<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from _____ to _____
Commission file number 1-8323
CIGNA Corporation
------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 06-1059331
---------------- ------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
ONE LIBERTY PLACE, PHILADELPHIA, PA. 19192-1550
----------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (215) 761-1000
Not Applicable
-----------------------------------
(Former name, former address and former fiscal
year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes x No
--- ---
As of March 31, 1997, 73,993,750 shares of the issuer's Common Stock were
outstanding.
<PAGE> 2
CIGNA CORPORATION
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Income
and Retained Earnings 1
Consolidated Balance Sheets 2
Consolidated Statements of Cash Flows 3
Notes to Financial Statements 4
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURE 19
EXHIBIT INDEX 20
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CIGNA CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(In millions, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1997 1996
=================================================================
<S> <C> <C>
REVENUES
Premiums and fees $ 3,388 $ 3,390
Net investment income 1,053 1,083
Other revenues 160 142
Realized investment gains 44 30
------- -------
Total revenues 4,645 4,645
------- -------
BENEFITS, LOSSES AND EXPENSES
Benefits, losses and settlement expenses 3,009 3,144
Policy acquisition expenses 264 272
Other operating expenses 935 871
------- -------
Total benefits, losses and expenses 4,208 4,287
------- -------
INCOME BEFORE INCOME TAXES 437 358
------- -------
Income taxes:
Current 110 76
Deferred 39 44
------- -------
Total taxes 149 120
------- -------
NET INCOME 288 238
Common dividends declared (61) (60)
Retained earnings, beginning of period 4,855 4,041
- -----------------------------------------------------------------
RETAINED EARNINGS, END OF PERIOD $ 5,082 $ 4,219
- ---------------------------------------------====================
EARNINGS PER SHARE $ 3.86 $ 3.10
- ---------------------------------------------====================
DIVIDENDS DECLARED PER SHARE $ 0.83 $ 0.80
- ---------------------------------------------====================
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
1
<PAGE> 4
CIGNA CORPORATION
CONSOLIDATED BALANCE SHEETS
(In millions, except per share amounts)
<TABLE>
<CAPTION>
AS OF AS OF
MARCH 31, DECEMBER 31,
1997 1996
================================================================================================
<S> <C> <C>
ASSETS
Investments:
Fixed maturities, at fair value (amortized cost, $33,536; $33,404) $ 34,320 $ 34,933
Equity securities, at fair value (cost, $548; $573) 683 701
Mortgage loans 11,066 10,927
Policy loans 7,224 7,296
Real estate 1,087 1,102
Other long-term investments 259 255
Short-term investments 1,330 1,320
-------- --------
Total investments 55,969 56,534
Cash and cash equivalents 1,223 1,287
Accrued investment income 945 890
Premiums, accounts and notes receivable 4,055 4,229
Reinsurance recoverables 6,859 7,287
Deferred policy acquisition costs 1,303 1,230
Property and equipment 789 802
Deferred income taxes 2,105 1,998
Other assets 1,085 993
Goodwill 1,053 1,068
Separate account assets 23,366 22,614
- ------------------------------------------------------------------------------------------------
Total assets $ 98,752 $ 98,932
- --------------------------------------------------------------------------======================
LIABILITIES
Contractholder deposit funds $ 29,800 $ 29,878
Unpaid claims and claim expenses 18,400 18,841
Future policy benefits 11,587 11,784
Unearned premiums 1,946 1,940
-------- --------
Total insurance and contractholder liabilities 61,733 62,443
Accounts payable, accrued expenses and other liabilities 5,139 5,326
Current income taxes 244 221
Short-term debt 433 289
Long-term debt 910 1,021
Separate account liabilities 23,176 22,424
- ------------------------------------------------------------------------------------------------
Total liabilities 91,635 91,724
- ------------------------------------------------------------------------------------------------
CONTINGENCIES - NOTE 8
SHAREHOLDERS' EQUITY
Common stock (shares issued, 88) 88 88
Additional paid-in capital 2,583 2,572
Net unrealized appreciation, fixed maturities 259 539
Net unrealized appreciation, equity securities 101 88
Net translation of foreign currencies (53) (45)
Retained earnings 5,082 4,855
Less treasury stock, at cost (943) (889)
- ------------------------------------------------------------------------------------------------
Total shareholders' equity 7,117 7,208
- ------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 98,752 $ 98,932
- --------------------------------------------------------------------------======================
SHAREHOLDERS' EQUITY PER SHARE $ 96.18 $ 97.15
- --------------------------------------------------------------------------======================
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
2
<PAGE> 5
CIGNA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1997 1996
===================================================================================================
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 288 $ 238
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Insurance liabilities, net of reinsurance recoverables 181 (74)
Premiums, accounts and notes receivable 145 (50)
Accounts payable, accrued expenses, other liabilities and
current income taxes (120) (163)
Deferred income taxes 39 44
Realized investment gains (44) (30)
Other, net (174) (44)
------- -------
Net cash provided by (used in) operating activities 315 (79)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from investments sold:
Fixed maturities - available-for-sale 1,523 2,022
Equity securities 64 109
Mortgage loans 116 104
Other (primarily short-term investments) 3,961 3,925
Investment maturities and repayments:
Fixed maturities - available-for-sale 909 897
Mortgage loans 124 169
Investments purchased:
Fixed maturities - available-for-sale (2,462) (2,551)
Equity securities (57) (135)
Mortgage loans (473) (569)
Other (primarily short-term investments) (3,773) (3,667)
Other, net (57) 35
------- -------
Net cash provided by (used in) investing activities (125) 339
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Deposits and interest credited to contractholder deposit funds 1,611 1,587
Withdrawals and benefit payments from contractholder deposit funds (1,823) (2,077)
Issuance of short-term debt 104 4
Repurchase of common stock (55) --
Repayment of debt (25) (7)
Issuance of common stock 2 7
Common dividends paid (60) (60)
------- -------
Net cash used in financing activities (246) (546)
------- -------
Effect of foreign currency rate changes on cash and cash equivalents (8) (4)
- -----------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (64) (290)
Cash and cash equivalents, beginning of period 1,287 1,559
- -----------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 1,223 $ 1,269
- ----------------------------------------------------------------------------===================
Supplemental Disclosure of Cash Information:
Income taxes paid, net of refunds $ 97 $ 9
Interest paid $ 27 $ 34
- -----------------------------------------------------------------------------------------------
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
3
<PAGE> 6
CIGNA CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1-BASIS OF PRESENTATION
The consolidated financial statements include the accounts of CIGNA Corporation
and all significant subsidiaries (CIGNA). These consolidated financial
statements have been prepared in conformity with generally accepted accounting
principles. Certain reclassifications have been made to conform with the 1997
presentation.
The interim financial statements are unaudited but include all adjustments
(consisting of normal recurring adjustments) necessary, in the opinion of
management, for a fair statement of financial position and results of operations
for the periods reported.
The preparation of interim financial statements necessarily relies heavily on
estimates. This and certain other factors, such as the seasonal nature of
portions of the insurance business as well as competitive and other market
conditions, call for caution in drawing specific conclusions from interim
results.
NOTE 2-NEW ACCOUNTING PRONOUNCEMENT
In 1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings per Share (EPS)." SFAS No. 128
replaces primary EPS with basic EPS, which is computed using only
weighted-average common shares outstanding without considering common stock
equivalents. Diluted EPS under SFAS No. 128 is computed similarly to fully
diluted EPS. SFAS No. 128 also requires dual presentation of basic and diluted
EPS on the face of the income statement. Adoption is required as of December 31,
1997, at which time all prior periods must be restated. The effect on CIGNA's
EPS of adopting SFAS No. 128 is not expected to be material.
NOTE 3-ACQUISITION
In February 1997, CIGNA announced its tender offer for the outstanding shares of
Healthsource, Inc. (Healthsource). The acquisition cost is expected to be $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 tender offer, which is subject to
regulatory approval, is expected to be completed in the second quarter of 1997.
Healthsource had revenues of $1.7 billion and a net loss of $4 million for the
year ended December 31, 1996. Healthsource's shareholders' equity was
approximately $400 million as of December 31, 1996.
NOTE 4-INVESTMENTS
REALIZED INVESTMENT GAINS AND LOSSES
Realized gains and losses on investments, excluding policyholder share, were as
follows:
<TABLE>
<CAPTION>
=====================================================================
Three Months
Ended
March 31,
(In millions) 1997 1996
- ---------------------------------------------------------------------
<S> <C> <C>
Realized investment gains (losses):
Fixed maturities $26 $11
Equity securities 5 8
Mortgage loans (13) (2)
Real estate 18 5
Other 8 8
-----------------
44 30
Less income taxes 16 11
- ---------------------------------------------------------------------
Net realized investment
gains $28 $19
- ----------------------------------------------------=================
</TABLE>
4
<PAGE> 7
FIXED MATURITIES AND EQUITY SECURITIES
Sales of available-for-sale fixed maturities and equity securities, including
policyholder share, were as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
Three Months
Ended
March 31,
(In millions) 1997 1996
- ---------------------------------------------------------------------
<S> <C> <C>
Proceeds from sales $1,587 $2,131
Gross gains on sales 19 80
Gross losses on sales (11) (45)
- ---------------------------------------------------------------------
</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 for these
investments, primarily fixed maturities, during the first quarter of 1997
decreased by $267 million, compared with a decrease of $465 million for the same
period last year.
NOTE 5-EARNINGS PER SHARE
Earnings per share were based on net income divided by weighted average common
shares, including common share equivalents, as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
Three Months
Ended
March 31,
(In thousands) 1997 1996
- ---------------------------------------------------------------------
<S> <C> <C>
Weighted average
common shares 74,587 76,886
- ---------------------------------------------------------------------
</TABLE>
There is no significant difference between earnings per share on a primary and a
fully diluted basis.
Common shares held as Treasury shares were 13,709,110 and 10,975,479 as of March
31, 1997 and 1996, respectively.
NOTE 6-INCOME TAXES
CIGNA's federal income tax returns are routinely audited by the Internal Revenue
Service (IRS), and provisions are made in the financial statements in
anticipation of the results of these audits. The IRS has completed audits of the
years 1982 through 1990. One issue, which relates only to years prior to 1989,
remains outstanding, and it could result in an assessment of approximately $225
million. CIGNA is contesting the assessment and believes that it should prevail.
In management's opinion, adequate tax liabilities have been established for all
years.
As of March 31, 1997, CIGNA had no tax basis operating loss carryforwards.
NOTE 7-REINSURANCE
In the normal course of business, CIGNA's insurance subsidiaries enter into
agreements, primarily relating to short-duration contracts, to assume and cede
reinsurance with other insurance companies. Reinsurance is ceded primarily to
limit losses from large exposures and to permit recovery of a portion of direct
losses, although ceded reinsurance does not relieve the originating insurer of
liability. CIGNA evaluates the financial condition of its reinsurers and
monitors concentrations of credit risk arising from similar geographic regions,
activities or economic characteristics of its reinsurers. Failure of reinsurers
to indemnify CIGNA, as a result of reinsurer insolvencies and disputes, could
result in losses. Allowances for uncollectible amounts were $715 million and
$711 million as of March 31, 1997 and December 31, 1996, respectively. While
future charges for unrecoverable reinsurance may materially affect results of
operations in future periods, such amounts are not expected to have a material
adverse effect on CIGNA's liquidity or financial condition.
For the first quarter of 1997 and 1996, premiums and fees were net of ceded
premiums of $414 million and $444 million, respectively. In addition, benefits,
losses and settlement expenses for the first quarter of 1997 and 1996 were net
of reinsurance recoveries of $258 million and $268 million, respectively.
5
<PAGE> 8
NOTE 8-CONTINGENCIES AND OTHER MATTERS
FINANCIAL GUARANTEES
CIGNA, through its subsidiaries, is contingently liable for various financial
guarantees provided in the ordinary course of business. These include guarantees
for the repayment of industrial revenue bonds as well as other debt instruments
and guarantees of a minimum level of benefits for certain separate account
contracts. Although the ultimate outcome of any loss contingencies arising from
CIGNA's financial guarantees may adversely affect results of operations in
future periods, they are not expected to have a material adverse effect on
CIGNA's liquidity or financial condition.
REGULATORY AND INDUSTRY DEVELOPMENTS
CIGNA's businesses are subject to a changing social, economic, legal,
legislative and regulatory environment 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; and
- - reform health care.
Some of the more significant issues are discussed below.
In 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. The effect of the legislation on the Individual
Financial Services 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.
Federal and state proposals have been made 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.
The eventual effect on CIGNA of the changing environment in which it operates
remains uncertain.
PROPERTY AND CASUALTY UNPAID CLAIMS AND CLAIM
EXPENSE RESERVES AND REINSURANCE RECOVERABLES
CIGNA's property and casualty loss reserves are an estimate of future payments
for reported and unreported claims for losses and related expenses with respect
to insured events that have occurred. The basic assumption underlying the many
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.
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
6
<PAGE> 9
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.
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 asbestos-related and environmental pollution (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.
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. Certain
competitors and policyholders of CIGNA are challenging the restructuring in
court. Although CIGNA expects the matter to be in litigation for some time, it
expects to ultimately prevail.
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 million ($20
million after-tax), respectively. The cost reduction initiatives, when fully
implemented, are estimated to result in annual after-tax savings of
approximately $55 million and $40 million, respectively, primarily based on 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 are expected to be partially offset by increased
investments in business growth and service initiatives. As of March 31, 1997,
there were no material changes to the costs associated with, or the anticipated
annual savings related to, these initiatives. As of March 31, 1997,
approximately $56 million of severance was paid to approximately 3,450
terminated employees of the Property and Casualty and Employee Life and Health
Benefits segments. 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.
7
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The following discussion addresses the financial condition of CIGNA Corporation
(CIGNA) as of March 31, 1997, compared with December 31, 1996, and its results
of operations for the three months ended March 31, 1997, compared with the same
period last year. This discussion should be read in conjunction with
Management's Discussion and Analysis included in CIGNA's 1996 Annual Report to
Shareholders (pages 8 through 21), to which the reader is directed for
additional information. Due to the seasonality of certain aspects of CIGNA's
business, caution should be used in estimating results for the full year based
on interim results of operations.
CIGNA 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 tender offer for the outstanding shares of
Healthsource, Inc. (Healthsource). The acquisition cost is expected to be $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. CIGNA intends to finance the acquisition
through a combination of internally generated funds, up to $700 million of
long-term debt under its shelf registration statement and short-term debt. The
tender offer, which is subject to regulatory approval, is expected to be
completed in the second quarter of 1997. See Note 3 to the Financial Statements
for additional information.
Effective December 31, 1995, CIGNA restructured its domestic property and
casualty business into two separate operations, ongoing and run-off. Certain
competitors and policyholders of CIGNA are challenging the restructuring in
court. Although CIGNA expects the matter to be in litigation for some time, it
expects to ultimately prevail.
During 1995, CIGNA began cost reduction initiatives in the Domestic Property and
Casualty operations and the Employee Life and Health Benefits segment. As of
March 31, 1997, there were no material changes to the costs associated with, or
the anticipated annual savings related to, these initiatives. For additional
information, see Note 8 to the Financial Statements.
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; and
- - reform health care.
The eventual effect on CIGNA of the changing environment in which it operates
remains uncertain. For additional information, see Note 8 to the Financial
Statements. Also, see Note 6 regarding a proposed IRS assessment of
approximately $225 million. CIGNA is contesting the assessment and believes it
should prevail.
As a result of the Healthsource tender offer, A.M. Best placed the insurance
financial strength ratings of CIGNA's principal life insurance company
subsidiaries, Connecticut General Life Insurance Company and Life Insurance
Company of North America, under review with developing implications. As of May
1, 1997, each company was rated A+ ("Superior," 2nd of 15).
8
<PAGE> 11
CONSOLIDATED RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
==================================================================
FINANCIAL SUMMARY Three Months Ended
March 31,
(In millions) 1997 1996
- -----------------------------------------------------------------
<S> <C> <C>
Premiums and fees $3,388 $3,390
Net investment income 1,053 1,083
Other revenues 160 142
Realized investment gains 44 30
---------------------
Total revenues 4,645 4,645
Benefits and expenses 4,208 4,287
---------------------
Income before taxes 437 358
Income taxes 149 120
---------------------
Net income $288 $238
- --------------------------------------------=====================
Realized investment gains,
net of taxes $28 $19
- --------------------------------------------=====================
</TABLE>
CIGNA's first quarter 1997 consolidated net income increased 21% from the same
period last year. Operating income* for the first quarter of 1997 was $260
million compared with $219 million for the same period last year, an increase of
19%. This increase reflects improvement in all of the business segments,
particularly Individual Financial Services and Property and Casualty.
After-tax realized investment results increased 47% in the first quarter of 1997
from the same period last year. This increase primarily reflects sales of fixed
maturities and real estate. For additional information see Note 4 to the
Financial Statements.
Full year operating income for 1997 is expected to improve over 1996. However,
such improvement could be adversely affected by the factors noted in the
cautionary statements on page 17.
EMPLOYEE LIFE AND HEALTH BENEFITS
<TABLE>
<CAPTION>
==================================================================
FINANCIAL SUMMARY Three Months Ended
March 31,
(In millions) 1997 1996
- -----------------------------------------------------------------
<S> <C> <C>
Premiums and fees $2,103 $2,077
Net investment income 135 144
Other revenues 107 103
Realized investment gains
(losses) 6 (2)
---------------------
Total revenues 2,351 2,322
Benefits and expenses 2,166 2,152
---------------------
Income before taxes 185 170
Income taxes 64 60
---------------------
Net income $121 $110
- --------------------------------------------=====================
Realized investment gains
(losses), net of taxes $4 $(2)
- --------------------------------------------=====================
</TABLE>
Net income for the Employee Life and Health Benefits segment increased 10% for
the first quarter of 1997, compared with the same period last year. Operating
income for the first quarter of 1997 increased 4% compared with the same period
last year. Operating income for the Indemnity and HMO operations was as follows:
<TABLE>
<CAPTION>
===================================================================
Three Months Ended
March 31,
(In millions) 1997 1996
- -----------------------------------------------------------------
<S> <C> <C>
Indemnity operations $58 $56
HMO operations 59 56
- -----------------------------------------------------------------
Total $117 $112
=================================================================
</TABLE>
The increase in the Indemnity operations primarily reflects favorable group life
insurance claim experience, and an increase of approximately $4 million in the
segment's long-term disability earnings resulting from rate increases and
strengthened underwriting. This improvement was partially offset by higher
operating expenses primarily due to customer service initiatives and decreased
investment income resulting from lower yields and a declining medical indemnity
book of business.
- --------
*Operating income (loss) is defined as net income (loss) excluding after-tax
realized investment results.
9
<PAGE> 12
HMO results for 1996 include an after-tax gain of $8 million from the sale of
subsidiaries and, for 1997, $4 million for reserve releases. Excluding those
items, HMO earnings increased 15% for the first quarter of 1997 compared with
the same period last year. This improvement primarily reflects rate increases
and membership growth, partially offset by higher operating expenses associated
with growth and customer service initiatives.
Premiums and fees increased modestly for the first quarter of 1997 compared to
the same period last year. Growth in premiums is expected to continue to be
constrained by competitive pressures in both the medical indemnity and HMO
markets.
Total HMO membership increased 7% since March 31, 1996 and 4% since December 31,
1996. These increases primarily reflect membership growth in HMO alternative
funding programs. Under these programs, the customer assumes all or a portion of
the responsibility for funding claims and CIGNA generally earns a lower margin
than under traditional HMO plans.
Management believes that adding premium equivalents to premiums and fees
(adjusted premiums and fees) produces a more meaningful measure of business
volume. Premium equivalents for the first quarters of 1997 and 1996 were
approximately $2.4 billion and $2.5 billion, respectively. This decline
primarily reflects cancellations and conversions of medical indemnity business
to HMOs. Premium equivalents are expected to continue to be constrained by
competitive pressures in both the medical indemnity and HMO markets.
Premium equivalents were 53% and 54% of total adjusted premiums and fees for the
first quarters of 1997 and 1996, respectively. Administrative Services Only
(ASO) plans accounted for 49% of total adjusted premiums and fees for both the
first quarters of 1997 and 1996.
EMPLOYEE RETIREMENT AND SAVINGS BENEFITS
<TABLE>
<CAPTION>
==================================================================
FINANCIAL SUMMARY Three Months Ended
March 31,
(In millions) 1997 1996
- ------------------------------------------------------------------
<S> <C> <C>
Premiums and fees $ 46 $ 38
Net investment income 402 428
Realized investment gains 12 16
----------------------
Total revenues 460 482
Benefits and expenses 368 391
----------------------
Income before taxes 92 91
Income taxes 30 30
----------------------
Net income $ 62 $ 61
- --------------------------------------------======================
Realized investment
gains, net of taxes $ 8 $ 10
- --------------------------------------------======================
</TABLE>
Net income for the Employee Retirement and Savings Benefits segment increased 2%
for the first quarter of 1997, compared with the same period of 1996. Operating
income for the first quarter of 1997 was $54 million, compared with $51 million
for the same period last year. This increase primarily reflects higher earnings
from an increased asset base partially offset by lower investment yields.
Premiums and fees for the first quarter of 1997 increased 21% compared with the
same period last year, reflecting higher annuity sales and higher fees from
separate accounts.
Net investment income decreased 6% for the first quarter of 1997, primarily
reflecting lower investment yields and customers' continued redirection of a
portion of their investments from the general account to separate accounts.
10
<PAGE> 13
Assets under management is generally a key determinant of earnings for this
segment. For the quarter ended March 31, assets under management and related
activity, including amounts attributable to separate accounts, were as follows:
<TABLE>
<CAPTION>
==================================================================
(In millions) 1997 1996
- ------------------------------------------------------------------
<S> <C> <C>
Balance -- January 1 $40,587 $38,183
Premiums and deposits 2,049 1,799
Investment results 554 666
Decrease in fair value of assets (286) (448)
Customer withdrawals (790) (702)
Other, including participant withdrawals
and benefit payments (1,031) (1,312)
- ------------------------------------------------------------------
Balance -- March 31 $41,083 $38,186
==================================================================
</TABLE>
Premiums and deposits increased 14% primarily reflecting higher recurring
deposits from existing customers. Approximately 51% and 56% of the premiums and
deposits for 1997 and 1996, respectively, were from new customers. The decrease
in investment results reflects the absence of capital gains in 1997 compared
with 1996 and lower investment yields. The decline for 1997 in the fair value of
assets is due to market value depreciation of fixed maturities. The decrease in
other compared with 1996 is due to lower scheduled maturities on guaranteed
investment contracts.
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>
=================================================================
FINANCIAL SUMMARY Three Months Ended
March 31,
(In millions) 1997 1996
- -----------------------------------------------------------------
<S> <C> <C>
Premiums and fees $234 $236
Net investment income 260 252
Other revenues 14 17
Realized investment gains 13 2
--------------------
Total revenues 521 507
Benefits and expenses 436 455
--------------------
Income before taxes 85 52
Income taxes 30 18
--------------------
Net income $ 55 $ 34
- ---------------------------------------------====================
Realized investment gains,
net of taxes $ 8 $ 2
- ---------------------------------------------====================
</TABLE>
Net income for the Individual Financial Services segment increased 62% for the
first quarter of 1997, compared with the same period last year. Operating income
for the first quarter of 1997 was $47 million compared with $32 million for the
same period last year, an increase of 47%. This increase primarily reflects
favorable mortality and, to a lesser extent, business growth in the reinsurance
operations.
For the first quarter of 1997, premiums and fees decreased modestly from the
same period of 1996. This decrease primarily reflects lower leveraged
corporate-owned life insurance (COLI) renewal premiums offset by growth in
reinsurance. Net investment income increased 3% for the first quarter compared
with the same period of 1996, primarily reflecting growth in interest-sensitive
business.
In 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 the first quarter of 1997, 27% of revenues and 20% 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.
11
<PAGE> 14
PROPERTY AND CASUALTY
<TABLE>
<CAPTION>
=================================================================
FINANCIAL SUMMARY Three Months Ended
March 31,
(In millions) 1997 1996
- -----------------------------------------------------------------
<S> <C> <C>
Premiums and fees $1,005 $1,039
Net investment income 195 197
Other revenues 72 53
Realized investment gains 13 13
----------------------
Total revenues 1,285 1,302
Benefits and expenses 1,190 1,234
----------------------
Income before taxes 95 68
Income taxes 30 18
----------------------
Net income $ 65 $ 50
- -------------------------------------------======================
Realized investment $8 $8
gains, net of taxes
- -------------------------------------------======================
</TABLE>
Net income for the Property and Casualty segment increased 30% for the first
quarter of 1997, compared with the same period last year.
Operating income increased 36% for the first quarter of 1997, compared with the
same period in 1996. Operating income for the ongoing and run-off operations was
as follows:
<TABLE>
<CAPTION>
=================================================================
Three Months Ended
March 31,
(In millions) 1997 1996
- -----------------------------------------------------------------
<S> <C> <C>
Ongoing operations:
International $33 $29
Domestic 23 12
----------------------
Total ongoing
operations 56 41
Run-off operations 1 1
- -----------------------------------------------------------------
Total $57 $42
=================================================================
</TABLE>
The improvement in the international operations primarily reflects favorable
claim experience and growth in accident and health lines of business.
Improvement in the domestic operations primarily reflects lower catastrophe and
large property losses. The domestic operations' improvement was partially offset
by prior year reserve strengthening for several lines of business and lower
premiums and fees for 1997. Results for the international and domestic
operations continue to reflect a highly competitive pricing environment.
Premiums and fees declined 3% in the first quarter of 1997. The decline
primarily reflects strict underwriting standards, continued competition
(particularly in domestic casualty and commercial package lines of business),
and an unfavorable effect from foreign currency translation (approximately $20
million). This decline was partially offset by strong growth in the
international accident and health and, to a lesser extent, international
property and casualty lines of business.
The domestic ongoing operations had pre-tax catastrophe losses of $12 million,
net of reinsurance, for the first quarter of 1997, compared with $23 million,
including $17 million for East Coast winter storms, for the first quarter of
1996. The international operations had no catastrophe losses in the first
quarter of 1997 and 1996. The effects of reinsurance on catastrophe losses for
the periods presented were not material.
LOSS RESERVES AND REINSURANCE RECOVERABLES
CIGNA's reserving methodology and significant issues affecting the estimation of
loss reserves and reinsurance recoverables are described in its 1996 Form 10-K.
CIGNA's property and casualty loss reserves of $16.2 billion and $16.5 billion
as of March 31, 1997 and December 31, 1996, 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 refines its loss estimation process by improving the analysis
of 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.
12
<PAGE> 15
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 $6.3 billion and $6.8
billion as of March 31, 1997 and December 31, 1996, net of allowances for
unrecoverable reinsurance of $715 million and $711 million, respectively.
In management's judgment, information currently available has been appropriately
considered in estimating CIGNA's loss reserves and reinsurance recoverables.
The following table shows the adverse (favorable) pre-tax effects on the
Property and Casualty segment's results of operations from prior year
development, net of reinsurance, for the three months ended March 31:
<TABLE>
<CAPTION>
=================================================================
Three Months Ended
March 31,
(In millions) 1997 1996
- -----------------------------------------------------------------
<S> <C> <C>
By business operation:
Ongoing operations $21 $--
Run-off operations 53 36
- -----------------------------------------------------------------
Total $74 $36
=================================================================
By type of loss:
Asbestos-related $21 $ 4
Environmental pollution 6 17
Unrecoverable
reinsurance 6 4
Workers' compensation 12 12
Other 29 (1)
- -----------------------------------------------------------------
Total $74 $36
=================================================================
</TABLE>
Other prior year development for the three months of 1997 was primarily
attributable to development on assumed reinsurance, commercial fire and
long-term exposures.
OTHER OPERATIONS
Other Operations primarily includes unallocated investment income, expenses
(principally debt service) and taxes. Also included in Other Operations are the
results of CIGNA's settlement annuity business and the non-insurance operations
engaged primarily in investment and real estate activities.
Other Operations had a net loss of $15 million for the first quarter of 1997
compared with a net loss of $17 million for the first quarter of 1996. Operating
losses were $15 million for the first quarter of 1997 compared with $18 million
for the same period last year. The decrease in losses primarily reflects lower
operating expenses including interest expense.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity for CIGNA and its insurance subsidiaries has remained strong as
evidenced by significant amounts of short-term investments and cash and cash
equivalents in the aggregate. Generally, CIGNA has met its operating
requirements by maintaining appropriate levels of liquidity in its investment
portfolio and through utilization of overall positive cash flows.
13
<PAGE> 16
For the first quarter of 1997, cash and cash equivalents decreased $64 million
from $1.3 billion as of December 31, 1996. This decrease primarily reflects net
withdrawals from contractholder deposit funds ($212 million), payments of
dividends on and repurchases of CIGNA common stock ($115 million), cash used in
investing activities ($125 million) and repayment of debt ($25 million). The
decrease in cash flows was partially offset by cash provided by operating
activities ($315 million), reflecting earnings and the timing of operating cash
receipts and disbursements.
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. CIGNA's financial strength
provides the capacity and flexibility to enable it to raise funds in the capital
markets through the issuance of such securities. CIGNA continues to be well
capitalized, with sufficient borrowing capacity to meet the anticipated needs of
its businesses.
CIGNA had $910 million of long-term debt outstanding at March 31, 1997, compared
with $1.02 billion at December 31, 1996. As of March 31, 1997, CIGNA had
approximately $800 million remaining under a shelf registration statement that
may be issued as debt or equity securities, or both, depending upon market
conditions and CIGNA's capital requirements.
At March 31, 1997, CIGNA's short-term debt amounted to $433 million, an increase
of $144 million from December 31, 1996.
In connection with the domestic property and casualty restructuring, CIGNA
contributed additional capital of $250 million to these operations in the first
quarter of 1996. This contribution was funded through internal sources.
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 $350
million, or 2.8 million shares, of common stock were purchased as of March 31,
1997. Shares were purchased with internal funds. As a result of the proposed
Healthsource acquisition, CIGNA has suspended stock repurchases.
INVESTMENT ASSETS
<TABLE>
<CAPTION>
==================================================================
March 31, December 31,
(In millions) 1997 1996
- ------------------------------------------------------------------
<S> <C> <C>
Fixed maturities $34,320 $34,933
Equity securities 683 701
Mortgage loans 11,066 10,927
Real estate 1,087 1,102
Other, primarily policy loans 8,813 8,871
- ------------------------------------------------------------------
Total investment assets $55,969 $56,534
==================================================================
</TABLE>
Additional information regarding CIGNA's investment assets is included in Note 4
to the first quarter 1997 Financial Statements and Notes 2, 4 and 5 to the 1996
Financial Statements as well as the 1996 Form 10-K.
Significant amounts of CIGNA's investment assets are attributable to
experience-rated contracts with policyholders (policyholder contracts).
Approximate percentages of investments attributable to policyholder contracts
were as follows:
<TABLE>
<CAPTION>
==================================================================
March 31, December 31,
1997 1996
- ------------------------------------------------------------------
<S> <C> <C>
Fixed maturities 29% 28%
Mortgage loans 56% 56%
Real estate 62% 58%
==================================================================
</TABLE>
FIXED MATURITIES
Investments in fixed maturities (bonds) include publicly traded and private
placement debt securities; asset-backed securities, including collateralized
mortgage obligations (CMOs); and redeemable preferred stocks.
As of March 31, 1997, the fair value of fixed maturities, including policyholder
share, was greater than amortized cost by $784 million, compared with $1.5
billion as of December 31, 1996. The decrease in unrealized appreciation
primarily reflects the upward movement in interest rates since December 31,
1996.
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 $126 million of potential problem bonds, including amounts
attributable to policyholder contracts, as of March 31, 1997, compared with $107
million as of December 31, 1996. These amounts are net of $5 million of
cumulative write-downs.
14
<PAGE> 17
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 March
31, 1997 and December 31, 1996, CIGNA had problem bonds, including amounts
attributable to policyholder contracts, of $174 million and $160 million, net of
related cumulative write-downs of $114 million and $125 million, respectively.
CUMULATIVE WRITE-DOWNS FOR BONDS
CIGNA had cumulative write-downs for bonds as of March 31, 1997 and 1996 of $120
million and $148 million, respectively, including $46 million and $55 million
attributable to policyholder contracts. Also, cumulative write-downs as of March
31, 1997 and 1996 included $1 million and $3 million, respectively, for bonds no
longer classified as problem or potential problem bonds.
During the first quarter of 1997 and 1996, CIGNA established write-downs of $8
million and $11 million, respectively, for problem and potential problem bonds.
These amounts included $6 million and $3 million, attributable to policyholder
contracts, for the first quarter of 1997 and 1996, respectively. See the Summary
on page 17 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 17 for the adverse effect of non-accruals for bonds on
policyholder contracts and on CIGNA's net income.
MORTGAGE LOANS
<TABLE>
<CAPTION>
==================================================================
March 31, December 31,
1997 1996
- ------------------------------------------------------------------
<S> <C> <C>
Mortgage loans (in millions) $11,066 $10,927
Property type:
Retail facilities 42% 43%
Office buildings 35 34
Apartment buildings 12 12
Hotels 7 6
Other 4 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.
Continued stringent lending practices by financial institutions have affected
scheduled maturities of mortgage loans. During the first three months of 1997,
$254 million of mortgage loans were scheduled to mature, of which $68 million
were paid in full, $48 million were extended at existing loan rates for a
weighted average of five months and $69 million were refinanced at current
market rates. Mortgage loan extensions and refinancings are loans in good
standing. The remaining scheduled maturities of $69 million 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 $346 million as of March 31, 1997, and $384 million
as of December 31, 1996, net of related valuation reserves of $27 million and
$30 million, respectively.
15
<PAGE> 18
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 March 31, 1997, restructured mortgage loans with
a carrying value of $274 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 9.75% as of
March 31, 1997.
CIGNA had problem mortgage loans, including amounts attributable to policyholder
contracts, of $300 million and $363 million, net of valuation reserves of $39
million and $71 million, as of March 31, 1997 and December 31, 1996,
respectively.
VALUATION RESERVES FOR MORTGAGE LOANS
CIGNA had valuation reserves for mortgage loans at March 31, 1997 and 1996 of
$66 million and $91 million, respectively, including $43 million and $62 million
attributable to policyholder contracts.
During the first three months of 1997 and 1996, CIGNA established valuation
reserves of $4 million and $18 million, respectively, for problem and potential
problem mortgage loans. These amounts included $2 million and $12 million
attributable to policyholder contracts.
See the Summary on page 17 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 17 for the adverse effect of non-accruals for
mortgage loans on policyholder contracts and on CIGNA's net income.
REAL ESTATE
As of March 31, 1997 and December 31, 1996, investment real estate, net of
reserves and write-downs, included: 1) $451 million and $495 million,
respectively, of real estate held for the production of income, and 2) $636
million and $607 million, respectively, of real estate held for sale, primarily
properties acquired as a result of foreclosure of mortgage loans.
REAL ESTATE WRITE-DOWNS AND VALUATION RESERVES
CIGNA had cumulative write-downs and valuation reserves for real estate at March
31, 1997 and 1996 of $368 million and $425 million, respectively, including $201
million and $216 million attributable to policyholder contracts.
See the Summary on page 17 for the adverse effect of write-downs and valuation
reserves on policyholder contracts and on CIGNA's net income.
16
<PAGE> 19
SUMMARY
The adverse (favorable) effects of write-downs and changes in valuation reserves
as well as of non-accruals on policyholder contracts and on CIGNA's net income
were as follows:
<TABLE>
<CAPTION>
======================================================================================================
Three Months Ended March 31,
-------------------------------------------------------
1997 1996
------------------------- ---------------------
Policy- Policy-
holder holder
(In millions) Contracts CIGNA Contracts CIGNA
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Write-downs and
valuation
reserves:
Bonds $6 $1 $3 $5
Mortgage loans 2 1 12 4
Real estate 1 1 (1) 1
- ------------------------------------------------------------------------------------------------------
Total $9 $3 $14 $10
======================================================================================================
Non-accruals:
Bonds $2 $5 $3 $3
Mortgage loans (1) -- -- --
- ------------------------------------------------------------------------------------------------------
Total $1 $5 $3 $3
======================================================================================================
</TABLE>
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 STATEMENTS 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.
17
<PAGE> 20
Item 6. Exhibits and Reports on Form 8-K.
(a) See Exhibit Index.
(b) During the quarterly period ended March 31, 1997, and
as of the filing date, CIGNA filed the following
Reports on Form 8-K:
- dated February 11, 1997, Item 5 - containing
a news release regarding its full year 1996
results.
- dated February 28, 1997, Item 5 - containing
a news release regarding its agreement to
acquire Healthsource, Inc.
- dated March 5, 1997, Item 5 - containing
certain audited financial statements of
CIGNA.
- dated March 31, 1997, Item 5 - containing
notice of director's resignation.
- dated April 30, 1997, Item 5 - containing a
news release regarding its first quarter
1997 results.
-18-
<PAGE> 21
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed by the undersigned duly
authorized officer, on its behalf and in the capacity indicated.
CIGNA CORPORATION
By /s/ Gary A. Swords
--------------------------------
Gary A. Swords
Vice President and
Chief Accounting Officer
Date: May 6, 1997
-19-
<PAGE> 22
Exhibit Index
<TABLE>
<CAPTION>
Method of
Number Description Filing
- ------ ----------- ------
<S> <C> <C>
10 CIGNA Executive Incentive Plan Filed as Appendix A to the
registrant's definitive proxy
statement on Schedule 14A dated
March 19, 1997 and incorporated
herein by reference.
11 Computation of Earnings Filed herewith.
Per Share
12 Computation of Ratio of Filed herewith.
Earnings to Fixed Charges
27 Financial Data Schedule Included only in
the EDGAR version
of the Form 10-Q.
</TABLE>
-20-
<PAGE> 1
CIGNA CORPORATION EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
(Dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
=============================================================================
<S> <C> <C>
PRIMARY EARNINGS PER SHARE
NET INCOME AVAILABLE TO
COMMON SHARES $ 288 $ 238
- ------------------------------------------------=============================
WEIGHTED AVERAGE SHARES:
Common shares 73,960,087 76,381,612
Common share equivalents applicable
to stock options 627,323 504,442
- -----------------------------------------------------------------------------
Total 74,587,410 76,886,054
- ------------------------------------------------=============================
PRIMARY EARNINGS PER SHARE $ 3.86 $ 3.10
- ------------------------------------------------=============================
FULLY DILUTED EARNINGS PER SHARE
NET INCOME AVAILABLE TO
COMMON SHARES $ 288 $ 238
- ------------------------------------------------=============================
WEIGHTED AVERAGE SHARES:
Common shares 73,960,087 76,381,612
Common share equivalents applicable
to stock options 627,323 504,442
- -----------------------------------------------------------------------------
Total 74,587,410 76,886,054
- ------------------------------------------------=============================
FULLY DILUTED EARNINGS PER SHARE $ 3.86 $ 3.10
- ------------------------------------------------=============================
</TABLE>
<PAGE> 1
CIGNA CORPORATION EXHIBIT 12
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in millions)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
===============================================================
<S> <C> <C>
Income before income taxes $437 $358
---- ----
Fixed charges included in income:
Interest expense 23 28
Interest portion of rental expense 19 21
---- ----
Total fixed charges included in income 42 49
---- ----
Income available for fixed charges $479 $407
- ----------------------------------------------================
RATIO OF EARNINGS TO FIXED CHARGES 11.4 8.3
- ----------------------------------------------================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS INCLUDED IN ITEM 1 OF PART I TO CIGNA'S REPORT ON FORM
10-Q FOR THE PERIOD ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<DEBT-HELD-FOR-SALE> 34,320
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 683
<MORTGAGE> 11,066
<REAL-ESTATE> 1,087
<TOTAL-INVEST> 55,969
<CASH> 1,223
<RECOVER-REINSURE> 6,859<F1>
<DEFERRED-ACQUISITION> 1,303
<TOTAL-ASSETS> 98,752
<POLICY-LOSSES> 11,587
<UNEARNED-PREMIUMS> 1,946
<POLICY-OTHER> 18,400
<POLICY-HOLDER-FUNDS> 29,800
<NOTES-PAYABLE> 1,343
0
0
<COMMON> 88
<OTHER-SE> 7,029
<TOTAL-LIABILITY-AND-EQUITY> 98,752
3,388
<INVESTMENT-INCOME> 1,053
<INVESTMENT-GAINS> 44
<OTHER-INCOME> 160
<BENEFITS> 3,009
<UNDERWRITING-AMORTIZATION> 264
<UNDERWRITING-OTHER> 935
<INCOME-PRETAX> 437
<INCOME-TAX> 149
<INCOME-CONTINUING> 288
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 288
<EPS-PRIMARY> 3.86
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>AMOUNT INCLUDES RECOVERABLES ON PAID AND UNPAID LOSSES.
</FN>
</TABLE>
