information under the captions "Executive Compensation" on pages 12
through 16 and "Compensation of Directors" on pages 8 and 9 of CIGNA's proxy
statement dated March 19, 1997 is incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information under the captions "Ownership of CIGNA Corporation Common
Stock and Equivalents by Directors, Nominees and Executive Officers" on pages 2
and 3 and "Ownership of CIGNA Corporation
38
<PAGE> 41
Common Stock by Certain Beneficial Owners" on page 4 of CIGNA's proxy statement
dated March 19, 1997, relating to security ownership of certain beneficial
owners and management, is incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the caption "Certain Transactions" on page 9 of
CIGNA's proxy statement dated March 19, 1997 is incorporated by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
A. (1) The following financial statements have been incorporated by
reference from the pages indicated below of CIGNA's Annual Report:
Consolidated Statements of Income and Retained Earnings for the years
ended December 31, 1996, 1995 and 1994 -- page 22.
Consolidated Balance Sheets as of December 31, 1996 and 1995 -- page 23.
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1995 and 1994--page 24.
Notes to Financial Statements--pages 25 through 43.
Report of Independent Accountants, Price Waterhouse LLP--page 44.
(2) The financial statement schedules are listed in the Index to
Financial Statement Schedules on page FS-1.
(3) The exhibits are listed in the Index to Exhibits beginning on page
E-1.
B. During the last quarter of the fiscal year ended December 31, 1996, the
registrant filed a Report on Form 8-K dated October 30, 1996 containing a copy
of a news release reporting its third quarter 1996 results.
39
<PAGE> 42
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed by
its undersigned duly authorized officer, on its behalf and in the capacity
indicated.
Date: March 27, 1997
CIGNA Corporation
By: /s/ JAMES G. STEWART
------------------------------------
James G. Stewart
Executive Vice President and Chief
Financial Officer (Principal
Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 27, 1997.
<TABLE>
<S> <C>
PRINCIPAL EXECUTIVE OFFICER: DIRECTORS:*
Robert P. Bauman
Robert H. Campbell
Wilson H. Taylor* Alfred C. DeCrane, Jr.
Chairman, Chief Executive Officer James F. English, Jr.
and a Director Bernard M. Fox
Marilyn W. Lewis
Paul F. Oreffice
Charles R. Shoemate
Louis W. Sullivan, M.D.
PRINCIPAL ACCOUNTING OFFICER: Carol Cox Wait
</TABLE>
/s/ GARY A. SWORDS
- --------------------------------------
Gary A. Swords
Vice President and Chief Accounting
Officer
*By: /s/ THOMAS J. WAGNER
-----------------------------------
Thomas J. Wagner
Attorney-in-Fact
40
<PAGE> 43
CIGNA CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE
-----
<C> <S> <C>
Report of Independent Accountants on Financial Statement
Schedules........................................................... FS-2
SCHEDULES
I Summary of Investments--Other Than Investments in Related
Parties as of December 31, 1996.......................... FS-3
II Condensed Financial Information of CIGNA Corporation
(Registrant)............................................. FS-4
III Supplementary Insurance Information........................ FS-8
IV Reinsurance................................................ FS-10
V Valuation and Qualifying Accounts and Reserves............. FS-11
VI Supplemental Information Concerning Property-Casualty
Insurance Operations..................................... FS-12
</TABLE>
Schedules other than those listed above are omitted because they are not
required or are not applicable, or the required information is shown in the
financial statements or notes thereto, which are incorporated by reference from
CIGNA's Annual Report.
FS-1
<PAGE> 44
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULES
To the Board of Directors
of CIGNA Corporation
Our audits of the consolidated financial statements referred to in our
report dated February 11, 1997 appearing on page 44 of the 1996 Annual Report to
Shareholders of CIGNA Corporation (which report and consolidated financial
statements are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the Financial Statement Schedules listed in the index
on page FS-1 of this Form 10-K. In our opinion, these Financial Statement
Schedules present fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements.
/S/ PRICE WATERHOUSE LLP
Philadelphia, Pennsylvania
February 11, 1997
FS-2
<PAGE> 45
CIGNA CORPORATION AND SUBSIDIARIES
SCHEDULE I
SUMMARY OF INVESTMENTS-- OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 1996
(IN MILLIONS)
<TABLE>
<CAPTION>
AMOUNT AT WHICH
SHOWN IN THE
FAIR CONSOLIDATED
TYPE OF INVESTMENT COST VALUE BALANCE SHEET
- ------------------ ------- ------- ---------------
<S> <C> <C> <C>
Fixed maturities
Bonds:
United States government and government agencies and
authorities....................................... $ 1,104 $ 1,275 $ 1,275
States, municipalities and political subdivisions... 1,608 1,776 1,776
Foreign governments................................. 2,272 2,416 2,416
Public utilities.................................... 2,492 2,624 2,624
Convertibles and bonds with warrants attached....... 36 36 36
All other corporate bonds........................... 17,563 18,280 18,280
Asset-backed securities................................ 8,313 8,510 8,510
Redeemable preferred stocks............................ 16 16 16
------- ------- ---------------
Total fixed maturities............................ 33,404 34,933 34,933
------- ------- ---------------
Equity securities
Common stocks:
Industrial, miscellaneous and all other............. 434 523 523
Banks, trust and insurance companies................ 86 117 117
Public utilities.................................... 42 51 51
Non-redeemable preferred stocks........................ 11 10 10
------- ------- ---------------
Total equity securities........................... 573 701 701
Mortgage loans on real estate............................ 10,927 10,927
Policy loans............................................. 7,296 7,296
Real estate investments (including $545 million of real
estate acquired in satisfaction of debt)............... 1,102 1,102
Other long-term investments.............................. 255 255
Short-term investments................................... 1,320 1,320
------- ---------------
Total investments................................. $54,877 $56,534
======= ==============
</TABLE>
FS-3
<PAGE> 46
CIGNA CORPORATION AND SUBSIDIARIES
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF CIGNA CORPORATION
(REGISTRANT)
STATEMENTS OF INCOME
(IN MILLIONS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
------ ----- -----
<S> <C> <C> <C>
Intercompany income...................................... $ 2 $ 2 $ 2
------ ----- -----
Total revenues......................................... 2 2 2
------ ----- -----
Operating expenses:
Interest............................................... 93 109 111
Intercompany interest.................................. 30 29 18
Other.................................................. 10 5 3
------ ----- -----
Total operating expenses............................ 133 143 132
------ ----- -----
Loss before income taxes................................. (131) (141) (130)
Income tax benefit....................................... (39) (34) (34)
------ ----- -----
Loss of parent company................................... (92) (107) (96)
Equity in income of subsidiaries......................... 1,148 318 650
------ ----- -----
Net income............................................... $1,056 $ 211 $ 554
====== ====== ======
</TABLE>
See Notes to Condensed Financial Statements on FS-7.
FS-4
<PAGE> 47
CIGNA CORPORATION AND SUBSIDIARIES
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF CIGNA CORPORATION
(REGISTRANT)
BALANCE SHEETS
(IN MILLIONS)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------
1996 1995
------ ------
<S> <C> <C>
Assets:
Cash and cash equivalents........................................... $ -- $ 4
Investments in subsidiaries......................................... 9,005 9,069
Other assets........................................................ 178 184
Goodwill............................................................ 56 70
------ ------
Total assets..................................................... $9,239 $9,327
====== ======
Liabilities:
Intercompany........................................................ $ 422 $ 179
Short-term debt..................................................... 286 410
Long-term debt...................................................... 853 892
Other liabilities................................................... 470 689
------ ------
Total liabilities................................................ 2,031 2,170
------ ------
Shareholders' Equity:
Common stock (shares issued, 88; 87)................................ 88 87
Additional paid-in capital.......................................... 2,572 2,536
Net unrealized appreciation -- fixed maturities..................... 539 1,025
Net unrealized appreciation -- equity securities.................... 88 73
Net translation of foreign currencies............................... (45) (27)
Retained earnings................................................... 4,855 4,041
Less treasury stock, at cost........................................ (889) (578)
------ ------
Total shareholders' equity....................................... 7,208 7,157
------ ------
Total liabilities and shareholders' equity....................... $9,239 $9,327
====== ======
</TABLE>
See Notes to Condensed Financial Statements on FS-7.
FS-5
<PAGE> 48
CIGNA CORPORATION AND SUBSIDIARIES
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF CIGNA CORPORATION
(REGISTRANT)
STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
-------------------------
1996 1995 1994
------- ----- -----
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income....................................................... $ 1,056 $ 211 $ 554
Adjustments to reconcile net income to net cash provided by (used
in) operating activities:
Equity in income of subsidiaries............................ (1,148) (318) (650)
Dividends received from subsidiaries........................ 926 545 523
Other liabilities........................................... (148) 159 (162)
Other, net.................................................. 6 27 (87)
------- ----- -----
Net cash provided by operating activities................. 692 624 178
------- ----- -----
Cash Flows from Investing Activities:
Capital contributions to subsidiaries............................ (250) (16) (158)
Other, net....................................................... (14) (6) --
------- ----- -----
Net cash used in investing activities..................... (264) (22) (158)
------- ----- -----
Cash Flows from Financing Activities:
Net change in intercompany debt.................................. 253 (471) 164
Net change in commercial paper................................... (6) (13) (38)
Issuance of long-term debt....................................... -- 86 112
Repayment of debt................................................ (157) -- (44)
Repurchase of common stock....................................... (292) -- --
Issuance of common stock......................................... 12 21 5
Dividends paid................................................... (242) (222) (219)
------- ----- -----
Net cash used in financing activities..................... (432) (599) (20)
------- ----- -----
Net increase (decrease) in cash and cash equivalents............. (4) 3 --
Cash and cash equivalents, beginning of year..................... 4 1 1
------- ----- -----
Cash and cash equivalents, end of year........................... $ -- $ 4 $ 1
======= ====== ======
</TABLE>
See Notes to Condensed Financial Statements on FS-7.
FS-6
<PAGE> 49
CIGNA CORPORATION AND SUBSIDIARIES
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF CIGNA CORPORATION
(REGISTRANT)
NOTES TO CONDENSED FINANCIAL STATEMENTS
The accompanying condensed financial statements should be read in
conjunction with the Consolidated Financial Statements and the accompanying
notes thereto in the Annual Report.
Note 1--In 1993, CIGNA implemented SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," which required that debt and
equity securities be classified into different categories and carried at
fair value if they are not classified as held-to-maturity. During the
fourth quarter of 1995, the Financial Accounting Standards Board (FASB)
issued a guide to implementation of SFAS No. 115, which permitted a
one-time opportunity to reclassify securities subject to SFAS No. 115.
Consequently, CIGNA reclassified all held-to-maturity securities to
available-for-sale as of December 31, 1995. The non-cash
reclassification of these securities, which had an aggregate amortized
cost of $11.8 billion and fair value of $12.8 billion, resulted in an
increase of approximately $300 million, net of policyholder-related
amounts and deferred income taxes, in net unrealized appreciation
included in Shareholders' Equity as of December 31, 1995.
Note 2--In February 1997, CIGNA announced its intent to acquire the outstanding
shares of Healthsource, Inc. (Healthsource) for $1.65 billion, including
the payment of approximately $250 million of outstanding Healthsource
long-term debt. Healthsource's principal businesses are managed care and
group indemnity insurance. The transaction, which is subject to
regulatory approval, is expected to be completed in 1997. Healthsource
had revenues of $1.7 billion and a net loss of $4 million for 1996.
Healthsource's shareholders' equity was approximately $400 million as of
December 31, 1996.
Note 3--Long-term debt, net of current maturities, consists of CIGNA's 8.16%
Notes due 2000; 8 3/4% Notes due 2001; 7.17% Notes due 2002; 7.4%
Notes due 2003; 6 3/8% Notes due 2006; 8 1/4% Notes due 2007; 7.65%
Notes due 2023; 8.3% Notes due 2023; and Medium-term Notes with
interest rates ranging from 5 3/4% to 9 3/4%, and original maturity
dates from approximately five to ten years. As of December 31, 1996
and 1995, the weighted average interest rate on Medium-term Notes was
8.5%.
Maturities of long-term debt for each of the next five years are as
follows: 1997--$39 million; 1998--$82 million; 1999--$10 million;
2000--$53 million; 2001--$145 million.
During 1995, CIGNA's 8.2% Convertible Subordinated Debentures due in
2010 were converted through non-cash transactions into approximately
3.6 million shares of CIGNA common stock.
In 1995, CIGNA issued $25 million of unsecured 8.16% Notes due in
2000; $25 million of unsecured 7.17% Notes due in 2002; and $36
million of Medium-term Notes.
As of December 31, 1996, CIGNA had approximately $800 million
remaining under an effective shelf registration statement filed with
the Securities and Exchange Commission that may be issued as debt
securities, equity securities or both, depending upon market
conditions and CIGNA's capital requirements.
Interest paid on short- and long-term debt amounted to $97 million,
$113 million and $109 million for 1996, 1995 and 1994, respectively.
Note 4--CIGNA Corporation files a consolidated U.S. federal income tax return
with its domestic subsidiaries. Net income taxes paid in connection with
the consolidated return were $285 million, $163 million and $477 million
during 1996, 1995 and 1994, respectively.
FS-7
<PAGE> 50
CIGNA CORPORATION AND SUBSIDIARIES
SCHEDULE III
SUPPLEMENTARY INSURANCE INFORMATION
(IN MILLIONS)
<TABLE>
<CAPTION>
DEFERRED FUTURE POLICY UNPAID
POLICY BENEFITS AND CLAIMS
ACQUISITION CONTRACTHOLDER AND CLAIM
SEGMENT COSTS DEPOSIT FUNDS EXPENSES
- ------- ----------- -------------- ---------
<S> <C> <C> <C>
Year Ended December 31, 1996:
Property and Casualty(3):
Domestic (Ongoing only)...................... $ 174 $ -- $ 6,469
International (Ongoing only)................. 248 2,094 2,628
Run-off operations........................... 2 73 7,503
----------- -------------- ---------
Total Property and Casualty................ 424 2,167 16,600
Employee Life and Health Benefits............... 26 4,287 1,927
Employee Retirement and Savings Benefits........ 88 19,106 --
Individual Financial Services................... 692 13,612 314
All Other....................................... -- 2,490 --
----------- -------------- ---------
Total...................................... $ 1,230 $ 41,662 $18,841
=========== =============== ==========
Year Ended December 31, 1995:
Property and Casualty(3):
Domestic (Ongoing only)...................... $ 177 $ -- $ 6,121
International (Ongoing only)................. 203 2,126 2,569
Run-off operations........................... 11 73 8,433
----------- -------------- ---------
Total Property and Casualty................ 391 2,199 17,123
Employee Life and Health Benefits............... 29 4,410 1,914
Employee Retirement and Savings Benefits........ 76 20,233 --
Individual Financial Services................... 613 12,565 266
All Other....................................... -- 2,655 --
----------- -------------- ---------
Total...................................... $ 1,109 $ 42,062 $19,303
=========== =============== ==========
Year Ended December 31, 1994:
Property and Casualty(3):
Domestic -- pre-restructuring................ $ 228 $ -- $14,510
International................................ 185 1,833 2,398
----------- -------------- ---------
Total Property and Casualty................ 413 1,833 16,908
Employee Life and Health Benefits............... 28 3,909 2,125
Employee Retirement and Savings Benefits........ 71 19,493 --
Individual Financial Services................... 616 10,080 213
All Other....................................... -- 2,138 --
----------- -------------- ---------
Total...................................... $ 1,128 $ 37,453 $19,246
=========== =============== ==========
</TABLE>
- ------------
(1) Amounts presented are shown net of the effects of reinsurance.
(2) The allocation of net investment income is based upon the investment year
method, the identification of certain portfolios with specific segments, or
a combination of both.
(3) CIGNA's domestic property and casualty operations were restructured into
ongoing and run-off operations effective December 31, 1995. Amounts shown
for the Property and Casualty segment's ongoing and run-off operations for
1995 are reported on a pro forma basis as though the restructuring was in
place at the beginning of 1995. These pro forma results are not necessarily
indicative of the results that would have been reported had the
restructuring actually occurred as of January 1, 1995. Information for the
Property and Casualty segment on a pro forma basis is not available prior to
1995. Consolidated Property and Casualty segment amounts, including
International, did not change as a result of the restructuring.
FS-8
<PAGE> 51
<TABLE>
<CAPTION>
BENEFITS,
PREMIUMS NET LOSSES AND
UNEARNED AND INVESTMENT SETTLEMENT
SEGMENT PREMIUMS FEES(1) INCOME(2) EXPENSES(1)
- ------- -------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Year Ended December 31, 1996:
Property and Casualty(3):
Domestic (Ongoing only)...................... $ 862 $ 1,671 $ 259 $ 1,298
International (Ongoing only)................. 870 2,568 243 1,631
Run-off operations........................... 17 159 302 332
-------- -------- ----------- -----------
Total Property and Casualty................ 1,749 4,398 804 3,261
Employee Life and Health Benefits............... 139 8,341 567 6,229
Employee Retirement and Savings Benefits........ -- 235 1,680 1,419
Individual Financial Services................... 52 942 1,039 1,363
All Other....................................... -- -- 243 201
-------- -------- ----------- -----------
Total...................................... $1,940 $13,916 $ 4,333 $12,473
========== ========== ============ ===========
Year Ended December 31, 1995:
Property and Casualty(3):
Domestic (Ongoing only)...................... $ 930 $ 1,749 $ 240 $ 1,375
International (Ongoing only)................. 956 2,716 268 1,811
Run-off operations........................... 110 175 286 1,576
-------- -------- ----------- -----------
Total Property and Casualty................ 1,996 4,640 794 4,762
Employee Life and Health Benefits............... 150 8,135 574 6,105
Employee Retirement and Savings Benefits........ -- 258 1,722 1,522
Individual Financial Services................... 30 881 968 1,268
All Other....................................... -- -- 238 198
-------- -------- ----------- -----------
Total...................................... $2,176 $13,914 $ 4,296 $13,855
========== ========== ============ ===========
Year Ended December 31, 1994:
Property and Casualty(3):
Domestic -- pre-restructuring................ $1,291 $ 2,650 $ 537 $ 2,801
International................................ 1,033 2,393 219 1,613
-------- -------- ----------- -----------
Total Property and Casualty................ 2,324 5,043 756 4,414
Employee Life and Health Benefits............... 218 7,844 515 5,766
Employee Retirement and Savings Benefits........ -- 201 1,722 1,469
Individual Financial Services................... 33 824 741 1,065
All Other....................................... -- -- 212 212
-------- -------- ----------- -----------
Total...................................... $2,575 $13,912 $ 3,946 $12,926
========== ========== ============ ===========
</TABLE>
FS-9
<PAGE> 52
<TABLE>
<CAPTION>
POLICY OTHER
ACQUISITION OPERATING PREMIUMS
SEGMENT EXPENSES EXPENSES WRITTEN
- ------- ----------- --------- --------
<S> <C> <C> <C>
Year Ended December 31, 1996:
Property and Casualty(3):
Domestic (Ongoing only)...................... $ 383 $ 356 $1,637
International (Ongoing only)................. 545 435 1,787
Run-off operations........................... 58 100 76
----------- --------- --------
Total Property and Casualty................ 986 891 3,500
Employee Life and Health Benefits............... 12 2,313 --
Employee Retirement and Savings Benefits........ 21 181 --
Individual Financial Services................... 119 333 --
All Other....................................... -- 20 --
----------- --------- --------
Total...................................... $ 1,138 $ 3,738 $3,500
=========== ========= ==========
Year Ended December 31, 1995:
Property and Casualty(3):
Domestic (Ongoing only)...................... $ 445 $ 474 $1,706
International (Ongoing only)................. 561 430 1,817
Run-off operations........................... 41 82 64
----------- --------- --------
Total Property and Casualty................ 1,047 986 3,587
Employee Life and Health Benefits............... 9 2,193 --
Employee Retirement and Savings Benefits........ 18 159 --
Individual Financial Services................... 107 314 --
All Other....................................... -- 16 --
----------- --------- --------
Total...................................... $ 1,181 $ 3,668 $3,587
=========== ========= ==========
Year Ended December 31, 1994:
Property and Casualty(3):
Domestic -- pre-restructuring................ $ 567 $ 530 $2,437
International................................ 500 436 1,635
----------- --------- --------
Total Property and Casualty................ 1,067 966 4,072
Employee Life and Health Benefits............... 11 2,044 --
Employee Retirement and Savings Benefits........ 17 162 --
Individual Financial Services................... 70 292 --
All Other....................................... 1 31 --
----------- --------- --------
Total...................................... $ 1,166 $ 3,495 $4,072
=========== ========= ==========
</TABLE>
<PAGE> 53
CIGNA CORPORATION AND SUBSIDIARIES
SCHEDULE IV
REINSURANCE
(DOLLAR AMOUNTS IN MILLIONS)
<TABLE>
<CAPTION>
PERCENTAGE
CEDED TO ASSUMED OF AMOUNT
GROSS OTHER FROM OTHER NET ASSUMED
AMOUNT COMPANIES COMPANIES AMOUNT TO NET
-------- --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1996:
Life insurance in force............... $502,558 $54,850 $155,100 $602,808 25.7%
======== ======== ========= ======== =========
Premiums and fees:
Life insurance and annuities....... $ 3,142 $ 252 $ 710 $ 3,600 19.7%
Accident and health insurance...... 7,324 339 392 7,377 5.3
Property and casualty insurance.... 3,839 1,531 631 2,939 21.5
-------- --------- ---------- --------
Total......................... $ 14,305 $ 2,122 $ 1,733 $ 13,916 12.5%
======== ======== ========= ======== =========
Year Ended December 31, 1995:
Life insurance in force............... $506,313 $44,683 $158,414 $620,044 25.5%
======== ======== ========= ======== =========
Premiums and fees:
Life insurance and annuities....... $ 2,978 $ 171 $ 591 $ 3,398 17.4%
Accident and health insurance...... 7,030 336 719 7,413 9.7
Property and casualty insurance.... 4,115 1,745 733 3,103 23.6
-------- --------- ---------- --------
Total......................... $ 14,123 $ 2,252 $ 2,043 $ 13,914 14.7%
======== ======== ========= ======== =========
Year Ended December 31, 1994:
Life insurance in force............... $496,373 $33,891 $152,334 $614,816 24.8%
======== ======== ========= ======== =========
Premiums and fees:
Life insurance and annuities....... $ 2,905 $ 133 $ 520 $ 3,292 15.8%
Accident and health insurance...... 6,566 310 646 6,902 9.3
Property and casualty insurance.... 4,591 1,894 1,021 3,718 27.5
-------- --------- ---------- --------
Total......................... $ 14,062 $ 2,337 $ 2,187 $ 13,912 15.7%
======== ======== ========= ======== =========
</TABLE>
FS-10
<PAGE> 54
CIGNA CORPORATION
SCHEDULE V
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN MILLIONS)
<TABLE>
<CAPTION>
CHARGED CHARGED
(CREDITED) (CREDITED)
BALANCE AT TO TO OTHER OTHER BALANCE
BEGINNING COSTS AND ACCOUNTS DEDUCTIONS AT END
DESCRIPTION OF PERIOD EXPENSES --DESCRIBE(1) --DESCRIBE(2) OF PERIOD
- ----------- ---------- --------- ------------- ------------- ---------
<S> <C> <C> <C> <C> <C>
1996:
INVESTMENT ASSET VALUATION RESERVES:
Mortgage loans...................... $ 88 $ 26 $37 $ (50) $ 101
Real estate......................... 109 18 11 (21) 117
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Premiums, accounts and notes
receivable........................ 105 13 -- (20) 98
Reinsurance recoverables............ 700 31 -- (20) 711
DEFERRED TAX ASSET VALUATION
ALLOWANCE........................... 48 (1) -- -- 47
1995:
INVESTMENT ASSET VALUATION RESERVES:
Mortgage loans...................... $179 $ 3 $10 $(104) $ 88
Real estate......................... 104 5 10 (10) 109
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Premiums, accounts and notes
receivable........................ 115 16 -- (26) 105
Reinsurance recoverables............ 435 273 -- (8) 700
DEFERRED TAX ASSET VALUATION
ALLOWANCE........................... 47 1 -- -- 48
1994:
INVESTMENT ASSET VALUATION RESERVES:
Fixed maturities.................... $ 11 $ -- $-- $ (11) $ --
Mortgage loans...................... 216 8 24 (69) 179
Real estate......................... 98 6 6 (6) 104
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Premiums, accounts and notes
receivable........................ 97 40 -- (22) 115
Reinsurance recoverables............ 405 42 -- (12) 435
DEFERRED TAX ASSET VALUATION
ALLOWANCE........................... 53 (6) -- -- 47
</TABLE>
- ---------------
(1) Change in valuation reserves attributable to policyholder contracts.
(2) Reflects transfer of reserves to other investment asset categories as well
as charge-offs upon sales, repayments and other.
FS-11
<PAGE> 55
CIGNA CORPORATION AND SUBSIDIARIES
SCHEDULE VI
SUPPLEMENTAL INFORMATION CONCERNING
PROPERTY-CASUALTY INSURANCE OPERATIONS
(IN MILLIONS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ------------------------------------------------------------------------------------------------------------
RESERVES FOR
DEFERRED UNPAID CLAIMS DISCOUNT,
AFFILIATION POLICY AND CLAIM IF ANY,
WITH ACQUISITION ADJUSTMENT DEDUCTED IN UNEARNED
REGISTRANT COSTS EXPENSES COLUMN C(1) PREMIUMS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year Ended December 31, 1996:
Consolidated property-casualty
entities........................ $ 409 $16,482 $18 $1,485
Year Ended December 31, 1995:
Consolidated property-casualty
entities........................ $ 386 $17,023 $19 $1,632
Year Ended December 31, 1994:
Consolidated property-casualty
entities........................ $ 406 $16,825 $20 $1,869
</TABLE>
- ---------------
(1) Discounts were computed using an annual interest rate of 9%.
(2) Amounts presented are shown net of the effects of reinsurance.
FS-12
<PAGE> 56
<TABLE>
<CAPTION>
------------------------------------------------------
COLUMN F COLUMN G COLUMN H
------------------------------------------------------
CLAIMS AND CLAIM
ADJUSTMENT EXPENSES
NET INCURRED RELATED TO:
EARNED INVESTMENT CURRENT PRIOR
PREMIUMS(2) INCOME YEAR(2) YEAR(2)
------------------------------------------------------
<S> <C> <C> <C> <C>
Year Ended December 31, 1996:
Consolidated property-casualty
entities........................ $3,576 $687 $2,348 $ 177
Year Ended December 31, 1995:
Consolidated property-casualty
entities........................ $3,729 $674 $2,386 $1,498
Year Ended December 31, 1994:
Consolidated property-casualty
entities........................ $4,247 $657 $3,093 $ 538
</TABLE>
FS-13
<PAGE> 57
<TABLE>
<CAPTION>
COLUMN I COLUMN J COLUMN K
-------------------------------------------
AMORTIZATION
OF DEFERRED PAID CLAIMS
POLICY AND CLAIM
ACQUI- ADJUSTMENT PREMIUMS
SITION COSTS EXPENSES(2) WRITTEN
-------------------------------------------
<S> <C> <C> <C>
Year Ended December 31, 1996:
Consolidated property-casualty
entities......................... $ 887 $ 3,037 $3,500
Year Ended December 31, 1995:
Consolidated property-casualty
entities......................... $ 950 $ 3,360 $3,587
Year Ended December 31, 1994:
Consolidated property-casualty
entities......................... $1,054 $ 3,656 $4,072
</TABLE>
<PAGE> 58
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION METHOD OF FILING
- -------- --------------------------------------------- ---------------------------------------------
<S> <C> <C>
3.1 Restated Certificate of Incorporation of the Filed as Exhibit 3.1 to the registrant's Form
registrant as last amended October 2, 1990 10-K for the year ended December 31, 1993 and
incorporated herein by reference.
3.2 By-Laws of the registrant as last amended and Filed herewith.
restated December 9, 1996
4 (a) Description of Preferred Stock Purchase Filed as Item 1 and Exhibit 1 to the
Rights, including the Rights Agreement dated registrant's Form 8-A Registration Statement
as of July 23, 1987 between CIGNA Corporation dated July 28, 1987, such Exhibit 1 amended
and Morgan Shareholder Services Trust Company by the registrant's Amendment No. 1 on Form 8
dated August 11, 1987, and incorporated
herein by reference.
(b) Amended description of Preferred Stock Filed as Item 1 and Exhibit 2 to the
Purchase Rights, including the First registrant's Amendment No. 2 on Form 8 dated
Amendment to Rights Agreement dated as of March 27, 1989 and incorporated herein by
March 22, 1989 between CIGNA Corporation and reference.
Morgan Shareholder Services Trust Company
Exhibits 10.1 through 10.17 are filed as exhibits pursuant to Item 14(c) of Form 10-K.
10.1 Deferred Compensation Plan for Directors of Filed herewith.
CIGNA Corporation, as amended and restated as
of January 1, 1997
10.2 Retirement and Consulting Plan for Directors Filed as Exhibit 10.12 to the registrant's
of CIGNA Corporation, as amended and restated Form 10-K for the year ended December 31,
as of May 29, 1991 1993 and incorporated herein by reference.
10.3 (a) Restricted Stock Plan for Non-Employee Filed as Exhibit 10.15 to the registrant's
Directors of CIGNA Corporation effective as Form 10-K for the year ended December 31,
of September 30, 1989 1993 and incorporated herein by reference.
(b) Description of First Amendment to the Filed as Exhibit 10.16 to the registrant's
Restricted Stock Plan for Non-Employee Form 10-K for the year ended December 31,
Directors of CIGNA Corporation 1993 and incorporated herein by reference.
10.4 Description of Stock Compensation Plan for Filed as Exhibit 10.3 to the registrant's
Non-Employee Directors of CIGNA Corporation, Form 10-Q for the quarter ended September 30,
as amended and restated effective July 1, 1995 and incorporated herein by reference.
1995
10.5 (a) CIGNA Corporation Stock Plan effective as of Filed as Exhibit 10.1 to the registrant's
May 1, 1991 Form 10-K for the year ended December 31,
1993 and incorporated herein by reference.
(b) Amendment No. 1 dated as of July 28, 1993 to Filed as Exhibit 10.2 to the registrant's
the CIGNA Corporation Stock Plan Form 10-K for the year ended December 31,
1993 and incorporated herein by reference.
(c) Amendment No. 2 dated as of February 24, 1994 Filed as Exhibit 10.3 to the registrant's
to the CIGNA Corporation Stock Plan Form 10-K for the year ended December 31,
1993 and incorporated herein by reference.
(d) Amendment No. 3 dated as of July 31, 1996 to Filed as Exhibit 10.2 to the registrant's
the CIGNA Corporation Stock Plan Form 10-Q for the quarter ended June 30, 1996
and incorporated herein by reference.
</TABLE>
E-1
<PAGE> 59
<TABLE>
<CAPTION>
NUMBER DESCRIPTION METHOD OF FILING
- -------- --------------------------------------------- ---------------------------------------------
<S> <C> <C>
(e) Amendment No. 4 dated as of December 16, 1996 Filed herewith.
to the CIGNA Corporation Stock Plan
10.6 (a) CIGNA Corporation Executive Stock Incentive Filed as Exhibit 10.4 to the registrant's
Plan, as Amended and Restated as of March 23, Form 10-K for the year ended December 31,
1988 1993 and incorporated herein by reference.
(b) Amendment No. 1 dated as of September 28, Filed as Exhibit 10.5 to the registrant's
1988 to the CIGNA Corporation Executive Stock Form 10-K for the year ended December 31,
Incentive Plan 1993 and incorporated herein by reference.
(c) Amendment No. 2 dated as of March 27, 1991 to Filed as Exhibit 10.6 to the registrant's
the CIGNA Corporation Executive Stock Form 10-K for the year ended December 31,
Incentive Plan 1993 and incorporated herein by reference.
(d) Amendment No. 3 dated as of July 31, 1996 to Filed as Exhibit 10.3 to the registrant's
the CIGNA Corporation Executive Stock Form 10-Q for the quarter ended June 30, 1996
Incentive Plan and incorporated herein by reference.
10.7 (a) CIGNA Long-Term Incentive Plan Filed as Appendix A to the registrant's
definitive proxy statement on Schedule 14A
dated March 20, 1995 and incorporated herein
by reference.
(b) Amendment No. 1 dated as of July 31, 1996 to Filed as Exhibit 10.1 to the registrant's
the CIGNA Long-Term Incentive Plan Form 10-Q for the quarter ended June 30, 1996
and incorporated herein by reference.
(c) Amendment No. 2 dated as of December 16, 1996 Filed herewith.
to the CIGNA Long-Term Incentive Plan
10.8 (a) CIGNA Corporation Strategic Performance Plan, Filed as Exhibit 10.8 to the registrant's
as amended and restated March 25, 1992 Form 10-K for the year ended December 31,
1993 and incorporated herein by reference.
(b) Description of January 25, 1995 Amendment to Filed as Exhibit 10.1 to the registrant's
the CIGNA Corporation Strategic Performance Form 10-Q for the quarter ended March 31,
Plan 1995 and incorporated herein by reference.
10.9 (a) Deferred Compensation Plan of CIGNA Filed as Exhibit 10.15 to the registrant's
Corporation and Participating Subsidiaries, Form 10-K for the year ended December 31,
as amended and restated as of January 1, 1996 1995 and incorporated herein by reference.
(b) Amendment No. 1 dated as of December 16, 1996 Filed herewith.
to the Deferred Compensation Plan of CIGNA
Corporation and Participating Subsidiaries
10.10(a) CIGNA Supplemental Pension Plan, as amended Filed as Exhibit 10.1 to the registrant's
and restated as of July 28, 1993 Form 10-Q for the quarter ended June 30, 1994
and incorporated herein by reference.
(b) Description of July 26, 1995 Amendment to Filed as Exhibit 10.1 to the registrant's
CIGNA Supplemental Pension Plan Form 10-Q for the quarter ended September 30,
1995 and incorporated herein by reference.
10.11 CIGNA Executive Severance Benefits Plan, as Filed herewith.
amended and restated as of December 16, 1996
10.12 Description of CIGNA Corporation Financial Filed as Exhibit 10.9 to the registrant's
Services Program Form 10-K for the year ended December 31,
1993 and incorporated herein by reference.
</TABLE>
E-2
<PAGE> 60
<TABLE>
<CAPTION>
NUMBER DESCRIPTION METHOD OF FILING
- -------- --------------------------------------------- ---------------------------------------------
<S> <C> <C>
10.13 Description of the CIGNA Corporation Key Filed as Exhibit 10.7 to the registrant's
Management Annual Incentive Bonus Plan Form 10-K for the year ended December 31,
1993 and incorporated herein by reference.
10.14 Agreement dated February 9, 1993 between Mr. Filed as Exhibit 10.14 to the registrant's
Isom and the registrant Form 10-K for the year ended December 31,
1993 and incorporated herein by reference.
10.15 Form of Special Retention Agreement with Filed as Exhibit 10.3 to the registrant's
Messrs. Taylor and Stewart Form 10-Q for the quarter ended March 31,
1995 and incorporated herein by reference.
10.16 Special Retention Agreement with Mr. Levinson Filed as Exhibit 10.26 to the registrant's
Form 10-K for the year ended December 31,
1995 and incorporated herein by reference.
10.17 Description of Mandatory Deferral of Non- Filed herewith.
Deductible Executive Compensation Arrangement
11 Computation of Primary and Fully Diluted Filed herewith.
Earnings Per Share
12 Computation of Ratios of Earnings to Fixed Filed herewith.
Charges
13 Portions of registrant's 1996 Annual Report Filed herewith.
to Shareholders (Entire Annual Report bound
in printed versions of Form 10-K.)
21 Subsidiaries of the Registrant Filed herewith.
23 Consent of Independent Accountants Filed herewith.
24.1 Powers of Attorney Filed herewith.
24.2 Certified Resolutions Filed herewith.
27 Financial Data Schedule Filed as Exhibit 27 to the registrant's Form
8-K dated March 5, 1997.
</TABLE>
The registrant will furnish to the Commission upon request a copy of any of
the registrant's agreements with respect to its long-term debt.
Shareholders may obtain copies of exhibits by writing to CIGNA Corporation,
Shareholder Services Department, Two Liberty Place, 1601 Chestnut Street, P.O.
Box 7716, Philadelphia, Pennsylvania 19192-2378.
E-3
<PAGE> 1
EXHIBIT 3.2
BY-LAWS
CIGNA
CORPORATION
A Delaware Corporation
Incorporated November 3, 1981
As Amended and Restated
January 22, 1997
<PAGE> 2
INDEX TO BY-LAWS
ARTICLE I OFFICES Page
----
Section 1. Registered Office 1
Section 2. Other Offices 1
ARTICLE II MEETINGS OF SHAREHOLDERS
Section 1. Place of Meetings 1
Section 2. Annual Meeting 1
Section 3. Special Meetings 2
Section 4. Notice of Meetings 2
Section 5. List of Shareholders 3
Section 6. Quorum, Adjournments 3
Section 7. Organization 4
Section 8. Order of and Rules for
Conducting Business 4
Section 9. Voting 5
Section 10. Inspectors of Election 7
Section 11. Nomination of Directors 8
Section 12. Notice of Shareholder
Business 10
ARTICLE III BOARD OF DIRECTORS
Section 1. General Powers 12
Section 2. Number, Qualifications,
Election and Term of Office 12
Section 3. Place of Meetings 13
Section 4. Annual Organization 13
Section 5. Regular Meetings 14
Section 6. Special Meetings 14
Section 7. Notice of Meetings 14
Section 8. Quorum and Manner of Acting 15
Section 9. Organization 16
Section 10. Resignations 16
Section 11. Vacancies 16
Section 12. Removal of Directors 16
Section 13. Compensation 17
Section 14. Committees 17
Section 15. Action by Consent 18
Section 16. Telephonic Meeting 19
-i-
<PAGE> 3
ARTICLE IV OFFICERS Page
----
Section 1. Number and Qualifications 19
Section 2. Resignations 20
Section 3. Removal 20
Section 4. Chairman of the Board 20
Section 5. President 21
Section 6. Vice Presidents 21
Section 7. Treasurer 21
Section 8. Corporate Secretary 22
Section 9. Assistant Treasurer 23
Section 10. Assistant Corporate Secretary 24
Section 11. Designation 24
Section 12. Agents and Employees 24
Section 13. Officers' Bonds or Other
Security 24
Section 14. Compensation 25
Section 15. Terms 25
ARTICLE V STOCK CERTIFICATES AND THEIR TRANSFER
Section 1. Stock Certificates 25
Section 2. Facsimile Signatures 26
Section 3. Lost Certificates 26
Section 4. Transfers of Stock 27
Section 5. Transfer Agents and
Registrars 27
Section 6. Regulations 28
Section 7. Fixing the Record Date 28
Section 8. Registered Shareholders 28
ARTICLE VI INDEMNIFICATION
Section 1. General 29
Section 2. Derivative Actions 30
Section 3. Indemnification in Certain
Cases 31
Section 4. Procedure 31
Section 5. Advances for Expenses 31
Section 6. Exclusion of Mandatory
Indemnification and Advances
in Certain Cases 32
Section 7. Rights Not Exclusive 32
Section 8. Insurance 33
Section 9. Definition of Corporation 33
Section 10. Definition of Other Terms 34
Section 11. Right of Indemnitee to
Bring Suit in Certain
Circumstances 34
-ii-
<PAGE> 4
ARTICLE VII GENERAL PROVISIONS Page
----
Section 1. Dividends 37
Section 2. Reserves 38
Section 3. Seal 38
Section 4. Fiscal Year 38
Section 5. Contributions 38
Section 6. Borrowing, etc. 38
Section 7. Deposits 39
Section 8. Execution of Contracts,
Deeds, etc. 39
Section 9. Voting of Stock in Other
Corporations 39
Section 10. Form of Records 40
Section 11. Repurchase of Stock 40
ARTICLE VIII AMENDMENTS 41
ARTICLE IX DEFINITIONS 41
-iii-
<PAGE> 5
BY-LAWS OF
CIGNA CORPORATION
(A Delaware Corporation)
ARTICLE I
Offices
SECTION 1. Registered Office. The registered office of the Corporation
within the State of Delaware shall be in the City of Wilmington, County of New
Castle.
SECTION 2. Other Offices. The Corporation may also have offices at such
other places, both within and without the State of Delaware, as the Board of
Directors shall from time to time determine or the business of the Corporation
may require.
ARTICLE II
Meetings of Shareholders
SECTION 1. Place of Meetings. All meetings of the shareholders for the
election of directors or for any other purpose shall be held at any such place,
either within or without the State of Delaware, as shall be designated from time
to time by the Board of Directors and stated in the notice of the meeting.
SECTION 2. Annual Meeting. The annual meeting of shareholders,
commencing with the year 1984, shall be held at 9:30 A.M. on the fourth
Wednesday in April of each year, if not a legal
-1-
<PAGE> 6
holiday, and if a legal holiday, then on the next succeeding day not a legal
holiday, at 9:30 A.M., or on such other date and time as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting. At such annual meeting, the shareholders shall elect, by a plurality
vote, a Board of Directors and transact such other business as may properly be
brought before the meeting.
SECTION 3. Special Meetings. Special meetings of shareholders, unless
otherwise prescribed by statute, may be called at any time by the Board of
Directors or the Chairman of the Board.
SECTION 4. Notice of Meetings. Except as otherwise expressly required by
statute, written notice of each annual and special meeting of shareholders
stating the place, date and time of the meeting, and, in the case of a special
meeting, the purpose or purposes for which the meeting is called, shall be given
to each shareholder of record entitled to vote thereat not less than ten nor
more than sixty days before the date of the meeting. Business transacted at any
special meeting of shareholders shall be limited to the purposes stated in the
notice. Notice shall be given personally or by mail and, if by mail, shall be
sent in a postage prepaid envelope, addressed to the shareholder at his address
as it appears on the records of the Corporation. Such notice by mail shall be
deemed given at the time when the same shall be deposited in the United States
mail, postage prepaid. Notice of any meeting shall not be required to be given
to any person who attends such
-2-
<PAGE> 7
meeting, except when such person attends the meeting in person or by proxy for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened, or who, either before or after the meeting, shall submit a signed
written waiver of notice, in person or by proxy. Neither the business to be
transacted at, nor the purpose of, an annual or special meeting of shareholders
need be specified in any written waiver of notice.
SECTION 5. List of Shareholders. The Corporate Secretary of the
Corporation, or such other person who has charge of the stock ledger of the
Corporation shall prepare and make, at least ten days before each meeting of
shareholders, a complete list of the shareholders entitled to vote at the
meeting, arranged in alphabetical order, showing the address of and the number
of shares registered in the name of each shareholder. Such list shall be open to
the examination of any shareholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city, town or village where the meeting is
to be held, which place shall be specified in the notice of meeting, or, if not
specified, at the place where the meeting is to be held. The list shall be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any shareholder who is present.
SECTION 6. Quorum, Adjournments. The holders of at least two-fifths of
the issued and outstanding stock of the Corporation
-3-
<PAGE> 8
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum for the transaction of business at all meetings of
shareholders, except as otherwise provided by statute or by the Certificate of
Incorporation. If, however, such quorum shall not be present or represented by
proxy at any meeting of shareholders, the shareholders entitled to vote thereat,
present in person or represented by proxy, shall have the power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented by proxy. At such
adjourned meeting at which a quorum shall be present or represented by proxy,
any business may be transacted which might have been transacted at the meeting
as originally called. If the adjournment is for more than thirty days, or, if
after adjournment a new record date is set, a notice of the adjourned meeting
shall be given to each shareholder of record entitled to vote at the meeting.
SECTION 7. Organization. At each meeting of shareholders, the Chairman
of the Board, or, in his absence, a chairman designated by the Board of
Directors, or in the absence of such designation a chairman chosen at the
meeting, shall act as chairman of the meeting. The Corporate Secretary or, in
his absence or inability to act, the person whom the chairman of the meeting
shall appoint secretary of the meeting shall act as secretary of the meeting and
keep the minutes thereof.
SECTION 8. Order of and Rules for Conducting Business. The order of and
the rules for conducting business at all meetings of
-4-
<PAGE> 9
the shareholders shall be as determined by the chairman of the meeting.
SECTION 9. Voting. Except as otherwise provided by statute, the
Certificate of Incorporation, or any resolution or resolutions adopted by the
Board of Directors pursuant to the authority vested in it by the Certificate of
Incorporation, each shareholder of the Corporation shall be entitled at each
meeting of shareholders to one vote for each share of capital stock of the
Corporation standing in his name on the record of shareholders of the
Corporation:
(a) on the date fixed pursuant to the provisions of Section 7 of
Article V of these By-Laws as the record date for the determination of
the shareholders who shall be entitled to notice of and to vote at such
meeting; or
(b) if no such record date shall have been fixed, then at the
close of business on the day next preceding the day on which notice
thereof shall be given, or, if notice is waived by all shareholders, at
the close of business on the day next preceding the day on which the
meeting is held.
Each shareholder entitled to vote at any meeting of shareholders
may vote in person or may authorize another person or persons to act for him by
a proxy authorized by an instrument in writing or by a transmission permitted by
law delivered to the Inspectors of Election, but no such proxy shall be voted
after three years from its date, unless the proxy provides for a longer period.
Any copy, facsimile telecommunication or other reliable
-5-
<PAGE> 10
reproduction of the writing or transmission created pursuant to this paragraph
may be substituted or used in lieu of the original writing or transmission for
any and all purposes for which the original writing or transmission could be
used, provided that such copy, facsimile telecommunication or other reproduction
shall be a complete reproduction of the entire original writing or transmission.
A duly executed proxy shall be irrevocable if it states that it is irrevocable
and if, and only as long as, it is coupled with an interest sufficient in law to
support an irrevocable power. A shareholder may revoke any proxy which is not
irrevocable by attending the meeting and voting in person or by delivering an
instrument in writing or a transmission permitted by law revoking the proxy or
constituting another valid proxy bearing a later date to the Inspectors. Any
such proxy shall be delivered to the Inspectors, or such other person so
designated to receive proxies, at or prior to the time designated in the order
of business for so delivering such proxies. When a quorum is present at any
meeting, the vote of the shareholders who are present in person or represented
by proxy and who hold a majority of the voting power of the issued and
outstanding stock of the Corporation represented at such meeting and entitled to
vote thereon, shall decide any question brought before such meeting, unless the
question is one upon which by express provision of statute or of the Certificate
of Incorporation or of these By-Laws, a different vote is required, in which
case such express provision shall govern and control the decision of such
question.
-6-
<PAGE> 11
Unless required by statute, or determined by the chairman of the meeting to be
advisable, the vote on any question need not be by ballot. On a vote by ballot,
each ballot shall be signed by the shareholder voting, or by his proxy, if there
be such proxy, and shall state the number of shares voted.
SECTION 10. Inspectors of Election. The Board of Directors or the
Chairman of the Board of the Corporation shall, in advance of any meeting of
shareholders, appoint one or more Inspectors of Election to act at the meeting
or at any adjournment and make a written report thereof, and may designate one
or more persons as alternate Inspectors to replace any Inspectors who fail to
act. If no Inspector or alternate is able to act at a meeting of shareholders,
the chairman of the meeting shall appoint one or more Inspectors to act at the
meeting. Each Inspector, before entering upon the discharge of his duties, shall
take and sign an oath faithfully to execute the duties of Inspector at such
meeting with strict impartiality and according to his best ability. The
Inspectors shall determine the number of shares outstanding and the voting power
of each, the number of shares represented at the meeting and the validity of
proxies and ballots, receive and count all votes and ballots, determine all
challenges and questions arising in connection with the right to vote, retain
for a reasonable period a record of the disposition of any challenges made to
any determination by the Inspectors, and certify their determination of the
number of shares represented at the meeting, and their count of all votes and
ballots and report the same to
-7-
<PAGE> 12
the chairman of the meeting, and do such acts as are proper to conduct the
election or vote with fairness to all shareholders. The Inspectors may appoint
or retain other persons or entities to assist the Inspectors in the performance
of the duties of the Inspectors. The date and time of the opening and the
closing of the polls for each matter upon which the shareholders will vote at a
meeting shall be announced at the meeting. No ballot, proxies or votes, nor any
revocations thereof or changes thereto, shall be accepted by the Inspectors
after the closing of the polls unless the Court of Chancery upon application by
a shareholder shall determine otherwise. On request of the chairman of the
meeting, the Inspectors shall make a report in writing of any challenge, request
or matter determined by them and shall execute a certificate of any fact found
by them. No director or candidate for the office of director shall act as an
Inspector of an election of directors. Inspectors need not be shareholders.
Section 11. Nomination of Directors. Nominations of persons for election
to the Board of Directors of the Corporation may be made at a meeting of
shareholders (a) by or at the direction of the Board of Directors or (b) by any
shareholder of the Corporation who is a shareholder of record at the time of
giving of notice provided for in this Section, who shall be entitled to vote for
the election of directors at the meeting and who complies with the notice
procedures set forth in this Section. Such nominations, other than those made by
or at the direction of the Board of Directors, shall be made pursuant to timely
notice in
-8-
<PAGE> 13
writing to the Corporate Secretary of the Corporation. To be timely, a
shareholder's notice shall be delivered to or mailed and received at the
principal executive offices of the Corporation not less than 90 days prior to
the meeting; provided, however, that in the event that less than 90 days' notice
or prior public disclosure of the date of the meeting is given or made to
shareholders, notice by the shareholder to be timely must be so received not
later than the close of business on the 10th day following the day on which such
notice of the date of the meeting was first given or such public disclosure was
first made. Such shareholder's notice shall set forth (a) as to each person whom
the shareholder proposes to nominate for election or reelection as a director
all information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required, in
each case pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (including such person's written consent to being named in the proxy
statement as a nominee and to serving as a director if elected); and (b) as to
the shareholder giving notice (i) the name and address, as they appear on the
Corporation's stock ledger, of such shareholder, (ii) the class and number of
shares of the Corporation which are beneficially owned by such shareholder and
(iii) if the shareholder intends to solicit proxies in support of such
shareholder's nominees, a representation to that effect. At the request of the
Board of Directors, any person nominated by the Board of Directors for election
as a director shall furnish to the
-9-
<PAGE> 14
Corporate Secretary of the Corporation that information required to be set forth
in a shareholder's notice of nomination which pertains to the nominee. No person
shall be eligible for election at any meeting of shareholders as a director of
the Corporation unless nominated in compliance with the procedures set forth in
this Section. The chairman of the meeting shall, if the facts warrant, determine
and declare to the meeting that a nomination was not made in compliance with the
procedures prescribed by the By-Laws, and if he should so determine, he shall so
declare to the meeting and the defective nominations shall be disregarded.
Notwithstanding the foregoing provisions of this Section, a shareholder shall
also comply with all applicable requirements of the Securities Exchange Act of
1934, as amended, and the rules and regulations thereunder with respect to the
matters set forth in this Section 11.
SECTION 12. Notice of Shareholder Business. At the annual meeting of
shareholders, only such business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before an annual meeting
business must be a proper subject for shareholder action under the Delaware
General Corporation Law and must be (a) specified in the notice of meeting (or
any supplement thereto) given by or at the direction of the Board of Directors,
(b) otherwise properly brought before the meeting by or at the direction of the
Board of Directors, or (c) otherwise properly brought before the meeting by a
shareholder of the Corporation who is a shareholder of record at the time of
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giving of notice provided for in this Section and who shall be entitled to vote
at the meeting. For business to be properly brought before an annual meeting by
a shareholder, the shareholder must have given timely notice thereof in writing
to the Corporate Secretary of the Corporation. To be timely, a shareholder's
notice must be delivered to or mailed and received at the principal executive
offices of the Corporation, not less than 90 days prior to the meeting;
provided, however, that in the event that less than 90 days' notice or prior
public disclosure of the date of the meeting is given or made to shareholders,
notice by the shareholder, to be timely, must be so received not later than the
close of business on the 10th day following the date on which such notice of the
date of the annual meeting was first mailed or such public disclosure was first
made. A shareholder's notice to the Corporate Secretary shall set forth as to
each matter the shareholder proposes to bring before the annual meeting (a) a
brief description of the business desired to be brought before the annual
meeting, (b) as to the shareholder giving such notice (i) the name and address,
as they appear on the Corporation's stock ledger, of such shareholder, (ii) the
class and number of shares of the Corporation which are beneficially owned by
such shareholder, and (iii) if the shareholder intends to solicit proxies in
support of such shareholder's proposal, a representation to that effect; and (c)
any material interest of the shareholder in such business. Notwithstanding
anything in the By-Laws to the contrary, no business shall be conducted at an
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annual meeting except in compliance with the procedures set forth in this
Section 12. The chairman of the meeting shall, if the facts warrant, determine
and declare to the meeting that business was not properly brought before the
meeting and in compliance with the provisions of this Section 12, and if he
should so determine, he shall so declare to the meeting and any such business
not properly brought before the meeting shall not be transacted. At any special
meeting of shareholders, only such business shall be conducted as shall have
been brought before the meeting by or at the direction of the Board of
Directors.
ARTICLE III
Board of Directors
SECTION 1. General Powers. The business and affairs of the Corporation
shall be managed by or under the direction of the Board of Directors. The Board
of Directors may exercise all such authority and powers of the Corporation and
do all such lawful acts and things as are not by statute or the Certificate of
Incorporation directed or required to be exercised or done by the shareholders.
SECTION 2. Number, Qualifications, Election and Term of Office. The
Board of Directors shall consist of not less than 8 nor more than 16 directors.
The number of directors may be fixed, from time to time, by the affirmative vote
of a majority of the entire Board of Directors. Any decrease in the number of
directors
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shall be effective at the time of the next succeeding annual meeting of
shareholders unless there shall be vacancies in the Board of Directors, in which
case such decrease may become effective at any time prior to the next succeeding
annual meeting to the extent of the number of such vacancies. Directors need not
be shareholders. The directors (other than members of the initial Board of
Directors) shall be divided into three classes which shall be divided as evenly
as practicable with respect to the number of members of each class; the term of
office of those of the first class to expire at the annual meeting commencing in
April, 1983; of the second class one year thereafter; of the third class two
years thereafter; and at each annual election held after such classification and
election, directors shall be chosen by class for a term of three years, or for
such shorter term as the shareholders may specify to complete the unexpired term
of a predecessor, or to preserve the division of the directors into classes as
provided herein. Each director shall hold office until his successor shall have
been elected and qualified, or until his death, or until he shall have resigned,
or have been removed, as hereinafter provided in these By-Laws.
SECTION 3. Place of Meetings. Meetings of the Board of Directors shall
be held at such place or places, within or without the State of Delaware, as the
Board of Directors may from time to time determine or as shall be specified in
the notice of any such meeting.
SECTION 4. Annual Organization. Following the Annual Meeting
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of Shareholders, the Board of Directors shall elect officers and take such other
actions as may be necessary or appropriate for the purpose of organization of
the Corporation.
SECTION 5. Regular Meetings. Regular meetings of the Board of Directors
shall be held at such time and place as the Board of Directors may fix. If any
day fixed for a regular meeting shall be a legal holiday at the place where the
meeting is to be held, then the meeting which would otherwise be held on that
day shall be held at the same hour on the next succeeding business day. Notice
of regular meetings of the Board of Directors need not be given except as
otherwise required by statute or these By-Laws.
SECTION 6. Special Meetings. Special meetings of the Board of Directors
may be called by the Chairman of the Board, or by one-third of the members of
the Board of Directors of the Corporation.
SECTION 7. Notice of Meetings. Notice of each special meeting of the
Board of Directors (and of each regular meeting for which notice shall be
required) shall be given by the Corporate Secretary as hereinafter provided in
this Section 7. Any such notice shall state the place, date and time of the
meeting. Except as otherwise required by these By-Laws, such notice need not
state the purposes of such meeting. Notice of each such meeting shall be mailed,
postage prepaid, to each director, addressed to him at his residence or usual
place of business, by first-class mail, at least two days before the day on
which such meeting is to be held, or shall be sent addressed to him at such
place by telegraph, cable,
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telex, telecopier or other similar means, or be delivered to him personally or
be given to him by telephone or other similar means, at least twelve hours
before the time at which such meeting is to be held. Notice of any such meeting
need not be given to any director who shall, either before or after the meeting,
submit a signed waiver of notice or who shall attend such meeting, except when
he shall attend for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened.
SECTION 8. Quorum and Manner of Acting. A majority of the entire Board
of Directors shall constitute a quorum for the transaction of business at any
meeting of the Board of Directors, and, except as otherwise expressly required
by statute or the Certificate of Incorporation or these By-Laws, the act of a
majority of the directors present at any meeting at which a quorum is present
shall be the act of the Board of Directors. In the absence of a quorum at any
meeting of the Board of Directors, a majority of the directors present thereat
may adjourn such meeting to another time and place. Notice of the time and place
of any such adjourned meeting shall be given to all of the directors unless such
time and place were announced at the meeting at which the adjournment was taken,
in which case such notice shall only be given to the directors who were not
present thereat. At any adjourned meeting at which a quorum is present, any
business may be transacted which might have been transacted at the meeting as
originally called. The directors shall act only as a Board and the
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individual directors shall have no power as such.
SECTION 9. Organization. At each meeting of the Board of Directors, the
Chairman of the Board, or, in the absence of the Chairman of the Board, another
director chosen by a majority of the directors present shall act as chairman of
the meeting and preside thereat. The Corporate Secretary or, in his absence, any
person appointed by the chairman of the meeting shall act as secretary of the
meeting and keep the minutes thereof.
SECTION 10. Resignations. Any director of the Corporation may resign at
any time by giving written notice of his resignation to the Corporation. Any
such resignation shall take effect at the time specified therein or, if the time
when it shall become effective shall not be specified therein, immediately upon
its receipt. Unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
SECTION 11. Vacancies. Any vacancy in the Board of Directors, whether
arising from death, disqualification, resignation, removal for cause, an
increase in the number of directors or any other cause, may be filled by the
vote of a majority of the directors then in office, though less than a quorum,
or by the sole remaining director. Each director so elected shall hold office
until his successor shall have been elected and qualified.
SECTION 12. Removal of Directors. Any director may be removed, only for
cause, at any time, by the holders of a majority of the voting power of the
issued and outstanding capital stock of
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the Corporation entitled to vote at an election of directors.
SECTION 13. Compensation. The Board of Directors shall have authority to
fix the compensation, including fees and reimbursement of expenses, of
directors, including the Chairman of the Board, for services to the Corporation
in any capacity.
SECTION 14. Committees.
(a) The Board shall create an Executive Committee, which shall consist
of no less than two nor more than seven members of the Board and shall have and
may exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation, and may authorize the
seal of the Corporation to be affixed to all papers which may require it, except
the Executive Committee shall not have the power or authority in reference to
the following matters: (i) approving or adopting, or recommending to the
shareholders, any action or matter expressly required by the General Corporation
Law of the State of Delaware to be submitted to shareholders for approval or
(ii) adopting, amending or repealing any By-Law of the Corporation.
(b) The Board shall create an Audit Committee and a People Resources
Committee, each of which shall consist of three (3) or more members of the Board
of Directors of the Corporation, none of whom shall be employees of the
Corporation or its subsidiaries.
(c) The Board may also create such other committees, with such authority
and duties, as the Board may from time to time deem advisable, and may authorize
any of such committees to appoint one or more subcommittees. Each such committee
or subcommittee, to the
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extent provided in the resolution creating it, shall have and may exercise all
the powers and authority of the Board of Directors and may authorize the seal of
the Corporation to be affixed to all papers which require it but shall have no
greater powers than those given the Executive Committee by these By-Laws and as
restricted by statute or the Certificate of Incorporation. Each such committee
or subcommittee shall serve at the pleasure of the Board of Directors or of the
committee creating it as the case may be, and have such name as may be
determined from time to time by resolution adopted by the Board of Directors or
by the committee creating it. Each committee shall keep regular minutes of its
meeting and report the same to the Board of Directors or the committee creating
it.
(d) The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. In addition, in the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not the
member or members constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of any such absent or
disqualified member.
SECTION 15. Action by Consent. Unless restricted by the Certificate of
Incorporation, any action required or permitted to be taken by the Board of
Directors or any committee thereof may be taken without a meeting if all members
of the Board of Directors or such committee, as the case may be, consent thereto
in writing, and
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the writing or writings are filed with the minutes of the proceedings of the
Board of Directors or such committee, as the case may be.
SECTION 16. Telephonic Meeting. Unless restricted by the Certificate of
Incorporation, any one or more members of the Board of Directors or any
committee thereof may participate in a meeting of the Board of Directors or such
committee by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other.
Participation by such means shall constitute presence in person at a meeting.
ARTICLE IV
Officers
SECTION 1. Number and Qualifications. The officers of the Corporation
shall be elected by the Board of Directors and shall include the Chairman of the
Board, the President, and one or more Vice Presidents. If the Board of Directors
wishes, it may also elect other officers as may be necessary or desirable for
the business of the Corporation; or the Board may authorize the Chairman of the
Board to appoint one or more classes of officers with such titles (including the
titles of Vice President, Corporate Secretary and Treasurer), powers, duties and
compensation as may be approved by the appointing officer. Any two or more
offices may be held by the same person, and no officer except the Chairman of
the Board need be a director. Each officer shall hold office until his
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successor shall have been duly elected or appointed and shall have qualified, or
until his death, or until he shall have resigned or have been removed, as
hereinafter provided in these By-Laws.
SECTION 2. Resignations. Any officer of the Corporation may resign at
any time by giving written notice of such resignation to the Corporation. Any
such resignation shall take effect at the time specified therein or, if the time
when it shall become effective shall not be specified therein, immediately upon
receipt. Unless otherwise specified therein, the acceptance of any such
resignation shall not be necessary to make it effective.
SECTION 3. Removal. Any officer of the Corporation may be removed,
either with or without cause, at any time, by the Board of Directors at any
meeting thereof. Any appointed officer of the Corporation may also be removed,
either with or without cause, at any time, by the Chairman of the Board.
SECTION 4. Chairman of the Board. The Chairman of the Board shall be a
member of the Board of Directors, and shall preside at all meetings of the
shareholders, of the Board of Directors, and of the Executive Committee at which
he shall be present. He shall be the Chief Executive Officer of the Corporation
and shall have general supervision over the business and operations of the
Corporation, subject, however, to the control of the Board of Directors. He may
serve as a member of any committee of the Board except as may otherwise be
determined by the Board or provided in these By-Laws, provided, however, that in
his capacity as Chief Executive Officer he shall have the right to attend all
meetings of
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any committee and to participate in its discussions. He shall perform all duties
incident to the Offices of Chairman of the Board and Chief Executive Officer,
and such other duties as may from time to time be assigned to him by the Board
of Directors.
SECTION 5. President. The President shall perform all duties incident to
the Office of President, and such other duties as may from time to time be
assigned to him by the Chairman of the Board or the Board of Directors. In the
absence or disability of the Chairman of the Board, the President shall perform
all other duties of the Chairman of the Board, except presiding at meetings of
shareholders and Board of Directors, subject to the control of the Board of
Directors; and when so acting, shall have all the powers of, and be subject to
all the restrictions upon the Chairman of the Board.
SECTION 6. Vice Presidents. Each Vice President shall perform such
duties as from time to time may be assigned to him by the Board of Directors,
the Chairman of the Board, the President, or such other officer as may be
designated by one of the foregoing. In the absence or disability of the Chairman
of the Board, and the President, one of the Vice Presidents, in the order
determined by the Board of Directors, shall perform all duties of the Chairman
of the Board except presiding at meetings of shareholders and Board of
Directors, and, when so acting, shall have the powers of and be subject to the
restrictions placed upon the Chairman of the Board in respect of the performance
of such duties.
SECTION 7. Treasurer. The Treasurer shall:
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(a) have charge and custody of, and be responsible for, all the
funds and securities of the Corporation;
(b) keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation;
(c) deposit all moneys and other valuables to the credit of the
Corporation in such depositories as may be designated by the Board of
Directors or pursuant to its direction;
(d) receive, and give receipts for, moneys due and payable to
the Corporation from any source whatsoever;
(e) disburse the funds of the Corporation and supervise the
investments of its funds, taking proper vouchers therefor;
(f) render to the Board of Directors, whenever the Board of
Directors may require, an account of the financial condition of the
Corporation; and
(g) in general, perform all duties incident to the office of
Treasurer and such other duties as from time to time may be assigned to
him by the Board of Directors, or the Chairman of the Board, the
President, or such other officer as may be designated by one of the
foregoing.
SECTION 8. Corporate Secretary. The Corporate Secretary shall:
(a) keep or cause to be kept in one or more books provided for
the purpose, the minutes of all meetings of the Board of Directors, the
committees of the Board of Directors and the shareholders;
(b) see that all notices are duly given in accordance
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with the provisions of these By-Laws and as required by law;
(c) be custodian of the records and the seal of the Corporation
and affix and attest the seal to all certificates for shares of the
Corporation (unless the seal of the Corporation on such certificates
shall be a facsimile, as hereinafter provided) and affix and attest the
seal to all other documents to be executed on behalf of the Corporation
under its seal;
(d) see that the books, reports, statements, certificates and
other documents and records required by law to be kept and filed are
properly kept and filed; and
(e) in general, perform all duties incident to the office of
Corporate Secretary and such other duties as from time to time may be
assigned to him by the Board of Directors, the Chairman of the Board,
the President, or such other officer as may be designated by one of the
foregoing.
SECTION 9. The Assistant Treasurer. The Assistant Treasurer, or if there
shall be more than one, the Assistant Treasurers in the order determined by the
Board of Directors (or if there be no such determination, then in the order of
their seniority), shall, in the absence of the Treasurer or in the event of the
inability or refusal of the Treasurer to act, perform the duties and exercise
the powers of the Treasurer and shall perform such other duties as from time to
time may be assigned by the Board of Directors, the Chairman of the Board, the
President, the Treasurer, or such other officer as may be designated by one of
the foregoing.
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SECTION 10. The Assistant Corporate Secretary. The Assistant Corporate
Secretary, or if there be more than one, the Assistant Corporate Secretaries in
the order determined by the Board of Directors (or if there be no such
determination, then in the order of their seniority), shall, in the absence of
the Corporate Secretary or in the event of the inability or refusal of the
Corporate Secretary to act, perform the duties and exercise the powers of the
Corporate Secretary and shall perform such other duties as from time to time may
be assigned by the Board of Directors, the Chairman of the Board, the President,
the Corporate Secretary, or such other officer as may be designated by one of
the foregoing.
SECTION 11. Designation. The Board of Directors may, by resolution,
designate one or more officers to be any of the following: Chief Operating
Officer, Chief Financial Officer, General Counsel, or Chief Accounting Officer.
SECTION 12. Agents and Employees. If authorized by the Board of
Directors, the Chairman of the Board, the President, or any officer or employee
of the Corporation may appoint or employ such agents and employees as shall be
requisite for the proper conduct of the business of the Corporation, and may fix
their compensation and the conditions of their employment, subject to removal by
the appointing or employing person.
SECTION 13. Officers' Bonds or Other Security. If required by the Board
of Directors, any officer of the Corporation shall give a bond or other security
for the faithful performance of his
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duties, in such amount and with such surety as the Board of Directors may
require.
SECTION 14. Compensation. The compensation of all officers of the
Corporation for their services as such officers shall be fixed from time to time
by the Board of Directors unless by resolution of the Board that authority is
delegated to a committee of the Board, Chairman of the Board, the President, or
any other officer of the Corporation. An officer of the Corporation shall not be
prevented from receiving compensation by reason of the fact that he is also a
director of the Corporation.
SECTION 15. Terms. Unless otherwise specified by the Board of Directors
in any particular election or appointment, each officer shall hold office, and
be removable, at the pleasure of the Board.
ARTICLE V
Stock Certificates and Their Transfer
SECTION 1. Stock Certificates. Every holder of stock in the Corporation
shall be entitled to have a certificate, signed by, or in the name of the
Corporation by, Chairman of the Board or the President or a Vice President and
by the Treasurer or an Assistant Treasurer or the Corporate Secretary or an
Assistant Corporate Secretary of the Corporation, certifying the number of
shares owned by him in the Corporation. If the Corporation shall be authorized
to issue more than one class of stock or more than one series of any class, the
designations, preferences and relative,
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participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restriction of such preferences
and/or rights shall be set forth in full or summarized on the face or back of
the certificate which the Corporation shall issue to represent such class or
series of stock, provided that, except as otherwise provided in Section 202 of
the General Corporation Law of the State of Delaware, in lieu of the foregoing
requirements, there may be set forth on the face or back of the certificate
which the Corporation shall issue to represent such class or series of stock, a
statement that the Corporation will furnish without charge to each shareholder
who so requests the designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights.
SECTION 2. Facsimile Signatures. Any or all of the signatures on a
certificate may be a facsimile except in the case of the signature of the
registrar which shall be manually affixed to all certificates. In case any
officer or transfer agent who has signed or whose facsimile signature has been
placed upon a certificate shall have ceased to be such officer or transfer agent
before such certificate is issued, it may be issued by the Corporation with the
same effect as if such person was such officer or transfer agent at the date of
issue.
SECTION 3. Lost Certificates. The Corporation may issue a new
certificate or certificates in the place of any certificate or
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certificates theretofore issued by the Corporation alleged to have been lost,
stolen, or destroyed. When authorizing such issue of a new certificate or
certificates, the Corporation may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen, or
destroyed certificate or certificates, or his legal representative, to give the
Corporation a bond in such sum as it may direct sufficient to indemnify it
against any claim that may be made against the Corporation on account of the
alleged loss, theft or destruction of any such certificate or the issuance of
such new certificate.
SECTION 4. Transfers of Stock. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority or
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its records; provided, however, that the Corporation shall be
entitled to recognize and enforce any lawful restriction on transfer. Whenever
any transfer of stock shall be made for collateral security, and not absolutely,
it shall be so expressed in the entry of transfer if, when the certificates are
presented to the Corporation for transfer, both the transferor and the
transferee request the Corporation to do so.
SECTION 5. Transfer Agents and Registrars. The Board of Directors may
appoint, or authorize any officer or officers to appoint, one or more transfer
agents and one or more registrars.
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SECTION 6. Regulations. The Board of Directors may make such additional
rules and regulations, not inconsistent with these By-Laws, as it may deem
expedient concerning the issue, transfer and registration of certificates for
shares of stock of the Corporation.
SECTION 7. Fixing the Record Date. In order that the Corporation may
determine the shareholders entitled to notice of or to vote at any meeting of
shareholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty nor less than ten
days before the date of such meeting, nor more than sixty days prior to any
other action. A determination of shareholders of record entitled to notice of or
to vote at a meeting of shareholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
SECTION 8. Registered Shareholders. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its records as the owner
of shares of stock to receive dividends and to vote as such owner, shall be
entitled to hold liable for calls and assessments a person registered on its
records as the owner of shares of stock, and shall not be bound to recognize any
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equitable or other claim to or interest in such share or shares of stock on the
part of any other person, whether or not it shall have express or other notice
thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VI
Indemnification
SECTION 1. General. The Corporation shall indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that such person (i) is or was a director, officer, or
employee of the Corporation, (ii) or is or was a director, officer or employee
of the Corporation or any of its subsidiaries serving at the request of the
Corporation as a director, officer, employee, agent, trustee or partner of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe the conduct was unlawful. The
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termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which such person reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that the conduct was unlawful.
SECTION 2. Derivative Actions. The Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
Corporation to procure a judgment in its favor by reason of the fact that such
person is or was a director, officer, or employee of the Corporation, or is or
was a director, officer or employee of the Corporation or any of its
subsidiaries serving at the request of the Corporation as a director, officer,
employee, agent, trustee or partner of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection with the defense
or settlement of such action or suit if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the Corporation and except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation unless and only to the extent that the
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Court of Chancery of the State of Delaware or the court in which such action or
suit was brought shall determine upon application that, despite the adjudication
of liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
SECTION 3. Indemnification in Certain Cases. To the extent that a
director, officer, employee or agent of the Corporation has been successful on
the merits or otherwise in defense of any action, suit or proceeding referred to
in Sections 1 and 2 of this Article VI, or in defense of any claim, issue or
matter therein, such person shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by such person in connection
therewith.
SECTION 4. Procedure. Any indemnification under Sections 1 and 2 of this
Article VI (unless ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification of the
director, officer or employee is proper in the circumstances because such person
has met the applicable standard of conduct set forth in such Sections 1 and 2.
Such determination shall be made (a) by a majority vote of the directors who are
not parties to such action, suit or proceeding, even though less than a quorum,
or (b) if there are no such directors, or if such directors so direct, by
independent legal counsel in a written opinion, or (c) by the shareholders.
SECTION 5. Advances for Expenses. Expenses (including
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attorneys' fees) incurred in defending any civil, criminal, administrative or
investigative action, suit or proceeding shall be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of the director, officer or employee to repay
such amount if it shall be ultimately determined that such person is not
entitled to be indemnified by the Corporation as authorized in this Article VI.
SECTION 6. Exclusion of Mandatory Indemnification and Advances in
Certain Cases. Notwithstanding any other provision of this Article VI, the
Corporation shall not be obligated to indemnify any person under Sections 1, 2
or 3 of Article VI or to advance expenses under Section 5 thereof to any person
who has initiated any proceeding or part thereof, unless the initiation of such
proceeding or part thereof was authorized or ratified by the Board of Directors.
SECTION 7. Rights Not Exclusive. The indemnification and advancement of
expenses provided by this Article VI shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may be
entitled under any law, by-law, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in the official capacity of such
person and as to action in another capacity while holding such office, and shall
continue as to a person who has ceased to be a director, officer, employee and
shall inure to the benefit of the heirs, executors and administrators of such a
person. Any repeal,
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modification or amendment of this Article VI shall not adversely affect any
rights or obligations then existing between the Corporation and any then
incumbent or former director, officer, or employee with respect to any facts
then or theretofore existing or any action, suit, or proceeding theretofore or
thereafter brought based in whole or in part upon such facts.
SECTION 8. Insurance. The Corporation shall have power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee, agent, trustee or partner of
another corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against such person and incurred by such person
in any such capacity, or arising out of the status of such person as such,
whether or not the Corporation would have the power to indemnify such person
against such liability under the provisions of this Article VI.
SECTION 9. Definition of Corporation. For the purposes of this Article
VI, references to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, employees and agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of
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such constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
shall stand in the same position under the provisions of this Article VI with
respect to the resulting or surviving corporation as such person would if such
person had served with respect to such constituent corporation if its separate
existence had continued. "The Corporation" shall also include Connecticut
General Corporation and INA Corporation for the period ending at the time that
such corporations became subsidiaries of CIGNA Corporation.
SECTION 10. Definition of Other Terms. For purposes of this Article VI,
references to "other enterprises" shall include employee benefit plans;
references to "fines" shall include any excise taxes or penalties assessed on a
person with respect to any employee benefit plan; and references to "serving at
the request of the Corporation" shall include any service as a director,
officer, employee or agent of the Corporation which imposes duties on, or
involves services by, such director, officer, employee or agent with respect to
an employee benefit plan, its participants or beneficiaries; and a person who
acted in good faith and in a manner he reasonably believed to be in the interest
of the participants and beneficiaries of an employee benefit plan shall be
deemed to have acted in a manner "not opposed to the best interests of the
Corporation" as referred to in this Article VI.
SECTION 11. Right of Indemnitee to Bring Suit in Certain Circumstances.
Any person entitled to indemnification under this
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Article VI is referred to in this section as an "indemnitee." If after the
occurrence of a Change of Control (as defined in this section) a claim under
Sections 1, 2, 3 or 5 of this Article VI is not paid in full by the Corporation
within sixty days after a written claim has been received by the Corporation,
except in the case of a claim for an advancement of expenses, in which case the
applicable period shall be twenty days, the indemnitee may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim. If successful in whole or in part in any suit, or in a suit brought
by the Corporation to recover an advancement of expenses pursuant to the terms
of an undertaking, the indemnitee shall be entitled to be paid also the expense
of prosecuting or defending such suit. In (i) any suit brought by the indemnitee
to enforce a right to indemnification hereunder (but not in a suit brought by
the indemnitee to enforce a right to an advancement of expenses) it shall be a
defense that, and (ii) in any suit by the Corporation to recover an advancement
of expenses pursuant to the terms of an undertaking the Corporation shall be
entitled to recover such expenses upon a final adjudication that, the indemnitee
has not met any applicable standard for indemnification set forth in the
Delaware General Corporation Law. Neither the failure of the Corporation
(including its board of directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
suit that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct
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set forth in the Delaware General Corporation Law, nor an actual determination
by the Corporation (including its board of directors, independent legal counsel,
or its stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the indemnitee to
enforce a right to indemnification or to an advancement of expenses hereunder,
or by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the burden of proving that the indemnitee is not
entitled to be indemnified, or to such advancement of expenses, under this
Section or otherwise shall be on the Corporation.
"Change of Control" shall mean that:
(a) A corporation, person or group acting in concert as described in
Section 14(d)(2) of the Securities Exchange Act of 1934 as amended (the
"Exchange Act"), holds or acquires beneficial ownership, within the meaning of
Rule 13d-3 promulgated under the Exchange Act, of a number of preferred or
common shares of the Corporation having voting power which is either: (1) more
than 50 percent of the voting power of the shares which voted in the election of
directors of the Corporation at the shareholders' meeting immediately preceding
such determination; or, (2) more than 25 percent of the voting power of common
shares outstanding of the Corporation; or,
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(b) As a result of a merger or consolidation to which the Corporation is
a party, either: (1) the Corporation is not the surviving corporation; or, (2)
Directors of the Corporation immediately prior to the merger or consolidation
constitute less than a majority of the board of directors of the surviving
corporation; or,
(c) A change occurs in the composition of the Board at any time during
any consecutive 24-month period such that the "Continuity Directors" cease for
any reason to constitute a majority of the Board. For purposes of the preceding
sentence, "Continuity Directors" shall mean those members of the Board who
either: (1) were directors at the beginning of such consecutive 24-month period,
or, (2) were elected by, or upon nomination or recommendation of, at least a
majority (consisting of at least nine directors) of the Board.
ARTICLE VII
General Provisions
SECTION 1. Dividends. Subject to the provisions of statute and the
Certificate of Incorporation, dividends upon the shares of capital stock of the
Corporation may be declared by the Board of Directors at any regular or special
meeting. Dividends may be paid in cash, in property or in shares of stock of the
Corporation, unless otherwise provided by statute or the Certificate of
Incorporation.
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SECTION 2. Reserves. Before payment of any dividend, there may be set
aside out of any funds of the Corporation available for dividends such sum or
sums as the Board of Directors may, from time to time, in its absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
Corporation or for such other purpose as the Board of Directors may think
conducive to the interests of the Corporation. The Board of Directors may modify
or abolish any such reserves in the manner in which it was created.
SECTION 3. Seal. The seal of the Corporation shall be in such form as
shall be approved by the Board of Directors.
SECTION 4. Fiscal Year. The fiscal year of the Corporation shall be
fixed, and once fixed, may thereafter be changed, by resolution of the Board of
Directors.
SECTION 5. Contributions. The Board of Directors shall have the
authority from time to time to make such contributions as the Board in its
discretion shall determine, for public and charitable purposes.
SECTION 6. Borrowing, etc. No officer, agent or employee of the
Corporation shall have any power or authority to borrow money on its behalf, to
pledge its credit, or to mortgage or pledge its real or personal property,
except within the scope and to the extent of the authority delegated by
resolution of the Board of Directors. Authority may be given by the Board for
any of the above purposes and may be general or limited to specific instances.
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SECTION 7. Deposits. All funds of the Corporation shall be deposited
from time to time to the credit of the Corporation in such banks, trust
companies, or other depositories as the Board of Directors may approve or
designate, and all such funds shall be withdrawn only upon checks, drafts, notes
or other orders for payment signed by such one or more officers, employees or
other persons as the Board shall from time to time determine.
SECTION 8. Execution of Contracts, Deeds, etc. The Board of Directors
may authorize any officer or officers, agent or agents, in the name and on
behalf of the Corporation to enter into or execute and deliver any and all
deeds, bonds, mortgages, contracts and other obligations or instruments, and
such authority may be general or confined to specific instances.
SECTION 9. Voting of Stock in Other Corporations. If authorized by the
Board of Directors, any officer of the Corporation may appoint an attorney or
attorneys (who may be or include such officer), in the name and on behalf of the
Corporation, to cast the votes which the Corporation may be entitled to cast as
a shareholder or otherwise in any other corporation any of whose shares or other
securities are held by or for the Corporation, at meetings of the holders of the
shares or other securities of such other corporation, or in connection with the
ownership of such shares or other securities, to consent in writing to any
action by such other corporation, and may instruct the person or persons so
appointed as to the manner of casting such votes or giving such consent, and may
execute or cause to be
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executed in the name and on behalf of the Corporation and under its seal such
written proxies or other instruments as such proxy may deem necessary or proper
in the circumstances.
SECTION 10. Form of Records. Any records maintained by the Corporation
in the regular course of its business, including its stock ledger, books of
account, and minute books, may be kept on, or be in the form of punch cards,
magnetic tape, photographs, microphotographs, or any other information storage
device, provided that the records so kept can be converted into clearly legible
form within a reasonable time. The Corporation shall so convert any records so
kept upon the request of any person entitled to inspect the same.
SECTION 11. Repurchase of Stock. Without the approval of the holders of
a majority of the issued and outstanding stock of the Corporation entitled to
vote at any meeting of shareholders, the Corporation shall not knowingly
purchase, either directly or indirectly, any of the Corporation's Common Stock
at a price materially in excess of its market price from any person, unless (i)
such purchase is pursuant to the same offer and terms as made on a pro-rata
basis to all holders of such shares, (ii) such purchase is made by the
Corporation from an employee benefit or similar plan now or hereafter maintained
by the Corporation or its subsidiaries or affiliates, or (iii) such purchase is
made from a holder of less than one hundred shares.
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ARTICLE VIII
Amendments
These By-Laws may be amended or repealed or new By-Laws may be adopted
(a) by action of the holders of at least eighty percent (80%) of the voting
power of all outstanding voting stock of the Corporation entitled to vote
generally at any annual or special meeting of shareholders or (b) by action of
the Board of Directors at a regular or special meeting thereof. Any By-Law or
By-Laws made by the Board of Directors may be amended or repealed by action of
the shareholders by the vote required by (a) above at any annual or special
meeting of shareholders.
ARTICLE IX
Definitions
The term "Certificate of Incorporation," as used herein, includes not
only the original Certificate of Incorporation filed to create the Corporation
but also all other certificates, agreements of merger or consolidation, plans of
reorganization, or other instruments, howsoever designated, which are filed
pursuant to the Delaware General Corporation Law, and which have the effect of
amending or supplementing in some respect this Corporation's original
Certificate of Incorporation.
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EXHIBIT 10.1
DEFERRED COMPENSATION PLAN FOR DIRECTORS OF CIGNA CORPORATION
(Amended and Restated As Of January 1, 1997)
ARTICLE I. DEFINITIONS
The following are defined terms wherever they appear in the Plan.
1.1 "Administrator" shall mean the person, or committee, appointed by
the Chief Executive Officer of CIGNA Corporation, and charged with
responsibility for administration of the Plan.
1.2 "Annual Credit Amount" shall mean an amount set from time to time
by resolution of the Board of Directors.
1.3 "Board of Directors" or "Board" shall mean the Board of Directors
of CIGNA Corporation.
1.4 "Change of Control" shall mean that:
(a) A corporation, person or group acting in concert as described
in Section 14(d)(2) of the Securities Exchange Act of 1934 as amended ("Exchange
Act"), holds or acquires beneficial ownership, within the meaning of Rule 13d-3
promulgated under the Exchange Act, of a number of preferred or common shares of
CIGNA Corporation having voting power which is either: (l) more than 50 percent
of the voting power of the shares which voted in the election of directors of
CIGNA Corporation at the shareholders' meeting immediately preceding such
determination; or, (2) more than 25 percent of the voting power of common shares
outstanding of CIGNA Corporation; or,
(b) As a result of a merger or consolidation to which CIGNA
Corporation is a party, either: (l) CIGNA Corporation is not the surviving
corporation; or, (2) Directors of CIGNA Corporation immediately prior to the
merger or consolidation constitute less than a majority of the Board of
Directors of the surviving corporation; or,
(c) A change occurs in the composition of the Board at any time
during any consecutive 24-month period such that the "Continuity Directors"
cease for any reason to constitute a majority of the Board. For purposes of the
preceding sentence, "Continuity Directors" shall mean those members of the Board
who either: (1) were directors at the beginning of such consecutive 24-month
period, or, (2) were elected by, or upon nomination or recommendation of, at
least a majority (consisting of at least nine directors) of the Board.
1.5 "CIGNA Common Stock" or "Common Stock" or "Stock" shall mean the
common stock of CIGNA Corporation, par value of one dollar ($1.00) per share.
1.6 "Committee" shall mean the Corporate Governance Committee of the
Board of Directors of CIGNA Corporation, or the successor to such committee.
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1.7 "Deferral Election" shall mean the instrument executed by a
Participant which specifies amounts and items of compensation to be deferred
into the Deferred Compensation Account.
1.8 "Deferred Compensation Account" shall mean the separate account
established under the Plan for each Participant, as described in Section 3.1.
1.9 "Participant" shall mean each individual who as a Director of
CIGNA Corporation participates in the Plan in accordance with the terms and
conditions of the Plan.
1.10 "Payment Election" shall mean the instrument executed by a
Participant which specifies the method of payment of compensation deferred.
1.11 "Plan" shall mean the Deferred Compensation Plan for Directors of
CIGNA Corporation, as it may be amended or restated from time to time by the
Board of Directors.
1.12 "Restatement Date" shall mean January 1, 1997, the effective date
of the Plan, as amended and restated.
1.13 "Restricted Deferred Compensation Account" shall mean the separate
account established under the Plan for each Participant participating pursuant
to Section 5.1.
1.14 "Termination of Service" shall mean termination of services as a
director of CIGNA Corporation, including but not limited to termination by
retirement, death or disability.
1.15 "Valuation Date" shall mean the close of business on the last
business day of each month.
ARTICLE II. PARTICIPATION
2.1 Eligibility to Participate in the Plan.
The individuals who are eligible to participate in the Plan are those
persons who serve as directors of CIGNA Corporation.
2.2 Participation in the Plan.
(a) A Participant may elect to defer receipt of all or a portion
of those items of compensation for services as a director as are specified by
the Administrator.
(b) The election to defer is made by delivering a properly
executed Deferral Election to the Administrator. The Deferral Election shall
specify the item or items of compensation to be deferred, and the amount of such
compensation to be deferred. The election for payment of compensation deferred
is made by delivering a properly executed Payment Election to the Administrator.
The Payment Election shall specify the method by
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which such deferred compensation is to be paid, and the date or dates for
payment of such deferred compensation.
(c) An election to defer compensation must be filed by the
Participant prior to the commencement of a calendar year during which such
compensation will be paid.
(d) Notwithstanding Section 2.2(c), an election to defer
compensation made by an individual who subsequently begins active service as a
director of CIGNA Corporation, is filed prior to the date upon which such active
service begins, shall be effective according to Section 2.2(e)(2), below.
(e) An election to defer compensation is effective: (l) for
the year beginning after the election, and for subsequent years, unless modified
or revoked; or, (2) if Section 2.2(d) applies, for the remainder of the first
year of active service, as of the first day of active service, and for
subsequent years, unless modified or revoked.
2.3 Elections Pertaining to Payments.
In executing a Payment Election, the Participant shall elect among the
methods of payment as are specified by the Committee.
(a) If a method of payment provides for periodic payments, the
payments shall be made at least annually, over a period not to exceed 15
(fifteen) years.
(b) If the payments are to commence after Termination of
Service, no payments may be made before the first day of January following the
calendar year during which the Participant terminates service.
(c) The balance of a Participant's Deferred Compensation
Account and Restricted Deferred Compensation Account shall be paid, in all
events, no later than January of the fifteenth year following Termination of
Service.
(d) If there is not in effect as of Participant's Termination
of Service a valid Payment Election, the Participant's Deferred Compensation
Account and Restricted Deferred Compensation Account shall be paid annually over
a period of 15 (fifteen) years.
2.4 Modification of Elections Pertaining to Payments.
With respect to payment of deferred compensation following Termination
of Service, a Participant may request modification of his existing Payment
Election, for payment under another method among those specified by the
Committee. Any request for modification of such Payment Election shall be made
before the Participant terminates service. The Committee shall consider any such
modification request. In determining whether the request should be allowed, the
Committee shall consider the Participant's financial needs, including any
changed circumstances, as well as the projected financial needs of CIGNA
Corporation. If the Committee determines that the request should be allowed, the
requested modifications shall be made. The Participant shall effect the
modifications through execution of a new Payment Election, which
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shall constitute the only Payment Election which is outstanding and effective.
2.5 Reduction or Termination of Future Deferral.
(a) A Participant may elect to reduce or to revoke his
deferral of compensation into his Deferred Compensation Account, but such
election shall have effect only prospectively. A Participant shall effect an
election to reduce his deferral of compensation by execution of a new Deferral
Election, which shall constitute the only Deferral Election which is outstanding
and effective. A Participant shall effect an election to revoke his deferral of
compensation into his Deferred Compensation Account by informing the
Administrator in writing. Only one election to reduce and one election to revoke
may be made under this Section 2.5 by each Participant in a calendar year.
(b) An election to reduce or to revoke deferral of
compensation under Section 2.5(a) above shall become effective in the second
calendar month following receipt of such election by the Administrator.
ARTICLE III. COMPENSATION DEFERRED
3.1 Deferred Compensation Account.
A Deferred Compensation Account shall be established for each director
when the director becomes a Participant. Compensation deferred by a Participant
under the Plan shall be credited to the Deferred Compensation Account on the
date such compensation would have been paid to the Participant. Hypothetical
income on deferred compensation shall be credited to the Deferred Compensation
Account as provided in Section 3.3, below.
3.2 Balance of Deferred Compensation Account.
The balance of each Participant's Deferred Compensation Account shall
include compensation deferred by the Participant, plus amounts credited to the
Participant's Deferred Compensation Account pursuant to Section 5.3, plus
income, hypothetical dividends and gains credited with respect to hypothetical
investments. Losses from hypothetical investments shall reduce the Participant's
Deferred Compensation Account balance. The balance of each Participant's
Deferred Compensation Account shall be determined as of each Valuation Date.
3.3 Hypothetical Investment.
(a) Compensation deferred under the Plan which would have been
paid in cash shall be assumed to be invested, without charge, in one or more
hypothetical investment vehicles as are specified from time to time by the
Committee. With respect to such hypothetical investment:
(1) Cash compensation deferred shall be deemed to earn
income under the hypothetical investment vehicle. The Administrator shall credit
such income to the
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Participant's Deferred Compensation Account, pursuant to Section 3.4 below.
(2) The Committee, in its sole discretion, may provide that
cash compensation deferred after the Restatement date is deemed invested in a
different hypothetical investment vehicle or vehicles than the investment
vehicle in which cash compensation deferred before the Restatement Date is
deemed invested.
(3) The Committee, in its sole discretion, may provide Plan
Participants with options for one or more additional hypothetical investment
vehicles for investment of cash compensation deferred under the Plan, with
respect to which:
(A) a Participant may modify his election of hypothetical
investment and may make any transfers between and among hypothetical
investments, through a written request to the Administrator; provided that,
(B) only one such modification or transfer shall be
allowed during any calendar quarter.
(C) any such modification or transfer shall be effective
in the second calendar month following receipt of the request by the Plan
Administrator.
(D) such modifications and transfers will be in
accordance with rules and procedures adopted by the Plan Administrator.
(b) Compensation deferred under the Plan into the Participant's
Deferred Compensation Account as an alternative to receipt of Common Stock or
credited to the Participant's Restricted Deferred Compensation Account pursuant
to Sections 5.1 or 5.2 of the Plan shall be deemed to be invested,
hypothetically and without charge, in whole shares of hypothetical Common Stock.
Shares of hypothetical Common Stock shall be subject to adjustment in order to
reflect Common Stock dividends, splits, and reclassification. Except in the
event of a Change of Control, amounts in the Participant's Deferred Compensation
Account and Restricted Deferred Compensation Account deemed invested in
hypothetical Common Stock must remain so invested, and no other investment
vehicle available hereunder may be substituted therefor until the January
following the Participant's Termination of Service. Thereafter, intra-Plan
transfers may be made only in accordance with Section 3.3(a) above; provided
that all such intra-Plan transfers occurring within six months after the
Participant's Termination of Service shall be subject to approval by the
Administrator to ensure compliance shall with Section 16 of the Securities
Exchange Act of 1934.
(c) Amounts equal to cash dividends which would have been paid on
shares of Common Stock shall be deemed paid on whole shares of hypothetical
Common Stock in the Participant's Deferred Compensation Account and Restricted
Deferred Compensation Account. Such amounts shall be credited to the
Participant's Deferred Compensation Account and shall be hypothetically invested
in accordance with Section 3.3(a) unless the Participant elects to have such
amounts invested in one or more of the other hypothetical investment vehicles
specified from time to time by the Committee.
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(d) In the event of a Change of Control, the Committee shall
provide Participants with the option for investment in at least one hypothetical
investment vehicle, the annual income earned on which must be not less than 50
basis points over the Ten-Year Constant Treasury Maturity Yield as reported by
the Federal Reserve Board, based upon the November averages for the preceding
year.
3.4 Time of Hypothetical Investment.
(a) The balance of each Participant's Deferred Compensation
Account shall be deemed hypothetically invested on each Valuation Date, and
income shall accrue on such balance upon such date, from the previous Valuation
Date.
(b) Compensation which would have been paid in cash shall be
deemed invested in the Participant's Deferred Compensation Account on the
Valuation Date next following such hypothetical investment or credit.
(c) Compensation hypothetically invested in Common Stock shall
be deemed invested in whole shares of Common Stock as of the date such
compensation otherwise would have been payable to the Participant. The number of
whole shares of Common Stock in which compensation is deemed hypothetically
invested in the Deferred Compensation Account shall be determined with respect
to the last trade date in the month in which such compensation otherwise would
have been payable, by reference to the closing price on the last business day of
such month as reported on the Composite tape (or successor means of publishing
stock prices), provided, that in absence of such information, the Stock value
shall be determined by the Committee.
3.5 Statement of Account.
The Administrator shall provide each Participant a statement of his
Deferred Compensation Account at least annually.
ARTICLE IV. PAYMENT OF DEFERRED COMPENSATION
4.1 Payment of Deferred Compensation.
(a) The Administrator shall pay amounts from the Participant's
Deferred Compensation Account, according to the Participant's Payment Election.
(b) Compensation deferred into the Deferred Compensation
Account under the Plan shall be paid to the Participant in cash pursuant to
Section 4.1(a).
4.2 Financial Necessity Payment.
Notwithstanding any other provision of the Plan, if the Committee,
after consideration of a Participant's application, determines that the
Participant has a financial necessity beyond the Participant's control, and of
such a substantial nature that immediate payment of
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compensation deferred under the Plan is warranted, the Committee in its sole and
absolute discretion may direct that all or a portion of the balance of the
Participant's Deferred Compensation Account be paid to the Participant in cash.
The amount of any such distribution shall be limited to the amount deemed
necessary by the Committee to alleviate or remedy the hardship. The payment
shall be made in a manner and at the time specified by the Committee. A
Participant receiving a Financial Necessity Payment is deemed to have revoked
his election for deferral of compensation under the Plan, as of the time of the
Financial Necessity Payment. Any subsequent deferral of compensation under the
Plan shall require that the Participant execute a new Deferral Election, subject
to terms of Section 2.2(e)(1) hereof.
4.3 Certain Accelerated Payments.
(a) If a Participant terminates service under circumstances
which are such that the Committee deems it in the best interest of the
Participant and of CIGNA Corporation that payment of the Participant's Deferred
Compensation Account and Restricted Deferred Compensation Account be
accelerated, then the Committee, upon its own motion and in its sole discretion,
may direct that the Participant's Deferred Compensation Account and Restricted
Deferred Compensation Account balances be paid to him immediately.
(b) If, as a result of substantial and unforeseen changes
affecting (1) the business of CIGNA Corporation, (2) the personal or
professional circumstances of a Participant, or (3) operation or administration
of the Plan, the Committee determines that the interests of the Participant and
of CIGNA Corporation are best served through accelerated payment of the
Participant's Deferred Compensation Account and Restricted Deferred Compensation
Account, the Committee on its own motion and in its sole discretion may direct
that the Participant's Deferred Compensation Account and Restricted Deferred
Compensation balances be paid to him immediately.
(c) A Participant who is not entitled to payment of his
Deferred Compensation Account under any other provision of Article IV may make a
written request to the Committee for an accelerated payment of his entire
Deferred Compensation Account balance except for that portion equal to
hypothetical dividends on hypothetical Common Stock initially credited to the
Participants' Restricted Deferred Compensation Account pursuant to Section
5.1(a). If the Committee receives such a request, it shall make a final
valuation of the unrestricted portion of the Participant's Deferred Compensation
Account and pay ninety per cent (90%) of the Deferred Compensation Account
balance to the Participant. The Participant shall forfeit the remaining ten per
cent (10%) of his Deferred Compensation Account balance to the Corporation.
Payments under this Section 4.3(c) may be made only from that portion of a
Participant's Account, including hypothetical investment results, attributable
to compensation deferred after 1995.
4.4 Payments of a Deceased Participant's Account
(a) If a Participant dies before his entire Deferred
Compensation Account and Restricted Deferred Compensation Account has been paid
to him, the Administrator shall pay the Deferred Compensation Account balance
and Restricted Deferred Compensation Account in a single lump sum payment to the
person(s) or trust(s) designated in writing by the Participant as his
beneficiary(ies) under the Plan. The Administrator is authorized to establish
rules and
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procedures for designations of beneficiaries and shall have the sole discretion
to make determinations regarding the existence and identity of beneficiaries and
the validity of beneficiary designations.
(b) Notwithstanding Section 4.4(a), the Administrator shall
pay the Deferred Compensation Account balance and Restricted Deferred
Compensation Account balance, as soon as administratively feasible, in a single
lump sum payment to the Participant's estate if:
(1) The Participant dies without having a valid
beneficiary designation in effect;
(2) The Participant's designated beneficiary has
predeceased him;
(3) The Participant's designated beneficiary cannot be
found after what the Administrator determines, in his sole discretion, has been
a reasonably diligent search; or
(4) The Administrator determines, in his sole discretion,
that a payment in such form is in the best interest of the Corporation.
ARTICLE V. Restricted Deferred Compensation Accounts
5.1 Establishment of Restricted Deferred Compensation Accounts
(a) A Restricted Deferred Compensation Account shall be
established for each person serving as a director of CIGNA Corporation on
December 31, 1996 except directors who (1) if they had retired on or before
December 31, 1996, would have satisfied the eligibility requirements
("Eligibility Requirements") under Section 1 of the Retirement and Consulting
Plan for Directors of CIGNA Corporation (the "Retirement Plan") and (2) did not
waive their rights under the Retirement Plan on or before December 31, 1996. As
of January 1, 1997, the present value of the accrued benefits under the
Retirement Plan of each Participant for whom a Restricted Deferred Compensation
Account has been established will be credited to that Participant's Restricted
Deferred Compensation Account. The credited amounts will then be deemed to be
invested and remain invested thereafter, hypothetically and without charge, in
whole shares of hypothetical Common Stock. The number of whole hypothetical
Common Shares to be credited to the Restricted Deferred Compensation Accounts
shall be determined by using the average closing price for CIGNA Common Stock as
reported on the Composite tape (or successor means of publishing stock prices)
for the ten (10%) business days prior to January 1, 1997.
(b) A Restricted Deferred Compensation Account shall be
established for each person first elected to the Board of Directors of CIGNA
Corporation after December 31, 1996.
-8-
<PAGE> 9
5.2 Annual Credit Amount
Beginning in 1997 and in each year thereafter, on the last business day
of the month during which the Corporation's Annual Meeting of Shareholders is
held, the Annual Credit Amount will be credited to the Restricted Deferred
Compensation Account of each Participant who is then a Director of CIGNA
Corporation for whom such an account has been established pursuant to Section
5.1. That amount shall be assumed to be invested and remain invested thereafter,
hypothetically and without charge, in whole shares of hypothetical Common Stock.
The number of whole shares shall be determined by dividing the Annual Credit
Amount by the average closing price for CIGNA Common Stock (as reported on the
Composite tape or successor means of publishing stock prices) for the last ten
(10) business days of the month during which CIGNA Corporation's Annual Meeting
of Shareholders is held.
5.3 Dividends and Adjustments
Hypothetical dividends shall be credited to the Participant's Deferred
Compensation Account and be invested and adjusted as provided in Section 3.3(c).
5.4 Time of Payment
Payments of the balance in the Restricted Deferred Compensation Account
shall: be made in cash; commence the January following the calendar year in
which the Participant's Termination of Service occurs -- except as allowed by
Section 4.3(a) or (b); and be made in accordance with the Participant's
applicable Payment Election. If a Participant dies before the entire balance in
his Restricted Deferred Compensation Account has been paid to him, the
Administrator shall pay such balances pursuant to Section 4.4 of this Plan.
5.5 Statement of Restricted Deferred Compensation Account
The Administrator shall provide each Participant a statement of his
Restricted Deferred Compensation Account at least annually. The balance in the
Participant's Restricted Deferred Compensation Account shall be calculated in
accordance with Section 3.2 of the Plan.
ARTICLE VI. GENERAL PROVISIONS
6.1 Committee Membership.
A Participant who is also a member of the Committee shall take no part
in any decision pertaining to a request by such Participant under Sections 2.4,
4.2, and 4.3 hereof.
6.2 Participant's Rights Unsecured.
The right of any Participant to receive payments under the provisions
of the Plan represents an unsecured claim against the general assets of CIGNA
Corporation, or against the general assets of any successor company which
assumes the liabilities of CIGNA Corporation.
-9-
<PAGE> 10
6.3 Assignability.
No right to receive payments hereunder shall be transferable or
assignable by a Participant. Any attempted assignment or alienation of payments
hereunder shall be void and of no force or effect.
6.4 Administration.
Except as otherwise provided herein, the Plan shall be administered by
the Administrator who shall have the authority to adopt rules and regulations
for carrying out the Plan, and who shall interpret, construe and implement the
provisions of the Plan.
6.5 Amendment.
The Plan may be amended, restated, modified, or terminated by the Board
of Directors. No amendment, restatement, modification, or termination shall
reduce the dollar value of a Participant's Deferred Compensation Account balance
or Restricted Deferred Compensation Account balance as of the Valuation Date
immediately preceding such action.
6.6 Correction of Errors and Inconsistencies.
The Committee upon its own motion, or at the request of the
Administrator or of a Participant, shall have the authority to effect
consistency among deferral elections, payment elections, or hypothetical
investment with respect to amounts deferred by a Participant under the Plan, so
as to avoid or rectify difficulties in Plan administration. In no event shall
such action by the Committee reduce the dollar value of a Participant's Deferred
Compensation Account balance or Restricted Deferred Compensation Account balance
as of the Valuation Date immediately preceding such action, nor shall the
Committee take any action inconsistent with Section 3.3(b) hereof. The Committee
may take such action with respect to a Participant's Deferred Compensation
Account or Restricted Deferred Compensation Account, regardless of whether such
Participant may continue as a Director of CIGNA Corporation, or whether he may
have terminated service. Without limiting the foregoing, the Committee may take
such action upon the request of the Administrator, in order to avoid deferral of
fractional shares of Stock.
6.7 Compliance with Section 16.
If the Administrator determines that, in order to comply with Section
16 of the Securities Exchange Act of 1934, as amended, it is necessary for the
Board rather than the Committee to take any action which the Plan authorizes the
Committee to take, the Administrator shall request the Board to do so.
6.8 Construction.
The masculine gender where appearing in the Plan shall be deemed to
include the feminine gender. The singular shall be deemed to include the plural;
and the plural the singular.
-10-
<PAGE> 1
EXHIBIT 10.5(e)
Amendment No. 4
to the
CIGNA CORPORATION STOCK PLAN
The Plan is hereby amended to read as follows:
8.5 AWARDS NOT ASSIGNABLE.
(a) No derivative security (as defined in rules promulgated under
Section 16 of the Securities Exchange Act of 1934), including
any right to receive Common Stock (such as options, stock
appreciation rights or similar rights) or any right to payment
pursuant to this Plan, shall be assignable or transferable by
a Participant except by will or by the laws of descent and
distribution. Any other attempted assignment or alienation
shall be void and of no force or effect. Any right to receive
Common Stock or any other derivative security (including
options, stock appreciation rights or similar rights) shall be
exercisable during a Participant's lifetime only by the
Participant or by the Participant's guardian or legal
representatives.
(b) Notwithstanding the restrictions set forth above in Section
8.5(a), the Committee shall have the authority, in its
discretion, to grant (or to sanction by way of amendment of an
existing grant, including, without limitation, grants made
before the effective date of this Section 8.5(b)) derivative
securities which may be transferred without consideration by
the Participant during his lifetime to any member of his
immediate family, to a trust established for the exclusive
benefit of one or more members of his immediate family, to a
partnership of which the only partners are members of his
immediate family, or to such other person as the Committee
shall permit. In the case of a grant, the written
documentation containing the terms and conditions of such
derivative security shall state that it is transferable, and
in the case of an amendment to an existing grant, such
amendment shall be in writing. A derivative security
transferred as contemplated in this Section 8.5(b) may not be
subsequently transferred by the transferee except by will or
the laws of descent and distribution and shall continue to be
governed by and subject to the terms and limitations of the
Plan and the relevant grant. However, the Committee, in its
sole discretion at the time the transfer is approved, may
alter the terms and limitations of the relevant grant and
establish such additional terms and conditions as it shall
deem appropriate. As used in this subparagraph, "immediate
family" shall mean, with respect to any person, a spouse, any
child, stepchild or grandchild, and shall include
relationships arising from legal adoption.
<PAGE> 1
EXHIBIT 10.7(c)
Amendment No. 2
to the
CIGNA LONG-TERM INCENTIVE PLAN
The Plan is hereby amended as follows:
1. The last sentence of Article 14 of the Plan is amended to read as
follows:
A Participant's rights with respect to outstanding options,
rights, Restricted Stock grants or Unit awards, including
without limitation rights under paragraph 10.6(d), and a
transferee's rights with respect to transferred derivative
securities, may not be abridged by any amendment, modification
or termination of the Plan without his individual consent.
2. Section 15.5(b) of Article 15 of the Plan is amended in its entirety,
to read as follows:
(b) Notwithstanding the restrictions set forth above in Section
15.5(a), the Committee shall have the authority, in its
discretion, to grant (or to sanction by way of amendment of an
existing grant, including, without limitation, grants made
before the effective date of this Section 15.5(b)) derivative
securities which may be transferred without consideration by
the Participant during his lifetime to any member of his
immediate family, to a trust established for the exclusive
benefit of one or more members of his immediate family, to a
partnership of which the only partners are members of his
immediate family, or to such other person as the Committee
shall permit. In the case of a grant, the written
documentation containing the terms and conditions of such
derivative security shall state that it is transferable, and
in the case of an amendment to an existing grant, such
amendment shall be in writing. A derivative security
transferred as contemplated in this Section 15.5(b) may not be
subsequently transferred by the transferee except by will or
the laws of descent and distribution and shall continue to be
governed by and subject to the terms and limitations of the
Plan and the relevant grant. However, the Committee, in its
sole discretion at the time the transfer is approved, may
alter the terms and limitations of the relevant grant and
establish such additional terms and conditions as it shall
deem appropriate. As used in this subparagraph, "immediate
family" shall mean, with respect to any person, a spouse, any
child, stepchild or grandchild, and shall include
relationships arising from legal adoption.
<PAGE> 1
EXHIBIT 10.9(b)
Amendment No. 1
to the
DEFERRED COMPENSATION PLAN
OF CIGNA CORPORATION AND
PARTICIPATING SUBSIDIARIES
(Amended and Restated as of January 1, 1996)
The Plan is hereby amended as follows:
1. The last sentence of Section 4.1(b) of Article IV of the Plan is
amended to read as follows:
"Notwithstanding the foregoing, upon the application of a Participant,
the Corporate Committee may, in its sole discretion, direct that all or
a portion of the Participant's distribution otherwise payable in Common
Stock be paid in cash; provided, however, that with respect to
Participants who are subject to Section 16 of the Securities Exchange
Act of 1934, such discretion shall be exercised by the Board
Committee."
2. The following sentence shall be added to the end of Section 4.2 of
Article IV of the Plan:
"Notwithstanding the foregoing, with respect to Participants who are
subject to Section 16 of the Securities Exchange Act of 1934, all
actions required to be taken by the Corporate Committee shall be taken
by the Board Committee."
<PAGE> 1
EXHIBIT 10.11
CIGNA EXECUTIVE SEVERANCE BENEFITS PLAN
ARTICLE 1
DEFINITIONS
The following are defined terms wherever they appear in this Plan.
1.1 "ADDITIONAL PAYMENT" means the benefit described in Section 3.6 of the
Plan.
1.2 "BOARD" means the Board of Directors of CIGNA Corporation or a
successor.
1.3 "CIGNA" means CIGNA Corporation, a Delaware corporation, its
subsidiaries, successors and predecessors.
1.4 "CAUSE" means conviction of the Participant for a felony involving
fraud or dishonesty directed against CIGNA.
1.5 "CHANGE OF CONTROL" means:
(a) A corporation, person or group acting in concert as described
in Section 14(d)(2) of the Securities Exchange Act of 1934, as
amended ("Exchange Act"), holds or acquires beneficial
ownership within the meaning of Rule 13d-3 promulgated under
the Exchange Act of a number of preferred or common shares of
CIGNA Corporation having voting power which is either (1) more
than 50% of the voting power of the shares which voted in the
election of Directors of CIGNA Corporation at the
shareholders' meeting immediately preceding such
determination, or (2) more than 25% of the voting power of
CIGNA Corporation's outstanding common shares; or
(b) As a result of a merger or consolidation to which CIGNA
Corporation is a party, either (1) CIGNA Corporation is not
the surviving corporation or (2) Directors of CIGNA
Corporation immediately prior to the merger or consolidation
constitute less than a majority of the Board of Directors of
the surviving corporation; or
(c) A change occurs in the composition of the Board at any time
during any consecutive 24 month period such that the
"Continuity Directors" cease for any reason to constitute a
majority of the Board. For purposes of the preceding sentence
"Continuity Directors" shall mean those members of the Board
who either: (1) were directors at the beginning of such
consecutive 24 month period; or (2) were elected by, or on
nomination or recommendation of, at least a majority
(consisting of at least nine directors) of the Board.
1.6 "CODE" means the Internal Revenue Code of 1986, as amended.
- 1 -
<PAGE> 2
1.7 "COMMITTEE" means the People Resources Committee of the Board, or a
successor committee.
1.8 "COVERED EXECUTIVE" means any person employed by CIGNA in a position at
a Salary Grade Level of 60 or higher (or an equivalent position).
1.9 "EXCESS PARACHUTE PAYMENTS" means the amount defined in Code Section
280G.
1.10 "EXCISE TAX" means any excise tax under Code Section 4999 for any
Excess Parachute Payments, or any similar tax, and any interest or
penalties relating to such tax..
1.11 "PARACHUTE PAYMENTS" means any payments defined in Code Section
280G(b)(2).
1.12 "PARTICIPANT" means an employee of CIGNA who meets the eligibility
requirements set forth in Article 2.
1.13 "PLAN" means the CIGNA Executive Severance Benefits Plan, an amendment
and restatement of the CIGNA Corporation Severance Benefits Plan for
Members of the Executive Group, as it may be amended from time to time.
1.14 "SEVERANCE PAY PLAN" means the CIGNA Severance Pay Plan, as it may be
amended from time to time, or any successor plan.
1.15 "SEVERANCE PAYMENT" means any payment, distribution or economic benefit
to or for the benefit of a Terminated Participant payable under the
Plan or otherwise in connection with a Change of Control or
Participant's Termination upon a Change of Control, regardless of the
plan or arrangement under which the payments are made. The term shall
include, but not be limited to, Basic Severance Pay and Supplemental
Severance Pay under this Plan and any economic benefit received by the
Terminated Participant because of the acceleration of any rights under
the CIGNA Long-Term Incentive Plan, or any predecessor or similar plan,
regarding stock options, restricted stock grants, stock appreciation
rights and dividend equivalent rights.
1.17 "TERMINATED PARTICIPANT" means a Participant whose employment with
CIGNA ends because of a Termination upon a Change of Control.
1.18 "TERMINATION OF EMPLOYMENT DATE" means the date on which the
Participant's actual employment relationship with CIGNA ends.
1.19 "TERMINATION UPON A CHANGE OF CONTROL" means the termination of a
Participant's employment with CIGNA upon or within two (2) years
following a Change of Control (a) initiated by CIGNA or a successor,
other than a Termination for Cause, or (b) initiated by an Employee
after determining in his reasonable judgment that there has been a
reduction in his authority, duties, responsibilities or title, any
reduction in his compensation, or any changes caused by CIGNA in his
office location of more than thirty-five (35) miles from its location
on the date of the Change of Control.
- 2 -
<PAGE> 3
ARTICLE 2
ELIGIBILITY
2.1 COVERED EXECUTIVES. Subject to the limits in Section 2.2, any person
who is a Covered Executive on the date immediately preceding his or her
Termination of Employment Date shall be eligible for benefits under
this Plan. Any person who is a Covered Executive on the date of a
Change of Control shall remain a Covered Executive for the two-year
period beginning on the date of a Change of Control.
2.2 COORDINATION OF BENEFITS. A Covered Executive who is party to an
individual agreement with CIGNA that provides severance benefits and
who qualifies for severance benefits under both the agreement and this
Plan shall receive the greater of the severance benefits provided under
the agreement or this Plan, but not both.
ARTICLE 3
BENEFITS
3.1 INCORPORATION OF SEVERANCE PAY PLAN PROVISIONS. Except as set forth in
this Article 3, the provisions of the Severance Pay Plan, with the
exception of any exclusions from eligibility of persons in positions
above salary Grade 59 (or their equivalent), are incorporated by
reference herein and made part of this Plan.
3.2 TERMINATION UPON A CHANGE OF CONTROL. The provisions of the Severance
Pay Plan incorporated above in Section 3.1 into this Plan, shall apply
to a Terminated Participant, except as provided in Sections 3.3 through
3.8 below.
3.3 BASIC SEVERANCE PAY. Instead of Basic Severance Pay under Schedule II
of the Severance Pay Plan, a Terminated Participant's Basic Severance
Pay shall equal his or her base salary rate, stated in weekly terms,
multiplied by 104 weeks. Basic Severance Pay shall be paid to the
Terminated Participant in 52 equal bi-weekly installments over a
two-year period, unless the Terminated Participant elects a lump sum
payment.
3.4 SUPPLEMENTAL SEVERANCE PAY. Supplemental Severance Pay for a Terminated
Participant with a Termination of Employment Date from May 1 to
December 31 shall be computed as under the Severance Pay Plan except
that, instead of averaging bonuses or making pro-rata adjustments, the
lump sum amount shall equal the higher of:
(a) the bonus actually received by the Terminated
Participant for the calendar year preceding his
Termination of Employment Date; or
(b) the amount of the target award that was applicable to
the Terminated Participant immediately preceding the
Change of Control. For purposes of this provision,
"target award" means (1) the target award established
by the Board or Committee for determining appropriate
levels of incentive compensation payments under the
CIGNA Key Management Incentive Bonus Plan or the
CIGNA Executive Incentive Plan or (2) for
- 3 -
<PAGE> 4
any position for which no such target award has been
established, the median level of annual incentive
compensation paid for executives in comparable
positions by a group of competitor companies, which
median level has been approved by the Board or
Committee.
3.5 MISCELLANEOUS BENEFITS. During the six-month period beginning on a
Participant's Termination of Employment Date, CIGNA will provide the
Terminated Participant with outplacement counseling, office space and
secretarial services. A Terminated Participant may elect to have CIGNA
provide executive financial planning and tax preparation services for
the calendar year in which his or her Termination of Employment Date
occurs in accordance with such programs then in effect.
3.6 EXCISE TAX GROSS-UP. If a Terminated Participant incurs any Excise Tax
liability for any Severance Payments received from CIGNA, then CIGNA
shall provide the Terminated Participant with an Additional Payment in
an amount such that the sum of the following amounts shall be equal to
the Severance Payments:
(a) the net amount of any Severance Payments received by
the Participant after deduction of any Excise Tax on
the Severance Payments;
(b) the Additional Payment;
(c) any Excise Tax and federal, state and local income
taxes upon the Additional Payment; and
(d) any penalties and interest related to such taxes.
CIGNA shall pay the Terminated Participant any Additional
Payment due within 30 days after his or her Termination of
Employment Date.
3.7 TAX COMPUTATION. For purposes of determining whether a Terminated
Participant has any Excise Tax liability referred to in Section 3.6:
(a) All Severance Payments to the Terminated Participant
shall be treated as Parachute Payments and all Excess
Parachute Payments shall be treated as subject to the
Excise Tax, except to the extent that tax counsel,
selected by CIGNA's independent auditors and
acceptable to the Terminated Participant, renders a
written opinion that all or any part of any Severance
Payment does not constitute a Parachute Payment, or
represents reasonable compensation for services
actually rendered (within the meaning of Code Section
280G(b)(4)) in excess of the base amount (within the
meaning of Code Section 280G(b)(3)), or is otherwise
not subject to the Excise Tax;
(b) The amount of Severance Payments to be treated as
subject to the Excise Tax shall equal the lesser of
(1) the total amount of Severance Payments
- 4 -
<PAGE> 5
or (2) the amount of Excess Parachute Payments (after
applying paragraph 3.7(a) above); and
(c) The value of any noncash benefits and any deferred
payments or benefits shall be determined by CIGNA's
independent auditors in accordance with the
principles of Code Sections 280G(d)(3) and (4).
3.8 COMPUTATION OF ADDITIONAL PAYMENT. For purposes of determining the
amount of any Additional Payment to a Terminated Participant under
Section 3.6 above:
(a) It shall be assumed that the Terminated Participant
will pay Federal income tax at the highest marginal
tax rate in the year the Additional Payment is made,
and state and local income taxes at the highest
marginal tax rates in the state and locality of the
Terminated Participant's residence on his or her
Termination of Employment Date, net of the maximum
reduction in Federal income taxes which could be
obtained from deduction of any such state and local
income taxes.
(b) If the Excise Tax subsequently determined to be owed
by the Terminated Participant is less than the amount
that was the basis for any Additional Payments made
under Sections 3.6, then the Terminated Participant
shall repay to CIGNA, as soon as the amount of his or
her Excise Tax liability has been finally determined,
the amount of any excess Additional Payment, plus
interest.
(c) If the Excise Tax subsequently determined to be owed
by the Terminated Participant is more than the amount
that was the basis for any Additional Payments made
under Sections 3.6, then CIGNA shall pay to the
Terminated Participant, as soon as the amount of his
or her Excise Tax liability has been finally
determined and communicated in writing to CIGNA (and
the amount shall be subject to verification by
CIGNA's independent auditors), the additional amount
required to provide the Terminated Participant with
the correct total Additional Payment, plus interest
on the additional amount.
(d) The amount of interest to be paid under paragraphs
3.8(b) and (c) shall be the appropriate applicable
federal rate provided under Code Section
1274(d)(1)(A) in effect on the date of the initial
Additional Payment.
. ARTICLE 4
ADMINISTRATION OF THE PLAN
4.1 AMENDMENT; TERMINATION. This Plan may be amended, modified or
terminated by the Board or Committee, in the sole and absolute
discretion of either, at any time, except after a Change of Control.
For the two-year period following a Change of Control, no
- 5 -
<PAGE> 6
amendment, modification or termination which would adversely affect any
Participant in any manner may be made.
4.2 EFFECTIVE DATE. This Plan shall be effective January 1, 1997.
<PAGE> 1
EXHIBIT 10.17
DESCRIPTION OF MANDATORY DEFERRAL OF NON-DEDUCTIBLE COMPENSATION
CIGNA Corporation ("CIGNA") may automatically defer payments of compensation
(whether paid in stock or cash) to an executive of CIGNA or its subsidiaries to
the extent that such compensation would, if paid immediately, not be deductible
by CIGNA because of the limits imposed by Section 162(m) of the Internal Revenue
Code of 1986 ("162(m)"). During the period when the compensation is deferred,
the executive may elect to have a hypothetical interest rate apply to all or any
part of the deferred amount based on: (a) a rate equal to the maximum rate that
will not produce above-market interest for purposes of Item 402(b) of Regulation
S-K of the Securities and Exchange Commission; or (b) a rate equal to the
hypothetical investment results that would have been earned had it been invested
in one or more hypothetical investment funds available under the Deferred
Compensation Plan of CIGNA Corporation (excluding any fixed-rate return fund).
If the executive fails to make a choice, the rate provided under (a) above will
automatically apply.
<PAGE> 1
EXHIBIT 11
CIGNA CORPORATION
COMPUTATION OF EARNINGS PER SHARE
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
PRIMARY EARNINGS PER SHARE
Net income available to common shares.................. $ 1,056 $ 211 $ 554
========== ========== ==========
Common shares.......................................... 75,813,765 73,405,432 72,218,299
Common share equivalents applicable to stock options... 434,312 313,492 98,548
---------- ---------- ----------
Total................................................ 76,248,077 73,718,924 72,316,847
========== ========== ==========
PRIMARY................................................ $ 13.85 $ 2.86 $ 7.66
========== ========== ==========
FULLY DILUTED EARNINGS PER SHARE
Net income............................................. $ 1,056 $ 211 $ 554
Adjusted for:
Interest expense (net of tax) on convertible
subordinated debentures........................... -- -- 13
---------- ---------- ----------
Net income available to common shares.................. $ 1,056 $ 211 $ 567
========== ========== ==========
Common shares.......................................... 75,813,765 73,405,432 72,218,299
Common share equivalents applicable to stock options... 463,855 380,956 115,185
Assumed conversion of convertible subordinated
debentures........................................... -- -- 3,625,956
---------- ---------- ----------
Total................................................ 76,277,620 73,786,388 75,959,440
========== ========== ==========
FULLY DILUTED.......................................... $ 13.84 $ 2.86 $ 7.47
========== ========== ==========
</TABLE>
<PAGE> 1
EXHIBIT 12
CIGNA CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Income before income taxes and cumulative effect
of accounting changes........................... $1,601 $ 251 $ 805 $ 165 $ 179
------ ------ ------ ------ ------
Fixed charges included in income:
Interest expense................................ 102 120 121 124 100
Interest portion of rental expense.............. 86 99 102 114 113
------ ------ ------ ------ ------
Total fixed charges included in income..... 188 219 223 238 213
------ ------ ------ ------ ------
Income available for fixed charges................ $1,789 $ 470 $1,028 $ 403 $ 392
------ ------ ------ ------ ------
Ratio of earnings to fixed charges................ 9.5 2.1 4.6 1.7 1.8
====== ====== ====== ====== ======
</TABLE>
<PAGE> 1
Exhibit 13
Portions of Registrant's 1996 Annual Report to Shareholders
<PAGE> 2
HIGHLIGHTS EXHIBIT 13
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
(Dollars in millions, except per share amounts) 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Premiums and fees $ 13,916 $ 13,914 $ 13,912 $ 13,712 $ 13,924
Net investment income and other revenues 4,943 4,808 4,438 4,408 4,493
Realized investment gains 91 233 42 282 165
- -----------------------------------------------------------------------------------------------------------------
Total $ 18,950 $ 18,955 $ 18,392 $ 18,402 $ 18,582
- --------------------------------------------------===============================================================
NET INCOME (LOSS):
Employee Life and Health Benefits $ 500 $ 597 $ 548 $ 589 $ 337
Employee Retirement and Savings Benefits 222 194 190 159 191
Individual Financial Services 168 151 136 110 49
Property and Casualty 240 (673) (235) (530) (195)
Other Operations (74) (58) (85) (94) (71)
- -----------------------------------------------------------------------------------------------------------------
Total $ 1,056 $ 211 $ 554 $ 234 $ 311
- --------------------------------------------------===============================================================
Per share:
Net income $ 13.85 $ 2.86 $ 7.66 $ 3.25 $ 4.34
Common dividends declared $ 3.20 $ 3.04 $ 3.04 $ 3.04 $ 3.04
Total assets $ 98,932 $ 95,903 $ 86,102 $ 84,975 $ 78,034
Long-term debt $ 1,021 $ 1,066 $ 1,389 $ 1,235 $ 929
Shareholders' equity $ 7,208 $ 7,157 $ 5,811 $ 6,575 $ 5,744
Per share $ 97.15 $ 93.76 $ 80.46 $ 91.30 $ 80.09
Common shares outstanding (thousands) 74,198 76,332 72,225 72,015 71,720
Shareholders of record 14,027 15,131 16,408 17,491 18,581
Employees 42,800 44,700 48,600 50,600 52,300
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Net income for 1992 includes a net charge of $26 million, or $.36 per share, for
the net cumulative effect of accounting changes for income taxes, as well as
postemployment and postretirement benefits other than pensions.
See Notes to Financial Statements, including Note 2 for information regarding
the effect of adopting recent accounting pronouncements.
1
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CONSOLIDATED RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
(In millions)
- --------------------------------------------------------------------------------
FINANCIAL SUMMARY 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Premiums and fees $13,916 $13,914 $13,912
Net investment income 4,333 4,296 3,946
Other revenues 610 512 492
Realized investment gains 91 233 42
-------------------------------------
Total revenues 18,950 18,955 18,392
Benefits and expenses 17,349 18,704 17,587
-------------------------------------
Income before taxes 1,601 251 805
Income taxes 545 40 251
-------------------------------------
Net income $ 1,056 $ 211 $ 554
- -------------------------------------------=====================================
Realized investment gains,
net of taxes $ 54 $ 178 $ 28
- -------------------------------------------=====================================
</TABLE>
CIGNA's consolidated net income fluctuated significantly for the last three
years, reflecting third quarter 1995 charges and realized investment gains from
the restructuring of the investment portfolio, as discussed below. CIGNA's
operating income*, excluding the 1995 charges, was $1.0 billion, $882 million
and $526 million for 1996, 1995 and 1994, respectively. These increases
primarily reflect improved results in the Property and Casualty segment.
Results for 1995 included third quarter charges of $774 million after-tax
($1.2 billion pre-tax) in the Property and Casualty segment, primarily for
asbestos-related and environmental pollution exposures, and a $75 million
after-tax ($115 million pre-tax) charge associated with cost reduction
initiatives in the Property and Casualty and Employee Life and Health Benefits
segments.
During 1995, a significant portion of the Employee Life and Health Benefits
and Property and Casualty equity investment portfolios were restructured into
fixed income securities. As a result of the restructuring, 1995 after-tax
realized investment gains were significantly higher than gains in 1996 and 1994.
For additional information, see Note 5(B) to the Financial Statements.
Consolidated revenues, excluding realized investment gains, were $18.9
billion, $18.7 billion and $18.4 billion for 1996, 1995 and 1994, respectively.
Continued price competition and stricter underwriting standards constrained
premiums and fees for 1996 and 1995. In addition, 1995 revenues reflect higher
net investment income, due primarily to growth in interest-sensitive products
and the effects of the portfolio restructuring discussed above.
Operating income is expected to improve in 1997; however, such improvement
could be adversely affected by the factors noted in the cautionary statement on
page 21.
OTHER MATTERS
CIGNA continues to conduct strategic and financial reviews of its businesses
in order to deploy its capital most effectively. In connection with these
reviews, CIGNA announced in February 1997 its intent to acquire the outstanding
shares of Healthsource, Inc. (Healthsource), a managed health care and group
indemnity insurer, for $1.65 billion, including the payment of approximately
$250 million of outstanding Healthsource long-term debt. CIGNA intends to
finance the acquisition through a combination of internally generated funds and
short-term and long-term debt. The transaction, which is subject to regulatory
approval, is expected to be completed in 1997. See Note 3 to the Financial
Statements for additional information.
Effective December 31, 1995, CIGNA restructured its domestic property and
casualty businesses into two separate operations, ongoing and run-off. The
ongoing operations are actively engaged in selling insurance products and
related services. The run-off operations, which do not actively sell insurance
products, manage run-off policies and related claims, including those for
asbestos-related and environmental pollution exposures. Insurance products that
were actively sold in 1995 by subsidiaries that are now in run-off continue to
be sold by the ongoing operations. Results for the run-off operations primarily
reflect current year losses associated with unearned premiums as of December 31,
1995, prior year development on claim and claim adjustment expense reserves, and
investment activity. The restructuring is being contested in the courts by
certain competitors and policyholders; however, CIGNA expects to ultimately
prevail. See Notes 16 and 17 to the Financial Statements for additional
information.
During 1995, CIGNA began cost reduction initiatives in the domestic property
and casualty operations and the Employee Life and Health Benefits segment, which
resulted in charges of $85 million ($55 million after-tax) and $30
<PAGE> 4
million ($20 million after-tax), respectively. During 1996, these initiatives
were substantially implemented, and resulted in after-tax savings of
approximately $35 million and $25 million, respectively. The savings primarily
resulted from the elimination of certain payroll and payroll-related costs and,
to a lesser extent, lease costs. The savings in the near term for the Employee
Life and Health Benefits segment have been offset by increased investments in
business growth and service initiatives for the HMO operations. See Note 16 to
the Financial Statements for additional information.
* Operating income (loss) is defined as net income (loss) excluding after-tax
realized investment results.
8
<PAGE> 5
In connection with federal tax audits for the years 1982 through 1990, one
issue remains outstanding and it could result in an assessment of approximately
$220 million. CIGNA is contesting this issue in court. Although the outcome is
uncertain, management believes that CIGNA should prevail. See Note 9 to the
Financial Statements for additional information.
CIGNA's businesses are subject to a changing social, economic, legal,
legislative and regulatory environment that could affect them. Some of the
changes include initiatives to:
- - revise the system of funding cleanup of environmental damages;
- - change certain federal corporate tax laws;
- - 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; and
- - expand regulation.
The eventual effect on CIGNA of the changing environment in which it
operates remains uncertain. For additional information, see Note 19 to the
Financial Statements.
ACCOUNTING PRONOUNCEMENTS
In 1993, CIGNA implemented Statement of Financial Accounting Standards
(SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," which required that debt and equity securities be classified into
different categories and carried at fair value if they are not classified as
held-to-maturity. During the fourth quarter of 1995, the Financial Accounting
Standards Board issued a guide to implementation of SFAS No. 115, which
permitted a one-time opportunity to reclassify securities subject to SFAS No.
115. Consequently, CIGNA reclassified all held-to-maturity securities to
available-for-sale as of December 31, 1995.
During 1996, CIGNA implemented several new accounting pronouncements which
did not have a material effect on CIGNA's results of operations, liquidity or
financial condition.
See Note 2(B) to the Financial Statements for additional information.
EMPLOYEE LIFE AND HEALTH BENEFITS
<TABLE>
<CAPTION>
(In millions)
- --------------------------------------------------------------------------------
FINANCIAL SUMMARY 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Premiums and fees $8,341 $8,135 $7,844
Net investment income 567 574 515
Other revenues 404 336 272
Realized investment gains 6 122 19
----------------------------------
Total revenues 9,318 9,167 8,650
Benefits and expenses 8,554 8,307 7,821
----------------------------------
Income before taxes 764 860 829
Income taxes 264 263 281
----------------------------------
Net income $ 500 $ 597 $ 548
- ----------------------------------------------==================================
Realized investment gains,
net of taxes $ 3 $ 104 $ 17
- ----------------------------------------------==================================
</TABLE>
Net income for the Employee Life and Health Benefits segment decreased 16%
in 1996 and increased 9% in 1995. Results for 1995 included an after-tax charge
of $20 million related to cost reduction initiatives. See Other Matters for
additional information. Excluding the cost reduction charge, operating income
was as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(In millions) 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Indemnity operations $286 $311 $327
HMO operations 211 202 204
- --------------------------------------------------------------------------------
Total $497 $513 $531
- ----------------------------------------------==================================
</TABLE>
The decrease in the indemnity operations in 1996 reflects a declining book
of medical business due to cancellations and conversions to HMOs and unfavorable
claim experience. Partially offsetting these declines were improved investment
margins, higher earnings from Administrative Services Only (ASO) business and
expense savings from the 1995 cost reduction initiatives.
The 1995 decrease in the indemnity operations reflects competitive pressures
on rates and adverse claim experience resulting from higher medical costs in the
group medical operations, as well as higher claims in the group life operations.
These factors were partially offset by an improvement of $9 million in earnings
for long-term disability (LTD) business.
9
<PAGE> 6
HMO earnings in 1996 and 1995 include $17 million and $39 million,
respectively, due to the favorable after-tax effect of reserve reviews. Results
for 1996 also include a net after-tax gain of $8 million from sales of
subsidiaries. Excluding the above items, earnings for 1996 increased by $23
million from 1995. This increase reflects membership growth, improved per member
medical costs and expense savings from the 1995 cost reduction initiatives.
Partially offsetting these increases were competitive pressures on rates and
higher operating expenses associated with business growth and customer service
initiatives.
The 1995 decrease in HMO earnings reflects the effects of lower margins
resulting from higher than expected medical care costs and higher operating
expenses associated with business growth and investments in service initiatives.
Partially offsetting these factors were the effects of membership growth, as
well as the favorable effects of $30 million after-tax for 1995 resulting from
the net change of reserve reviews between respective years.
Premiums and fees increased 3% in 1996 and 4% in 1995. The 1996 improvement
reflects growth of $185 million in HMOs, primarily due to increased membership,
and growth of $95 million in group indemnity, primarily from life and LTD
business. This improvement was partially offset by a decrease of $74 million in
medical indemnity and other health premiums resulting from lower rate increases
for experience-rated business, and cancellations and conversions to HMOs. The
1995 improvement reflects higher premiums and fees for HMOs of $263 million,
primarily due to membership growth. Group indemnity premiums increased $28
million, reflecting higher medical premiums due to new sales and rate increases,
partially offset by declines in life and LTD premiums.
HMO membership increased 11% in 1996 and 1995, primarily reflecting growth
in HMO alternative funding programs.
Management believes that adding premium equivalents to premiums and fees
(adjusted premiums and fees) produces a more meaningful measure of business
volume. Premium equivalents generally represent paid claims under alternative
funding programs, such as minimum premium and ASO plans, and are additional
premiums that would have been earned if these coverages had been written as
traditional indemnity and HMO programs. Under alternative funding programs, the
customer assumes all or a portion of the responsibility for funding claims and
CIGNA generally earns a lower margin than under traditional programs.
Premium equivalents were $9.6 billion in both 1996 and 1995, compared with
$9.7 billion in 1994. Premium equivalents, as a percentage of total adjusted
premiums and fees, were approximately 55% in 1996, 1995 and 1994. ASO plans
accounted for approximately 50% of total adjusted premiums and fees in 1996,
1995 and 1994.
Business mix in 1996, measured by adjusted premiums and fees, was
approximately 42% medical insurance, 35% prepaid health and dental care, 10%
life insurance, 8% dental insurance, 3% LTD insurance and 2% other insurance
coverages.
Indemnity claims paid for insured plans and claims paid for all alternative
funding programs, including ASOs, for the year ended December 31 were as
follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(In millions) 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Insured plans $ 3,814 $ 3,720 $ 3,706
Alternative funding programs 9,759 9,748 9,725
- --------------------------------------------------------------------------------
Total $13,573 $13,468 $13,431
- -------------------------------------------=====================================
</TABLE>
Growth in premiums as well as premium equivalents is expected to continue to
be constrained by competitive pressures in both the medical indemnity and HMO
markets.
EMPLOYEE RETIREMENT AND SAVINGS BENEFITS
<TABLE>
<CAPTION>
(In millions)
- --------------------------------------------------------------------------------
FINANCIAL SUMMARY 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Premiums and fees $ 235 $ 258 $ 201
Net investment income 1,680 1,722 1,722
Realized investment gains 35 3 12
----------------------------------
Total revenues 1,950 1,983 1,935
Benefits and expenses 1,621 1,699 1,648
----------------------------------
Income before taxes 329 284 287
Income taxes 107 90 97
----------------------------------
Net income $ 222 $ 194 $ 190
- ----------------------------------------------==================================
Realized investment gains,
net of taxes $ 21 $ 2 $ 6
- ----------------------------------------------==================================
</TABLE>
Net income for the Employee Retirement and Savings Benefits segment
increased 14% in 1996 and 2% in 1995. Results for 1996 include an after-tax
charge of $8 million for expected state guaranty fund assessments.
Operating income, excluding the charge noted above, was $209 million, $192
million and $184 million in 1996, 1995 and 1994, respectively. These increases
primarily reflect higher earnings from an increased asset base.
10
<PAGE> 7
Premiums and fees decreased 9% in 1996 and increased 28% in 1995. These
changes reflect the variability of annuity sales.
Net investment income decreased 2% in 1996, reflecting customers'
redirection of a portion of their investments from the general account to
separate accounts.
Assets under management is generally a key determinant of earnings for this
segment. For the year ended December 31, assets under management and related
activity, including amounts attributable to separate accounts, were as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
(In millions) 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
Balance -- January 1 $ 38,183 $ 33,882
Premiums and deposits 5,916 5,233
Investment results 2,951 2,860
Increase in fair value of assets 287 3,237
Customer withdrawals (2,170) (2,092)
Participant withdrawals, benefit
payments and other (4,580) (4,937)
- -------------------------------------------------------------------------------
Balance -- December 31 $ 40,587 $ 38,183
- -----------------------------------------------------==========================
</TABLE>
Premiums and deposits increased 13% in 1996 over 1995, reflecting higher
sales. Approximately 52% and 48% of the premiums and deposits for 1996 and 1995,
respectively, were from new customers. The increase in the fair value of assets
for 1996 and 1995 reflects market value fluctuations for equity securities and
fixed maturities. In addition, the 1995 increase includes approximately $525
million from SFAS No. 115 as discussed under Accounting Pronouncements.
Management expects asset growth to continue to be constrained as a result
of: 1) decisions by plan sponsors to diversify assets and fund management, and
2) the lack of growth in the defined benefit market resulting from customers'
preference for defined contribution products. In addition, assets under
management will continue to be affected by market value fluctuations for fixed
maturities and equity securities.
INDIVIDUAL FINANCIAL SERVICES
<TABLE>
<CAPTION>
(In millions)
- --------------------------------------------------------------------------------
FINANCIAL SUMMARY 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Premiums and fees $ 942 $ 881 $ 824
Net investment income 1,039 968 741
Other revenues 81 70 64
Realized investment gains 12 1 8
----------------------------------
Total revenues 2,074 1,920 1,637
Benefits and expenses 1,815 1,689 1,427
----------------------------------
Income before taxes 259 231 210
Income taxes 91 80 74
----------------------------------
Net income $ 168 $ 151 $ 136
- ----------------------------------------------==================================
Realized investment gains,
net of taxes $ 7 $ 1 $ 5
- ----------------------------------------------==================================
</TABLE>
Net income for the Individual Financial Services segment increased 11% in
both 1996 and 1995. Operating income was $161 million, $150 million and $131
million for 1996, 1995 and 1994, respectively. These increases primarily reflect
higher earnings from interest-sensitive products, including leveraged
corporate-owned life insurance (COLI), and, to a lesser extent for 1996,
favorable reinsurance claims experience.
In August 1996, Congress passed legislation that phases out over a
three-year period the tax deductibility of policy loan interest for most
leveraged COLI products. For 1996, 31% of revenues and 29% of operating income
for this segment were from leveraged COLI products that are affected by this
legislation. The effect of the legislation on the segment's operating income is
not expected to be material through 1998. Beginning in 1999, the effect of the
legislation is uncertain; however, it could have a material adverse effect on
the segment's operating income. CIGNA does not expect this legislation to have a
material effect on its consolidated results of operations, liquidity or
financial condition.
In 1996 and 1995, premiums and fees increased 7%. The 1996 increase
primarily reflects higher sales of reinsurance and certain interest-sensitive
products. This increase is partially offset by lower leveraged COLI renewal
premiums and the absence of sales of leveraged COLI products resulting from the
legislation discussed above. The increase for 1995 reflects growth in business
of interest-sensitive products, principally leveraged COLI.
Net investment income increased 7% and 31% in 1996 and 1995, respectively,
primarily reflecting growth from leveraged COLI policy loans and annuity
business.
Deposits, which are not included in revenues, totaled $2.1 billion, $3.2
billion and $3.0 billion in 1996, 1995 and 1994, respectively. The 1996 decrease
reflects lower leveraged COLI deposits due to the legislation discussed above
and lower annuity sales. The 1995 increase reflects higher sales of annuities.
11
<PAGE> 8
PROPERTY AND CASUALTY
<TABLE>
<CAPTION>
(In millions)
- -------------------------------------------------------------------------------
FINANCIAL SUMMARY 1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Premiums and fees $4,398 $ 4,640 $ 5,043
Net investment income 804 794 756
Other revenues 240 216 223
Realized investment gains 42 85 8
-------------------------------------
Total revenues 5,484 5,735 6,030
Benefits and expenses 5,138 6,795 6,447
-------------------------------------
Income (loss) before taxes 346 (1,060) (417)
Income taxes (benefits) 106 (387) (182)
-------------------------------------
Net income (loss) $ 240 $ (673) $ (235)
- ------------------------------------------=====================================
Realized investment gains,
net of taxes $ 27 $ 54 $ 4
- ------------------------------------------=====================================
</TABLE>
CIGNA's domestic property and casualty operations were restructured into
ongoing and run-off operations effective December 31, 1995. See Other Matters on
page 8 for additional information. Amounts shown for the Property and Casualty
segment's domestic ongoing and run-off operations for 1995 are reported on a pro
forma basis as though the restructuring was in place at the beginning of 1995.
These pro forma results are not necessarily indicative of the results that would
have been reported had the restructuring actually occurred as of January 1,
1995. Pro forma information is not available for 1994. Amounts for the
international operations and for the consolidated Property and Casualty segment
were not affected by the restructuring.
Results for 1995 reflect third quarter charges associated with reserve
strengthening for asbestos-related and environmental pollution (A&E) claims
($686 million after-tax) and uncollectible reinsurance for non-A&E exposures
($88 million after-tax), and third quarter charges for cost reduction
initiatives ($55 million after-tax). Results for 1994 included a third quarter
charge of $27 million after-tax, primarily related to reinsurance exposures.
Operating income (loss), excluding the previously noted third quarter 1995
charges, for the year ended December 31 was as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Pro
Forma
(In millions) 1996 1995 1994*
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
International $ 135 $ 128 $ 55
Domestic - ongoing 76 0
- pre-restructuring (294)
-----------------
Total ongoing operations 211 128
Run-off operations 2 (26)
- -------------------------------------------------------------------------------
Total $ 213 $ 102 $(239)
- --------------------------------------------------=============================
</TABLE>
* Pro forma results of operations reflecting the 1995 domestic property and
casualty restructuring are not available for 1994. See Other Matters for
additional information.
The improvement in the domestic operations for 1996 reflects lower expenses,
primarily resulting from the 1995 cost reduction initiatives, and higher
investment income, primarily due to higher yields. Improvement in the
international operations reflects higher earnings from accident and health,
individual life and employee benefits lines of business, primarily due to
favorable claim experience. Results for the domestic and international
operations reflect a highly competitive pricing environment. The improvement in
results for the run-off operations primarily reflects lower A&E losses.
The Property and Casualty segment's improvement for 1995 reflects:
- - a decrease in current accident year underwriting losses due to improved
claim experience, including lower catastrophe losses;
- - rate increases on certain lines of business;
- - reduced expenses resulting from domestic cost reduction initiatives; and
- - lower A&E losses.
12
<PAGE> 9
Premiums and fees for the segment decreased 5% in 1996. This decline
primarily reflects 1) the unfavorable effect from foreign currency translation
(approximately $160 million for the international business), 2) lower premiums
of approximately $85 million for reinsurance and personal automobile products
that are no longer being actively sold, 3) a decrease of $90 million in workers'
compensation premiums primarily reflecting conversions from standard risk
transfer to high-deductible policies, 4) strict underwriting standards, and 5)
continued price competition. These declines were partially offset by growth in
the domestic property, casualty, marine and aviation lines of business, as well
as the international accident and health line of business.
Premiums and fees for the segment decreased 8% in 1995, primarily reflecting
a reduction of $444 million in domestic commercial premiums. The decrease in the
domestic commercial business reflects continued competition, stricter
underwriting standards and, to a lesser extent, conversions of workers'
compensation business from standard risk transfer to high-deductible policies
and a ratings downgrade by the insurance rating agency, A.M. Best, late in 1994.
In addition, the overall decline reflects a decrease of $224 million in premiums
and fees from the reinsurance business due to CIGNA's withdrawal from this
business late in 1994, as discussed below. Growth in international lines of
business of $320 million, approximately half of which resulted from changes in
foreign currency translations, partially offset the overall decline in premiums
and fees.
In the third quarter of 1994, CIGNA substantially withdrew from the property
and casualty reinsurance business. Such business had international and domestic
revenues of approximately $500 million in 1993, and results of operations that
were not material to CIGNA. In connection with the withdrawal, CIGNA sold
renewal opportunities for a significant portion of its international reinsurance
business and discontinued writing most other property and casualty reinsurance
coverages. These actions have not had a material effect on CIGNA's results of
operations.
Net investment income for 1996 was about level with 1995. Net investment
income for 1995 increased 5% over 1994, primarily reflecting growth in business
for the international operations, partially offset by negative cash flows in the
domestic property and casualty operations.
Pre-tax catastrophe losses, net of reinsurance, were $87 million, $71
million, and $151 million in 1996, 1995 and 1994, respectively. Substantially
all the catastrophe losses occurred in the domestic operations. Net catastrophe
losses included $21 million for Hurricane Fran and $22 million for East Coast
winter storms in 1996; $29 million for Texas hail storms in 1995; and $87
million for the Los Angeles earthquake and $27 million for the severe winter
weather in 1994. The effect of reinsurance on catastrophe losses was not
material.
CIGNA's principal property catastrophe reinsurance program provides, on a
combined basis, approximately 95% recovery of losses between $60 million and
$375 million for its domestic operations and approximately 95% recovery of
losses between $50 million and $300 million for international operations.
CIGNA's future results of operations could be volatile, depending on the
frequency and severity of future catastrophes.
13
<PAGE> 10
LOSS RESERVES AND REINSURANCE RECOVERABLES
CIGNA's property and casualty loss reserves of $16.5 billion and $17.0
billion as of December 31, 1996 and 1995, 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 traditional 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. The process
of establishing loss reserves is subject to uncertainties that are normal,
recurring and inherent in the property and casualty business.
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, unanticipated changes in workers'
compensation and product liability laws have at times significantly affected the
ability of insurers to estimate liabilities for unpaid losses and related
expenses.
CIGNA implemented a new methodology for estimating A&E reserves in the third
quarter of 1995, as discussed on page 15. CIGNA's reserves for A&E claims are a
reasonable estimate of its liability for these claims, based on currently known
facts, reasonable assumptions where the facts are not known, current law and
methodologies currently available.
Reserving for property and casualty claims continues to be a complex and
uncertain process, requiring the use of informed estimates and judgments.
CIGNA's estimates and judgments may be revised as additional experience and
other data become available and are reviewed, as new or improved methodologies
are developed or as current law changes. Any such revisions could result in
future changes in estimates of losses or reinsurance recoverables, and would be
reflected in CIGNA's results of operations for the period in which the estimates
are changed. While the effect of any such changes in estimates of losses or
reinsurance recoverables could be material to future results of operations,
CIGNA does not expect such changes to have a material effect on its liquidity or
financial condition.
CIGNA manages its loss exposure through the use of reinsurance. While
reinsurance arrangements are designed to limit losses from large exposures and
to permit recovery of a portion of direct losses, reinsurance does not relieve
CIGNA of liability to its insureds. Accordingly, CIGNA's loss reserves represent
total gross losses, and reinsurance recoverables represent anticipated
recoveries of a portion of those losses.
CIGNA's reinsurance recoverables were approximately $6.8 billion and $6.7
billion as of December 31, 1996 and 1995, net of allowances for unrecoverable
reinsurance of $711 million and $700 million, respectively.
CIGNA recognized significant recoveries in 1996, 1995 and 1994 from
reinsurance arrangements as shown in the table on page 15. Reinsurance
recoveries for all periods presented, including recoveries for A&E claims,
increased or decreased as a result of comparable changes in gross losses.
Reinsurance recoveries are also affected by the factors noted below for
"unrecoverable reinsurance."
CIGNA expects to continue to have significant recoveries from its
reinsurance arrangements, including recoveries of A&E losses. However, the
extent of recoveries in the aggregate will depend on future gross loss
experience and the particular reinsurance arrangements to which future losses
relate.
At December 31, 1996 and 1995, approximately 14% and 12%, respectively, of
CIGNA's reinsurance recoverables related to paid claims. The timing and
collectibility of such recoverables have not had, and are not expected to have,
a material adverse effect on CIGNA's liquidity.
In management's judgment, information currently available has been
appropriately considered in estimating CIGNA's loss reserves and reinsurance
recoverables.
See CIGNA's Form 10-K for additional information on CIGNA's loss reserves
and reinsurance recoverables.
14
<PAGE> 11
The following table shows CIGNA's gross losses for incurred claims and claim
adjustment expenses (Gross), amounts ceded to reinsurers (Reinsurance) and net
losses for incurred claims and claim adjustment expenses (Net) for the year
ended December 31. The table also categorizes those amounts as they relate to
insured events of the current year and of prior years (prior year development).
<TABLE>
<CAPTION>
=====================================================================================================================
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------
(In millions) Gross Reinsurance Net Gross Reinsurance Net Gross Reinsurance Net
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Current year $ 3,510 $(1,162) $2,348 $3,522 $(1,136) $2,386 $ 4,280 $(1,187) $3,093
- ---------------------------------------------------------------------------------------------------------------------
Prior year development:
Asbestos-related 115 (53) 62 298 (43) 255 64 (4) 60
Environmental pollution 58 (26) 32 1,265 (310) 955 280 (65) 215
Assumed reinsurance
exposures 114 (74) 40 73 (41) 32 70 (11) 59
Unrecoverable
reinsurance -- 23 23 -- 179 179 -- 29 29
Other (26) 46 20 7 70 77 (46) 221 175
- ---------------------------------------------------------------------------------------------------------------------
Total prior year
development 261 (84) 177 1,643 (145) 1,498 368 170 538
- ---------------------------------------------------------------------------------------------------------------------
Total incurred claims
and claim adjustment
expenses $ 3,771 $(1,246) $2,525 $5,165 $(1,281) $3,884 $ 4,648 $(1,017) $3,631
=====================================================================================================================
</TABLE>
During the third quarter of 1995, CIGNA evaluated newly emerging methods for
estimating A&E liabilities and expanded its claims data bases. Using these
recent developments, CIGNA completed a comprehensive review of its A&E exposures
and increased asbestos-related reserves by $255 million ($194 million, net of
reinsurance) and environmental pollution reserves by $1.2 billion ($861 million,
net of reinsurance). These amounts are included in the 1995 gross
asbestos-related losses of $298 million ($255 million, net of reinsurance) and
gross environmental pollution losses of $1.3 billion ($955 million, net of
reinsurance) as shown in the above table. As a result of this reserve action,
charges for A&E losses in 1996 were substantially lower than in prior years.
Losses for "assumed reinsurance exposures" for 1996 resulted from a review
of reserves for certain reinsurance lines of business, including London
reinsurance exposures. For 1995, losses for "assumed reinsurance exposures"
primarily reflect $31 million ($17 million, net of reinsurance) for London
reinsurance exposures. For 1994, losses for "assumed reinsurance exposures"
primarily reflect $48 million ($40 million, net of reinsurance) resulting from a
review of reserves for certain reinsurance lines of business (principally closed
books of business) other than London reinsurance exposures.
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 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. In the third quarter of 1995, CIGNA increased the allowance for
uncollectible reinsurance by $210 million pre-tax, including $75 million
reported as A&E prior year development in the table above. 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.
15
<PAGE> 12
Gross and net losses for "other" prior year development in 1996 reflect
unfavorable development on workers' compensation ($42 million, net of
reinsurance) and long-term exposures ($27 million, net of reinsurance),
partially offset by favorable loss reserve development on commercial packages
and commercial fire lines of business. For 1995, "other" prior year development
reflects unfavorable development on workers' compensation ($114 million, net of
reinsurance) and long-term exposures ($34 million, net of reinsurance),
partially offset by favorable loss reserve development on commercial packages,
commercial fire, and general and excess liability lines of business. For 1994,
"other" prior year development was primarily attributable to workers'
compensation ($74 million, net of reinsurance), long-term exposures ($31
million, net of reinsurance) and the general and excess liability line of
business. In addition, in 1994 CIGNA performed an actuarial review of certain
businesses, including captives, that are substantially reinsured. Such review
resulted in a reduction in gross loss reserves of approximately $250 million,
with a corresponding decrease in reinsurance recoverables.
OTHER OPERATIONS
<TABLE>
<CAPTION>
(In millions)
- --------------------------------------------------------------
FINANCIAL SUMMARY 1996 1995 1994
- --------------------------------------------------------------
<S> <C> <C> <C>
Net loss $(74) $(58) $(85)
- -----------------------------------------=====================
Realized investment gains (losses),
net of taxes $ (4) $ 17 $ (4)
- -----------------------------------------=====================
</TABLE>
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.
Operating losses were $70 million, $75 million and $81 million for 1996,
1995 and 1994, respectively. Losses for 1996 were lower than 1995, primarily
reflecting higher income tax benefits in 1996. Losses for 1995 were comparable
with 1994 excluding, for 1994, a gain of $20 million after-tax from the sale of
a California personal automobile and homeowners insurance business, a charge of
$16 million after-tax resulting from reserve strengthening in the settlement
annuity business and an $8 million after-tax loss for an oil and gas
divestiture.
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
(In millions)
- --------------------------------------------------------------
FINANCIAL SUMMARY 1996 1995 1994
- --------------------------------------------------------------
<S> <C> <C> <C>
Short-term investments $1,320 $1,113 $853
Cash and cash equivalents 1,287 1,559 1,693
Short-term debt 289 414 271
Long-term debt 1,021 1,066 1,389
Shareholders' equity 7,208 7,157 5,811
- --------------------------------------------------------------
</TABLE>
CIGNA's operations have liquidity requirements that vary among the principal
product lines. Life insurance and pension plan reserves are primarily long-term
liabilities. Property and casualty, as well as accident and health reserves,
including long-term disability, consist of both short-term and long-term
liabilities. Life insurance and pension plan reserve requirements are usually
stable and predictable, and are supported primarily by long-term, fixed-income
investments. Property and casualty claim demands are less predictable in nature,
requiring greater liquidity in the investment portfolio. Accident and health
claim demands are stable and predictable but generally shorter term, requiring
greater liquidity.
Generally, CIGNA has met its operating requirements by maintaining
appropriate levels of liquidity in its investment portfolio and utilizing
overall positive cash flows. Overall cash flows have been constrained by
negative cash flows in the property and casualty business, resulting from claim
payments related to insurance reserves established in prior periods and
operating losses. Liquidity for CIGNA and its insurance subsidiaries has
remained strong, as evidenced by significant amounts of short-term investments
and cash and cash equivalents, which totaled $2.6 billion and $2.7 billion as of
December 31, 1996 and 1995, respectively.
During 1996, cash and cash equivalents decreased $272 million. This decrease
primarily reflects cash used in investing activities ($357 million), including
net investment purchases; payments of dividends on and repurchases of CIGNA
common stock ($534 million); and debt repayments ($158 million). The decrease
was partially offset by deposits and interest credited, net of withdrawals, to
contractholder deposit funds ($93 million); and cash flows from operating
activities ($700 million) reflecting the timing of cash receipts and cash
disbursements and earnings.
During 1995, cash and cash equivalents decreased $134 million. This decrease
primarily reflects net investment purchases ($3.6 billion) and payments of
dividends on CIGNA common stock ($222 million). The decrease was partially
offset by deposits and interest credited, net of withdrawals, to contractholder
deposit funds ($2.6 billion); proceeds from the issuance
16
<PAGE> 13
of long-term debt ($88 million); and cash flows from operating activities ($1.1
billion) resulting from the timing of cash receipts and cash disbursements and
earnings. Cash flow from operating activities was constrained by negative cash
flow of approximately $400 million from the property and casualty business,
reflecting claim payments related to insurance reserves established in prior
periods.
During 1994, cash and cash equivalents increased $482 million from $1.2
billion as of December 31, 1993. This increase primarily reflects deposits and
interest credited, net of withdrawals, to contractholder deposit funds ($2.2
billion); the issuance of long-term debt ($158 million); and cash flows from
operating activities ($475 million) resulting from the timing of cash receipts
and cash disbursements and earnings. The increase was partially offset by net
investment purchases ($2 billion), payments of dividends on CIGNA common stock
($219 million) and debt repayments ($46 million). Cash flow from operating
activities was constrained by negative cash flow from the property and casualty
business of approximately $200 million resulting from operating losses.
Funds provided from premiums and fees, investment income and maturities of
investment assets are reasonably predictable and normally exceed liquidity
requirements for payments of claims, benefits and expenses. However, since the
timing of available funds cannot always be matched precisely to commitments,
imbalances may arise when demand for funds exceeds those on hand. Also, a demand
for funds may arise as a result of CIGNA taking advantage of current investment
opportunities.
CIGNA's insurance subsidiaries are subject to various regulatory
restrictions that can limit the amount of internal dividends and other
distributions, including loans, that can be utilized to manage liquidity needs.
However, CIGNA's size and diversity generally provide the flexibility to manage
liquidity needs, either internally or externally, through short-term borrowings.
At December 31, 1996, CIGNA had available approximately $660 million of
committed and uncommitted lines of credit with banks.
CIGNA's financial strength provides the capacity and flexibility to enable
it to raise funds in the capital markets through the issuance of long-term debt
and equity securities. CIGNA continues to be well capitalized, with sufficient
borrowing capacity to meet the anticipated needs of its businesses.
CIGNA's capital resources represent funds available for long-term business
commitments. They primarily consist of retained earnings and proceeds from the
issuance of long-term debt and equity securities. Capital resources provide
protection for policyholders and the financial strength to support the
underwriting of insurance risks, and allow for continued business growth. The
amount of capital resources that may be needed is determined by CIGNA's senior
management and Board of Directors, as well as by regulatory requirements. The
allocation of resources to new long-term business commitments is designed to
achieve an attractive return, tempered by considerations of risk and the need to
support CIGNA's existing businesses.
CIGNA had $1 billion of long-term debt outstanding at December 31, 1996,
compared with $1.1 billion at December 31, 1995. At December 31, 1996, CIGNA had
approximately $800 million remaining under an effective shelf registration
statement filed with the Securities and Exchange Commission that may be issued
as debt securities, equity securities or both, depending upon market conditions
and CIGNA's capital requirements.
In connection with the domestic property and casualty restructuring, CIGNA
contributed $375 million of additional capital to the run-off operations. This
contribution, which was reflected in the run-off operations' statutory surplus
as of December 31, 1995, was funded in 1996 through internal sources. See Other
Matters for additional information. CIGNA contributed approximately $250 million
of capital during 1994 to the domestic property and casualty operations, as a
result of continued losses.
In April 1996, CIGNA's Board of Directors authorized the purchase of up to
$500 million of its common stock, depending on prevailing market conditions and
alternative uses of capital. Under this authorization, approximately 2.8 million
shares of common stock were purchased for $350 million as of February 11, 1997.
Shares were purchased with internal funds.
17
<PAGE> 14
INVESTMENT ASSETS
<TABLE>
<CAPTION>
(In millions)
- --------------------------------------------------------------
FINANCIAL SUMMARY 1996 1995
- --------------------------------------------------------------
<S> <C> <C>
Fixed maturities $34,933 $36,241
Equity securities 701 661
Mortgage loans 10,927 11,010
Real estate 1,102 1,283
Other, primarily policy loans 8,871 8,515
- --------------------------------------------------------------
Total investment assets $56,534 $57,710
- --------------------------------------------==================
</TABLE>
CIGNA's investment strategy is to manage the characteristics of investment
assets, such as liquidity, currency, yield and duration, to reflect the
underlying characteristics of the related insurance and contractholder
liabilities, which vary among CIGNA's principal product lines. In connection
with this investment strategy, CIGNA uses derivative instruments through hedging
applications to minimize market risk. Additional information regarding CIGNA's
investment assets and related accounting policies is included in Notes 2, 4 and
5 to the Financial Statements and in CIGNA's Form 10-K.
Significant amounts of CIGNA's investment assets are attributable to
experience-rated contracts with policyholders (policyholder contracts).
Approximate percentages of investments attributable to policyholder contracts as
of December 31 were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------
1996 1995
- --------------------------------------------------------------
<S> <C> <C>
Fixed maturities 28% 30%
Mortgage loans 56% 58%
Real estate 58% 57%
- --------------------------------------------------------------
</TABLE>
Under the experience-rating process, net investment income and gains and
losses on assets related to policyholder contracts generally accrue to the
policyholders. Consequently, write-downs, changes in valuation reserves and
non-accruals on investments attributable to policyholder contracts do not affect
CIGNA's net income, except under unusual circumstances.
FIXED MATURITIES
Investments in fixed maturities (bonds) include publicly traded and private
placement debt securities; asset-backed securities, including collateralized
mortgage obligations (CMOs); and redeemable preferred stocks.
As of December 31, 1996, the fair value of fixed maturities, including
policyholder share, was greater than amortized cost by $1.5 billion, compared
with approximately $3 billion as of December 31, 1995. The decrease in
unrealized appreciation primarily reflects the upward movement in interest rates
since December 31, 1995.
QUALITY RATINGS
As of December 31, 1996, $33.5 billion, or 96%, of bonds were investment
grade, and $1.4 billion, or 4%, were below investment grade (BA and below, or
equivalent).
The quality ratings of CIGNA's below investment grade bonds are concentrated
toward the higher end of the non-investment grade spectrum. Approximately 28% of
below investment grade securities relate to policyholder contracts.
All private placement investments are made after credit analysis, and are
diversified by industry and issuer. Private placement investments are generally
less marketable than public bonds, and yields are generally higher for
comparable credit risk. Further, private placement investments generally contain
financial and other covenants that allow CIGNA to monitor the debtor for early
signs of deteriorating financial strength so it can take remedial actions, if
warranted.
As a result of the higher yields and the inherent risk associated with below
investment grade securities, gains or losses could significantly affect future
results of operations, although such effects are not expected to be material to
CIGNA's liquidity or financial condition.
POTENTIAL PROBLEM BONDS
Potential problem bonds are fully current but judged by management to have
certain characteristics that increase the likelihood of problem classification.
CIGNA had $107 million of potential problem bonds, including amounts
attributable to policyholder contracts, as of December 31, 1996, compared with
$137 million as of December 31, 1995. The 1996 amount is net of $5 million of
cumulative write-downs. There were no cumulative write-downs as of December 31,
1995. Potential problem bonds attributable to policyholder contracts represented
26% and 29% of total potential problem bonds at December 31, 1996 and 1995,
respectively.
PROBLEM BONDS
CIGNA considers bonds that are delinquent or restructured as to terms,
typically interest rate and, in certain cases, maturity date, problem bonds. As
of December 31, 1996 and 1995, CIGNA had problem bonds, including amounts
attributable to policyholder contracts, of $160 million and $196 million, net of
related cumulative write-downs of $125 million and $140 million, respectively.
Problem bonds attributable to policyholder contracts represented 24% and 33% of
total problem bonds at December 31, 1996 and 1995, respectively.
18
<PAGE> 15
CUMULATIVE WRITE-DOWNS FOR BONDS
CIGNA had cumulative write-downs for bonds as of December 31, 1996 and 1995
of $131 million and $144 million, respectively, including $48 million and $55
million attributable to policyholder contracts. Also, cumulative write-downs as
of December 31, 1996 and 1995 included $1 million and $4 million, respectively,
for bonds no longer classified as problem or potential problem bonds.
During 1996 and 1995, CIGNA established write-downs of $55 million and $75
million, respectively, for problem and potential problem bonds. These amounts
included $18 million and $26 million attributable to policyholder contracts for
1996 and 1995, respectively. See the Summary on page 21 for the adverse effect
of write-downs on policyholder contracts and on CIGNA's net income.
EFFECT OF NON-ACCRUALS FOR BONDS
CIGNA recognizes interest income on problem bonds only when payment is
received. See the Summary on page 21 for the adverse effect of non-accruals for
bonds on policyholder contracts and on CIGNA's net income.
MORTGAGE LOANS
<TABLE>
<CAPTION>
- ------------------------------------------------------------
As of December 31,
1996 1995
- ------------------------------------------------------------
<S> <C> <C>
Mortgage loans (in millions) $10,927 $11,010
Property type:
Retail facilities 43% 42%
Office buildings 34 35
Apartment buildings 12 12
Hotels 6 6
Other 5 5
- ------------------------------------------------------------
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. CIGNA routinely
monitors and evaluates the status of its mortgage loans through the review of
loan and property-related information, including cash flows, expiring leases,
financial health of the borrower and major tenants, loan payment history,
occupancy and room rates for hotels and, for all commercial properties,
significant new competition. CIGNA evaluates this information in light of
current economic conditions as well as geographic and property type
considerations.
Adverse conditions in real estate markets and more stringent lending
practices by financial institutions have affected scheduled maturities of
mortgage loans. During 1996, approximately $1.2 billion of mortgage loans were
scheduled to mature, of which $559 million were paid in full, $106 million were
extended at existing loan rates for a weighted average of 11 months and $439
million were refinanced at current market rates. Mortgage loan extensions and
refinancings are loans in good standing. The remaining scheduled maturities were
problem and potential problem mortgage loans. 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.
POTENTIAL PROBLEM MORTGAGE LOANS
Potential problem mortgage loans include:
- - fully current loans that are judged by management to have
certain characteristics that increase the likelihood of
problem classification;
- - fully current loans for which the borrower has requested
restructuring; and
- - loans that are 30 to 59 days delinquent with respect to
interest or principal payments.
CIGNA had potential problem mortgage loans, including amounts attributable
to policyholder contracts, of $384 million as of December 31, 1996, and $211
million as of December 31, 1995, net of related valuation reserves of $30
million and $29 million, respectively. Potential problem mortgage loans
attributable to policyholder contracts represented 63% and 59% of total
potential problem mortgage loans at December 31, 1996 and 1995, respectively.
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 date. As of December 31, 1996, restructured mortgage loans
with a carrying value of approximately $275 million had their original maturity
date extended, with a weighted average extension of approximately five years.
Restructured mortgage loans generated annualized cash returns averaging
approximately 9.8% as of December 31, 1996.
During 1996, CIGNA reclassified approximately $55 million of restructured
mortgage loans to loans in good standing because they were performing under the
terms of the restructured loan agreement, and those terms were generally
equivalent to terms that CIGNA was willing to accept for a comparable new loan
at the time of restructure.
19
<PAGE> 16
CIGNA had problem mortgage loans, including amounts attributable to
policyholder contracts, of $363 million and $575 million, net of valuation
reserves of $71 million and $59 million, as of December 31, 1996 and 1995,
respectively. Problem mortgage loans attributable to policyholder contracts
represented 53% and 56% of total problem mortgage loans at December 31, 1996 and
1995, respectively.
As of December 31, problem mortgage loans by property type and by geographic
region, including amounts attributable to policyholder contracts, were as
follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------
(In millions) 1996 1995
- --------------------------------------------------------------
<S> <C> <C>
PROPERTY TYPE:
Office buildings $178 $294
Hotels 99 138
Retail facilities 44 59
Apartment buildings 26 35
Other 16 49
- --------------------------------------------------------------
Total $363 $575
- ------------------------------------------------==============
GEOGRAPHIC REGION:
Middle Atlantic $153 $210
Central 97 101
Pacific 29 99
New England 38 69
South Atlantic 29 41
Other 17 55
- --------------------------------------------------------------
Total $363 $575
- ------------------------------------------------==============
</TABLE>
VALUATION RESERVES FOR MORTGAGE LOANS
CIGNA had valuation reserves for mortgage loans at December 31, 1996 and
1995 of $101 million and $88 million, respectively, including $67 million and
$61 million attributable to policyholder contracts.
During 1996 and 1995, CIGNA established valuation reserves of $63 million
and $13 million, respectively, for problem and potential problem mortgage loans.
These amounts included $37 million and $10 million attributable to policyholder
contracts. The valuation reserve increase in 1995 was net of a favorable reserve
adjustment of $29 million, including $16 million attributable to policyholders,
due to the implementation of SFAS Nos. 114 and 118.
See the Summary on page 21 for the adverse effect of valuation reserves on
policyholder contracts and on CIGNA's net income.
EFFECT OF NON-ACCRUALS FOR MORTGAGE LOANS
CIGNA recognizes interest income on problem mortgage loans only when payment
is received. See the Summary on page 21 for the adverse effect of non-accruals
for mortgage loans on policyholder contracts and on CIGNA's net income.
REAL ESTATE
Investment real estate includes real estate held for the production of
income and real estate held for sale, primarily properties acquired as a result
of foreclosure of mortgage loans (foreclosure properties).
As of December 31, investment real estate, including amounts attributable to
policyholder contracts, and related cumulative write-downs and valuation
reserves, were as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------
(In millions) 1996 1995
- ---------------------------------------------------------
<S> <C> <C>
Real estate held for sale (primarily
foreclosure properties) $901 $1,050
Less cumulative write-downs 227 272
Less valuation reserves 67 58
-----------------
607 720
-----------------
Real estate held for the production
of income 545 614
Less valuation reserves 50 51
-----------------
495 563
- ---------------------------------------------------------
Investment real estate $1,102 $1,283
- ----------------------------------------=================
</TABLE>
Foreclosure properties attributable to policyholder contracts represented
62% and 58% of total foreclosure properties at December 31, 1996 and 1995,
respectively.
As of December 31, real estate held for sale, primarily foreclosure
properties, by property type and by geographic region, including amounts
attributable to policyholder contracts, were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------
(In millions) 1996 1995
- --------------------------------------------------------------
<S> <C> <C>
PROPERTY TYPE:
Office buildings $537 $609
Retail facilities 26 29
Hotels 2 34
Other 42 48
- --------------------------------------------------------------
Total $607 $720
- ------------------------------------------------==============
GEOGRAPHIC REGION:
Central $325 $260
Middle Atlantic 133 122
Pacific 79 148
South Atlantic 10 86
New England 31 61
Other 29 43
- --------------------------------------------------------------
Total $607 $720
- ------------------------------------------------==============
</TABLE>
20
<PAGE> 17
REAL ESTATE WRITE-DOWNS AND VALUATION RESERVES
CIGNA had cumulative write-downs and valuation reserves for real estate at
December 31, 1996 and 1995 of $344 million and $381 million, respectively,
including $175 million and $199 million attributable to policyholder contracts.
During 1996 and 1995, CIGNA established write-downs and valuation reserves
for real estate of $2 million and $27 million, respectively. These amounts
included $1 million and $18 million attributable to policyholder contracts for
1996 and 1995, respectively. See the Summary below for the adverse effect of
write-downs and valuation reserves on policyholder contracts and on CIGNA's net
income.
SUMMARY
The adverse effects of write-downs and changes in valuation reserves as well
as of non-accruals on policyholder contracts and on CIGNA's net income for the
year ended December 31 were as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
Policyholder Policyholder Policyholder
(In millions) Contracts CIGNA Contracts CIGNA Contracts CIGNA
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
WRITE-DOWNS AND
VALUATION RESERVES:
Bonds $18 $24 $26 $32 $22 $19
Mortgage loans 37 16 10 2 24 5
Real estate 1 1 18 6 28 13
- ----------------------------------------------------------------------------------------------------------------------
Total $56 $41 $54 $40 $74 $37
- ------------------------==============================================================================================
NON-ACCRUALS:
Bonds $ 8 $15 $12 $13 $12 $16
Mortgage loans 1 -- 6 1 24 11
- ----------------------------------------------------------------------------------------------------------------------
Total $ 9 $15 $18 $14 $36 $27
- ------------------------==============================================================================================
</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. Assuming no significant
deterioration in economic conditions, 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.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
Except for historical information provided in this Management's Discussion
and Analysis, statements made throughout this document are forward-looking and
contain information about financial results, economic conditions, trends and
known uncertainties. CIGNA cautions the reader that actual results could differ
materially from those expected by CIGNA, depending on the outcome of certain
factors (some of which are described with the forward-looking statements)
including: 1) adverse catastrophe experience in CIGNA's property and casualty
businesses; 2) adverse property and casualty loss development for events that
CIGNA insured in prior years; 3) an increase in medical costs in CIGNA's health
care operations, including increases in utilization and costs of medical
services; 4) heightened competition, particularly price competition, reducing
product margins and constraining growth in CIGNA's businesses; and 5)
significant changes in interest rates.
21
<PAGE> 18
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
(In millions, except per share amounts)
- --------------------------------------------------------------------------------------------------
For the years ended December 31, 1996 1995 1994
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Premiums and fees $13,916 $13,914 $13,912
Net investment income 4,333 4,296 3,946
Other revenues 610 512 492
Realized investment gains 91 233 42
---------------------------------------------------
Total revenues 18,950 18,955 18,392
---------------------------------------------------
BENEFITS, LOSSES AND EXPENSES
Benefits, losses and settlement expenses 12,473 13,855 12,926
Policy acquisition expenses 1,138 1,181 1,166
Other operating expenses 3,738 3,668 3,495
---------------------------------------------------
Total benefits, losses and expenses 17,349 18,704 17,587
---------------------------------------------------
INCOME BEFORE INCOME TAXES 1,601 251 805
---------------------------------------------------
Income taxes (benefits):
Current 419 258 224
Deferred 126 (218) 27
---------------------------------------------------
Total taxes 545 40 251
---------------------------------------------------
NET INCOME 1,056 211 554
Common dividends declared (242) (222) (219)
Retained earnings, beginning of year 4,041 4,052 3,717
---------------------------------------------------
RETAINED EARNINGS, END OF YEAR $ 4,855 $ 4,041 $ 4,052
- ---------------------------------------------------------=========================================
EARNINGS PER SHARE $ 13.85 $ 2.86 $ 7.66
- ---------------------------------------------------------=========================================
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
22
<PAGE> 19
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
(In millions, except per share amounts)
- --------------------------------------------------------------------------------------------------------
As of December 31, 1996 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities, at fair value (amortized cost, $33,404; $33,275) $34,933 $36,241
Equity securities, at fair value (cost, $573; $565) 701 661
Mortgage loans 10,927 11,010
Policy loans 7,296 7,107
Real estate 1,102 1,283
Other long-term investments 255 295
Short-term investments 1,320 1,113
---------------------------------
Total investments 56,534 57,710
Cash and cash equivalents 1,287 1,559
Accrued investment income 890 908
Premiums, accounts and notes receivable 4,229 4,268
Reinsurance recoverables 7,287 7,120
Deferred policy acquisition costs 1,230 1,109
Property and equipment 802 864
Deferred income taxes 1,998 1,866
Other assets 993 1,149
Goodwill 1,068 1,118
Separate account assets 22,614 18,232
- --------------------------------------------------------------------------------------------------------
Total assets $98,932 $95,903
- ---------------------------------------------------------------------------------=======================
LIABILITIES
Contractholder deposit funds $29,878 $30,055
Unpaid claims and claim expenses 18,841 19,303
Future policy benefits 11,784 12,007
Unearned premiums 1,940 2,176
---------------------------------
Total insurance and contractholder liabilities 62,443 63,541
Accounts payable, accrued expenses and other liabilities 5,326 5,408
Current income taxes 221 187
Short-term debt 289 414
Long-term debt 1,021 1,066
Separate account liabilities 22,424 18,130
- --------------------------------------------------------------------------------------------------------
Total liabilities 91,724 88,746
- --------------------------------------------------------------------------------------------------------
CONTINGENCIES - NOTE 19
SHAREHOLDERS' EQUITY
Common stock (shares issued, 88; 87) 88 87
Additional paid-in capital 2,572 2,536
Net unrealized appreciation, fixed maturities 539 1,025
Net unrealized appreciation, equity securities 88 73
Net translation of foreign currencies (45) (27)
Retained earnings 4,855 4,041
Less treasury stock, at cost (889) (578)
- --------------------------------------------------------------------------------------------------------
Total shareholders' equity 7,208 7,157
- --------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $98,932 $95,903
- ---------------------------------------------------------------------------------=======================
SHAREHOLDERS' EQUITY PER SHARE $ 97.15 $ 93.76
- ---------------------------------------------------------------------------------=======================
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
23
<PAGE> 20
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
(In millions)
- ---------------------------------------------------------------------------------------------------------------------------
For the years ended December 31, 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,056 $ 211 $ 554
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Insurance liabilities (351) 550 (853)
Reinsurance recoverables (140) 362 862
Premiums, accounts and notes receivable 23 (184) (10)
Accounts payable, accrued expenses, other liabilities
and current income taxes 23 589 (119)
Deferred income taxes 126 (218) 27
Realized investment gains (91) (233) (42)
Other, net 54 27 56
------------------------------------------------
Net cash provided by operating activities 700 1,104 475
------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from investments sold:
Fixed maturities -- available-for-sale 6,076 6,492 4,868
Fixed maturities -- held-to-maturity -- -- 12
Equity securities 368 1,668 681
Mortgage loans 676 430 601
Other (primarily short-term investments) 11,555 16,969 16,076
Investment maturities and repayments:
Fixed maturities -- available-for-sale 3,867 1,144 1,946
Fixed maturities -- held-to-maturity -- 2,177 2,624
Mortgage loans 672 389 194
Investments purchased:
Fixed maturities -- available-for-sale (9,842) (9,906) (7,809)
Fixed maturities -- held-to-maturity -- (1,790) (2,477)
Equity securities (348) (348) (606)
Mortgage loans (1,375) (1,829) (953)
Other (primarily short-term investments) (11,862) (18,957) (17,109)
Other, net (144) (152) (140)
------------------------------------------------
Net cash used in investing activities (357) (3,713) (2,092)
------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Deposits and interest credited to contractholder deposit funds 7,261 8,472 7,459
Withdrawals and benefit payments from contractholder deposit funds (7,168) (5,859) (5,252)
Net change in commercial paper (6) (13) (38)
Issuance of long-term debt -- 88 158
Repayment of debt (158) (9) (46)
Repurchase of common stock (292) -- --
Issuance of common stock 12 21 5
Common dividends paid (242) (222) (219)
------------------------------------------------
Net cash provided by (used in) financing activities (593) 2,478 2,067
------------------------------------------------
Effect of foreign currency rate changes on cash and cash equivalents (22) (3) 32
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (272) (134) 482
Cash and cash equivalents, beginning of year 1,559 1,693 1,211
- ---------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 1,287 $ 1,559 $ 1,693
- ----------------------------------------------------------------------------------=========================================
SUPPLEMENTAL DISCLOSURE OF CASH INFORMATION:
Income taxes paid, net of refunds $ 360 $ 233 $ 531
Interest paid $ 106 $ 123 $ 117
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
24
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- DESCRIPTION OF BUSINESS
CIGNA Corporation's subsidiaries provide group life and health insurance,
managed care products and related services, individual life and health insurance
and annuity products, retirement and investment products and services, and
property and casualty insurance throughout the United States and in many
locations worldwide.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A) 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, and reflect management's estimates and
assumptions, such as those regarding medical costs and interest rates, that
affect the recorded amounts. Significant estimates used in determining insurance
and contractholder liabilities and related reinsurance recoverables, and
valuation allowances for investment assets and deferred tax assets are discussed
throughout the Notes to Financial Statements.
Certain reclassifications have been made to prior years' amounts to conform
with the 1996 presentation.
B) RECENT ACCOUNTING PRONOUNCEMENTS: In 1996, CIGNA implemented Statement of
Financial Accounting Standards (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 of, including real estate held for
sale, must be carried at the lower of cost or fair value less costs to sell.
Depreciation of assets to be disposed of is prohibited. The effect of
implementing SFAS No. 121 was not material to CIGNA.
In 1996, CIGNA implemented SFAS No. 123, "Accounting for Stock-Based
Compensation." This statement provides guidance on the accounting and reporting
for the cost of stock-based compensation. The cost related to stock options is
permitted to be recorded or disclosed, and such cost must be measured at the
grant date based upon estimated fair values using an option pricing model. CIGNA
implemented SFAS No. 123 by disclosing the pro forma effect on net income of
stock options. See Note 11 for further information.
In 1993, CIGNA implemented SFAS No. 115, "Accounting for Certain Investments
in Debt and Equity Securities," which required that debt and equity securities
be classified into different categories and carried at fair value if they are
not classified as held-to-maturity. During the fourth quarter of 1995, the
Financial Accounting Standards Board (FASB) issued a guide to implementation of
SFAS No. 115, which permitted a one-time opportunity to reclassify securities
subject to SFAS No. 115. Consequently, CIGNA reclassified all held-to-maturity
securities to available-for-sale as of December 31, 1995. The non-cash
reclassification of these securities, which had an aggregate amortized cost of
$11.8 billion and fair value of $12.8 billion, resulted in an increase of
approximately $300 million, net of policyholder-related amounts and deferred
income taxes, in net unrealized appreciation included in Shareholders' Equity as
of December 31, 1995.
In 1993, the 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 1994, the FASB issued SFAS No. 118, "Accounting by
Creditors for Impairment of a Loan -Income Recognition and Disclosures," which
eliminates the income recognition requirements of SFAS No. 114. CIGNA adopted
SFAS Nos. 114 and 118 in the first quarter of 1995, which resulted in an $8
million increase in net income.
C) FINANCIAL INSTRUMENTS: In the normal course of business, CIGNA enters
into transactions involving various types of financial instruments, including
investments such as fixed maturities and equity securities, debt, and
off-balance-sheet financial instruments such as investment and loan commitments
and financial guarantees. These instruments are subject to risk of loss due to
interest rate and market fluctuations and most have credit risk. CIGNA evaluates
and monitors each financial instrument individually and, where appropriate, uses
certain derivative instruments or obtains collateral or other forms of security
to minimize risk of loss.
Financial instruments that are subject to fair value disclosure requirements
(insurance contracts, real estate, goodwill and taxes are excluded) are carried
in the financial statements at amounts that approximate fair value, except for
Mortgage Loans, Contractholder Deposit Funds (non-insurance products) and
Long-term Debt. For these financial instruments, the fair value was not
materially different from the carrying amount as of December 31, 1996 and 1995.
Fair values of off-balance-sheet financial instruments as of December 31, 1996
and 1995 were not material.
Fair values for financial instruments are estimates that, in many cases, may
differ significantly from the amounts that could be realized upon immediate
liquidation. In cases where market prices are not available, estimates of fair
value are based on discounted cash flow analyses which utilize current interest
rates for similar financial instruments with comparable terms and credit
quality. The fair value of liabilities for contractholder deposit funds was
estimated using the amount payable on demand and, for those not payable on
demand, discounted cash flow analyses.
25
<PAGE> 22
D) INVESTMENTS: Investments in fixed maturities, which are classified as
available-for-sale, include bonds; asset-backed securities, including
collateralized mortgage obligations (CMOs); and redeemable preferred stocks.
Fixed maturities are carried at fair value, with unrealized appreciation or
depreciation included in Shareholders' Equity. Fixed maturities are considered
impaired and written down to fair value when a decline in value is considered to
be other than temporary.
Mortgage loans are carried principally at unpaid principal balances, net of
valuation reserves. Mortgage loans are considered impaired when it is probable
that CIGNA will not collect all amounts according to the contractual terms of
the loan agreement. If impaired, a valuation reserve is utilized to record any
change in the fair value of the underlying collateral below the carrying value
of the mortgage loan.
Fixed maturities and mortgage loans that are delinquent or restructured to
modify basic financial terms, typically to reduce the interest rate and, in
certain cases, extend the term, are placed on non-accrual status. Net investment
income on such investments is recognized only when payment is received.
Real estate investments are either held for the production of income or held
for sale. Real estate investments held for the production of income are carried
at depreciated cost less any write-downs to fair value. Depreciation is
generally calculated using the straight-line method based on the estimated
useful lives of these assets.
Real estate investments held for sale are generally those which are acquired
through the foreclosure of mortgage loans. CIGNA's policy is to rehabilitate,
re-lease and sell foreclosed properties, which generally takes two to four
years. At the time of foreclosure, properties are valued at fair value less
estimated costs to sell and reclassified from mortgage loans to real estate held
for sale. Subsequent to foreclosure, these investments are carried at the lower
of cost or current fair value less estimated costs to sell. Adjustments to the
carrying value as a result of changes in fair value subsequent to foreclosure
are recorded as valuation reserves, and reported in realized investment gains
and losses. CIGNA considers several methods in determining fair value for real
estate, with emphasis placed on the use of discounted cash flow analyses and, in
some cases, the use of third-party appraisals. Effective with the implementation
of SFAS No. 121, real estate held for sale is no longer depreciated.
Equity securities, which include common and non-redeemable preferred stocks,
are carried at fair value, with unrealized appreciation or depreciation included
in Shareholders' Equity. Short-term investments are carried at fair value, which
approximates cost. Equity securities and short-term investments are classified
as available-for-sale.
Policy loans generally are carried at unpaid principal balances.
Realized investment gains and losses result from sales, investment asset
write-downs and changes in valuation reserves. Realized investment gains and
losses do not include amounts attributable to experience-rated pension
policyholders' contracts and participating life policies (policyholder share).
Realized investment gains and losses are based upon specific identification of
the investment assets.
Unrealized investment gains and losses for investments carried at fair
value, are included in Shareholders' Equity net of policyholder-related amounts
and deferred income taxes.
See Note 4(F) for a discussion of CIGNA's accounting policies for derivative
financial instruments.
E) CASH AND CASH EQUIVALENTS: Short-term investments with a maturity of
three months or less at the time of purchase are reported as cash equivalents.
F) REINSURANCE RECOVERABLES: Reinsurance recoverables are estimates of
amounts to be received from reinsurers. Allowances are established for amounts
estimated to be uncollectible.
G) DEFERRED POLICY ACQUISITION COSTS: Acquisition costs consist of
commissions, premium taxes and other costs, which vary with, and are primarily
related to, the production of revenues. Acquisition costs for:
- - property and casualty products are deferred and amortized over the terms of
the insurance policies;
- - universal life products and contractholder deposit funds are deferred and
amortized in proportion to total estimated gross profits over the expected
lives of the contracts;
- - annuity and other individual life insurance products are deferred and
amortized, generally in proportion to the ratio of annual revenue to the
estimated total revenues over the contract periods; and
- - other products are expensed as incurred.
Deferred policy acquisition costs are reviewed to determine if they are
recoverable from future income, including investment income. If such costs are
estimated to be unrecoverable, they are expensed. If such costs are estimated to
be unrecoverable as a result of treating unrealized investment gains and losses
as though they had been realized, a deferred acquisition cost valuation
allowance may be established or adjusted, with a comparable offset in net
unrealized appreciation (depreciation).
H) PROPERTY AND EQUIPMENT: Property and equipment are carried at cost less
accumulated depreciation. When applicable, cost includes interest and real
estate taxes incurred during construction and other construction-related costs.
Depreciation is calculated principally on the straight-line method based on the
estimated useful lives of the assets. Accumulated depreciation was $1.1 billion
at December 31, 1996 and 1995.
26
<PAGE> 23
I) OTHER ASSETS: Other Assets consists of various insurance-related assets,
principally ceded unearned premiums and reinsurance deposits.
J) GOODWILL: Goodwill represents the excess of the cost of businesses
acquired over the fair value of their net assets. Goodwill is amortized on
systematic bases over periods, not exceeding 40 years, that correspond with the
benefits estimated to be derived from the acquisitions. CIGNA evaluates the
carrying amount of goodwill by analyzing historical and estimated future income
and undiscounted estimated cash flows of the related businesses. Goodwill is
written down when impaired. Amortization periods are revised if it is estimated
that the remaining period of benefit of the goodwill has changed. Accumulated
amortization was $959 million and $909 million at December 31, 1996 and 1995,
respectively.
K) SEPARATE ACCOUNTS: Separate account assets and liabilities are carried at
market value and represent policyholder funds maintained in accounts having
specific investment objectives. The investment income, gains and losses of these
accounts generally accrue to the policyholders and, therefore, are not included
in CIGNA's revenues and expenses.
L) CONTRACTHOLDER DEPOSIT FUNDS: Liabilities for Contractholder Deposit
Funds consist of deposits received from customers and investment earnings on
their fund balances, less administrative charges and, for universal life fund
balances, mortality charges.
M) UNPAID CLAIMS AND CLAIM EXPENSES: Liabilities for unpaid claims and claim
expenses are estimates of payments to be made on reported claims and incurred
but not reported claims on property and casualty, health and dental coverages.
Estimated amounts of salvage and subrogation are deducted from the liability for
unpaid claims.
N) FUTURE POLICY BENEFITS: Future policy benefits are liabilities for life,
health and annuity products. Such liabilities are established in amounts
adequate to meet the estimated future obligations of policies in force. These
liabilities are computed using premium assumptions for group annuity policies
and the net level premium method for individual life policies, and are based
upon estimates as to future investment yield, mortality and withdrawals that
include provisions for adverse deviation. Future policy benefits for individual
life insurance and annuity policies are computed using interest rates ranging
from approximately 2% to 11%, generally graded down from 1 to 20 years.
Mortality, morbidity and withdrawal assumptions are based on either CIGNA's own
experience or various actuarial tables.
O) UNEARNED PREMIUMS: Premiums for property and casualty and group life,
accident and health insurance are reported as earned on a pro-rata basis over
the contract period. The unexpired portion of these premiums is recorded as
Unearned Premiums.
P) OTHER LIABILITIES: Other Liabilities consists principally of
postretirement and postemployment benefits and various insurance-related
liabilities, including amounts related to reinsurance contracts, the present
value of obligations related to a closed book of reinsurance business acquired
in 1984, and guaranty fund assessments that can be reasonably estimated.
Q) TRANSLATION OF FOREIGN CURRENCIES: Foreign operations primarily utilize
the local currencies as their functional currencies, and assets and liabilities
are translated at the rates of exchange as of the balance sheet date. The
translation gain or loss on such functional currencies, net of applicable taxes,
is generally reflected in Shareholders' Equity. Revenues and expenses are
translated at average rates of exchange prevailing during the year.
R) PREMIUMS AND FEES, REVENUES AND RELATED EXPENSES: Premiums for property
and casualty insurance, group life, accident and health insurance, and prepaid
health and dental coverages are recognized as revenue on a pro-rata basis over
their contract periods. Benefits, losses and settlement expenses are recognized
when incurred.
Premiums for individual life insurance as well as individual and group
annuity products, excluding universal life and investment-related products, are
recognized as revenue when due. Benefits, losses and settlement expenses are
matched with premiums.
Revenues for universal life products consist of net investment income and
mortality, administration and surrender fees assessed against the fund balances
during the period. Net investment income represents investment income on assets
supporting universal life products and is recognized as earned. Fees for
mortality are recognized ratably over the policy year. Administration fees are
recognized as services are provided, and surrender charges are recognized as
earned. Benefit expenses for universal life products consist of benefit claims
in excess of fund balances, which are recognized when claims are filed, and
interest credited in accordance with contract provisions.
Revenues for investment-related products consist of net investment income
and contract fees assessed against the fund balances during the period. Net
investment income represents investment income on assets supporting
investment-related products and is recognized as earned. Contract fees are based
upon related administrative expenses and are assessed ratably over the contract
year. Benefit expenses for investment-related products primarily consist of
interest credited in accordance with contract provisions.
S) PARTICIPATING BUSINESS: Certain life insurance policies contain dividend
payment provisions that enable the policyholder to participate in a portion of
the earnings of the life insurance subsidiaries of CIGNA. The participating
insurance in force accounted for approximately 6% of total life insurance in
force at December 31, 1996 and 1995, compared with 5% at December 31, 1994.
27
<PAGE> 24
T) INCOME TAXES: CIGNA and its domestic subsidiaries file a consolidated
United States federal income tax return; foreign subsidiaries file tax returns
in accordance with applicable foreign regulations. Included in tax returns for
domestic subsidiaries are the taxable income and credits for taxes paid for
certain foreign subsidiaries. Entities included within the consolidated group
are segregated into either a life insurance or non-life insurance company
subgroup. The consolidation of these subgroups is subject to certain statutory
restrictions on the percentage of eligible non-life tax losses that can be
applied to offset life company taxable income.
Deferred income taxes are generally recognized when assets and liabilities
have different values for financial statement and tax reporting purposes. See
Note 9 for additional information.
NOTE 3 -- ACQUISITIONS AND DISPOSITIONS
CIGNA had various acquisitions and dispositions during 1996, 1995 and 1994,
the effects of which were not material to the financial statements.
In February 1997, CIGNA announced its intent to acquire the outstanding
shares of Healthsource, Inc. (Healthsource) for $1.65 billion, including the
payment of approximately $250 million of outstanding Healthsource long-term
debt. Healthsource's principal businesses are managed care and group indemnity
insurance. The transaction, which is subject to regulatory approval, is expected
to be completed in 1997. Healthsource had revenues of $1.7 billion and a net
loss of $4 million for 1996. Healthsource's shareholders' equity was
approximately $400 million as of December 31, 1996.
NOTE 4 -- INVESTMENTS
A) FIXED MATURITIES: Fixed maturities are net of cumulative write-downs of
$131 million and $144 million, including policyholder share, as of December 31,
1996 and 1995, respectively.
The amortized cost and fair value by contractual maturity periods for fixed
maturities, including policyholder share, as of December 31, 1996 were as
follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------
Amortized Fair
(In millions) Cost Value
- --------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 1,577 $ 1,635
Due after one year through five years 9,558 9,890
Due after five years through ten years 8,306 8,660
Due after ten years 5,650 6,238
Asset-backed securities 8,313 8,510
- --------------------------------------------------------------
Total $33,404 $34,933
- -------------------------------------------===================
</TABLE>
Actual maturities could differ from contractual maturities because issuers
may have the right to call or prepay obligations with or without call or
prepayment penalties. Also, CIGNA may extend maturities in some cases.
Gross unrealized appreciation (depreciation) for fixed maturities, including
policyholder share, by type of issuer was as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
December 31, 1996
- ----------------------------------------------------------------
Unrealized Unrealized
Amortized Apprec- Deprec- Fair
(In millions) Cost iation iation Value
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Federal government
bonds $ 1,104 $ 181 $ (10) $ 1,275
State and local
government bonds 1,608 176 (8) 1,776
Foreign government
bonds 2,272 177 (33) 2,416
Corporate securities 20,107 1,044 (195) 20,956
Asset-backed securities 8,313 285 (88) 8,510
- ----------------------------------------------------------------
Total $33,404 $1,863 $(334) $34,933
- --------------------------======================================
December 31, 1995
- ----------------------------------------------------------------
Federal government
bonds $ 1,307 $ 344 $ (1) $ 1,650
State and local
government bonds 1,594 226 (4) 1,816
Foreign government
bonds 2,354 161 (7) 2,508
Corporate securities 20,207 1,905 (99) 22,013
Asset-backed securities 7,813 500 (59) 8,254
- ----------------------------------------------------------------
Total $33,275 $3,136 $(170) $36,241
- --------------------------======================================
</TABLE>
Asset-backed securities include investments in CMOs as of December 31, 1996
of $3.4 billion carried at fair value (amortized cost, $3.4 billion), compared
with $3.3 billion carried at fair value (amortized cost, $3.2 billion) as of
December 31, 1995. Certain of these securities are backed by Aaa/AAA-rated
government agencies. All other CMO securities have high quality ratings through
use of credit enhancements provided by subordinated securities or mortgage
insurance from Aaa/AAA-rated insurance companies. CMO holdings are concentrated
in securities with limited prepayment, extension and default risk, such as
planned amortization class bonds. CIGNA's investments in interest-only and
principal-only CMOs, which are subject to interest rate risk due to accelerated
prepayments, represented approximately 1% of total CMO investments at December
31, 1996 and 1995.
28
<PAGE> 25
At December 31, 1996, contractual fixed maturity investment commitments were
$104 million. The majority of investment commitments are for the purchase of
investment grade fixed maturities, bearing interest at a fixed market rate, and
require no collateral. These commitments are diversified by issuer and maturity
date, and it is estimated that approximately 75% will be disbursed in 1997.
B) MORTGAGE LOANS AND REAL ESTATE: CIGNA's mortgage loans and real estate
investments are diversified by property type and location and, for mortgage
loans, by borrower. Mortgage loans are collateralized by the related property
and generally approximate 75% of the property's value at the time the original
loan is made.
At December 31, the carrying values of mortgage loans and real estate
investments, including policyholder share, were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------
(In millions) 1996 1995
- --------------------------------------------------------------
<S> <C> <C>
Mortgage loans $10,927 $11,010
---------------------
Real estate:
Held for sale 607 720
Held for the production of income 495 563
---------------------
Total real estate 1,102 1,283
- --------------------------------------------------------------
Total $12,029 $12,293
- ---------------------------------------------=================
</TABLE>
At December 31, mortgage loans and real estate investments comprised the
following property types and geographic regions:
<TABLE>
<CAPTION>
- --------------------------------------------------------------
(In millions) 1996 1995
- --------------------------------------------------------------
<S> <C> <C>
PROPERTY TYPE:
Retail facilities $ 4,822 $ 4,696
Office buildings 4,498 4,804
Apartment buildings 1,420 1,392
Hotels 684 731
Other 605 670
- --------------------------------------------------------------
Total $12,029 $12,293
- ------------------------------------------====================
GEOGRAPHIC REGION:
Central $ 3,762 $ 3,815
Pacific 2,705 2,772
Middle Atlantic 2,025 2,063
South Atlantic 1,688 1,813
New England 1,213 1,252
Other 636 578
- --------------------------------------------------------------
Total $12,029 $12,293
- ------------------------------------------====================
</TABLE>
MORTGAGE LOANS
At December 31, 1996, scheduled mortgage loan maturities were as follows:
1997 -- $898 million; 1998 -- $725 million; 1999 -- $1.4 billion; 2000 -- $1.6
billion; 2001 -- $1.3 billion; and $5 billion thereafter. Actual maturities
could differ from contractual maturities because borrowers may have the right to
prepay obligations, with or without prepayment penalties; the maturity date may
be extended; and loans may be refinanced. During 1996 and 1995, CIGNA refinanced
at current market rates approximately $520 million and $400 million,
respectively, of its mortgage loans relating to borrowers that were unable to
obtain alternative financing.
At December 31, 1996, contractual commitments to extend credit under
commercial mortgage loan agreements amounted to approximately $425 million, all
of which were at a fixed market rate of interest. These commitments expire
within three months, and are diversified by property type and geographic region.
At December 31, 1996, CIGNA's impaired mortgage loans were $848 million,
including $462 million before valuation reserves totaling $101 million, and $386
million, which had no valuation reserves. At December 31, 1995, CIGNA's impaired
mortgage loans were $874 million, including $474 million before valuation
reserves totaling $88 million, and $400 million, which had no valuation
reserves.
During the year ended December 31, changes in reserves for impaired mortgage
loans, including policyholder share, were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------
(In millions) 1996 1995
- --------------------------------------------------------------
<S> <C> <C>
Reserve balance -- January 1 $ 88 $179
Transfers to foreclosed real estate (30) (54)
Charge-offs upon sales (20) (50)
Net increase in valuation reserves 63 13
- --------------------------------------------------------------
Reserve balance -- December 31 $101 $ 88
- --------------------------------------------------------------
--------------------
</TABLE>
During 1996 and 1995, impaired mortgage loans, before valuation reserves,
averaged approximately $885 million and $1 billion, respectively, and interest
income recorded and cash received on these loans was approximately $75 million
in each year.
29
<PAGE> 26
REAL ESTATE
During 1996, 1995 and 1994, non-cash investing activities included real
estate acquired through foreclosure of mortgage loans, which totaled $114
million, $146 million and $169 million, respectively.
Valuation reserves and cumulative write-downs related to real estate,
including policyholder share, were $344 million and $381 million as of December
31, 1996 and 1995, respectively.
Net income for 1996 included $15 million and $1 million for net investment
income and write-downs upon foreclosures, respectively, for real estate held for
sale.
C) SHORT-TERM INVESTMENTS AND CASH EQUIVALENTS: At December 31, 1996 and
1995, short-term investments and cash equivalents, in the aggregate, primarily
included debt securities, principally corporate securities of $1.4 billion.
D) NET UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENTS: Unrealized
appreciation (depreciation) for investments carried at fair value as of December
31 were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------
(In millions) 1996 1995
- --------------------------------------------------------------
<S> <C> <C>
Unrealized appreciation:
Fixed maturities $1,863 $3,136
Equity securities 198 151
-------------------------
2,061 3,287
-------------------------
Unrealized depreciation:
Fixed maturities (334) (170)
Equity securities (70) (55)
-------------------------
(404) (225)
-------------------------
1,657 3,062
Less policyholder-related amounts 723 1,408
-------------------------
Shareholder net unrealized
appreciation 934 1,654
Less deferred income taxes 307 556
- --------------------------------------------------------------
Net unrealized appreciation $ 627 $1,098
- -------------------------------------=========================
</TABLE>
Net unrealized appreciation for investments carried at fair value is
included as a separate component of Shareholders' Equity, net of
policyholder-related amounts and deferred income taxes. The net unrealized
appreciation (depreciation) for these investments, primarily fixed maturities,
during 1996, 1995 and 1994 was ($471) million, $1.1 billion and ($1.2) billion,
respectively.
During 1995 and 1994, certain fixed maturities were carried at amortized
cost in the financial statements. The change in net unrealized appreciation
(depreciation) for such investments was $20 million and ($1.5) billion in 1995
and 1994, respectively.
E) NON-INCOME PRODUCING INVESTMENTS: At December 31, the carrying values of
investments, including policyholder share, that were non-income producing during
the preceding 12 months were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------
(In millions) 1996 1995
- --------------------------------------------------------------
<S> <C> <C>
Fixed maturities $ 82 $102
Mortgage loans 14 17
Real estate 173 288
Other long-term investments 12 8
- --------------------------------------------------------------
Total $281 $415
- -------------------------------------=========================
</TABLE>
F) DERIVATIVE FINANCIAL INSTRUMENTS: CIGNA's investment strategy is to
manage the characteristics of investment assets, such as liquidity, currency,
yield and duration, to reflect the underlying characteristics of the related
insurance and contractholder liabilities, which vary among CIGNA's principal
product lines. In connection with this investment strategy, CIGNA's use of
derivative instruments, including interest rate and currency swaps, purchased
options and futures contracts, is limited to hedging applications to minimize
market risk.
Hedge accounting treatment requires a probability of high correlation
between the changes in the market value or cash flows of the derivatives and the
hedged assets or liabilities. Under hedge accounting, the changes in market
value or cash flows of the derivatives and the hedged assets or liabilities are
recognized in net income in the same period. If CIGNA's use of derivatives does
not qualify for hedge accounting treatment, the derivative is recorded at fair
value and changes in its fair value are recognized in net income without
considering changes in the hedged asset or liability.
CIGNA routinely monitors, by individual counterparty, exposure to credit
risk associated with swap and option contracts and diversifies the portfolio
among approved dealers of high credit quality. Futures contracts are
exchange-traded and, therefore, credit risk is limited since the exchange
assumes the obligations. CIGNA manages legal risks by following industry
standardized documentation procedures and by monitoring legal developments.
30
<PAGE> 27
Underlying contract, notional or principal amounts associated with
derivatives at December 31 were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------
(In millions) 1996 1995
- --------------------------------------------------------------
<S> <C> <C>
Interest rate swaps $408 $601
Currency swaps $304 $371
Purchased options $632 $ 84
Futures $ 45 $ 22
- --------------------------------------------------------------
</TABLE>
Under interest rate swaps, CIGNA agrees with other parties to periodically
exchange the difference between variable rate and fixed rate asset cash flows to
provide stable returns for related liabilities. CIGNA uses currency swaps
(primarily Canadian dollars, pounds sterling and Swiss francs) to match the
currency of investments to that of the associated liabilities. Under currency
swaps, the parties exchange principal and interest amounts in two relevant
currencies using agreed-upon exchange amounts.
The net interest cash flows from interest rate and currency swaps are
recognized currently as an adjustment to net investment income, and the fair
value of these swaps is reported as an adjustment to the related investments.
Using purchased options to reduce the effect of changes in interest rates or
equity indexes on liabilities, CIGNA pays an up-front fee to receive cash flows
from third parties when interest rates or equity indexes vary from specified
levels. Purchased options that qualify for hedge accounting are recorded
consistent with the related liabilities, at amortized cost plus adjustments
based on current equity indexes, and income is reported as an adjustment to
benefit expense. Purchased options are reported in other assets, and fees paid
are amortized to benefit expense over their contractual periods. Purchased
options with underlying notional amounts of $112 million at December 31, 1996
that are designated as hedges, but do not qualify for hedge accounting, are
reported in other long-term investments at fair value with changes in fair value
recognized as realized investment gains and losses.
Interest rate futures are used to temporarily hedge against the changes in
market values of bonds and mortgage loans to be purchased or sold. Under futures
contracts, changes in the contract values are settled in cash daily with the
exchange on which the instrument is traded. These changes in contract values are
deferred and recorded as adjustments to the carrying value of the related bond
or mortgage loan. Deferred gains and losses are amortized into net investment
income over the life of the investments purchased or are recognized in full as
realized investment gains and losses if investments are sold. Gains and losses
on futures contracts deferred in anticipation of investment purchases were
immaterial at December 31, 1996 and 1995.
The effects of interest rate and currency swaps, purchased options and
futures on the components of net income for 1996, 1995 and 1994 were not
material.
As of December 31, 1996 and 1995, CIGNA's variable interest rate investments
consisted of approximately $1.5 billion and $1.4 billion of fixed maturities,
respectively. As of December 31, 1996 and 1995, CIGNA's fixed interest rate
investments consisted of $33.4 billion and $34.8 billion, respectively, of fixed
maturities, and $10.9 billion and $11 billion, respectively, of mortgage loans.
G) OTHER: As of December 31, 1996 and 1995, CIGNA had no concentration of
investments in a single investee exceeding 10% of Shareholders' Equity.
NOTE 5 -- INVESTMENT INCOME AND GAINS AND LOSSES
A) NET INVESTMENT INCOME: The components of net investment income, including
policyholder share, for the year ended December 31 were as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------
(In millions) 1996 1995 1994
- -------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities $2,613 $2,571 $2,465
Equity securities 20 47 67
Mortgage loans 982 932 892
Policy loans 561 511 371
Real estate 223 317 327
Other long-term
investments 65 77 73
Short-term investments 110 199 128
--------------------------
4,574 4,654 4,323
Less investment expenses 241 358 377
- -------------------------------------------------------
Net investment income $4,333 $4,296 $3,946
- -----------------------------==========================
</TABLE>
Net investment income attributable to policyholder contracts, which is
included in CIGNA's revenues and is primarily offset by amounts included in
Benefits, Losses and Settlement Expenses, was approximately $1.8 billion for
both 1996 and 1995, compared with $1.5 billion for 1994. Net investment income
for separate accounts, which is not reflected in CIGNA's revenues, was $1.1
billion, $885 million and $699 million for 1996, 1995 and 1994, respectively.
As of December 31, 1996, fixed maturities and mortgage loans on non-accrual
status, including policyholder share, were $166 million and $370 million,
including restructured investments of $144 million and $312 million,
respectively. As of December 31, 1995, fixed maturities and mortgage loans on
non-accrual status, including policyholder share, were $196 million and $575
million, including restructured investments of $139 million and $494 million,
respectively. If interest on these investments had been recognized in accordance
with their original terms, net income would have been increased by $15 million,
$14 million and $27 million in 1996, 1995 and 1994, respectively.
31
<PAGE> 28
B) REALIZED INVESTMENT GAINS AND LOSSES: Realized gains and losses on
investments, excluding policyholder share, for the year ended December 31 were
as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------
(In millions) 1996 1995 1994
- -------------------------------------------------------------
Realized investment gains (losses):
<S> <C> <C> <C>
Fixed maturities $ 37 $ 26 $ (6)
Equity securities 24 187 38
Mortgage loans (23) (3) (1)
Real estate 29 19 10
Other 24 4 1
-----------------------
91 233 42
Less income taxes 37 55 14
- -------------------------------------------------------------
Net realized investment gains $ 54 $178 $ 28
- --------------------------------------=======================
</TABLE>
Realized investment gains and losses include impairments in the value of
investments, net of recoveries, of $51 million, $46 million and $50 million in
1996, 1995 and 1994, respectively.
Realized investment gains (losses) for separate accounts, which are not
reflected in CIGNA's revenues, were $305 million, $412 million and ($51) million
for 1996, 1995 and 1994, respectively. Realized investment gains (losses)
attributable to policyholder contracts, which also are not reflected in CIGNA's
revenues, were $82 million, ($7) million and $5 million for 1996, 1995 and 1994,
respectively.
Sales of available-for-sale fixed maturities and equity securities,
including policyholder share, for the year ended December 31 were as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------
(In millions) 1996 1995 1994
- -----------------------------------------------------
<S> <C> <C> <C>
Proceeds from sales $6,444 $8,160 $5,549
Gross gains on sales $239 $426 $232
Gross losses on sales ($158) ($205) ($222)
- -----------------------------------------------------
</TABLE>
Prior to the SFAS No. 115 reclassification described in Note 2(B), $218
million of fixed maturities classified as held-to-maturity, including
policyholder share, were transferred to the available-for-sale category in 1995
with no material effect on Shareholders' Equity.
NOTE 6 - DEBT
Short-term and long-term debt consisted of the following at December 31:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
(In millions) 1996 1995
- -------------------------------------------------------------------
SHORT-TERM
<S> <C> <C>
Commercial paper $ 247 $ 253
Current maturities of long-term debt 42 161
- -------------------------------------------------------------------
Total short-term debt $ 289 $ 414
- ------------------------------------------=========================
LONG-TERM
Unsecured Debt:
8.16% Notes due 2000 $ 25 $ 25
8 3/4% Notes due 2001 100 100
7.17% Notes due 2002 25 25
7.4% Notes due 2003 100 100
6 3/8% Notes due 2006 100 100
8 1/4% Notes due 2007 100 100
7.65% Notes due 2023 100 100
8.3% Notes due 2023 100 100
Medium-term Notes 203 242
Secured Debt (principally by real estate) 168 174
- -------------------------------------------------------------------
Total long-term debt $1,021 $1,066
- ------------------------------------------=========================
</TABLE>
CIGNA issues commercial paper primarily to manage imbalances between
operating cash flows and existing commitments, to meet working capital needs
and to take advantage of current investment opportunities. Commercial paper
borrowing arrangements are supported by various lines of credit. As of December
31, 1996 and 1995, the weighted average interest rate on commercial paper was
5.6% and 5.9%, respectively.
Medium-term notes have original maturity dates ranging from approximately
five to ten years and interest rates ranging from 5 3/4% to 9 3/4%. As of
December 31, 1996 and 1995, the weighted average interest rate on medium-term
notes was 8.5%.
During 1995, CIGNA's 8.2% Convertible Subordinated Debentures due in 2010
were converted through non-cash transactions into approximately 3.6 million
shares of CIGNA common stock.
In 1995, CIGNA issued $25 million of unsecured 8.16% Notes due in 2000, $25
million of unsecured 7.17% Notes due in 2002 and $36 million in medium-term
notes. The proceeds from these issues were used for general corporate purposes.
As of December 31, 1996, CIGNA had available approximately $660 million in
committed and uncommitted lines of credit provided by U.S. and foreign banks.
These lines of credit generally have terms ranging from one to three years and
are paid for by using a combination of fees and bank balances. Interest that
CIGNA would be charged for usage of these lines of credit is based upon
negotiated arrangements.
32
<PAGE> 29
As of December 31, 1996, CIGNA had approximately $800 million remaining
under an effective shelf registration statement filed with the Securities and
Exchange Commission that may be issued as debt securities, equity securities or
both, depending upon market conditions and CIGNA's capital requirements.
Maturities of long-term debt for each of the next five years are as follows:
1997 -- $42 million; 1998 -- $85 million; 1999 -- $60 million; 2000 -- $56
million; and 2001 -- $148 million.
Interest expense was $102 million, $120 million and $121 million in 1996,
1995 and 1994, respectively.
NOTE 7 -- COMMON AND PREFERRED STOCK
<TABLE>
<CAPTION>
- -------------------------------------------------------------
(Shares in thousands) 1996 1995 1994
- -------------------------------------------------------------
<S> <C> <C> <C>
Common: Par value $1
200,000 shares authorized
Outstanding -- January 1 76,332 72,225 72,015
Issued for stock option
and other benefit plans 294 504 210
Issued upon conversion
of 8.2% Convertible
Subordinated Debentures -- 3,603 --
Repurchase of common stock (2,428) -- --
---------------------------
Outstanding -- December 31 74,198 76,332 72,225
Treasury shares 13,432 11,014 10,844
- -------------------------------------------------------------
Issued -- December 31 87,630 87,346 83,069
- ----------------------------------===========================
</TABLE>
Stock issued under stock option and other benefit plans resulted in
increases in Additional Paid-in Capital of $36 million, $41 million and $26
million in 1996, 1995 and 1994, respectively. Such stock issuances also
resulted in net increases in Treasury Stock of $12 million, $14 million and $19
million in 1996, 1995 and 1994, respectively. During 1996, Treasury Stock
increased by approximately $300 million as a result of repurchase of common
stock. In 1995, conversion of CIGNA's 8.2% Convertible Subordinated Debentures
resulted in an increase in Common Stock and Additional Paid-in Capital of $4
million and $247 million, respectively.
Under CIGNA's shareholder rights plan, Preferred Stock Purchase Rights
(Rights) attach to all outstanding shares of CIGNA common stock. The Rights
trade with the stock until the Rights become exercisable. They are exercisable
only if a party acquires, or announces a tender offer to acquire, 20% or more of
the outstanding common stock. Each Right entitles the shareholder to buy for a
$200 exercise price 1/100 of a share of Junior Participating Preferred Stock
Series D, having dividend and voting rights approximately equal to one share of
common stock. Under certain circumstances, including the acquisition of 20% or
more of the outstanding common stock by an acquirer, all Rights holders except
the acquirer may purchase shares of common stock worth twice the exercise price.
If CIGNA is acquired in a merger after the acquisition of 20% of outstanding
common stock, Rights holders may purchase the acquirer's shares at a similar
discount. CIGNA may redeem the Rights for five cents each at any time before an
acquirer acquires 20% of its outstanding common stock, and thereafter under
certain circumstances.
CIGNA has authorized a total of 25 million shares of $1 par value preferred
stock. No shares of preferred stock were outstanding at December 31, 1996, 1995
and 1994.
NOTE 8 -- SHAREHOLDERS' EQUITY AND DIVIDEND RESTRICTIONS
The insurance departments of various jurisdictions in which CIGNA's insurance
subsidiaries are domiciled recognize as net income and surplus (shareholders'
equity) those amounts determined in conformity with statutory accounting
practices prescribed or permitted by the departments, which differ in certain
respects from generally accepted accounting principles. As permitted by a state
insurance department, certain of CIGNA's insurance subsidiaries discount certain
asbestos-related and environmental pollution liabilities, which increased
statutory surplus by approximately $240 million and $260 million as of December
31, 1996 and 1995, respectively.
As part of its overall restructuring of the domestic property and casualty
operations, CIGNA contributed $375 million of additional capital to certain
property and casualty insurance companies in 1996. See Note 16 for additional
information on the restructuring.
As a result of property and casualty losses, CIGNA contributed $250 million
of capital in 1994 to enhance the capital base of the domestic property and
casualty operations.
The amounts of statutory net income (loss) for the year ended, and surplus
as of, December 31 were as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------
(In millions) 1996 1995 1994
- -------------------------------------------------------------
<S> <C> <C> <C>
LIFE INSURANCE COMPANIES:
Net income $ 680 $ 471 $ 514
Surplus $2,683 $2,672 $2,564
PROPERTY AND CASUALTY
INSURANCE COMPANIES:
Net income (loss) $ 164 $ (201) $ 51
Surplus $1,655 $1,589 $1,565
- -------------------------------------------------------------
</TABLE>
33
<PAGE> 30
CIGNA's insurance subsidiaries are subject to various regulatory
restrictions that limit the amount of annual dividends or other distributions,
such as loans or cash advances, available to shareholders without prior
approval of the insurance regulatory authorities. The maximum dividend
distribution that may be made by CIGNA's insurance subsidiaries during 1997
without prior approval is approximately $1.2 billion. The amount of restricted
net assets as of December 31, 1996 was approximately $6.4 billion.
NOTE 9 -- INCOME TAXES
CIGNA's net deferred tax asset of $2 billion and $1.9 billion as of December
31, 1996 and 1995, respectively, reflects management's belief that CIGNA's
taxable income in future years will be sufficient to realize the net deferred
tax asset based on CIGNA's earnings history and its future expectations. In
determining the adequacy of future taxable income, management considered the
future reversal of its existing taxable temporary differences and available tax
planning strategies that could be implemented, if necessary.
CIGNA's deferred tax asset is net of valuation allowances of $47 million and
$48 million as of December 31, 1996 and 1995, respectively. The valuation
allowance reflects management's assessment, based on available information,
that it is more likely than not that a portion of the deferred tax asset for
certain foreign operations will not be realized. Adjustments to the valuation
allowance will be made if there is a change in management's assessment of the
amount of the deferred tax asset that is realizable. During 1996, 1995 and
1994, the valuation allowance was increased (decreased) by ($1) million, $1
million and ($6) million, respectively, to reflect management's assessment of
changes related to certain foreign operations.
As of December 31, 1996 and 1995, the net deferred tax asset included a
benefit of $53 million and $287 million, respectively, resulting from tax basis
net operating loss carryforwards of $150 million and $819 million, respectively.
Subject to statutory limitations, these carryforwards are available to offset
future taxable income through the year 2010.
In accordance with the Life Insurance Company Income Tax Act of 1959, a
portion of CIGNA's life insurance companies' statutory income was not subject
to current income taxation but was accumulated in an account designated
Policyholders' Surplus Account. Under the Tax Reform Act of 1984, no further
additions may be made to the Policyholders' Surplus Account for tax years
ending after December 31, 1983. The balance in the account of approximately
$450 million at December 31, 1996 would result in a tax liability of $158
million only if distributed to shareholders or if the account balance exceeded
a prescribed maximum. No income taxes have been provided on this amount
because, in management's opinion, the likelihood that these conditions will be
met is remote.
CIGNA's federal income tax returns are routinely audited by the Internal
Revenue Service (IRS), and provisions are made in the financial statements in
anticipation of the results of these audits. The IRS has completed audits of
the years 1982 through 1990. One issue, which relates only to years prior to
1989, remains outstanding, and it could result in an assessment of
approximately $220 million. CIGNA is contesting this issue in court. Although
the outcome is uncertain, management believes that CIGNA should prevail.
In management's opinion, adequate tax liabilities have been established for
all years.
<PAGE> 31
The tax effect of temporary differences which give rise to deferred income
tax assets and liabilities as of December 31 were as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
(In millions) 1996 1995
- ---------------------------------------------------------------
<S> <C> <C>
DEFERRED TAX ASSETS:
Loss reserve discounting $ 779 $ 741
Other insurance and contractholder
liabilities 607 718
Employee and retiree benefit plans 450 433
Investments, net 284 211
Operating loss carryforwards 53 287
Bad debt expense 122 123
Other 254 195
-----------------
Deferred tax assets before valuation
allowance 2,549 2,708
Valuation allowance for deferred tax
assets (47) (48)
-----------------
Deferred tax assets, net of valuation
allowance 2,502 2,660
-----------------
DEFERRED TAX LIABILITIES:
Unrealized appreciation on investments 307 556
Depreciation 112 129
Policy acquisition expenses 36 52
Other 49 57
-----------------
Total deferred tax liabilities 504 794
- ---------------------------------------------------------------
Net deferred income tax asset $1,998 $1,866
- ----------------------------------------------=================
</TABLE>
The components of income taxes for the year ended December 31 were as
follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------
(In millions) 1996 1995 1994
- ----------------------------------------------------
<S> <C> <C> <C>
CURRENT TAXES:
U.S. income $339 $ 185 $182
Foreign income 80 73 42
----------------------------
419 258 224
----------------------------
DEFERRED TAXES
(BENEFITS):
U.S. income 108 (212) 22
Foreign income 18 (6) 5
----------------------------
126 (218) 27
- ----------------------------------------------------
Total income taxes $545 $ 40 $251
- ------------------------============================
</TABLE>
34
<PAGE> 32
Total income taxes for the year ended December 31 were less than the amount
computed using the nominal federal income tax rate of 35% for the following
reasons:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
(In millions) 1996 1995 1994
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax expense at nominal rate $560 $88 $282
Tax exempt interest income (31) (34) (37)
Realized investment gains 1 (24) (5)
Dividends received deduction (7) (8) (10)
Amortization of goodwill 17 16 30
Interest on provisions 7 10 10
Resolved federal tax audit issues -- (7) (7)
Other (2) (1) (12)
- ------------------------------------------------------------------------------------
Total income taxes $545 $40 $251
- ------------------------------------------------====================================
</TABLE>
NOTE 10 -- PENSION AND OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS PLANS
A) PENSION PLANS: CIGNA and certain of its subsidiaries provide retirement
benefits to eligible employees and agents. These benefits are provided through a
plan covering most domestic employees (the Plan) and by several separate pension
plans for various subsidiaries, agents and foreign employees.
The Plan is a non-contributory, defined benefit, trusteed plan available to
eligible domestic employees. Benefits are based on employees' years of service
and compensation during the highest three or, if service commenced after
December 31, 1988, five consecutive years of employment, offset by a portion of
the Social Security benefit for which they are eligible. CIGNA funds at least
the minimum amount required by the Employee Retirement Income Security Act of
1974.
The following table summarizes the status as of December 31 of pension plans
for which assets exceeded accumulated benefit obligations:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
(In millions) 1996 1995
- -----------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $1,826 $1,877
-------------------
Accumulated benefit obligation $1,867 $1,913
-------------------
Pension liability included in Other Liabilities:
Projected benefit obligation $2,244 $2,318
Less plan assets at fair value 2,288 2,071
-------------------
Plan assets (greater) less than projected
benefit obligation (44) 247
Unrecognized net gain (loss) from past
experience 72 (225)
Unrecognized prior service cost (27) (28)
Unamortized SFAS 87 transition asset 48 58
- -----------------------------------------------------------------------
Pension liability $ 49 $ 52
- ----------------------------------------------------===================
</TABLE>
At December 31, 1996 and 1995, plans under which accumulated benefits
exceeded assets had projected benefit obligations of $296 million and $246
million, respectively, and related assets at fair value of $49 million and $37
million for 1996 and 1995, respectively. The accumulated benefit obligation as
of December 31, 1996 and 1995 related to these plans was $211 million and $187
million, respectively. The pension liability included in Other Liabilities
related to these plans was $172 million and $157 million, respectively.
Components of net pension cost for all plans for the year ended December 31
were as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------
(In millions) 1996 1995 1994
- ----------------------------------------------------------
<S> <C> <C> <C>
Service cost -- benefits
earned during the year $ 100 $ 83 $ 104
Interest accrued on projected
benefit obligation 174 163 151
Actual return on assets (269) (392) (26)
Net amortization and deferral 106 231 (121)
- ----------------------------------------------------------
Net pension cost $ 111 $ 85 $ 108
- ---------------------------------=========================
</TABLE>
Determination of the projected benefit obligation was based on an estimated
discount rate of 7.5% and 7.1% for 1996 and 1995, respectively, and an
estimated long-term rate of compensation increase of 4.7% for both 1996 and
1995. The estimated long-term rate of return on assets was 9% for both 1996 and
1995. Substantially all Plan assets are invested in either the separate
accounts of Connecticut General Life Insurance Company (CGLIC), which is a
CIGNA subsidiary, or immediate participation guaranteed investment contracts
issued by CGLIC. Plan assets also include 97,500 and 297,500 shares of CIGNA
common stock at December 31, 1996 and 1995, respectively, with a market value
of $13 million and $31 million at December 31, 1996 and 1995, respectively.
B) OTHER POSTRETIREMENT BENEFITS PLANS: In addition to providing pension
benefits, CIGNA and certain of its subsidiaries provide certain health care and
life insurance benefits to retired employees, spouses and other eligible
dependents through various plans. A substantial portion of CIGNA's employees
may become eligible for these benefits upon retirement. CIGNA's contributions
for health care benefits depend upon a retiree's date of retirement, age, years
of service and cost-sharing features, such as deductibles and coinsurance.
Under the terms of the benefit plans, benefit provisions and cost-sharing
features can be adjusted. In general, retiree health care benefits are not
funded and are paid as covered expenses are incurred. Retiree life insurance
benefits are paid from plan assets or as covered expenses are incurred.
35
<PAGE> 33
In 1996, CIGNA amended its health care plan for certain current and future
retirees effective January 1, 1997, whereby health benefits will be provided
primarily through CIGNA's managed care networks in exchange for a fixed
reimbursement amount per retiree from Medicare. The effect of the plan
amendment was to reduce the accumulated benefit obligation by $110 million. The
reduction of the liability is being amortized into income over the average
remaining employee service period, approximately 17 years.
An employer's postretirement benefit liability is primarily measured by
determining the present value of the projected future costs of health benefits
based on an estimate of health care cost trend rates.
The following table summarizes the underfunded plans' benefit obligations
reconciled with the amount included in Other Liabilities as of December 31:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
(In millions) 1996 1995
- ---------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Retirees $379 $446
Other fully eligible plan participants 11 27
Other active plan participants 72 170
------------
Total accumulated benefit obligations 462 643
Less plan assets at fair value 54 54
------------
Plan assets less than accumulated
benefit obligations 408 589
Unrecognized net gain from past experience 234 158
Unrecognized prior service cost 254 156
- ---------------------------------------------------------------
Other postretirement benefit liability $896 $903
- ---------------------------------------------------============
</TABLE>
At December 31, 1996 and 1995, plan assets of $54 million represented
partial funding for retiree life insurance plans with accumulated benefit
obligations of $129 million and $131 million, respectively, and such plan
assets were invested in the general account assets of CGLIC, with an estimated
long-term rate of return of 7% for both 1996 and 1995.
Components of net other postretirement benefit cost for the year ended
December 31 were as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------
(In millions) 1996 1995 1994
- -------------------------------------------------------------
<S> <C> <C> <C>
Service cost -- benefits earned
during the year $ 10 $ 14 $ 23
Interest accrued on benefit
obligation 38 44 49
Actual return on assets (1) (9) 2
Net amortization and deferral (26) (13) (16)
- -------------------------------------------------------------
Net other postretirement
benefit cost $ 21 $ 36 $ 58
- -------------------------------------========================
</TABLE>
Determination of the accumulated other postretirement benefit obligations
for 1996 and 1995 was based on an estimated discount rate of 7.5% and 7.2%,
respectively, and an estimated long-term rate of compensation increase of 4.5%
for both 1996 and 1995. The estimated rate of future increases in per capita
cost of health care benefits (the health care cost trend rate) was 10.0%
decreasing ratably to 5.5% over five years, which reflects CIGNA's current
claim experience and management's estimate that future rates of growth will
decline. Increasing the health care cost trend rate by one percentage point for
each future year would increase accumulated other postretirement benefit
obligations by $40 million and the annual service and interest cost by $4
million, before taxes.
C) OTHER POSTEMPLOYMENT BENEFITS: CIGNA and certain of its subsidiaries
provide certain salary continuation (severance and disability), health care and
life insurance benefits to inactive and former employees, spouses and other
eligible dependents through various employee benefit plans.
Although severance benefits accumulate with additional service, CIGNA
recognizes severance expense when severance is probable and the costs can be
reasonably estimated. Postemployment benefits other than severance generally do
not vest or accumulate; therefore, the estimated cost of benefits are accrued
when determined to be probable and estimable, generally upon disability or
termination. See Note 16 for additional information regarding severance
benefits accrued as part of cost reduction plans.
D) CAPITAL ACCUMULATION PLANS: CIGNA sponsors various capital accumulation
plans in which employee contributions on a pre-tax basis (401(k)) are
supplemented by CIGNA matching contributions. Contributions are invested, at
the election of the employee, in one or more of the following investments:
CIGNA common stock fund, several non-CIGNA stock and bond portfolios, and a
fixed-income fund. CIGNA's expense for such plans totaled $39 million, $37
million and $34 million for 1996, 1995 and 1994, respectively.
NOTE 11 -- EMPLOYEE INCENTIVE PLANS
The People Resources Committee of the Board of Directors can award to key
employees stock options, stock appreciation rights (SARs) only in tandem with
stock options, restricted stock, dividend equivalent rights or common stock in
lieu of cash payable under other incentive plans. As of December 31, 1996, 1995
and 1994, stock available for award aggregated 5,095,415 shares, 6,007,504
shares and 1,746,135 shares, respectively. The increase in 1995 was due to the
adoption of a new plan. In 1997, CIGNA registered an additional one million
shares of stock to be available for award under these plans.
36
<PAGE> 34
Grants of restricted stock are awarded annually, with vesting periods
ranging from three to five years. Although recipients are entitled to receive
dividends and vote restricted stock during the vesting period, termination of
employment prior to vesting results in forfeiture of the stock. Grants of
restricted shares of CIGNA common stock during 1996, 1995 and 1994 totaled
143,278 shares, 321,494 shares and 331,757 shares, respectively, at a weighted
average fair value per share of $118.41, $74.37 and $63.03, respectively.
Restricted stock grants of 653,739 shares for 1,274 employees were outstanding
at December 31, 1996. Compensation cost related to restricted stock grants was
not material to CIGNA's results of operations, liquidity or financial
condition.
Options to purchase CIGNA common stock are awarded at market price on the
date of grant and expire no later than 10 years after that date. Certain
outstanding options have a replacement option feature providing that when the
underlying option is exercised by tendering stock a new option is granted
covering shares equal to the number tendered. These options are exercisable at
the market price on the date of the new grant and expire on the expiration date
of the original option. SARs permit the holders to receive in cash or stock the
excess of the current market price of the underlying stock over the option
price. Either the stock option or the SAR, but not both, may be exercised.
Options and SARs may be subject to vesting periods. For options with SARs,
changes in the market price of the stock, to the extent it exceeds the option
price, are reflected as an expense.
The following table summarizes the status of, and changes in, common stock
options outstanding for the year ended December 31:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding -- January 1 1,608,889 $ 71.15 1,611,949 $65.60 745,614 $57.57
Granted 871,320 121.15 536,823 79.05 1,095,200 69.66
Exercised (803,134) 71.33 (509,533) 61.87 (116,943) 52.46
Expired or canceled ( 49,109) 89.73 ( 30,350) 71.85 (111,922) 65.88
--------- --------- ---------
Outstanding -- December 31 1,627,966 97.26 1,608,889 71.15 1,611,949 65.60
- ----------------------------------==============================================================================================
Options exercisable at year-end 664,784 $ 75.62 683,376 $64.80 486,917 $57.70
- ----------------------------------==============================================================================================
</TABLE>
The following table summarizes the range of exercise prices for outstanding
common stock options at December 31, 1996:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
Range Of Exercise
Prices
- ---------------------------------------------------------------
<S> <C> <C>
$48.00 to $102.25 to
$ 80.25 $ 141.00
- ---------------------------------------------------------------
Options outstanding 730,407 897,559
Weighted average remaining
contractual life 7.1 years 8.5 years
Weighted average exercise price $ 68.99 $ 120.37
Options exercisable 537,907 126,877
Weighted average exercise price $ 66.78 $ 113.11
- ---------------------------------------------------------------
</TABLE>
The weighted average fair value of options granted during 1996 and 1995 was
$29.98 and $18.16, respectively. Fair value of each option grant in 1996 and
1995 was estimated using the Black-Scholes option-pricing model with the
following assumptions:
<TABLE>
<CAPTION>
- -----------------------------------------------------------
1996 1995
- -----------------------------------------------------------
<S> <C> <C>
Dividend yield 3.5% 4.6%
Expected volatility 26.2% 25.5%
Risk-free interest rate 5.9% 7.1%
Expected option life 6 years 6 years
- -----------------------------------------------------------
</TABLE>
CIGNA's net income would have been reduced by $10 million and $2 million in
1996 and 1995, respectively, and earnings per share would have been reduced by
$0.13 and $0.03 had CIGNA recorded compensation expense for stock options based
on their fair value at the grant date.
37
<PAGE> 35
NOTE 12 -- EARNINGS PER SHARE
Earnings per share were based on net income divided by weighted average
common shares, including common share equivalents, of 76.2 million, 73.7
million and 72.3 million for 1996, 1995 and 1994, respectively.
There was no significant difference between earnings per share on a primary
and a fully diluted basis.
As discussed in Note 6, during 1995 CIGNA's 8.2% Convertible Subordinated
Debentures were converted into approximately 3.6 million shares of CIGNA common
stock. If these conversions had taken place on January 1, 1995 and the related
interest expense ($10 million after-tax) were excluded from net income for the
year, earnings per share for 1995 would have been $2.89.
NOTE 13 -- 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. As of December 31,
1996 and 1995, approximately 7% and 8%, respectively, of reinsurance
recoverables were due from certain syndicates affiliated with Lloyd's of
London.
Failure of reinsurers to indemnify CIGNA, as a result of reinsurer
insolvencies and disputes, could result in losses. Allowances for uncollectible
amounts were $711 million and $700 million as of December 31, 1996 and 1995,
respectively. During 1995, CIGNA increased the allowance for uncollectible
reinsurance by $210 million pre-tax ($138 million after-tax) for
asbestos-related and environmental pollution losses, assumed reinsurance and
other commercial exposures. 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.
The effects of reinsurance on net earned premiums and fees for the year
ended December 31 were as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------
(In millions) 1996 1995 1994
- ------------------------------------------------------------
<S> <C> <C> <C>
SHORT-DURATION CONTRACTS
Premiums and fees:
Direct $12,346 $12,144 $12,281
Assumed 1,534 1,881 2,039
Ceded (1,931) (2,115) (2,236)
- ------------------------------------------------------------
Net earned premiums and fees $11,949 $11,910 $12,084
- --------------------------------============================
LONG-DURATION CONTRACTS
Premiums and fees:
Direct $ 1,959 $ 1,979 $ 1,781
Assumed 199 162 148
Ceded (191) (137) (101)
- ------------------------------------------------------------
Net earned premiums and fees $ 1,967 $ 2,004 $ 1,828
- --------------------------------============================
</TABLE>
The effects of reinsurance on written premiums and fees for short-duration
contracts were not materially different from the amounts shown in the above
table. Benefits, losses and settlement expenses for 1996, 1995 and 1994 were
net of reinsurance recoveries of $1.6 billion, $1.5 billion and $1.2 billion,
respectively.
NOTE 14 -- PROPERTY AND CASUALTY UNPAID CLAIMS AND CLAIM EXPENSE RESERVES AND
REINSURANCE RECOVERABLES
As described in Note 2(M), CIGNA establishes loss reserves, which are
estimates of future payments of reported and unreported claims for losses and
related expenses, with respect to insured events that have occurred.
38
<PAGE> 36
Activity in the reserve for unpaid claims and claim adjustment expenses for
the year ended December 31 was as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
(In millions) 1996 1995 1994
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Gross reserve -- January 1 $17,023 $16,825 $17,764
Less reinsurance recoverable 5,864 6,190 7,104
-----------------------------
Net reserve -- January 1 11,159 10,635 10,660
-----------------------------
Plus incurred claims and claim
adjustment expenses:
Provision for insured events of
the current year 2,348 2,386 3,093
Increase in provision for insured
events of prior years 177 1,498 538
-----------------------------
Total incurred claims and claim
adjustment expenses 2,525 3,884 3,631
-----------------------------
Less payments for claims and
claim adjustment expenses
attributable to:
Insured events of the current year 823 971 1,020
Insured events of prior years 2,214 2,389 2,636
-----------------------------
Total payments for claims and
claim adjustment expenses 3,037 3,360 3,656
-----------------------------
Net reserve -- December 31 10,647 11,159 10,635
Plus reinsurance recoverable 5,835 5,864 6,190
- ----------------------------------------------------------------------
Gross reserve -- December 31 $16,482 $17,023 $16,825
- -----------------------------------------=============================
</TABLE>
The basic assumption underlying the many traditional 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. The process of establishing loss reserves is subject to
uncertainties that are normal, recurring and inherent in the property and
casualty business.
CIGNA implemented a new methodology for estimating asbestos-related and
environmental pollution (A&E) reserves in the third quarter of 1995. CIGNA
evaluated newly emerging methods for estimating A&E liabilities and expanded its
claims data bases. Using those recent developments, CIGNA completed a
comprehensive review of its A&E exposures and increased asbestos-related
reserves by $255 million ($194 million, net of reinsurance) and environmental
pollution reserves by $1.2 billion ($861 million, net of reinsurance). CIGNA's
reserves for A&E claims are a reasonable estimate of its liability for these
claims, based on currently known facts, reasonable assumptions where the facts
are not known, current law and methodologies currently available.
Reserving for property and casualty claims continues to be a complex and
uncertain process, requiring the use of informed estimates and judgments.
CIGNA's estimates and judgments may be revised as additional experience and
other data become available and are reviewed, as new or improved methodologies
are developed or as current law changes. Any such revisions could result in
future changes in estimates of losses or reinsurance recoverables, and would be
reflected in CIGNA's results of operations for the period in which the
estimates are changed. While the effect of any such changes in estimates of
losses or reinsurance recoverables could be material to future results of
operations, CIGNA does not expect such changes to have a material effect on its
liquidity or financial condition.
In management's judgment, information currently available has been
appropriately considered in estimating CIGNA's loss reserves and reinsurance
recoverables.
Charges to income for increases in the Property and Casualty segment's
liability for insured events of prior years (prior year development) for A&E
losses and charges for unrecoverable reinsurance in the aggregate were $117
million, $1.4 billion and $304 million for 1996, 1995 and 1994, respectively.
Prior year development for 1995 reflects the A&E charge noted above, as well as
$135 million for unrecoverable reinsurance related to CIGNA's assumed
reinsurance and other commercial exposures.
CIGNA's reserves for A&E exposures as of December 31 were as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
1996 1995
----------------------------------------
(In millions) Gross Net Gross Net
- -------------------------------------------------------------------
<S> <C> <C> <C> <C>
Asbestos $ 771 $ 483 $ 749 $ 457
Environmental $1,492 $1,161 $1,665 $1,268
- -------------------------------------------------------------------
</TABLE>
Prior year development, other than for A&E claims and charges for
unrecoverable reinsurance, was $60 million, $109 million and $234 million for
1996, 1995 and 1994, respectively.
39
<PAGE> 37
NOTE 15 -- LEASES AND RENTALS
Rental expenses for operating leases, principally with respect to
buildings, amounted to $214 million, $238 million and $246 million in 1996,
1995 and 1994, respectively.
As of December 31, 1996, future net minimum rental payments under
non-cancelable operating leases were approximately $697 million, payable as
follows: 1997 -- $140 million; 1998 -- $118 million; 1999 -- $96 million; 2000
- -- $71 million; 2001 -- $56 million; and $216 million thereafter.
NOTE 16 -- RESTRUCTURING AND COST REDUCTION INITIATIVES
Effective December 31, 1995, CIGNA restructured its domestic property and
casualty businesses into two separate operations, ongoing and run-off. The
ongoing operations are actively engaged in selling insurance products and
related services. The run-off operations, which do not actively sell insurance
products, manage run-off policies and related claims, including those for A&E
exposures. Insurance products that were actively sold in 1995 by subsidiaries
that are now in run-off continue to be sold by the ongoing operations. Results
for the run-off operations primarily reflect current year losses associated
with unearned premiums as of December 31, 1995, prior year development on claim
and claim adjustment expense reserves, and investment activity. The
restructuring is being contested in the courts by certain competitors and
policyholders; however, CIGNA expects to ultimately prevail.
As part of its overall restructuring plan, CIGNA contributed $375 million
of additional capital to the run-off operations. This contribution, which is
reflected in the run-off operations' statutory surplus as of December 31, 1995,
was funded in 1996 through internal sources. Also, the ongoing operations will
contribute an additional $50 million to the run-off operations by December 31,
2001. In addition, the ongoing operations assumed $125 million of liabilities,
primarily related to employee benefits of the run-off operations, and will
reinsure up to $800 million of claims of the run-off operations in the unlikely
event that the statutory capital and surplus of the run-off operations falls
below $25 million.
During 1995, CIGNA began cost reduction initiatives, which resulted in an
$85 million pre-tax charge, included in Other Operating Expenses, for the
Domestic Property and Casualty operations. The components of the charge were as
follows: severance, $37 million, representing costs associated with
nonvoluntary terminations of approximately 1,600 domestic employees in various
functions and locations; real estate, $25 million, primarily related to vacated
lease space; and other costs, $23 million, including $10 million of costs
associated with exiting certain business and $6 million for fixed asset
write-offs. The cash outlays associated with these initiatives began in the
third quarter of 1995 and will continue through 1998, with most of the
remaining cash outlays expected to occur in 1997. As of December 31, 1996, $30
million of severance was paid to 1,230 terminated employees. CIGNA has funded,
and will continue to fund, these costs through liquid assets, and such funding
has not and will not have a material adverse effect on its liquidity.
During 1995, CIGNA recorded a $30 million pre-tax charge, included in Other
Operating Expenses, for cost reduction initiatives in the Employee Life and
Health Benefits segment. The charge consisted primarily of severance-related
expenses representing costs associated with nonvoluntary employee terminations
covering approximately 2,400 employees (approximately 45% in the indemnity
operations and 55% in the HMO operations). The cash outlays associated with the
restructuring initiatives began in the third quarter of 1995 and will continue
through 1997, with $16 million paid in 1996. As of December 31, 1996, $21
million of severance was paid to 1,960 terminated employees. CIGNA has funded,
and will continue to fund, these costs through liquid assets, and such funding
has not and will not have a material adverse effect on its liquidity.
40
<PAGE> 38
NOTE 17 -- SEGMENT INFORMATION
CIGNA operates principally in four segments: Property and Casualty,
Employee Life and Health Benefits, Employee Retirement and Savings Benefits,
and Individual Financial Services. Other Operations 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.
CIGNA's Property and Casualty operations routinely insure various forms of
property, including large property risks. A major catastrophe could have a
material adverse effect on CIGNA's results of operations. However, because
CIGNA, through its risk assessment and accumulation processes, monitors
writings to avoid significant concentrations, it is not likely that such
adverse effect would be material to the Company's liquidity or financial
condition.
CIGNA's operations are not materially dependent on one or a few customers,
brokers or agents.
As discussed in more detail in Note 16, CIGNA's domestic property and
casualty operations were restructured into ongoing and run-off operations
effective December 31, 1995. Amounts shown for the Property and Casualty
segment's ongoing and run-off operations for 1995 are reported on a pro forma
basis as though the restructuring was in place at the beginning of 1995. These
pro forma results are not necessarily indicative of the results that would have
been reported had the restructuring actually occurred as of January 1, 1995.
Information for the Property and Casualty segment on a pro forma basis is not
available for 1994. Consolidated Property and Casualty segment amounts,
including International, did not change as a result of the restructuring.
Summarized financial information with respect to the business segments for
the year ended and as of December 31 was as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
(In millions) 1996 1995 1994
- ---------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Property and Casualty:
International $ 2,859 $ 3,005 $ 2,644
Domestic - ongoing 2,147 2,259
- pre-restructuring 3,386
---------------------
Ongoing operations 5,006 5,264
Run-off operations 478 471
----------------------------------
Total Property and Casualty 5,484 5,735 6,030
Employee Life and Health Benefits 9,318 9,167 8,650
Employee Retirement
and Savings Benefits 2,950 1,983 1,935
Individual Financial Services 2,074 1,920 1,637
Other Operations 124 150 140
- ---------------------------------------------------------------------
Total $ 18,950 $ 18,955 $ 18,392
- -----------------------------------==================================
INCOME (LOSS) BEFORE
INCOME TAXES
Property and Casualty:
International $ 248 $ 203 $ 94
Domestic - ongoing 111 (35)
- pre-restructuring (511)
---------------------
Ongoing operations 359 168
Run-off operations (13) (1,228)
----------------------------------
Total Property and Casualty 346 (1,060) (417)
Employee Life and Health Benefits 764 860 829
Employee Retirement
and Savings Benefits 329 284 287
Individual Financial Services 259 231 210
Other Operations (97) (64) (104)
- ---------------------------------------------------------------------
Total $ 1,601 $ 251 $ 805
- -----------------------------------==================================
IDENTIFIABLE ASSETS
Property and Casualty:
International $ 7,611 $ 7,603 $ 6,785
Domestic - ongoing 10,553 9,843
- pre-restructuring 18,850
---------------------
Ongoing operations 18,164 17,446
Run-off operations 8,043 8,872
----------------------------------
Total Property and Casualty 26,207 26,318 25,635
Employee Life and Health Benefits 11,590 12,206 11,331
Employee Retirement
and Savings Benefits 40,399 37,736 33,939
Individual Financial Services 17,581 15,913 12,195
Other Operations 3,155 3,730 3,002
- ---------------------------------------------------------------------
Total $ 98,932 $ 95,903 $ 86,102
- -----------------------------------==================================
</TABLE>
41
<PAGE> 39
NOTE 18 -- FOREIGN OPERATIONS
CIGNA provides international property and casualty and life and health
insurance coverages on a direct and reinsured basis, primarily in Europe, the
Pacific region, Canada and Latin America.
For the year ended December 31, 1996 and 1994, the change in Net
Translation of Foreign Currencies reflects increases (decreases) of ($18)
million (including a tax benefit of $11 million) and $47 million (including a
tax benefit of $16 million), respectively. There was no change in Net
Translation of Foreign Currencies for the year ended December 31, 1995.
Summary financial data of CIGNA's foreign operations for the year ended and
as of December 31 were as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
(In millions) 1996 1995 1994
- ---------------------------------------------------------------
<S> <C> <C> <C>
Revenues $3,125 $3,240 $2,991
Income before income taxes $ 265 $ 82 $ 32
Identifiable assets $9,852 $9,589 $8,742
- ---------------------------------------------------------------
</TABLE>
CIGNA's income before income taxes included aggregate foreign exchange
transaction losses of $1 million in both 1996 and 1995, compared with $5
million in 1994.
NOTE 19 -- CONTINGENCIES
FINANCIAL GUARANTEES
CIGNA, through its subsidiaries, is contingently liable for various
financial guarantees provided in the ordinary course of business. These include
guarantees for the repayment of industrial revenue bonds as well as other debt
instruments. The contractual amounts of financial guarantees reflect CIGNA's
maximum exposure to credit loss in the event of nonperformance. To limit
CIGNA's exposure in the event of default of any guaranteed obligation, various
programs are in place to ascertain the creditworthiness of guaranteed parties
and to monitor this status on a periodic basis. Risk is further reduced
primarily through reinsurance.
The industrial revenue bonds guaranteed directly by CIGNA have remaining
maturities of up to 19 years. The guarantees provide for payment of debt service
only as it becomes due; consequently, an event of default would not cause an
acceleration of scheduled principal and interest payments. The principal amount
of the bonds guaranteed by CIGNA at December 31, 1996 and 1995 was $234 million
and $266 million, respectively. Revenues in connection with industrial revenue
bond guarantees are derived principally from equity participations in the
related projects and are included in Net Investment Income as earned. During
1994, losses for industrial revenue bonds were $1 million. There were no such
losses in 1996 and 1995.
In addition, CIGNA is liable for municipal guarantee business of $1.0
billion and $1.3 billion at December 31, 1996 and 1995, respectively, which
have maturities of up to 38 years. Such amounts are fully reinsured through a
subsidiary of MBIA Inc., a corporation that guarantees the scheduled payment of
principal and interest for many types of municipal obligations, including
general obligation and special revenue bonds. The nature of this guarantee
business is similar to the reinsurance transactions described in Note 13.
Municipal guarantees provide for payment of debt service only as it becomes
due; consequently, an event of default would not cause an acceleration of
scheduled principal and interest payments. As of December 31, 1996 and 1995,
loss reserves and unearned premiums under these programs were not material.
CIGNA also guarantees a minimum level of benefits for certain separate
account contracts and, in the event that separate account assets are
insufficient to fund minimum policy benefits, CIGNA is obligated to fund the
difference. As of December 31, 1996 and 1995, the amount of minimum benefit
guarantees for separate account contracts was $4.9 billion and $4.7 billion,
respectively. Reserves in addition to the separate account liabilities are
established when CIGNA believes a payment will be required under one of these
guarantees. No such reserves were required as of December 31, 1996 and 1995.
Guarantee fees are part of the overall management fee charged to separate
accounts and are recognized in income as earned.
Although the ultimate outcome of any loss contingencies arising from
CIGNA's financial guarantees may adversely affect results of operations in
future periods, they are not expected to have a material adverse effect on
CIGNA's liquidity or financial condition.
42
<PAGE> 40
REGULATORY AND INDUSTRY DEVELOPMENTS
CIGNA's businesses are subject to a changing social, economic, legal,
legislative and regulatory environment that could affect them. Some of the
changes include initiatives to:
- - revise the system of funding cleanup of environmental damages;
- - change certain federal corporate tax laws;
- - 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; and
- - expand regulation.
Some of the more significant issues are discussed below.
In August 1996, Congress passed legislation that phases out over a
three-year period the tax deductibility of policy loan interest for most
leveraged corporate-owned life insurance (COLI) products. For 1996, 31% of
revenues and 29% of income for the Individual Financial Services segment were
from leveraged COLI products that are affected by this legislation. The effect
of the legislation on this segment's income is not expected to be material
through 1998. Beginning in 1999, the effect of the legislation is uncertain;
however, it could have a material adverse effect on the segment's income. CIGNA
does not expect this legislation to have a material effect on its consolidated
results of operations, liquidity or financial condition.
Proposed legislation for Superfund reform remains under consideration by
Congress. Any changes in Superfund relating to 1) assigning responsibility, 2)
funding cleanup costs or 3) establishing cleanup standards could affect the
liabilities of policyholders 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.
CIGNA expects proposals for federal and state legislation seeking to place
limitations on formation and operation of efficient health care networks. Due
to uncertainties associated with the timing and content of any health care
legislation, the effect on CIGNA's future results of operations, liquidity or
financial condition cannot be reasonably estimated at this time.
The National Association of Insurance Commissioners (NAIC) is currently
addressing risk-based capital guidelines for health maintenance organizations
(HMOs). CIGNA does not expect such guidelines to have a material adverse effect
on its future results of operations, liquidity or financial condition.
The NAIC is currently developing standardized statutory accounting
principles, which are scheduled to take effect in 1999. The effect on CIGNA's
statutory net income, surplus and liquidity cannot be reasonably estimated at
this time.
In recent years, the number of insurance companies that are impaired or
insolvent has increased. This is expected to result in an increase in mandatory
assessments by state guaranty funds of, or voluntary payments by, solvent
insurance companies to cover losses to policyholders of insolvent or
rehabilitated companies. Mandatory assessments, which are subject to statutory
limits, can be partially recovered through a reduction in future premium taxes
in some states. CIGNA's insurance subsidiaries recorded pre-tax charges of $56
million, $43 million and $39 million for 1996, 1995 and 1994, respectively, for
guaranty fund assessments that can be reasonably estimated before giving effect
to future premium tax recoveries. Although future assessments and payments may
adversely affect results of operations in future periods, such amounts are not
expected to have a material adverse effect on CIGNA's liquidity or financial
condition.
The eventual effect on CIGNA of the changing environment in which it
operates remains uncertain.
LITIGATION
CIGNA is continuously involved in numerous lawsuits arising, for the most
part, in the ordinary course of business, either as a liability insurer
defending third-party claims brought against its insureds or as an insurer
defending coverage claims brought against it by its policyholders or other
insurers. One such area of litigation involves policy coverage and judicial
interpretation of legal liability for A&E claims.
While the outcome of all litigation involving CIGNA, including
insurance-related litigation, cannot be determined, litigation (including that
related to A&E claims) is not expected to result in losses that differ from
recorded reserves by amounts that would be material to results of operations,
liquidity or financial condition. Also, reinsurance recoveries related to
claims in litigation, net of the allowance for uncollectible reinsurance, are
not expected to result in recoveries that differ from recorded recoverables by
amounts that would be material to results of operations, liquidity or financial
condition.
43
<PAGE> 41
REPORT OF INDEPENDENT ACCOUNTANTS
[LOGO]
Price Waterhouse LLP
TO THE BOARD OF DIRECTORS
AND SHAREHOLDERS OF CIGNA CORPORATION
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income and retained earnings and of cash flows
present fairly, in all material respects, the financial position of CIGNA
Corporation and its subsidiaries at December 31, 1996 and 1995, and the results
of their operations and their cash flows for each of the years ended December
31, 1996, 1995 and 1994 in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PRICE WATERHOUSE LLP
Philadelphia, Pennsylvania
February 11, 1997
44
<PAGE> 42
QUARTERLY FINANCIAL DATA (UNAUDITED)
The following unaudited quarterly financial data are presented on a
consolidated basis for each of the years ended December 31, 1996 and 1995.
Quarterly financial results necessarily rely heavily on estimates. This
and certain other factors, such as the seasonal nature of portions of the
insurance business, require caution in drawing specific conclusions from
quarterly consolidated results.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
(In millions, except per share amounts) Three Months Ended
- ----------------------------------------------------------------------------------------------------------------
March 31 June 30 Sept. 30 Dec. 31
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CONSOLIDATED RESULTS
1996
Total revenues $ 4,645 $ 4,731 $ 4,685 $ 4,889
Income before income taxes 358 345 434 464
Net income 238 231 281 306
Net income per share -- primary** 3.10 3.00 3.69 4.07
1995*
Total revenues $ 4,754 $ 4,753 $ 4,642 $ 4,806
Income before income taxes 402 304 (883) 428
Net income 290 205 (566) 282
Net income per share -- primary** 4.00 2.82 (7.76) 3.69
STOCK AND DIVIDEND DATA
1996
Price range of common stock -- high $125 1/2 $117 7/8 $122 3/8 $143 3/8
-- low $103 1/4 $100 3/4 $105 1/2 $119 1/2
Dividends declared per common share $ .80 $ .80 $ .80 $ .80
1995
Price range of common stock -- high $ 76 3/8 $ 79 $ 106 $ 115
-- low $ 62 1/4 $ 68 1/4 $ 77 1/2 $ 95 1/4
Dividends declared per common share $ .76 $ .76 $ .76 $ .76
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
* The third quarter of 1995 includes after-tax charges totaling $849 million,
reflecting $686 million for asbestos-related and environmental pollution
claims, $88 million for unrecoverable reinsurance and $75 million for cost
reduction initiatives.
** Earnings per share for the three months ended March 31, 1995 on a fully
diluted basis were $3.85. For all other periods presented, earnings per
share on a fully diluted basis were not significantly different from
amounts presented.
45
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Listed below are subsidiaries of CIGNA Corporation as of December 31, 1996
with their jurisdictions of organization shown in parentheses. Those
subsidiaries not listed would not, in the aggregate, constitute a "significant
subsidiary" of CIGNA Corporation, as that term is defined in Rule 1-02(v) of
Regulation S-X.
<TABLE>
<S> <C> <C> <C>
CIGNA Holdings, Inc. (Delaware)
I. Connecticut General Corporation (Connecticut)
A. CG Trust Company (Illinois)
B. CIGNA Associates, Inc. (Connecticut)
C. CIGNA Dental Health, Inc. (Florida)
(1) CIGNA Dental Health of California, Inc. (California)
(2) CIGNA Dental Health of Colorado, Inc. (Colorado)
(3) CIGNA Dental Health of Delaware, Inc. (Delaware)
(4) CIGNA Dental Health of Florida, Inc. (Florida)
(5) CIGNA Dental Health of Illinois, Inc. (Illinois)
(6) CIGNA Dental Health of Kansas, Inc. (Kansas)
(7) CIGNA Dental Health of Kentucky, Inc. (Kentucky)
(8) CIGNA Dental Health of Maryland, Inc. (Delaware)
(9) CIGNA Dental Health of New Jersey, Inc. (New Jersey)
(10) CIGNA Dental Health of New Mexico, Inc. (New Mexico)
(11) CIGNA Dental Health of North Carolina, Inc. (North Carolina)
(12) CIGNA Dental Health of Ohio, Inc. (Ohio)
(13) CIGNA Dental Health of Pennsylvania, Inc. (Pennsylvania)
(14) CIGNA Dental Health of Texas, Inc. (Texas)
(15) CIGNA Dental Health Plan of Arizona, Inc. (Arizona)
D. CIGNA Financial Advisors, Inc. (Connecticut)
E. CIGNA Financial Partners, Inc. (Connecticut)
F. CIGNA Financial Services, Inc. (Delaware)
G. CIGNA Health Corporation (Delaware)
(1) CIGNA HealthCare of Arizona, Inc. (Arizona)
(a) CIGNA Community Choice, Inc. (Arizona)
(2) CIGNA HealthCare of California, Inc. (California)
(3) CIGNA HealthCare of Colorado, Inc. (Colorado)
(4) CIGNA HealthCare of Connecticut, Inc. (Connecticut)
(5) CIGNA HealthCare of Delaware, Inc. (Delaware)
(6) CIGNA HealthCare of Florida, Inc. (Florida)
(7) CIGNA HealthCare of Georgia, Inc. (Georgia)
(8) CIGNA HealthCare of Illinois, Inc. (Delaware) (99% with balance
owned by non-affiliate)
(9) CIGNA HealthCare of Louisiana, Inc. (Louisiana)
(10) CIGNA HealthCare of Massachusetts, Inc. (Massachusetts)
(11) CIGNA HealthCare Mid-Atlantic, Inc. (Maryland)
(12) CIGNA HealthCare of New Jersey, Inc. (New Jersey)
(13) CIGNA HealthCare of New York, Inc. (New York)
(14) CIGNA HealthCare of North Carolina, Inc. (North Carolina)
(15) CIGNA HealthCare of North Louisiana, Inc. (Louisiana)
(16) CIGNA HealthCare of Northern New Jersey, Inc. (New Jersey)
(17) CIGNA HealthCare of Ohio, Inc. (Ohio)
(18) CIGNA HealthCare of Oklahoma, Inc. (Oklahoma)
</TABLE>
<PAGE> 2
<TABLE>
<C> <S> <C>
(19) CIGNA HealthCare of Pennsylvania, Inc. (Pennsylvania)
(20) CIGNA HealthCare of St. Louis, Inc. (Missouri)
(21) CIGNA HealthCare of Tennessee, Inc. (Tennessee)
(22) CIGNA HealthCare of Texas, Inc. (Texas)
(23) CIGNA HealthCare of Utah, Inc. (Utah)
(24) CIGNA HealthCare of Virginia, Inc. (Virginia)
(25) Lovelace Health Systems, Inc. (New Mexico)
(26) Temple Insurance Company Limited (Bermuda)
H. CIGNA RE Corporation (Delaware)
I. Connecticut General Life Insurance Company (Connecticut)
(1) All-Net Preferred Providers, Inc. (Delaware)
(2) CIGNA Life Insurance Company (Connecticut)
(3) ICO, INC. (Delaware)
J. Disability Claim Services, Inc. (Delaware)
K. Global Portfolio Strategies, Inc. (Connecticut)
L. INA Life Insurance Company of New York (New York)
M. International Rehabilitation Associates, Inc. d/b/a Intracorp (Delaware)
N. Life Insurance Company of North America (Pennsylvania)
(1) CIGNA Direct Marketing Company, Inc. (Delaware)
(2) CIGNA Life Insurance Company of Canada (Canada)
(3) INA Life Insurance Co., Ltd. (Japan) (90% with balance owned by non-affiliate)
O. MCC Behavioral Care, Inc. (Minnesota)
(1) MCC Behavioral Care of California, Inc. (California)
P. TEL-DRUG, INC. (South Dakota)
II. INA Corporation (Pennsylvania)
A. CIGNA International Holdings, Ltd. (Delaware)
(1) Afia Finance Corporation (Delaware)
(a) P.T. Asuransi CIGNA Indonesia (Indonesia) (51% with balance owned by non-
affiliates)
(2) Century Inversiones, S.A.
(3) CIGNA Argentina Compania de Sequros S.A. (Argentina)
(4) CIGNA Brasil Empreendimentos Ltda. (Brazil)
(a) CIGNA Seguradora S.A. (Brazil) (85.99% with 13.7% owned by other CIGNA
subsidiaries and .4% owned by non-affiliates)
(5) CIGNA Compania de Seguros (Chile) S.A. (Chile) (99% with balance owned by non-
affiliates)
(6) CIGNA G.B. Holdings, Ltd. (Delaware)
(a) CIGNA Reinsurance Company (UK) Limited (United Kingdom)
(b) Insurance Company of North America (U.K.) Limited (United Kingdom)
(7) CIGNA Insurance Asia Pacific Limited (Australia)
(8) CIGNA Insurance Company Limited (Rep. of South Africa)
(9) CIGNA Insurance Company of Puerto Rico (Puerto Rico)
(10) CIGNA Insurance New Zealand Limited (New Zealand)
(a) CIGNA Life Insurance New Zealand Limited (New Zealand)
(11) CIGNA International Corporation (Delaware)
(12) CIGNA Overseas Insurance Company Ltd. (Bermuda)
(a) CIGNA Accident and Fire Insurance Company, Ltd. (Japan)
(b) CIGNA China Investment Fund LDC (Cayman Islands) (67% with balance owned by
another CIGNA subsidiary)
(c) CIGNA Insurance Company of Europe S.A.-N.V. (Belgium)
(d) CIGNA Life Insurance Company of Europe S.A.-N.V. (Belgium)
(e) CIGNA Overseas Holdings, Inc. (Delaware)
</TABLE>
<PAGE> 3
<TABLE>
<C> <S> <C> <C> <C> <C> <C> <C>
(13) CIGNA Worldwide Insurance Company (Delaware)
(a) P.T. Asuransi Niaga CIGNA Life (Indonesia) (60% with balance owned by non-
affiliate)
(b) PCIB CIGNA Life Insurance Corporation (Philippines) (50% with balance owned
by non-affiliate)
(14) Delpanama S.A. (Panama)
(a) CIGNA Compania de Seguros de Panama S.A. (Panama)
(15) ESIS International, Inc. (Delaware)
(16) INACAN Holdings, Ltd. (Canada)
(a) CIGNA Insurance Company of Canada (Canada)
(17) Inversiones INA Limitada (Chile) (98.603% with balance owned by another CIGNA
subsidiary)
(a) CIGNA Compania de Seguros de Vida (Chile) S.A. (Chile) (98.64% with balance
owned by non-affiliate)
(b) CIGNA Salud Isapre S.A. (Chile) (99.20% with balance owned by another CIGNA
subsidiary)
(18) LATINA Holdings, Ltd. (Delaware)
(a) CIGNA Seguros de Colombia S.A. (Colombia) (85% with balance owned by other
CIGNA subsidiaries and non-affiliates)
(b) Colina Insurance Company Limited (Bahamas)
(c) Empresa Guatemalteca CIGNA de Seguros, Sociedad Anonima
(Guatemala) (97% with balance owned by non-affiliates)
(19) Seguros CIGNA, S.A. (Mexico) (49% with balance owned by non-affiliates)
B. INA Financial Corporation (Delaware)
(1) Brandywine Holdings Corporation (Delaware)
(a) CIGNA International Reinsurance Company, Ltd. (Bermuda)
(b) Century Indemnity Company (Pennsylvania)
(i) Century Reinsurance Company (Pennsylvania)
(ii) CIGNA Reinsurance Company (Pennsylvania)
(a) CIGNA Reinsurance Company, S.A.-N.V. (Belgium)
(2) INA Holdings Corporation (Delaware)
(a) Bankers Standard Insurance Company (Pennsylvania)
(i) Bankers Standard Fire & Marine Company (Pennsylvania)
(b) CIGNA Property and Casualty Insurance Company (Connecticut)
(i) ALIC Incorporated (Texas)
(a) CIGNA Lloyds Insurance Company (Texas)
(ii) CIGNA Fire Underwriters Insurance Company (Pennsylvania)
(iii) CIGNA Insurance Company (Pennsylvania)
(a) Pacific Employers Insurance Company (Pennsylvania)
(i) CIGNA Insurance Company of Texas (Texas)
(ii) Illinois Union Insurance Company (Illinois)
(iv) CIGNA Insurance Company of the Midwest (Indiana)
(v) CIGNA Real Estate, Inc. (Delaware)
(a) Congen Properties, Inc. (Delaware)
(c) ESIS, Inc. (California)
(d) INAC Corp. (Delaware)
(e) INAC Corp. of California (California)
(f) INAMAR Insurance Underwriting Agency, Inc. (New Jersey)
(g) INAPRO, Inc. (Delaware)
(i) Reinsurance International Solutions L.L.C. (Delaware) (50% with
balance owned by non-affiliate)
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
(h) Insurance Company of North America (Pennsylvania)
(a) Atlantic Employers Insurance Company (New Jersey)
(b) CIGNA Employers Insurance Company (Pennsylvania)
(c) CIGNA Insurance Company of Ohio (Ohio)
(d) Indemnity Insurance Company of North America (Pennsylvania)
(i) Allied Insurance Company (California)
(ii) CIGNA Indemnity Insurance Company(Pennsylvania)
(iii) CIGNA Insurance Company of Illinois (Illinois)
(e) INA Surplus Insurance Company (Pennsylvania)
(i) Marketdyne International, Inc. (Delaware)
(j) Recovery Services International, Inc. (Delaware)
III. CIGNA Investment Group, Inc. (Delaware)
A. CIGNA International Finance Inc. (Delaware)
(1) CIGNA International Investment Advisors, Ltd. (Delaware)
(a) CIGNA International Investment Advisors Australia Limited (Australia)
(b) CIGNA International Investment Advisors K.K. (Japan)
B. CIGNA Investment Advisory Company, Inc. (Delaware)
C. CIGNA Investments, Inc. (Delaware)
(1) CIGNA Advisory Partners, Inc. (Delaware)
(2) CIGNA Leveraged Capital Fund, Inc. (Delaware)
</TABLE>
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-3 (No. 33-65396) and Form S-8 (No. 2-76445, No. 2-76444,
No. 33-44371, No. 33-51791, No. 33-60053 and No. 333-22391) of CIGNA
Corporation, of our report dated February 11, 1997 appearing on Page 44 of the
1996 Annual Report to Shareholders of CIGNA Corporation which is incorporated in
this Annual Report on Form 10-K. We also consent to the incorporation by
reference in such Registration Statements of our report on the Financial
Statement Schedules, which appears on page FS-2 of this Form 10-K.
/S/ PRICE WATERHOUSE LLP
Philadelphia, Pennsylvania
March 27, 1997
<PAGE> 1
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director of
CIGNA Corporation, a Delaware corporation ("CIGNA"), hereby makes, designates,
constitutes and appoints THOMAS J. WAGNER, CAROL J. WARD and ROBERT A. LUKENS,
and each of them (with full power to act without the other), as the
undersigned's true and lawful attorneys-in-fact and agents, with full power and
authority to act in any and all capacities for and in the name, place and stead
of the undersigned (A) in connection with the filing with the Securities and
Exchange Commission pursuant to the Securities Act of l933 or the Securities
Exchange Act of l934, both as amended, of:
(i) CIGNA's Annual Report on Form l0-K and all amendments
thereto (collectively, "CIGNA's Form l0-K");
(ii) any and all registration statements pertaining to
employee benefit or director compensation plans of CIGNA or its
subsidiaries, and all amendments thereto, including, without limitation,
a registration statement on Form S-8 for the offering of 1,000,000
shares of CIGNA Common Stock under the CIGNA Stock Plan and CIGNA's
registration statements on Form S-8 (Registration Numbers 2-76444,
2-76445, 33-51791, 33-44371 and 33-60053);
(iii) all amendments to CIGNA's registration statement on Form
S-3 (Registration Number 33-65396) relating to $900 million of debt
securities, Preferred Stock and Common Stock; and
(B) in connection with the preparation, delivery and filing of any and all
registrations, amendments, qualifications or notifications under the applicable
securities laws of any and all states and other jurisdictions with respect to
securities of CIGNA, of whatever class or series, offered, sold, issued,
distributed, placed or resold by CIGNA, any of its subsidiaries, or any other
person or entity.
Such attorneys-in-fact and agents, or any of them, are also hereby
granted full power and authority, on behalf of and in the name, place and stead
of the undersigned, to execute and deliver all such registration statements,
registrations, amendments, qualifications and notifications, and CIGNA's Form
l0-K, to execute and deliver any and all such other documents, and to take
further action as they, or any of them, deem appropriate. The powers and
authorities granted herein to such attorneys-in-fact and agents, and each of
them, also include the full right, power and authority to effect necessary or
appropriate substitutions or revocations. The undersigned hereby ratifies,
confirms, and adopts, as his own act and deed, all action lawfully taken by such
attorneys-in-fact and agents, or any of them, or by their respective
substitutes, pursuant to the powers and authorities herein granted. This Power
of Attorney expires by its terms and shall be of no further force and effect on
May l5, l998.
IN WITNESS WHEREOF, the undersigned has executed this document as of the
26th day of February, l997.
/s/ Robert P. Bauman
----------------------------------
Robert P. Bauman
<PAGE> 2
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director of
CIGNA Corporation, a Delaware corporation ("CIGNA"), hereby makes, designates,
constitutes and appoints THOMAS J. WAGNER, CAROL J. WARD and ROBERT A. LUKENS,
and each of them (with full power to act without the other), as the
undersigned's true and lawful attorneys-in-fact and agents, with full power and
authority to act in any and all capacities for and in the name, place and stead
of the undersigned (A) in connection with the filing with the Securities and
Exchange Commission pursuant to the Securities Act of l933 or the Securities
Exchange Act of l934, both as amended, of:
(i) CIGNA's Annual Report on Form l0-K and all amendments
thereto (collectively, "CIGNA's Form l0-K");
(ii) any and all registration statements pertaining to
employee benefit or director compensation plans of CIGNA or its
subsidiaries, and all amendments thereto, including, without limitation,
a registration statement on Form S-8 for the offering of 1,000,000
shares of CIGNA Common Stock under the CIGNA Stock Plan and CIGNA's
registration statements on Form S-8 (Registration Numbers 2-76444,
2-76445, 33-51791, 33-44371 and 33-60053);
(iii) all amendments to CIGNA's registration statement on Form
S-3 (Registration Number 33-65396) relating to $900 million of debt
securities, Preferred Stock and Common Stock; and
(B) in connection with the preparation, delivery and filing of any and all
registrations, amendments, qualifications or notifications under the applicable
securities laws of any and all states and other jurisdictions with respect to
securities of CIGNA, of whatever class or series, offered, sold, issued,
distributed, placed or resold by CIGNA, any of its subsidiaries, or any other
person or entity.
Such attorneys-in-fact and agents, or any of them, are also hereby
granted full power and authority, on behalf of and in the name, place and stead
of the undersigned, to execute and deliver all such registration statements,
registrations, amendments, qualifications and notifications, and CIGNA's Form
l0-K, to execute and deliver any and all such other documents, and to take
further action as they, or any of them, deem appropriate. The powers and
authorities granted herein to such attorneys-in-fact and agents, and each of
them, also include the full right, power and authority to effect necessary or
appropriate substitutions or revocations. The undersigned hereby ratifies,
confirms, and adopts, as his own act and deed, all action lawfully taken by such
attorneys-in-fact and agents, or any of them, or by their respective
substitutes, pursuant to the powers and authorities herein granted. This Power
of Attorney expires by its terms and shall be of no further force and effect on
May l5, l998.
IN WITNESS WHEREOF, the undersigned has executed this document as of the
26th day of February, l997.
/s/ Robert H. Campbell
------------------------------
Robert H. Campbell
<PAGE> 3
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director of
CIGNA Corporation, a Delaware corporation ("CIGNA"), hereby makes, designates,
constitutes and appoints THOMAS J. WAGNER, CAROL J. WARD and ROBERT A. LUKENS,
and each of them (with full power to act without the other), as the
undersigned's true and lawful attorneys-in-fact and agents, with full power and
authority to act in any and all capacities for and in the name, place and stead
of the undersigned (A) in connection with the filing with the Securities and
Exchange Commission pursuant to the Securities Act of l933 or the Securities
Exchange Act of l934, both as amended, of:
(i) CIGNA's Annual Report on Form l0-K and all amendments
thereto (collectively, "CIGNA's Form l0-K");
(ii) any and all registration statements pertaining to employee
benefit or director compensation plans of CIGNA or its subsidiaries, and
all amendments thereto, including, without limitation, a registration
statement on Form S-8 for the offering of 1,000,000 shares of CIGNA
Common Stock under the CIGNA Stock Plan and CIGNA's registration
statements on Form S-8 (Registration Numbers 2-76444, 2-76445, 33-51791,
33-44371 and 33-60053);
(iii) all amendments to CIGNA's registration statement on Form
S-3 (Registration Number 33-65396) relating to $900 million of debt
securities, Preferred Stock and Common Stock; and
(B) in connection with the preparation, delivery and filing of any and all
registrations, amendments, qualifications or notifications under the applicable
securities laws of any and all states and other jurisdictions with respect to
securities of CIGNA, of whatever class or series, offered, sold, issued,
distributed, placed or resold by CIGNA, any of its subsidiaries, or any other
person or entity.
Such attorneys-in-fact and agents, or any of them, are also hereby
granted full power and authority, on behalf of and in the name, place and stead
of the undersigned, to execute and deliver all such registration statements,
registrations, amendments, qualifications and notifications, and CIGNA's Form
l0-K, to execute and deliver any and all such other documents, and to take
further action as they, or any of them, deem appropriate. The powers and
authorities granted herein to such attorneys-in-fact and agents, and each of
them, also include the full right, power and authority to effect necessary or
appropriate substitutions or revocations. The undersigned hereby ratifies,
confirms, and adopts, as his own act and deed, all action lawfully taken by such
attorneys-in-fact and agents, or any of them, or by their respective
substitutes, pursuant to the powers and authorities herein granted. This Power
of Attorney expires by its terms and shall be of no further force and effect on
May l5, l998.
IN WITNESS WHEREOF, the undersigned has executed this document as of the
26th day of February, l997.
/s/ Alfred C. DeCrane, Jr.
-----------------------------------
Alfred C. DeCrane, Jr.
<PAGE> 4
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director of
CIGNA Corporation, a Delaware corporation ("CIGNA"), hereby makes, designates,
constitutes and appoints THOMAS J. WAGNER, CAROL J. WARD and ROBERT A. LUKENS,
and each of them (with full power to act without the other), as the
undersigned's true and lawful attorneys-in-fact and agents, with full power and
authority to act in any and all capacities for and in the name, place and stead
of the undersigned (A) in connection with the filing with the Securities and
Exchange Commission pursuant to the Securities Act of l933 or the Securities
Exchange Act of l934, both as amended, of:
(i) CIGNA's Annual Report on Form l0-K and all amendments
thereto (collectively, "CIGNA's Form l0-K");
(ii) any and all registration statements pertaining to
employee benefit or director compensation plans of CIGNA or its
subsidiaries or pertaining to the secondary offering of CIGNA securities
by its officers and directors, and all amendments thereto, including,
without limitation, CIGNA's registration statements on Form S-8
(Registration Numbers 2-76444, 2-76445, 33-51791, 33-44371 and
33-60053); and its registration statements on Form S-3 (Registration
Numbers 2-91972 and 2-97899);
(iii) all amendments to CIGNA's registration statement on Form
S-3 (Registration Number 33-65396) relating to $900 million of debt
securities, Preferred Stock and Common Stock;
(iv) all amendments to CIGNA's registration statement on Form S-3
(Registration Number 33-39269) relating to $300 million of debt
securities; and
(B) in connection with the preparation, delivery and filing of any and all
registrations, amendments, qualifications or notifications under the applicable
securities laws of any and all states and other jurisdictions with respect to
securities of CIGNA, of whatever class or series, offered, sold, issued,
distributed, placed or resold by CIGNA, any of its subsidiaries, or any other
person or entity.
Such attorneys-in-fact and agents, or any of them, are also hereby
granted full power and authority, on behalf of and in the name, place and stead
of the undersigned, to execute and deliver all such registration statements,
registrations, amendments, qualifications and notifications, and CIGNA's Form
l0-K, to execute and deliver any and all such other documents, and to take
further action as they, or any of them, deem appropriate. The powers and
authorities granted herein to such attorneys-in-fact and agents, and each of
them, also include the full right, power and authority to effect necessary or
appropriate substitutions or revocations. The undersigned hereby ratifies,
confirms, and adopts, as his own act and deed, all action lawfully taken by such
attorneys-in-fact and agents, or any of them, or by their respective
substitutes, pursuant to the powers and authorities herein granted. This Power
of Attorney expires by its terms and shall be of no further force and effect on
May l5, l997.
IN WITNESS WHEREOF, the undersigned has executed this document as of the
21st day of February, l996.
/s/ James F. English, Jr.
-----------------------------------
James F. English, Jr
<PAGE> 5
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director of
CIGNA Corporation, a Delaware corporation ("CIGNA"), hereby makes, designates,
constitutes and appoints THOMAS J. WAGNER, CAROL J. WARD and ROBERT A. LUKENS,
and each of them (with full power to act without the other), as the
undersigned's true and lawful attorneys-in-fact and agents, with full power and
authority to act in any and all capacities for and in the name, place and stead
of the undersigned (A) in connection with the filing with the Securities and
Exchange Commission pursuant to the Securities Act of l933 or the Securities
Exchange Act of l934, both as amended, of:
(i) CIGNA's Annual Report on Form l0-K and all amendments
thereto (collectively, "CIGNA's Form l0-K");
(ii) any and all registration statements pertaining to
employee benefit or director compensation plans of CIGNA or its
subsidiaries, and all amendments thereto, including, without limitation,
a registration statement on Form S-8 for the offering of 1,000,000
shares of CIGNA Common Stock under the CIGNA Stock Plan and CIGNA's
registration statements on Form S-8 (Registration Numbers 2-76444,
2-76445, 33-51791, 33-44371 and 33-60053);
(iii) all amendments to CIGNA's registration statement on Form
S-3 (Registration Number 33-65396) relating to $900 million of debt
securities, Preferred Stock and Common Stock; and
(B) in connection with the preparation, delivery and filing of any and all
registrations, amendments, qualifications or notifications under the applicable
securities laws of any and all states and other jurisdictions with respect to
securities of CIGNA, of whatever class or series, offered, sold, issued,
distributed, placed or resold by CIGNA, any of its subsidiaries, or any other
person or entity.
Such attorneys-in-fact and agents, or any of them, are also hereby
granted full power and authority, on behalf of and in the name, place and stead
of the undersigned, to execute and deliver all such registration statements,
registrations, amendments, qualifications and notifications, and CIGNA's Form
l0-K, to execute and deliver any and all such other documents, and to take
further action as they, or any of them, deem appropriate. The powers and
authorities granted herein to such attorneys-in-fact and agents, and each of
them, also include the full right, power and authority to effect necessary or
appropriate substitutions or revocations. The undersigned hereby ratifies,
confirms, and adopts, as his own act and deed, all action lawfully taken by such
attorneys-in-fact and agents, or any of them, or by their respective
substitutes, pursuant to the powers and authorities herein granted. This Power
of Attorney expires by its terms and shall be of no further force and effect on
May l5, l998.
IN WITNESS WHEREOF, the undersigned has executed this document as of the
26th day of February, l997.
/s/ Bernard M. Fox
---------------------------------
Bernard M. Fox
<PAGE> 6
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director of
CIGNA Corporation, a Delaware corporation ("CIGNA"), hereby makes, designates,
constitutes and appoints THOMAS J. WAGNER, CAROL J. WARD and ROBERT A. LUKENS,
and each of them (with full power to act without the other), as the
undersigned's true and lawful attorneys-in-fact and agents, with full power and
authority to act in any and all capacities for and in the name, place and stead
of the undersigned (A) in connection with the filing with the Securities and
Exchange Commission pursuant to the Securities Act of l933 or the Securities
Exchange Act of l934, both as amended, of:
(i) CIGNA's Annual Report on Form l0-K and all amendments
thereto (collectively, "CIGNA's Form l0-K");
(ii) any and all registration statements pertaining to
employee benefit or director compensation plans of CIGNA or its
subsidiaries, and all amendments thereto, including, without limitation,
a registration statement on Form S-8 for the offering of 1,000,000
shares of CIGNA Common Stock under the CIGNA Stock Plan and CIGNA's
registration statements on Form S-8 (Registration Numbers 2-76444,
2-76445, 33-51791, 33-44371 and 33-60053);
(iii) all amendments to CIGNA's registration statement on Form
S-3 (Registration Number 33-65396) relating to $900 million of debt
securities, Preferred Stock and Common Stock; and
(B) in connection with the preparation, delivery and filing of any and all
registrations, amendments, qualifications or notifications under the applicable
securities laws of any and all states and other jurisdictions with respect to
securities of CIGNA, of whatever class or series, offered, sold, issued,
distributed, placed or resold by CIGNA, any of its subsidiaries, or any other
person or entity.
Such attorneys-in-fact and agents, or any of them, are also hereby
granted full power and authority, on behalf of and in the name, place and stead
of the undersigned, to execute and deliver all such registration statements,
registrations, amendments, qualifications and notifications, and CIGNA's Form
l0-K, to execute and deliver any and all such other documents, and to take
further action as they, or any of them, deem appropriate. The powers and
authorities granted herein to such attorneys-in-fact and agents, and each of
them, also include the full right, power and authority to effect necessary or
appropriate substitutions or revocations. The undersigned hereby ratifies,
confirms, and adopts, as her own act and deed, all action lawfully taken by such
attorneys-in-fact and agents, or any of them, or by their respective
substitutes, pursuant to the powers and authorities herein granted. This Power
of Attorney expires by its terms and shall be of no further force and effect on
May l5, l998.
IN WITNESS WHEREOF, the undersigned has executed this document as of the
26th day of February, l997.
/s/ Marilyn W. Lewis
-----------------------------
Marilyn W. Lewis
<PAGE> 7
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director of
CIGNA Corporation, a Delaware corporation ("CIGNA"), hereby makes, designates,
constitutes and appoints THOMAS J. WAGNER, CAROL J. WARD and ROBERT A. LUKENS,
and each of them (with full power to act without the other), as the
undersigned's true and lawful attorneys-in-fact and agents, with full power and
authority to act in any and all capacities for and in the name, place and stead
of the undersigned (A) in connection with the filing with the Securities and
Exchange Commission pursuant to the Securities Act of l933 or the Securities
Exchange Act of l934, both as amended, of:
(i) CIGNA's Annual Report on Form l0-K and all amendments
thereto (collectively, "CIGNA's Form l0-K");
(ii) any and all registration statements pertaining to
employee benefit or director compensation plans of CIGNA or its
subsidiaries, and all amendments thereto, including, without limitation,
a registration statement on Form S-8 for the offering of 1,000,000
shares of CIGNA Common Stock under the CIGNA Stock Plan and CIGNA's
registration statements on Form S-8 (Registration Numbers 2-76444,
2-76445, 33-51791, 33-44371 and 33-60053);
(iii) all amendments to CIGNA's registration statement on Form
S-3 (Registration Number 33-65396) relating to $900 million of debt
securities, Preferred Stock and Common Stock; and
(B) in connection with the preparation, delivery and filing of any and all
registrations, amendments, qualifications or notifications under the applicable
securities laws of any and all states and other jurisdictions with respect to
securities of CIGNA, of whatever class or series, offered, sold, issued,
distributed, placed or resold by CIGNA, any of its subsidiaries, or any other
person or entity.
Such attorneys-in-fact and agents, or any of them, are also hereby
granted full power and authority, on behalf of and in the name, place and stead
of the undersigned, to execute and deliver all such registration statements,
registrations, amendments, qualifications and notifications, and CIGNA's Form
l0-K, to execute and deliver any and all such other documents, and to take
further action as they, or any of them, deem appropriate. The powers and
authorities granted herein to such attorneys-in-fact and agents, and each of
them, also include the full right, power and authority to effect necessary or
appropriate substitutions or revocations. The undersigned hereby ratifies,
confirms, and adopts, as his own act and deed, all action lawfully taken by such
attorneys-in-fact and agents, or any of them, or by their respective
substitutes, pursuant to the powers and authorities herein granted. This Power
of Attorney expires by its terms and shall be of no further force and effect on
May l5, l998.
IN WITNESS WHEREOF, the undersigned has executed this document as of the
26th day of February, l997.
/s/ Paul F. Oreffice
-------------------------------
Paul F. Oreffice
<PAGE> 8
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director of
CIGNA Corporation, a Delaware corporation ("CIGNA"), hereby makes, designates,
constitutes and appoints THOMAS J. WAGNER, CAROL J. WARD and ROBERT A. LUKENS,
and each of them (with full power to act without the other), as the
undersigned's true and lawful attorneys-in-fact and agents, with full power and
authority to act in any and all capacities for and in the name, place and stead
of the undersigned (A) in connection with the filing with the Securities and
Exchange Commission pursuant to the Securities Act of l933 or the Securities
Exchange Act of l934, both as amended, of:
(i) CIGNA's Annual Report on Form l0-K and all amendments
thereto (collectively, "CIGNA's Form l0-K");
(ii) any and all registration statements pertaining to
employee benefit or director compensation plans of CIGNA or its
subsidiaries, and all amendments thereto, including, without limitation,
a registration statement on Form S-8 for the offering of 1,000,000
shares of CIGNA Common Stock under the CIGNA Stock Plan and CIGNA's
registration statements on Form S-8 (Registration Numbers 2-76444,
2-76445, 33-51791, 33-44371 and 33-60053);
(iii) all amendments to CIGNA's registration statement on Form
S-3 (Registration Number 33-65396) relating to $900 million of debt
securities, Preferred Stock and Common Stock; and
(B) in connection with the preparation, delivery and filing of any and all
registrations, amendments, qualifications or notifications under the applicable
securities laws of any and all states and other jurisdictions with respect to
securities of CIGNA, of whatever class or series, offered, sold, issued,
distributed, placed or resold by CIGNA, any of its subsidiaries, or any other
person or entity.
Such attorneys-in-fact and agents, or any of them, are also hereby
granted full power and authority, on behalf of and in the name, place and stead
of the undersigned, to execute and deliver all such registration statements,
registrations, amendments, qualifications and notifications, and CIGNA's Form
l0-K, to execute and deliver any and all such other documents, and to take
further action as they, or any of them, deem appropriate. The powers and
authorities granted herein to such attorneys-in-fact and agents, and each of
them, also include the full right, power and authority to effect necessary or
appropriate substitutions or revocations. The undersigned hereby ratifies,
confirms, and adopts, as his own act and deed, all action lawfully taken by such
attorneys-in-fact and agents, or any of them, or by their respective
substitutes, pursuant to the powers and authorities herein granted. This Power
of Attorney expires by its terms and shall be of no further force and effect on
May l5, l998.
IN WITNESS WHEREOF, the undersigned has executed this document as of the
26th day of February, l997.
/s/ Charles R. Shoemate
-------------------------------
Charles R. Shoemate
<PAGE> 9
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director of
CIGNA Corporation, a Delaware corporation ("CIGNA"), hereby makes, designates,
constitutes and appoints THOMAS J. WAGNER, CAROL J. WARD and ROBERT A. LUKENS,
and each of them (with full power to act without the other), as the
undersigned's true and lawful attorneys-in-fact and agents, with full power and
authority to act in any and all capacities for and in the name, place and stead
of the undersigned (A) in connection with the filing with the Securities and
Exchange Commission pursuant to the Securities Act of l933 or the Securities
Exchange Act of l934, both as amended, of:
(i) CIGNA's Annual Report on Form l0-K and all amendments
thereto (collectively, "CIGNA's Form l0-K");
(ii) any and all registration statements pertaining to
employee benefit or director compensation plans of CIGNA or its
subsidiaries, and all amendments thereto, including, without limitation,
a registration statement on Form S-8 for the offering of 1,000,000
shares of CIGNA Common Stock under the CIGNA Stock Plan and CIGNA's
registration statements on Form S-8 (Registration Numbers 2-76444,
2-76445, 33-51791, 33-44371 and 33-60053);
(iii) all amendments to CIGNA's registration statement on Form
S-3 (Registration Number 33-65396) relating to $900 million of debt
securities, Preferred Stock and Common Stock; and
(B) in connection with the preparation, delivery and filing of any and all
registrations, amendments, qualifications or notifications under the applicable
securities laws of any and all states and other jurisdictions with respect to
securities of CIGNA, of whatever class or series, offered, sold, issued,
distributed, placed or resold by CIGNA, any of its subsidiaries, or any other
person or entity.
Such attorneys-in-fact and agents, or any of them, are also hereby
granted full power and authority, on behalf of and in the name, place and stead
of the undersigned, to execute and deliver all such registration statements,
registrations, amendments, qualifications and notifications, and CIGNA's Form
l0-K, to execute and deliver any and all such other documents, and to take
further action as they, or any of them, deem appropriate. The powers and
authorities granted herein to such attorneys-in-fact and agents, and each of
them, also include the full right, power and authority to effect necessary or
appropriate substitutions or revocations. The undersigned hereby ratifies,
confirms, and adopts, as his own act and deed, all action lawfully taken by such
attorneys-in-fact and agents, or any of them, or by their respective
substitutes, pursuant to the powers and authorities herein granted. This Power
of Attorney expires by its terms and shall be of no further force and effect on
May l5, l998.
IN WITNESS WHEREOF, the undersigned has executed this document as of the
26th day of February, l997.
/s/ Louis W. Sullivan, M.D.
-------------------------------
Louis W. Sullivan, M.D.
<PAGE> 10
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, an Executive
Officer of CIGNA Corporation, a Delaware corporation ("CIGNA"), hereby makes,
designates, constitutes and appoints THOMAS J. WAGNER, CAROL J. WARD and ROBERT
A. LUKENS, and each of them (with full power to act without the other), as the
undersigned's true and lawful attorneys-in-fact and agents, with full power and
authority to act in any and all capacities for and in the name, place and stead
of the undersigned (A) in connection with the filing with the Securities and
Exchange Commission pursuant to the Securities Act of l933 or the Securities
Exchange Act of l934, both as amended, of:
(i) CIGNA's Annual Report on Form l0-K and all amendments
thereto (collectively, "CIGNA's Form l0-K");
(ii) any and all registration statements pertaining to
employee benefit or director compensation plans of CIGNA or its
subsidiaries, and all amendments thereto, including, without limitation,
a registration statement on Form S-8 for the offering of 1,000,000
shares of CIGNA Common Stock under the CIGNA Stock Plan and CIGNA's
registration statements on Form S-8 (Registration Numbers 2-76444,
2-76445, 33-51791, 33-44371 and 33-60053);
(iii) all amendments to CIGNA's registration statement on Form
S-3 (Registration Number 33-65396) relating to $900 million of debt
securities, Preferred Stock and Common Stock; and
(B) in connection with the preparation, delivery and filing of any and all
registrations, amendments, qualifications or notifications under the applicable
securities laws of any and all states and other jurisdictions with respect to
securities of CIGNA, of whatever class or series, offered, sold, issued,
distributed, placed or resold by CIGNA, any of its subsidiaries, or any other
person or entity.
Such attorneys-in-fact and agents, or any of them, are also hereby
granted full power and authority, on behalf of and in the name, place and stead
of the undersigned, to execute and deliver all such registration statements,
registrations, amendments, qualifications and notifications, and CIGNA's Form
l0-K, to execute and deliver any and all such other documents, and to take
further action as they, or any of them, deem appropriate. The powers and
authorities granted herein to such attorneys-in-fact and agents, and each of
them, also include the full right, power and authority to effect necessary or
appropriate substitutions or revocations. The undersigned hereby ratifies,
confirms, and adopts, as his own act and deed, all action lawfully taken by such
attorneys-in-fact and agents, or any of them, or by their respective
substitutes, pursuant to the powers and authorities herein granted. This Power
of Attorney expires by its terms and shall be of no further force and effect on
May l5, l998.
IN WITNESS WHEREOF, the undersigned has executed this document as of the
26th day of February, l997.
/s/ James G. Stewart
-------------------------------
James G. Stewart
<PAGE> 11
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, an officer of
CIGNA Corporation, a Delaware corporation ("CIGNA"), hereby makes, designates,
constitutes and appoints THOMAS J. WAGNER, CAROL J. WARD and ROBERT A. LUKENS,
and each of them (with full power to act without the other), as the
undersigned's true and lawful attorneys-in-fact and agents, with full power and
authority to act in any and all capacities for and in the name, place and stead
of the undersigned (A) in connection with the filing with the Securities and
Exchange Commission pursuant to the Securities Act of l933 or the Securities
Exchange Act of l934, both as amended, of:
(i) CIGNA's Annual Report on Form l0-K and all amendments
thereto (collectively, "CIGNA's Form l0-K");
(ii) any and all registration statements pertaining to
employee benefit or director compensation plans of CIGNA or its
subsidiaries, and all amendments thereto, including, without limitation,
a registration statement on Form S-8 for the offering of 1,000,000
shares of CIGNA Common Stock under the CIGNA Stock Plan and CIGNA's
registration statements on Form S-8 (Registration Numbers 2-76444,
2-76445, 33-51791, 33-44371 and 33-60053);
(iii) all amendments to CIGNA's registration statement on Form
S-3 (Registration Number 33-65396) relating to $900 million of debt
securities, Preferred Stock and Common Stock; and
(B) in connection with the preparation, delivery and filing of any and all
registrations, amendments, qualifications or notifications under the applicable
securities laws of any and all states and other jurisdictions with respect to
securities of CIGNA, of whatever class or series, offered, sold, issued,
distributed, placed or resold by CIGNA, any of its subsidiaries, or any other
person or entity.
Such attorneys-in-fact and agents, or any of them, are also hereby
granted full power and authority, on behalf of and in the name, place and stead
of the undersigned, to execute and deliver all such registration statements,
registrations, amendments, qualifications and notifications, and CIGNA's Form
l0-K, to execute and deliver any and all such other documents, and to take
further action as they, or any of them, deem appropriate. The powers and
authorities granted herein to such attorneys-in-fact and agents, and each of
them, also include the full right, power and authority to effect necessary or
appropriate substitutions or revocations. The undersigned hereby ratifies,
confirms, and adopts, as his own act and deed, all action lawfully taken by such
attorneys-in-fact and agents, or any of them, or by their respective
substitutes, pursuant to the powers and authorities herein granted. This Power
of Attorney expires by its terms and shall be of no further force and effect on
May l5, l998.
IN WITNESS WHEREOF, the undersigned has executed this document as of the
26th day of February, l997.
/s/ Gary A. Swords
-------------------------------
Gary A. Swords
<PAGE> 12
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director and
Executive Officer of CIGNA Corporation, a Delaware corporation ("CIGNA"), hereby
makes, designates, constitutes and appoints THOMAS J. WAGNER, CAROL J. WARD and
ROBERT A. LUKENS, and each of them (with full power to act without the other),
as the undersigned's true and lawful attorneys-in-fact and agents, with full
power and authority to act in any and all capacities for and in the name, place
and stead of the undersigned (A) in connection with the filing with the
Securities and Exchange Commission pursuant to the Securities Act of l933 or the
Securities Exchange Act of l934, both as amended, of:
(i) CIGNA's Annual Report on Form l0-K and all amendments
thereto (collectively, "CIGNA's Form l0-K");
(ii) any and all registration statements pertaining to employee
benefit or director compensation plans of CIGNA or its
subsidiaries, and all amendments thereto, including, without
limitation, a registration statement on Form S-8 for the offering
of 1,000,000 shares of CIGNA Common Stock under the CIGNA Stock
Plan and CIGNA's registration statements on Form S-8
(Registration Numbers 2-76444, 2-76445, 33-51791, 33-44371 and
33-60053);
(iii) all amendments to CIGNA's registration statement on Form
S-3 (Registration Number 33-65396) relating to $900 million of debt
securities, Preferred Stock and Common Stock; and
(B) in connection with the preparation, delivery and filing of any and all
registrations, amendments, qualifications or notifications under the applicable
securities laws of any and all states and other jurisdictions with respect to
securities of CIGNA, of whatever class or series, offered, sold, issued,
distributed, placed or resold by CIGNA, any of its subsidiaries, or any other
person or entity.
Such attorneys-in-fact and agents, or any of them, are also hereby
granted full power and authority, on behalf of and in the name, place and stead
of the undersigned, to execute and deliver all such registration statements,
registrations, amendments, qualifications and notifications, and CIGNA's Form
l0-K, to execute and deliver any and all such other documents, and to take
further action as they, or any of them, deem appropriate. The powers and
authorities granted herein to such attorneys-in-fact and agents, and each of
them, also include the full right, power and authority to effect necessary or
appropriate substitutions or revocations. The undersigned hereby ratifies,
confirms, and adopts, as his own act and deed, all action lawfully taken by such
attorneys-in-fact and agents, or any of them, or by their respective
substitutes, pursuant to the powers and authorities herein granted. This Power
of Attorney expires by its terms and shall be of no further force and effect on
May l5, l998.
IN WITNESS WHEREOF, the undersigned has executed this document as of the
26th day of February, l997.
/s/ Wilson H. Taylor
-------------------------------
Wilson H. Taylor
<PAGE> 13
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director of
CIGNA Corporation, a Delaware corporation ("CIGNA"), hereby makes, designates,
constitutes and appoints THOMAS J. WAGNER, CAROL J. WARD and ROBERT A. LUKENS,
and each of them (with full power to act without the other), as the
undersigned's true and lawful attorneys-in-fact and agents, with full power and
authority to act in any and all capacities for and in the name, place and stead
of the undersigned (A) in connection with the filing with the Securities and
Exchange Commission pursuant to the Securities Act of l933 or the Securities
Exchange Act of l934, both as amended, of:
(i) CIGNA's Annual Report on Form l0-K and all amendments
thereto (collectively, "CIGNA's Form l0-K");
(ii) any and all registration statements pertaining to
employee benefit or director compensation plans of CIGNA or its
subsidiaries, and all amendments thereto, including, without
limitation, a registration statement on Form S-8 for the offering
of 1,000,000 shares of CIGNA Common Stock under the CIGNA Stock
Plan and CIGNA's registration statements on Form S-8
(Registration Numbers 2-76444, 2-76445, 33-51791, 33-44371 and
33-60053);
(iii) all amendments to CIGNA's registration statement on Form
S-3 (Registration Number 33-65396) relating to $900 million of debt
securities, Preferred Stock and Common Stock; and
(B) in connection with the preparation, delivery and filing of any and all
registrations, amendments, qualifications or notifications under the applicable
securities laws of any and all states and other jurisdictions with respect to
securities of CIGNA, of whatever class or series, offered, sold, issued,
distributed, placed or resold by CIGNA, any of its subsidiaries, or any other
person or entity.
Such attorneys-in-fact and agents, or any of them, are also hereby
granted full power and authority, on behalf of and in the name, place and stead
of the undersigned, to execute and deliver all such registration statements,
registrations, amendments, qualifications and notifications, and CIGNA's Form
l0-K, to execute and deliver any and all such other documents, and to take
further action as they, or any of them, deem appropriate. The powers and
authorities granted herein to such attorneys-in-fact and agents, and each of
them, also include the full right, power and authority to effect necessary or
appropriate substitutions or revocations. The undersigned hereby ratifies,
confirms, and adopts, as her own act and deed, all action lawfully taken by such
attorneys-in-fact and agents, or any of them, or by their respective
substitutes, pursuant to the powers and authorities herein granted. This Power
of Attorney expires by its terms and shall be of no further force and effect on
May l5, l998.
IN WITNESS WHEREOF, the undersigned has executed this document as of the
26th day of February, l997.
/s/ Carol Cox Wait
-------------------------------
Carol Cox Wait
<PAGE> 1
EXHIBIT 24.2
[CIGNA LOGO]
Certified to be a true and correct copy of the resolutions adopted by the Board
of Directors of CIGNA Corporation at a meeting held on February 26, 1997, a
quorum being present, and such resolutions are still in full force and effect as
of this date of certification, not having been amended, modified or rescinded
since the date of their adoption.
- --------------------------------------------------------------------------------
RESOLVED, That the Officers of the Corporation, and
each of them, are hereby authorized to sign CIGNA
Corporation's Annual Report on Form 10-K for the year ended
December 31, 1996, and any amendments thereto, (the "Form
10-K") in the name and on behalf of and as attorneys for the
Corporation and each of its Directors and Officers.
RESOLVED, That each Officer and Director of the
Corporation who may be required to execute (whether on behalf
of the Corporation or as an Officer or Director thereof) the
Form 10-K, is hereby authorized to execute and deliver a power
of attorney appointing such person or persons named therein as
true and lawful attorneys and agents to execute in the name,
place and stead (in any such capacity) of any such Officer or
Director said Form 10-K and to file any such power of attorney
together with the Form 10-K with the Securities and Exchange
Commission.
Date: 3/26/97 /s/ Carol J. Ward
---------------------- -----------------------
Carol J. Ward
