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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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(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, 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 of (I.R.S. Employer
incorporation or organization) Identification No.)
One Liberty Place, Philadelphia, Pennsylvania 19192-1550
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (215) 761-1000
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Securities registered pursuant to section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
------------------- ------------------------
Common Stock, Par Value $1; New York Stock Exchange, Inc.
Preferred Stock Pacific Stock Exchange, Inc.
Purchase Rights Philadelphia Stock Exchange, Inc.
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, 1998, was approximately $13.5 billion.
As of February 28, 1998, 72,244,214 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,
1997. Part III of this Form 10-K incorporates by reference information from the
registrant's proxy statement dated March 18, 1998.
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<PAGE>
TABLE OF CONTENTS
Page
Part I
Item 1. Business
A. Description of Business...................................... 1
B. Financial Information about Industry Segments ............... 2
C. Employee Life and Health Benefits............................ 3
D. Employee Retirement and Savings Benefits..................... 9
E. Individual Financial Services................................ 12
F. Property and Casualty........................................ 17
G. Investments and Investment Income............................ 28
H. Regulation................................................... 34
I. Ratings...................................................... 36
J. Miscellaneous................................................ 37
Item 2. Properties........................................................ 37
Item 3. Legal Proceedings................................................. 38
Item 4. Submission of Matters to a Vote of Security Holders............... 38
Executive Officers of the Registrant........................................ 38
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters............................................... 39
Item 6. Selected Financial Data........................................... 39
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................... 39
Item 7A. Quantitative and Qualitative Disclosures about Market Risk........ 39
Item 8. Financial Statements and Supplementary Data....................... 39
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.......................................... 39
Part III
Item 10. Directors and Executive Officers of the Registrant................ 39
A. Directors of the Registrant.................................... 39
B. Executive Officers of the Registrant........................... 39
Item 11. Executive Compensation............................................ 39
Item 12. Security Ownership of Certain Beneficial Owners and Management.... 39
Item 13. Certain Relationships and Related Transactions.................... 40
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.. 40
Signatures.................................................................. 41
Index to Financial Statement Schedules.....................................FS-1
Index to Exhibits.......................................................... E-1
<PAGE>
PART I
Item 1. BUSINESS
A. Description of Business
With shareholders' equity of $7.9 billion and assets of $108.2 billion as
of December 31, 1997 and revenues of $20.0 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" refer to one or
more of CIGNA Corporation and its consolidated subsidiaries. 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, 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 ("INA"), are among the oldest
insurance companies in the United States, with INA tracing its origins to 1792
and CG Life to 1865. CIGNA Corporation was incorporated in the State of Delaware
in 1981.
CIGNA's revenues are derived principally from premiums and fees and
investment income. CIGNA conducts its business through the following operating
divisions, the financial results of which are reported in the following
segments:
Employee Life and Health Benefits Segment (beginning on page 3)
CIGNA HealthCare
CIGNA Group Insurance: Life, Accident, Disability
Employee Retirement and Savings Benefits Segment (beginning on page 9)
CIGNA Retirement & Investment Services
Individual Financial Services Segment (beginning on page 12)
CIGNA Individual Insurance
CIGNA Reinsurance
Property and Casualty Segment (beginning on page 17)
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.
Recent Transactions
On June 25, 1997, CIGNA acquired control of Healthsource, Inc.
("Healthsource"), when it completed its cash tender offer for all of
Healthsource's outstanding common stock. The acquisition has been accounted for
as a purchase of Healthsource. Therefore, CIGNA's consolidated results of
operations include the results of Healthsource from the close of the tender
offer.
Healthsource's operations have become a part of CIGNA's health care
operations reported in the Employee Life and Health Benefits segment. At the
time of the acquisition, Healthsource operated health maintenance organizations
in 15 states serving approximately 1.1 million members. Healthsource also
provided medical and dental indemnity products, primarily self-insured products,
which covered approximately 1.8 million and 2.5 million lives, respectively.
These products included 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.
1
<PAGE>
Principally through an indemnity reinsurance transaction, CIGNA sold the
individual life insurance and annuity business of its CIGNA Individual Insurance
division to subsidiaries of Lincoln National Corporation effective January 1,
1998. The results of this business are included in the Individual Financial
Services segment through year-end 1997. Because it was an indemnity reinsurance
transaction, CIGNA is not relieved of liability for the reinsured business.
Additional information about the sold business is provided below beginning on
page 14.
For further information about these transactions, see Note 3 to CIGNA's
1997 Financial Statements included in its 1997 Annual Report to Shareholders
("Annual Report").
Systems Considerations (including Year 2000)
CIGNA's operations are highly dependent on automated systems and systems
applications. CIGNA has security and backup policies and procedures for
safeguarding critical corporate data. It routinely reviews and modifies, as
appropriate, these policies and procedures, and also maintains disaster
contingency plans, which include recovery services in the event of a disaster in
a data center.
If systems failures were to occur because of the inability to correctly
process dates after December 31, 1999, or otherwise, until corrected they could
adversely affect the delivery of services and the functioning of various
processes. These could include processing of claims, billing and collection of
premiums and other receivables, providing access to medical and dental care to
members and managing investing activities. CIGNA is modifying or replacing its
systems to make them ready for Year 2000.
In addition, CIGNA's businesses bear risk associated with various third
party entities' Year 2000 readiness. For example, CIGNA receives data from
clients; depends on others, such as third party administrators and banks, for
services; and bears credit risk on others, such as entities in which CIGNA
invests. Systems or business failures on the part of these entities could
adversely affect the delivery of services by CIGNA's businesses. All of CIGNA's
businesses are assessing their risks from external sources and taking action to
mitigate them. For further information, see page 11 of the Management's
Discussion and Analysis ("MD&A") section of CIGNA's Annual Report.
B. Financial Information about Industry Segments
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 1996 and 1995 financial
information to conform with the 1997 presentation. Industry rankings and
percentages set forth below are for the year ended December 31, 1996, 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 1997 Financial Statements included in its 1997
Annual Report.
2
<PAGE>
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. As a result of the
Healthsource acquisition described above, all of the financial information and
other data reported in this section for 1997 include Healthsource from the
purchase date of June 25, 1997.
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,
-----------------------------------------
1997 1996 1995
------ ------- ------
(In millions)
<S> <C> <C> <C>
Indemnity:
Medical.................................................... $2,188 $1,942 $1,973
Life ..................................................... 1,723 1,798 1,754
Long-term Disability....................................... 487 426 388
Dental..................................................... 367 397 384
Accidental Death and Dismemberment......................... 198 227 249
Short-term Disability...................................... 88 70 86
Other ..................................................... 10 15 20
------ ------ ------
Total......................................................... 5,061 4,875 4,854
Managed Medical and Dental Care............................... 4,451 3,466 3,281
------ ------ ------
Total Premiums and Fees....................................... $9,512 $8,341 $8,135
====== ====== ======
<FN>
- ----------
Amounts in table do not include "premium equivalents," which are described
below.
</FN>
</TABLE>
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 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 (in some cases 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 approximately 67% and 33%, respectively, of
CIGNA's traditional insurance business in 1997, as measured by premiums.
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 1997 and 1996. 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 13 of the MD&A section of CIGNA's Annual Report.
3
<PAGE>
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. This broad spectrum of products allows CIGNA to satisfy a customer's
health benefit needs. The products offered include the following:
o indemnity products;
o comprehensive managed care products, such as:
o health maintenance organizations ("HMOs"),
o Medicare programs,
o managed dental programs,
o managed mental health and substance abuse products and services, and
o managed pharmacy programs;
o preferred provider organizations ("PPOs"); and
o medical cost and utilization management products and services under ASO
plans.
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 to participants 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. Managed care products include those described below.
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 usually employees of the HMO, who 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:
1997 1996 1995
---- ---- ----
IPA Models..................................... 53 37 37
Staff Models................................... 3 3 4
Mixed Models................................... 5 5 5
- ------------
The increase in IPA models in 1997 was due to the Healthsource acquisition.
4
<PAGE>
As of December 31, 1997, CIGNA's HMO networks included approximately
220,000 physicians and 3,100 hospitals.
To maintain and enhance the quality of health care delivered in its HMOs,
CIGNA continues to develop and enhance 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, 85% of CIGNA's HMOs
have been accredited.
CIGNA has 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 providers who are part of its existing HMO networks
to provide services to enrolled Medicare members.
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 contractual 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, 1997, 1996 and 1995, CIGNA had 118, 86 and 80
medical PPO networks, with the 1997 increase primarily due to the Healthsource
acquisition. CIGNA has one national dental PPO network with approximately 38,500
participating dentists.
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, 1997, 1996 and 1995,
CIGNA had 38, 34 and 29 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 to the
participants than those offered under traditional indemnity arrangements.
Participants in point-of-service plans are considered HMO members for purposes
of the table below.
5
<PAGE>
As of December 31, 1997, 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 approximate
number of lives for the periods presented. Covered lives includes participants
under traditional and alternative funding programs.
<TABLE>
<CAPTION>
Approximate number of covered lives As of December 31,
- ----------------------------------- -----------------------------------------
1997 1996 1995
------ ------ ------
(In thousands)
<S> <C> <C> <C>
Medical Covered Lives
HMOs:
Guaranteed Cost:
Commercial............................................... 2,140 1,130 1,137
Medicare................................................. 96 69 56
Medicaid................................................. 49 52 150
Experience-rated and alternative-funding
(including Gatekeeper PPOs).............................. 3,576 3,046 2,537
------ ------ ------
Total HMOs............................................. 5,861 4,297 3,880
------ ------ ------
Indemnity (estimated):
Medical.................................................... 3,365 3,392 3,719
Medical PPO
(excluding Gatekeeper PPOs).............................. 2,481 1,178 981
------ ------ ------
Total Indemnity..................................... 5,846 4,570 4,700
------ ------ ------
Total Medical Covered Lives................................... 11,707 8,867 8,580
====== ====== ======
Dental Covered Lives:
Dental Managed Care........................................... 2,717 2,548 2,290
Dental Indemnity (estimated).................................. 9,827 7,901 8,032
------ ------ ------
Total Dental Covered Lives.................................... 12,544 10,449 10,322
====== ====== ======
<FN>
- ------------
The increases in Commercial HMO, Medical PPO and Dental Indemnity covered lives
in 1997 were primarily a result of the Healthsource acquisition.
</FN>
</TABLE>
Life, Accident and Disability Insurance Products and Services
CIGNA also offers group life insurance, accidental death and dismemberment
insurance, 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, employees, professional and other associations and other groups.
6
<PAGE>
Group life insurance products offered include both group term life and
group universal life insurance. Approximately 7,000 group life insurance
policies covering approximately 11.4 million lives were outstanding as of
December 31, 1997. The following table shows group life insurance in force and
termination data.
Year ended December 31,
-----------------------------
1997 1996 1995
---- ---- ----
(In billions)
In force, end of year........................... $489 $519 $522
==== ==== ====
Cancellations (lapses and expirations).......... $ 64 $ 55 $ 51
==== ==== ====
CIGNA markets group 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, 1997, the field sales force for the
products of this segment consisted of approximately 1,125 sales representatives
in 147 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 profit margins, and in the case of
experience-rated products, recovery of prior deficits. Premiums and fees charged
for products utilizing networks of contracted providers also reflect assumptions
about the impact of provider contracts and utilization management on future
claims. HCFA determines reimbursements to CIGNA for Medicare-covered benefits,
and its reimbursement 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, 1997, approximately $2.6 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 and accident claims. The remainder primarily includes liabilities for group
long-term disability benefits, group life insurance benefits for disabled and
retired individuals, and benefits paid in the form of annuities to survivors.
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 1997, the rates of interest
credited ranged from 4.0% to 8.5%, 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.
7
<PAGE>
CIGNA reduces its exposure to large individual and catastrophe losses under
group life, disability and accidental death contracts by purchasing reinsurance
from unaffiliated reinsurers.
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, such as group long-term disability
insurance, 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 36 and 37.
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 PPOs,
and HMOs affiliated with major insurance companies and hospitals, and provider
sponsored organizations that are directly contracting with employer groups.
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 Regulation
Efforts at the federal and state level to increase regulation of the health
care industry could have an adverse effect on CIGNA's health care operations if
they reduce marketplace competition and innovation or result in increased
medical or administrative costs. Matters under consideration that could have an
adverse effect include mandated benefits or services that increase costs without
improving the quality of care, loss of the Employee Retirement Income Security
Act of 1974 ("ERISA") preemption of state law and restrictions on the use of
prescription drug formularies. Due to the uncertainty associated with the
timing and content of any proposals ultimately adopted, the effect on CIGNA's
results of operations, liquidity or financial condition cannot be reasonably
estimated at this time. See pages 34 and 35 for further information about
regulation of CIGNA's businesses.
8
<PAGE>
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>
1997 1996 1995
---- ---- -----
(In millions)
<S> <C> <C> <C>
Deposits:
Defined Contribution....................................... $ 5,357 $ 3,895 $ 3,255
Defined Benefit............................................ 1,222 1,262 1,422
Other, including GICs...................................... 249 646 359
Investment Advisory Accounts............................... 10 41 85
------- ------- -------
Total Deposits....................................... $ 6,838 $ 5,844 $ 5,121
======= ======= =======
</TABLE>
Assets under management for this segment as of December 31 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(In millions)
<S> <C> <C> <C>
By Account:
General Account(1):
Guaranteed............................................. $ 4,172 $ 4,289 $ 4,489
Experience-rated....................................... 16,370 16,048 17,087
------- ------- -------
20,542 20,337 21,576
Separate Accounts........................................ 24,842 19,401 15,784
Investment Advisory Accounts............................. 901 849 823
------- ------- -------
Total.................................................. $46,285 $40,587 $38,183
======= ======= =======
By Plan Type:
Defined Contribution..................................... $24,691 $20,017 $17,741
Defined Benefit.......................................... 19,211 18,182 18,077
Other, including GICs(2)................................. 1,482 1,539 1,542
Investment Advisory Accounts(2).......................... 901 849 823
------- ------- -------
Total................................................ $46,285 $40,587 $38,183
======= ======= =======
<FN>
- ------------
Assets under management include assets managed by third-party managers.
(1) General Account assets under management (Defined Contribution, Defined
Benefit and Other, including GICs) reflect unrealized appreciation on fixed
income securities of $560 million, $423 million and $1.0 billion as of
December 31, 1997, 1996 and 1995, respectively.
(2) Other, including GICs and Investment Advisory Accounts also support defined
benefit and defined contribution plans.
</FN>
</TABLE>
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 53% of assets under management for
this segment as of December 31, 1997, compared with 49% as of December 31,
1996. 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.
9
<PAGE>
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 and INVESCO. A 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, 1997, General
Account supported contracts accounted for 44% and 43% of the underlying
investments in the defined benefit plans and defined contribution plans,
respectively, compared with 47% and 52% as of December 31, 1996.
Guaranteed contracts comprise single premium annuities and GICs. As of
December 31, 1997 and 1996, guaranteed single premium annuities accounted for
$2.7 billion and $2.8 billion, respectively, of this segment's General Account
assets under management, and GICs accounted for $1.5 billion as of December 31,
1997 and 1996.
For 1997 and 1996, the interest rate on reserves for guaranteed single
premium annuities and the interest rate credited on CIGNA's GICs ranged from
3.25% to 12.75%, with a weighted average of 8.55% in 1997 and 8.65% in 1996.
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.
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 1997 ranged from 6.00% to 9.00%, with a weighted average rate of
6.80%.
The termination provisions of $3.5 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 $3.4 billion, or 34%, of the Company's liability for experience-rated defined
contribution contracts supported by the General Account, provide the
policyholder with essentially two options for withdrawal of assets upon election
to terminate: (a) a lump sum at market value; or (b) annual installments. Under
the market value 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.
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<PAGE>
The termination provisions of $6.7 billion, or 66%, 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, short-term securities and funds managed by third-party managers, such
as mutual funds and commingled trusts. As of December 31, 1997, Separate Account
investments accounted for 56% and 57% of the underlying investments in defined
benefit and defined contribution plans, compared with 53% and 48% as of December
31, 1996. As of December 31, 1997, approximately $20.4 billion, or 82%, 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 with approximately $14.9 billion, or 77% of assets as of
December 31, 1996.
The remaining assets in the Separate Accounts are held under
experience-rated contracts that guarantee a minimum level of benefits. As of
December 31, 1997 and 1996, the amount of minimum benefit guarantees under these
contracts was $4.4 billion and $4.5 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 1997 Financial Statements included in its
Annual Report.
CIGNA monitors contract termination experience on an ongoing basis. Of
those assets subject to withdrawal, persistency for 1997 was 93% compared with
92% for 1996 and 93% for 1995.
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, 1997, the sales organization consisted of 45 retirement plan
specialists and sales associates and 69 client service representatives and
administrative personnel located in offices across the United States. In
addition, its broker-dealer operation also offers benefit plan participants a
range of IRA rollover investments and retail brokerage services through 38
registered brokers.
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.
Competition
The retirement plan marketplace is highly competitive. CIGNA's competitors
include mutual fund companies, 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 36 and 37. Business growth, as measured by assets under
management, is expected to continue to be constrained due to lack of growth in
the defined benefit market.
The largest single retirement plan manager holds less than a 6% market
share, as measured by assets under management. According to a survey published
in "Pensions & Investments," CIGNA ranked 4th among insurers, and 21st among
retirement plan managers overall, in terms of pension and employee retirement
savings plan assets under management.
11
<PAGE>
E. Individual Financial Services
Principal Products and Markets
During 1997, CIGNA's Individual Financial Services businesses marketed a
broad range of insurance and investment products and services to individuals and
corporations. They also assumed reinsurance of certain risks under policies
written by other insurance companies. As described above, principally through an
indemnity reinsurance transaction, CIGNA sold the individual life insurance and
annuity business of this segment to subsidiaries of Lincoln National
Corporation, effective as of January 1, 1998. CIGNA retained the corporate-owned
life insurance and reinsurance operations reported in this segment.
The following table sets forth the net earned premiums and fees and
deposits for this segment.
<TABLE>
<CAPTION>
Year ended December 31,
1997 1996 1995
---- ---- ----
(In millions)
<S> <C> <C> <C>
Premiums and Fees:
Life....................................................... $ 606 $ 590 $ 585
Health..................................................... 59 59 56
Reinsurance................................................ 347 293 240
------ ------ ------
Total premiums and fees.............................. $1,012 $ 942 $ 881
====== ====== ======
Deposits:
Life....................................................... $1,785 $1,407 $2,351
Annuity.................................................... 433 601 849
------ ------ ------
Total deposits....................................... $2,218 $2,008 $3,200
====== ====== ======
</TABLE>
For the retained business, the total premiums and fees were $569 million and
total deposits were $1.24 billion for the year ended December 31, 1997.
12
<PAGE>
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,
1997 1996 1995
---- ---- ----
(Dollar amounts in millions,
except average size policy in force)
<S> <C> <C> <C>
In force, beginning of the year............................... $109,110 $108,536 $ 93,327
-------- -------- --------
Sales and additions (1):
Permanent.................................................. 9,932 5,460 18,203
Term....................................................... 4,036 3,639 3,879
-------- -------- --------
Total sales and additions................................ 13,968 9,099 22,082
-------- -------- --------
Less Terminations:
Surrenders and conversions................................. 1,592 4,043 1,625
Lapses..................................................... 2,938 2,744 2,962
Decrease in coverage....................................... 1,934 1,190 1,700
All other.................................................. 521 548 586
-------- -------- --------
Total.................................................... 6,985 8,525 6,873
-------- -------- --------
In force, end of the year..................................... $116,093 $109,110 $108,536
======== ======== ========
In force, end of the year:
Permanent.................................................. $ 95,970 $ 89,741 $ 88,672
Term....................................................... 20,123 19,369 19,864
-------- -------- --------
Total (2)................................................ $116,093 $109,110 $108,536
======== ======== ========
Reinsurance ceded
included above:............................................ $ 45,028 $ 41,251 $ 24,754
======== ======== ========
Number of policies in force:
Participating.............................................. 138,328 139,739 149,639
Non-participating.......................................... 380,389 391,896 392,507
-------- -------- --------
Total.................................................... 518,717 531,635 542,146
======== ======== ========
Average size of policy in force:
By Type:
Participating............................................ $273,087 $270,806 $269,450
======== ======== ========
Non-participating........................................ $204,770 $181,853 $173,799
======== ======== ========
By Division:
CIGNA Individual
Insurance.............................................. $252,062 $227,324 $215,717
======== ======== ========
CIGNA Reinsurance:
Life, Accident, Health................................. $122,062 $127,236 $140,254
======== ======== ========
By Segment:
Individual Financial
Services............................................... $223,808 $205,234 $200,200
======== ======== ========
<FN>
- ------------
(1) For 1997 and 1996, all sales and additions were non-participating. For
1995, $11 billion of sales and additions were participating corporate-owned
universal life insurance, with the remainder non-participating. For 1997,
1996 and 1995, sales and additions included assumed reinsurance of $1.7
billion, $1.9 billion and $2.5 billion, respectively.
(2) For 1997, 1996 and 1995, total life insurance in force for this segment
included assumed reinsurance of approximately $14.6 billion, $15.0 billion
and $16.4 billion, respectively.
</FN>
</TABLE>
For the retained business, total sales and additions were $6.01 billion and
terminations were $3.35 billion for the year ended December 31, 1997, and life
insurance in force at December 31, 1997 was $74.98 billion.
13
<PAGE>
Corporate-Owned Life Insurance and Reinsurance Products
Corporate-owned life insurance products are permanent life insurance
contracts that are sold to corporations to provide coverage on the lives of
certain of their employees. Permanent life insurance, which can be participating
or non-participating, provides coverage when adequately funded 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 future policy values.
Corporate-owned life insurance products include whole life, universal life
and variable universal life. Whole life policies provide fixed benefits and
level premium payments for a specified period of time. Universal life policies
typically provide flexible coverage and flexible premium payments. Universal
life cash values fluctuate with the amount of the premiums paid, mortality and
expense charges made, and interest credited to the policy. Variable universal
life policies are universal life contracts where the cash values vary directly
with the performance of the investments underlying the policy.
Principal markets for corporate-owned life insurance are Fortune 1000
companies. The market and sales volume for corporate-owned life insurance
products tend to be volatile.
In 1996, Congress passed tax legislation that has affected premium and
earnings growth of certain corporate-owned life insurance business on which
policy loans are outstanding. The legislation phases out the interest deduction
for affected corporate-owned life insurance policy loans through 1998 and
eliminates it thereafter. CIGNA does not expect this legislation to have a
material effect on its consolidated results of operations, liquidity or
financial condition. There were no new sales of this product in 1997 or 1996.
For additional information on the impact of the legislation, see page 14 of the
MD&A section of CIGNA's Annual Report.
As of December 31, 1997 and 1996, approximately 52% and 53%, respectively,
of CIGNA's individual life insurance in force was corporate-owned life
insurance. Of the corporate-owned life insurance in force as of December 31,
1997 and 1996, approximately 80% and 85% was corporate-owned life insurance
affected by the legislation.
The 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.
Individual Life Insurance and Annuity Products
As stated above, CIGNA sold its individual life insurance and annuity
business to subsidiaries of Lincoln National Corporation. Because it was an
indemnity reinsurance transaction, CIGNA is not relieved of liability for the
reinsured business. CIGNA's individual life insurance products included
permanent and term life insurance.
Term life insurance is issued only on a non-participating basis, and it
provides coverage for a stated period and pays a death benefit only if the
insured dies within the period. Individual life insurance coverages offered on a
permanent basis included whole life, universal life and variable universal life.
For a further description of these types of products, see "Corporate-Owned Life
Insurance and Reinsurance Products" above. Principal markets for life insurance
products and services sold to individuals include affluent executives,
professionals and small business owners (typically with income above $100,000
and net worth of $1.5 million or more).
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 1997, 1996 and 1995.
During 1997, CIGNA offered 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
14
<PAGE>
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 $433 million in 1997 and $601 million in 1996. Annuities were
generally marketed to upper-middle-class to affluent customers of banks and
stock brokerage firms and clients of financial advisors. CIGNA also marketed a
number of individual investment products (including mutual funds) and fee-based
financial planning services.
Distribution
As of December 31, 1997, CIGNA sold individual insurance products primarily
through approximately 530 full-time career agents and through independent agents
and brokers. Investment products were sold through the career agents, who were
also registered representatives of a CIGNA broker-dealer. Annuities were
distributed through stockbrokers and banks as well as through the career agents
and brokers. These producers are no longer selling these products on CIGNA's
behalf.
Corporate-owned life insurance products are sold primarily through a
limited number of specialty brokers. 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.
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
1997 ranged from 5.0% to 8.2%, with a weighted average rate of 6.8%.
Interest rates for policy loans on individual life insurance products 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.
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.
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 corporate-owned life insurance marketplace is highly competitive. The
Company principally competes with a significant number of the largest domestic
life insurance companies that may offer one or more corporate-owned
15
<PAGE>
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.
CIGNA's reinsurance business operates in highly competitive markets.
Approximately 40 companies may offer one or more reinsurance products similar to
those offered by CIGNA. The Company competes against other insurance and
reinsurance companies as well as brokers and other non-insurance financial
organizations. Competition in this market focuses on product, service, price,
distribution method and the financial strength ratings issued by internationally
recognized agencies. For more information concerning insurance ratings, see
"Ratings" on pages 36 and 37. CIGNA has benefited competitively from CG Life's
financial strength and stability.
16
<PAGE>
F. Property and Casualty
CIGNA's Property and Casualty segment consists of international, domestic
and run-off operations. Each of these operations is discussed below.
International Operations
Principal Products and Markets
CIGNA's international operations provide the following insurance coverages
and services outside the United States: property and casualty; individual and
group life, accident and health; and health care and employee benefits. The
international operations produced approximately 62% of total earned premiums and
fees for the Property and Casualty segment during 1997.
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 life, 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 health care and employee benefit operations provide
government-mandated medical benefits in some markets and offer an alternative or
supplement to governmental programs in others. To meet the needs of the group
market, life and medical insurance products are provided through group and
employee benefit programs, including managed care programs, providing employers
with benefit options for their employees.
The international operations have formed several joint ventures in
developing markets, most recently in Poland, Brazil, Malaysia and the
Philippines. 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 pages 15 and 23 of the MD&A section and Notes 2(Q) and 18
to CIGNA's 1997 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. CIGNA Insurance Company
of Europe S.A.-N.V., which produced approximately 23% of the international
operations' 1997 written premiums, is rated "A" ("good") by Standard & Poor's
and "A-" ("excellent") by A.M. Best. For more information concerning insurance
ratings, see "Ratings" on pages 36 and 37.
A competitive strength of the international operations is its global
network and breadth of insurance and benefit programs, which assist individuals
and business organizations to meet their risk management objectives.
17
<PAGE>
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
major insurance markets around the world. The geographic distribution of written
premiums and fees in 1997 for the operations' insurance products, which are sold
through branches and subsidiaries of CIGNA entities, was: Japan (38%); United
Kingdom (16%); Continental Europe (13%); Other Pacific (13%); and Americas
(12%). The remaining 8% was written in other jurisdictions in which the
international operations conduct business. The geographic distribution of
written premiums and fees for the international operations' products in 1996 and
1995 was not materially different than in 1997.
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. Health care and
employee benefit programs are sold on a direct basis, as well as through brokers
and agents.
Domestic Operations
Principal Products and Markets
The domestic operations had approximately 38% of total earned premiums and
fees for this segment during 1997. The domestic operations have become over the
past several years a provider of specialist property and casualty products and
services. 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
marine, financial institutions, agribusiness, excess casualty, bonding and other
programs in which specialist agents share underwriting and processing expertise
with the division.
Commercial Insurance Services provides insurance and related services to
customers in the standard insurance market. It emphasizes mid-sized commercial
insureds who value loss cost containment. Commercial Insurance Services seeks to
increase writings of workers' compensation business that involves standard risk
transfer in states with favorable regulatory climates.
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. The
domestic operations are rated "A-" ("excellent") by A.M. Best. For more
information concerning insurance ratings, see "Ratings" on pages 36 and 37.
Competition, particularly over price, remains intense because of the high
level of capacity in the market resulting from growth in capital supporting the
industry. In the highly competitive environment of the past several years,
18
<PAGE>
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") uses
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, 1997. Additional
information is contained on page 34.
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 offer
experienced claims handling, loss cost control and risk management staffs with
proven expertise in specialty fields, including large-risk property and
casualty, recreational and ocean 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 CIGNA's international operations. Special Risk
Facilities has increased its competitive advantages by providing, with X.L.
Insurance Company, Ltd., an unaffiliated insurer, 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 1997 and 1996, CIGNA's domestic
property and casualty statutory net written premiums amounted to approximately
0.6% of the total market.
Based on information published by A.M. Best, CIGNA's domestic property and
casualty insurance subsidiaries rank 18th in annual net premiums written for
commercial coverages. They are the 20th largest U.S. writer of commercial
multiperil coverages, 14th of workers' compensation, 38th of commercial auto
coverages, fourth of ocean marine, 12th of inland marine and third of aviation.
Distribution
Special Risk Facilities writes business mainly through 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 financial
institutions and managing general agents.
The top five states in which the domestic operations wrote premiums in 1997
were California (13%), New York (6%), Florida (6%), Texas (5%) and Pennsylvania
(5%). The operations wrote business in all other states, with no one state
constituting more than 4% of direct written premiums. The geographic
distribution of premiums for the domestic operations' products in 1996 and 1995
was not materially different than in 1997.
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 1997 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 has been appealed. Pending resolution of the
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 34. 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.
19
<PAGE>
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, premium taxes, 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 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 32 and 33.
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
1997 1996 1995(1)
--------------- --------------- ----------------
(Dollar amounts in millions)
<S> <C> <C> <C> <C> <C> <C>
Premiums and Fees/Percent of Total Premiums and Fees:
International:
Accident and health..................... $ 717 17% $ 647 15% $ 626 14%
Property................................ 462 11 484 11 515 11
Casualty................................ 272 6 264 6 252 5
Auto.................................... 197 5 207 5 244 5
Marine.................................. 124 3 143 3 151 3
Other................................... 12 -- 12 -- 17 1
------ --- ------ --- ------ ---
Subtotal.............................. 1,784 42 1,757 40 1,805 39
International life and health............. 831 20 811 18 911 19
------ --- ------ --- ------ ---
Total International Ongoing........... 2,615 62 2,568 58 2,716 58
------ --- ------ --- ------ ---
Domestic:
Property................................ 386 9 382 9 311 7
Workers' compensation................... 366 9 380 8 470 10
Casualty................................ 287 7 298 7 263 6
Marine and aviation..................... 270 6 258 6 237 5
Commercial packages..................... 178 4 228 5 274 6
Other................................... 106 3 125 3 194 4
------ --- ------ --- ------ ---
Total Domestic Ongoing................ 1,593 38 1,671 38 1,749 38
------ --- ------ --- ------ ---
Total Ongoing Operations.................. 4,208 100 4,239 96 4,465 96
Run-off operations........................ 22 -- 159 4 175 4
------ --- ------ --- ------ ---
Total Premiums and Fees............... $4,230 100% $4,398 100% $4,640 100%
====== === ====== === ====== ===
<FN>
- ----------
(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. Consolidated
Property and Casualty segment amounts, including International, did not
change as a result of the restructuring.
</FN>
</TABLE>
20
<PAGE>
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
1997 1996 1995 (1)
----------------- ----------------- ----------------
(Dollar amounts in millions)
<S> <C> <C> <C> <C> <C> <C>
Underwriting Gain (Loss)/Combined Ratios:
International:
Accident and health..................... $ 39 94.6% $ 57 91.2% $ 41 93.4%
Property................................ 45 90.3 68 86.0 73 85.8
Casualty................................ 17 93.7 24 91.0 15 93.8
Auto.................................... (9) 104.7 (5) 102.5 (6) 102.4
Marine.................................. (5) 103.7 (10) 106.6 1 99.7
Other................................... 2 81.8 (14) 214.2 (16) 192.7
----- ----- ------
Total International Ongoing........... 89 95.0 120 93.2 108 94.0
----- ====== ----- ====== ------ ======
Domestic:
Property................................ 20 94.9 (43) 111.3 (20) 106.4
Workers' compensation................... (28) 107.5 (22) 105.7 (130) 127.7
Casualty................................ (35) 112.2 (48) 116.2 (59) 122.5
Marine and aviation..................... 9 96.5 5 97.9 35 85.1
Commercial packages..................... (43) 124.4 (37) 116.3 (54) 119.6
Other................................... (3) 102.7 (28) 122.6 (27) 114.3
----- ----- ------
Total Domestic Ongoing................ (80) 105.0 (173) 110.4 (255) 114.6
----- ====== ----- ====== ------ ======
Total Ongoing operations..................... 9 99.8% (53) 101.6% (147) 104.1%
====== ====== ======
Run-off operations........................... (291) (317) (1,512)
----- ----- ------
Total underwriting loss:
After Policyholders' Dividends............ $(282) $(370) $(1,659)
===== ===== =======
Before Policyholders' Dividends........... $(269) $(339) $(1,604)
===== ===== =======
Net investment income, pre-tax:
International............................. $240 $243 $268
Domestic.................................. 239 259 240
Run-off................................... 282 302 286
----- ----- ------
Total................................. $761 $804 $794
===== ===== ======
<FN>
- ----------
(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. Consolidated
Property and Casualty segment amounts, including International, did not
change as a result of the restructuring.
</FN>
</TABLE>
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. During 1997, the Company revised its reinsurance programs.
CIGNA's domestic reinsurance programs now provide approximately 35% recovery for
property catastrophe losses between $60 million and $375 million. Other
reinsurance programs are in place which could provide for the recovery of up to
an additional $300 million on a combination of catastrophe and other losses,
depending on the aggregate annual level of losses incurred. These revisions are
expected to result in little or no increase in earnings
21
<PAGE>
volatility. CIGNA's international catastrophe reinsurance program provides
approximately 95% recovery of losses between $75 million and $300 million.
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, 1997 and 1996, at approximately 7% in both
years, was with more than 100 syndicates affiliated with Lloyd's of London.
Approximately 25% of CIGNA's reinsurance recoverables as of December 31, 1997
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,
approximately 47% relate primarily to domestic ongoing and run-off operations
(excluding their recoverables with Lloyd's noted above), of which approximately
81% relate to individual reinsurers that carry a financing rating characterized
as "very good" or higher from an independent rating agency. The remaining 21%
relate to international and reinsurance operations for which an independent
rating agency evaluation may not be available. A significant portion of these
recoverables is due from reinsurers that continue to meet CIGNA's internal
security standards, selection criteria and other controls over collectibility,
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 $720 million
and $711 million at December 31, 1997 and 1996, respectively.
Reinsurance disputes can delay recovery of reinsurance and, in some cases,
affect its collectibility. Reinsurance disputes continue to increase,
particularly on larger and more complex claims.
As of December 31, 1997, approximately 84% of CIGNA's reinsurance
recoverable balance related to unpaid reported claims and incurred but not
reported claims, and the remaining 16% 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 16 of the MD&A section and Notes 13
and 14 to CIGNA's 1997 Financial Statements included in its Annual Report.
Reserves
Significant periods of time may elapse between the occurrence of an insured
loss, the reporting of the loss to the insurer and the insurer's payment of that
loss. To recognize liabilities for unpaid losses, insurers establish "reserves,"
which are liabilities representing estimates of future amounts needed to pay
claims and related expenses with respect to insured events that have occurred,
including events that have not been reported to the insurer.
After a claim is reported, except for a class of very small claims that
typically are settled quickly, a "case reserve" is established by claims
personnel for the estimated amount of the ultimate payment. The estimate
reflects the informed judgment of such personnel, based on their experience and
knowledge regarding the nature and value of the specific claim. Claims personnel
review and update their estimates as additional information becomes available
and claims proceed toward resolution.
"Bulk reserves" are established on an aggregate basis (i) to provide for
losses incurred but not yet reported to and recorded by the insurer; (ii) to
provide for the estimated expenses of settling claims, including legal and other
fees and general expenses of administering the claims adjustment process; and
(iii) to adjust for the fact that, in the aggregate, case reserves may not
accurately estimate the ultimate liability for reported 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.
22
<PAGE>
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 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 asbestos-related and
environmental pollution reserves in 1995, as discussed on page 17 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.
The adverse pre-tax effects, net of reinsurance, during 1997, 1996 and 1995
on CIGNA's results of operations from insured events of prior years (prior year
development) were $218 million, $177 million and $1.5 billion, 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 17 and 18 of the MD&A section of CIGNA's Annual Report.
Reserve changes for asbestos-related claims before ("Gross") and after
("Net") the effects of reinsurance were as follows:
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------------------------
1997 1996 1995
------------------- ------------------- -------------------
Gross Net Gross Net Gross Net
------- -------- --------- ------- ---------- -------
(In millions)
<S> <C> <C> <C> <C> <C> <C>
Asbestos Claims:
Beginning reserves.......................... $771 $483 $749 $457 $594 $281
Plus incurred claims and claim
adjustment expenses..................... 170 92 115 62 298 255
Less payments for claims and claim
adjustment expenses..................... (95) (66) (93) (36) (143) (79)
---- ---- ---- ---- ---- ----
Ending reserves............................. $846 $509 $771 $483 $749 $457
==== ==== ==== ==== ==== ====
</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.
23
<PAGE>
Reserve changes for environmental pollution claims before ("Gross") and
after ("Net") the effects of reinsurance were as follows:
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------------------------
1997 1996 1995
-------------------- --------------------- -------------------
Gross Net Gross Net Gross Net
--------- --------- ----------- -------- ---------- -------
(In millions)
<S> <C> <C> <C> <C> <C> <C>
Environmental Pollution Claims:
Beginning reserves.......................... $1,492 $1,161 $1,665 $1,268 $707 $542
Plus incurred claims and claim
adjustment expenses..................... 94 33 58 32 1,265 955
Less payments for claims and claim
adjustment expenses..................... (182) (135) (231) (139) (307) (229)
------ ------ ------ ------ ------ ------
Ending reserves............................. $1,404 $1,059 $1,492 $1,161 $1,665 $1,268
====== ====== ====== ====== ====== ======
</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,
--------------------------------------------------------------
1997 1996 1995
------------------- ---------------------- -------------------
Gross Net Gross Net Gross Net
--------- -------- ----------- --------- ---------- -------
(In millions)
<S> <C> <C> <C> <C> <C> <C>
Beginning reserves.......................... $1,319 $992 $1,468 $1,075 $ 558 $ 397
Plus incurred claims and claim
adjustment expenses..................... 13 (38) 5 (15) 1,144 836
Less payments for claims and claim
adjustment expenses..................... (101) (64) (154) (68) (234) (158)
------ ---- ------ ------ ------ ------
Ending reserves............................. $1,231 $890 $1,319 $ 992 $1,468 $1,075
====== ==== ====== ====== ====== ======
</TABLE>
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. Paid asbestos-related and environmental pollution claims are expected
to continue to be significant for the foreseeable future, but can vary from year
to year, as seen in 1995, 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
24
<PAGE>
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, 1997, 1996 and 1995 is provided in Note 14 to
CIGNA's 1997 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 1997. 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
1997; 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 1995 relating to losses incurred in 1988 would be included in the
cumulative deficiency amount for the years 1988 through 1994. Yet, the
deficiency would be reflected in operating results in 1995 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 from such development.
Historically, asbestos-related and environmental pollution losses had a
significant effect on the net cumulative deficiency.
25
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------------------------
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
(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... $8,832 $9,414 $9,789 $10,196 $10,272 $10,562 $10,660 $10,635 $11,159 $10,647 $ 9,967
====== ====== ====== ======= ======= ======= ======= ======= ======= ======= =======
Cumulative percentage of net
reserve paid through:
One year later............ 30.2% 31.1% 34.3% 33.8% 34.0% 28.9% 24.7% 22.5% 19.8% 19.9%
Two years later........... 49.5 52.7 54.3 53.9 53.6 45.9 40.4 37.4 32.7
Three years later......... 65.7 67.7 69.4 68.6 66.8 58.7 51.8 48.6
Four years later.......... 77.0 78.9 80.8 78.9 77.3 67.8 61.0
Five years later.......... 84.7 88.0 88.6 86.8 84.6 75.5
Six years later........... 92.8 94.4 95.4 93.0 91.9
Seven years later......... 98.5 100.4 100.7 99.7
Eight years later......... 104.4 105.1 106.6
Nine years later.......... 108.7 110.3
Ten years later........... 113.8
Net reserve (percentage)
re-estimated as of:
One year later............ 102.6% 103.0% 103.1% 103.4% 106.4% 107.5% 105.0% 114.1% 101.6% 102.0%
Two years later........... 105.0 105.8 106.9 107.4 115.4 113.5 119.7 115.6 103.7
Three years later......... 107.9 109.7 109.6 116.9 122.5 128.2 121.4 117.7
Four years later.......... 111.3 112.3 119.5 123.5 138.9 130.1 124.0
Five years later.......... 114.0 121.9 125.7 140.1 141.0 132.7
Six years later........... 123.9 127.9 142.9 142.5 144.1
Seven years later......... 129.6 144.5 145.0 145.6
Eight years later......... 146.6 146.4 147.9
Nine years later.......... 148.5 149.3
Ten years later........... 151.6
Net cumulative deficiency...... $4,560 $4,644 $4,688 $ 4,653 $ 4,529 $ 3,448 $ 2,556 $ 1,881 $ 416 $ 218
Gross reserve--December 31..... $17,926 $17,764 $16,825 $17,023 $16,482 $15,135
Less: Reinsurance recoverable.. 7,364 7,104 6,190 5,864 5,835 5,168
------- ------- ------- ------- ------- -------
Net reserve--December 31....... $10,562 $10,660 $10,635 $11,159 $10,647 $ 9,967
======= ======= ======= ======= ======= =======
Gross re-estimated reserve..... $22,224 $20,631 $19,043 $17,538 $16,691
Less: Re-estimated reinsurance
recoverable................. 8,214 7,415 6,527 5,963 5,826
------- ------- ------- ------- -------
Net re-estimated reserve....... $14,010 $13,216 $12,516 $11,575 $10,865
======= ======= ======= ======= =======
Gross cumulative deficiency.... $ 4,298 $ 2,867 $ 2,218 $ 515 $ 209
======= ======= ======= ======= =======
</TABLE>
For additional information about gross loss development, amounts ceded to
reinsurers and net loss development, see pages 16 through 18 of the MD&A section
of CIGNA's Annual Report. On a GAAP basis, which is before the effects of
reinsurance, CIGNA's 1997 year-end reserves totaled $15.1 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 $8.6 billion.
26
<PAGE>
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,
------------------------------------------
1997 1996 1995
------- ------- -------
(In millions)
<S> <C> <C> <C>
Statutory reserve for unpaid claims and claim adjustment
expenses, net of reinsurance............................... $ 8,630 $ 9,265 $ 9,704
Adjustments:
Statutory Reinsurance Recoverable.......................... 4,848 5,465 5,384
Discounting of Gross Reserves(1)........................... 1,657 1,752 1,935
------- ------- -------
GAAP reserve for unpaid claims and claim adjustment
expenses................................................... 15,135 16,482 17,023
Less GAAP Reinsurance Recoverable............................. 5,168 5,835 5,864
------- ------- -------
GAAP reserve for unpaid claims and claim adjustment expenses,
net of reinsurance......................................... $ 9,967 $10,647 $11,159
======= ======= =======
<FN>
- ----------
(1) Primarily for workers' compensation reserves and certain asbestos-related
and environmental pollution reserves. For SAP purposes, these reserves are
discounted at 6%.
</FN>
</TABLE>
27
<PAGE>
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 short-term investments. It also develops and issues
structured investment products.
CIGNA's assets under management at year-end 1997 totaled $89.7 billion,
comprising CIGNA corporate and insurance-related invested assets ("invested
assets") of $56.6 billion and advisory portfolio assets of $33.1 billion.
Advisory portfolio assets included $29.3 billion in Separate Accounts of CIGNA's
life insurance subsidiaries. CIGNA's investment operations manage 100% of the
invested assets and 51% 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 9.
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
1997 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, 1997 comprised the following:
property and casualty 30%, fully guaranteed 12%, experience-rated 23%,
interest-sensitive 20%, and other life and health 15%.
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, 1997, the duration of assets and liabilities for
GICs, single premium annuities and settlement annuities was approximately 2
years, 8 years and 10 years, respectively.
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
insurance and corporate-owned life insurance. 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.
28
<PAGE>
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
and real estate investments. Most international fixed maturity investments are
government-backed.
CIGNA's fixed maturity investments, including policyholder share, as of
December 31, 1997 constituted approximately 55% of the Employee Benefits and
Individual Financial portfolios and approximately 94% of the Property and
Casualty portfolios. As of that date, approximately 29% 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 20 of the MD&A section of CIGNA's Annual Report.
CIGNA's mortgage loan investments, including policyholder share,
constituted approximately 25% of the Employee Benefits and Individual Financial
portfolios and less than 1% of the Property and Casualty portfolios as of
December 31, 1997. As of that date, approximately 53% 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's real estate investments are either held for the production of
income or held for sale. Real estate investments, including policyholder share,
constituted approximately 2% of the Employee Benefits and Individual Financial
portfolios and less than 1% of the Property and Casualty portfolios as of
December 31, 1997. As of that date, 64% of real estate investments was
attributable to experience-rated contracts.
Real estate investments held for the production of income are actively
managed to maximize operating income. These investments consist primarily of
stabilized commercial properties and are diversified relative to property type
and geographic location. Real estate investments held for sale are primarily
properties acquired as a result of foreclosure of mortgage loans. 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. CIGNA sold $311 million of foreclosed properties in
1997 and $297 million in 1996 because of improved commercial real estate
markets, and expects to sell additional foreclosed properties in 1998.
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 20 through 23 of the MD&A section and Notes 2, 4 and 5 to CIGNA's
1997 Financial Statements included in its Annual Report for additional
information about CIGNA's investments.
Employee Benefits and Individual Financial Investments
The following tables summarize the distribution of investments attributable
to CIGNA's Employee Benefits and Individual Financial portfolios and the related
net investment income from such investments. Approximately 49% of the
investments in the Employee Benefits and Individual Financial portfolios is
attributable to experience-rated contracts with policyholders.
In connection with the sale of the individual life insurance and annuity
business, CIGNA transferred approximately $5.4 billion of invested assets to
subsidiaries of Lincoln National Corporation effective January 1, 1998. The
29
<PAGE>
transferred invested assets, which are included in the following tables,
consisted of approximately $3.3 billion of bonds, $1.4 billion of mortgage loans
and $0.7 billion of policy loans.
<TABLE>
<CAPTION>
As of December 31,
------------------------------------------
Investments 1997 1996 1995
- ----------- -------- ------- -------
(In millions)
<S> <C> <C> <C>
Fixed maturities
Bonds:
Finance.................................................. $ 3,387 $ 3,522 $ 3,726
Consumer products........................................ 2,917 2,776 3,102
Energy................................................... 2,678 2,598 2,470
Manufacturing............................................ 2,564 2,559 2,747
Public utilities......................................... 1,487 1,476 1,941
U.S. government and government agencies and authorities 1,238 364 407
Transportation........................................... 954 933 1,046
States, municipalities and political subdivisions........ 703 440 404
Foreign governments(1)................................... 196 158 164
Other.................................................... 245 326 401
------- ------- -------
Total bonds............................................ 16,369 15,152 16,408
Asset-backed securities....................................... 6,755 6,195 5,925
Redeemable preferred stocks................................... 6 13 15
------- ------- -------
Total fixed maturities................................. 23,130 21,360 22,348
------- ------- -------
Equity securities
Common stocks:
Industrial and miscellaneous............................. 332 255 238
Banks, trust and insurance companies..................... 49 32 21
Public utilities......................................... 27 22 23
------- ------- -------
Total common stocks.................................... 408 309 282
Non-redeemable preferred stocks............................ 16 6 11
------- ------- -------
Total equity securities................................ 424 315 293
------- ------- -------
Mortgage loans
Commercial:
Retail facilities........................................ 4,267 4,544 4,423
Office buildings......................................... 3,529 3,546 3,685
Apartments............................................... 1,396 1,315 1,281
Industrial............................................... 556 390 399
Hotels................................................... 497 681 692
Other.................................................... 249 94 98
------- ------- -------
Total commercial....................................... 10,494 10,570 10,578
Agricultural............................................... 21 35 69
------- ------- -------
Total mortgages........................................ 10,515 10,605 10,647
------- ------- -------
Policy loans.................................................. 7,146 7,132 6,925
Real estate................................................... 737 1,010 1,138
Other long-term investments................................... 166 196 202
Short-term investments........................................ 61 478 359
------- ------- -------
Total investments...................................... $42,179 $41,096 $41,912
======= ======= =======
<FN>
- ----------
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.
</FN>
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
Net Investment Income Year ended December 31,
- --------------------- -------------------------------------------
1997 1996 1995
-------- ------- --------
(Dollar amounts in millions)
<S> <C> <C> <C>
Fixed maturities.............................................. $1,691 $1,686 $1,706
Equity securities............................................. 15 5 34
Mortgage loans................................................ 915 951 894
Policy loans.................................................. 532 548 499
Real estate................................................... 150 184 272
Other investments............................................. 81 75 117
------ ------ ------
Total ..................................................... 3,384 3,449 3,522
Less investment expenses...................................... 142 163 258
------ ------ ------
Net investment income, pre-tax................................ $3,242 $3,286 $3,264
====== ====== ======
Net investment yield(1)....................................... 7.93% 8.40% 8.66%
====== ====== ======
- ----------
<FN>
(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.
</FN>
</TABLE>
31
<PAGE>
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>
Investments As of December 31,
------------------------------------------
1997 1996 1995
------- ------ ------
(Dollar amounts in millions)
<S> <C> <C> <C>
Fixed maturities
Bonds:
Foreign governments(1)................................... $ 2,197 $ 2,256 $ 2,343
Finance.................................................. 1,430 1,484 1,655
States, municipalities and political subdivisions........ 1,283 1,300 1,373
Public utilities......................................... 892 945 906
Energy................................................... 832 936 835
Consumer products........................................ 732 749 679
Manufacturing............................................ 718 715 627
Transportation........................................... 366 368 310
U.S. government and government agencies and authorities.. 318 479 687
Other.................................................... 309 295 240
------- ------- -------
Total bonds.......................................... 9,077 9,527 9,655
Asset-backed securities.................................... 1,729 1,894 1,921
Redeemable preferred stocks................................ 3 3 4
------- ------- -------
Total fixed maturities............................... 10,809 11,424 11,580
------- ------- -------
Equity securities
Common stocks:
Industrial and miscellaneous............................. 305 268 271
Banks, trust and insurance companies..................... 75 85 53
Public utilities......................................... 47 29 13
------- ------- -------
Total common stocks.................................. 427 382 337
Non-redeemable preferred stocks............................ -- 1 16
------- ------- -------
Total equity securities.............................. 427 383 353
------- ------- -------
Other long-term investments................................... 216 237 320
Short-term investments........................................ 96 360 95
------- ------- -------
Total investments.................................... $11,548 $12,404 $12,348
======= ======= =======
- -----------
<FN>
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.
</FN>
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
Net Investment Income Year Ended December 31,
- --------------------- -----------------------------------------
1997 1996 1995
------ ------ ------
(Dollar amounts in millions)
<S> <C> <C> <C>
Interest:
Taxable.................................................... $749 $778 $782
Tax-exempt................................................. 58 66 70
---- ---- ----
Total................................................ 807 844 852
Dividends from stocks......................................... 7 14 11
---- ---- ----
Total investment income....................................... 814 858 863
Less investment expenses...................................... 53 54 69
---- ---- ----
Net investment income, pre-tax................................ $761 $804 $794
==== ==== ====
Net investment yield(1)....................................... 6.13% 6.21% 6.23%
==== ==== ====
<FN>
- ----------
(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.
</FN>
</TABLE>
Other Investments and Operations
Invested assets for CIGNA's Other Operations totaled $2.9 billion and $2.6
billion as of December 31, 1997 and 1996. They include fixed maturities,
mortgage loans, real estate and short-term investments. These assets primarily
support the settlement annuity and non-insurance businesses. Net investment
income for these investments and for cash and cash equivalents was $242 million
for 1997, $243 million for 1996 and $238 million for 1995.
33
<PAGE>
H. Regulation
CIGNA's subsidiaries, depending on where they operate, are subject to
federal, state and foreign 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 1997 Financial Statements included in its Annual Report.
The NAIC has developed model solvency-related laws that many states have
adopted. The NAIC also uses risk-based capital rules (the "RBC rules") for life
insurance and property and casualty insurance companies. The RBC rules recommend
a specified level of capital depending on the types and quality of investments
held, the types of business written and the types of liabilities maintained.
Depending on the ratio of the insurer's adjusted surplus to its risk-based
capital, the insurer could be subject to various regulatory actions ranging from
increased scrutiny to conservatorship.
Four levels of regulatory attention may be triggered if the ratio of
adjusted surplus to risk-based capital (the "RBC ratio") is insufficient:
o 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.
o 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.
o 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.
o 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 or
below 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, 1997, CIGNA's
life insurance and ongoing domestic property and casualty insurance subsidiaries
were adequately capitalized under the RBC rules, and the run-off subsidiaries
were running off their liabilities as described on page 19.
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,
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.
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
34
<PAGE>
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 administers
employee health care benefit plans governed by ERISA and, therefore, may be
subject to requirements imposed on ERISA fiduciaries. CIGNA's mental health and
substance abuse clinics are licensed by the states in which they operate for
quality of treatment.
In addition, the Health Insurance Portability and Accountability Act of
1996 ("HIPAA") and the Mental Health Parity Act of 1996 ("MHPA"), which both
became effective in the last 12 months, subject health care insurers to new
federal regulation. HIPAA imposes guaranteed issuance, renewal and portability
requirements on health care insurers, and MHPA generally prohibits group health
plans from establishing separate aggregate annual or life-time dollar limits on
mental health benefits. Federal and state efforts to increase regulation of the
health care industry are expected to continue in 1998. Such proposals are
discussed on page 8.
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, domestic abuse
and credit reports. 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
marketing, advertising and underwriting of property and casualty insurance by
increasing the number and frequency of market conduct examinations, and by
imposing increasingly large penalties for violations of laws and regulations
pertaining to these functions.
The extent of insurance regulation varies significantly among the countries
in which CIGNA conducts its international operations. In many countries, foreign
insurers are faced with greater restrictions than domestic competitors. These
may 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 increased
regulation of the health care industry and Superfund, current and proposed
federal measures that may significantly affect the insurance business include:
pension and other employee benefit regulation; tax legislation (including a
recent proposal that could restrict the ability of corporations that own life
insurance policies on their officers, directors or employees from fully
deducting interest they pay on debt); and Social Security legislation. Congress
is also considering several measures that would change the traditional
separation of financial services companies. These measures, if enacted, would
allow bank affiliates to underwrite insurance and would allow insurance
affiliates to perform functions similar to those now reserved for banks.
The economic and competitive effects of the legislative and regulatory
proposals discussed above would depend upon the final form any such legislation
or regulation might take.
35
<PAGE>
I. Ratings
CIGNA and certain of its insurance subsidiaries are rated by nationally and
internationally 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:
o A.M. Best Company, Inc. ("A.M. Best"), A++ to F ("Superior" to "In
Liquidation");
o Moody's Investors Service ("Moody's"), Aaa to C ("Exceptional" to
"Lowest");
o Standard & Poor's Corp. ("S&P"), AAA to R ("Superior" to "Regulatory
Action"); and
o Duff & Phelps Credit Rating Co. ("DCR"), AAA to DD ("Highest" to
"Order of Liquidation").
As of March 10, 1998, the insurance rating for Life Insurance Company of
North America obtained from A.M. Best was A+ ("Superior," 2nd of 15), and the
insurance ratings for CIGNA Insurance Company of Europe S.A.- N.V. obtained from
S&P and A.M. Best were A ("Good," 6th of 18) and A- ("Excellent," 4th of 15),
respectively. 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)
--------------------
Life Property & Casualty
---- -------------------
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 21) 8th of 21) 11th of 21)
S&P................................ AA BBB BBB
("Excellent," ("Adequate," ("Adequate,"
3rd of 18) 9th of 18) 9th of 18)
DCR................................ AA+ A- BBB-
("Very high," ("High," ("Adequate,"
2nd of 18) 7th of 18) 10th of 18)
<FN>
- ------------
(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 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" beginning on page 18.
(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.
</FN>
</TABLE>
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:
o Moody's, Aaa to C ("Best" to "Lowest");
o S&P, AAA to D ("Extremely Strong" to "Default"); and
o DCR, AAA to DD ("Highest" to "Default").
The commercial paper rating scales for Moody's, S&P, DCR and Fitch IBCA
Inc. ("Fitch") are as follows:
o Moody's, Prime-1 to Not Prime ("Superior" to "Not Prime");
36
<PAGE>
o S&P, A-1+ to D ("Extremely Strong" to "Default");
o DCR, D-1+ to D-5 ("Highest" to "Default"); and
o Fitch F-1+ to D ("Exceptional" to "Default").
As of March 10, 1998, 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-grade," ("Strong,"
7th of 21) 2nd of 4)
S&P......................................... A A-1
("Strong," ("Strong,"
6th of 22) 2nd of 7)
DCR......................................... A D-1
("Adequate," ("Very high,"
6th of 18) 2nd of 7)
Fitch....................................... Not rated F-1
("Very Strong,"
2nd of 6)
<FN>
- ------------
(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.
</FN>
</TABLE>
The ratings are reviewed routinely by the rating agencies and may be
changed at their discretion.
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.
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 1997. 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 47,700, 42,800 and 44,700 employees as of December
31, 1997, 1996 and 1995, 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 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 268,000 total square feet of leased office space at 280 Trumbull
Street, 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 1997 Financial Statements included in its Annual Report.
This paragraph does not include information on investment properties.
37
<PAGE>
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 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, 46, President of CIGNA HealthCare beginning February 1996; and
President of CIGNA International from February 1989 until February 1996.
GERALD A. ISOM, 59, 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, 51, President of CIGNA Investment Management since October
1997; President of CIGNA Individual Insurance from February 1995 through 1997;
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, 49, President of CIGNA Group Insurance: Life, Accident,
Disability since March 1992.
DONALD M. LEVINSON, 52, Executive Vice President of CIGNA since March 1988, with
responsibility for Human Resources and Services.
FRANCINE M. NEWMAN, 53, President of CIGNA Reinsurance since July 1984.
BYRON D. OLIVER, 55, President of CIGNA Retirement & Investment Services since
February 1988.
B. KINGSLEY SCHUBERT, 52, 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.
JAMES G. STEWART, 55, Executive Vice President and Chief Financial Officer of
CIGNA since 1983.
WILSON H. TAYLOR, 54, Chairman of CIGNA since 1989; and Chief Executive Officer
and President of CIGNA since May 1988.
THOMAS J. WAGNER, 58, Executive Vice President and General Counsel of CIGNA
since January 1992.
38
<PAGE>
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information under the caption "Quarterly Financial Data--Stock and
Dividend Data" on page 47 and under the caption "Stock Listing" on the inside
back cover of CIGNA's Annual Report is incorporated by reference, as is the
information from Note 8 to CIGNA's 1997 Financial Statements and the number of
shareholders of record as of December 31, 1997 under the caption "Highlights" on
page 1 of CIGNA's Annual Report.
Item 6. SELECTED FINANCIAL DATA
The five-year financial information under the caption "Highlights" on page
1 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 10 through 23 of CIGNA's Annual Report is
incorporated by reference.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information under the caption "Market Risk of Financial Instruments" on
page 23 of CIGNA's Annual Report is incorporated by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CIGNA's Consolidated Financial Statements on pages 24 through 45 and the
report of its independent accountants on page 46 of CIGNA's Annual Report are
incorporated by reference, as is the unaudited information set forth under the
caption "Quarterly Financial Data--Consolidated Results" on page 47.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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 18, 1998 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 13
through 18 and "Compensation of Directors" on pages 8 and 9 of CIGNA's proxy
statement dated March 18, 1998 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 Common Stock by Certain Beneficial
Owners" on page 4 of CIGNA's proxy statement dated March 18, 1998, relating to
security ownership of certain beneficial owners and management, is incorporated
by reference.
39
<PAGE>
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the caption "Certain Transactions" on page 9 of
CIGNA's proxy statement dated March 18, 1998 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, 1997, 1996 and 1995 -- page 24.
Consolidated Balance Sheets as of December 31, 1997 and 1996 -- page 25.
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1996 and 1995 -- page 26.
Notes to Financial Statements -- pages 27 through 45.
Report of Independent Accountants, Price Waterhouse LLP -- page 46.
(2) The financial statement schedules are listed in the Index to Financial
Statement Schedules on page FS-1.
(3) The exhibits are listed in the Index to Exhibits beginning on page E-1.
B. During the last quarter of the fiscal year ended December 31, 1997, the
registrant filed (1) a Report on Form 8-K dated October 1, 1997 containing a
copy of a news release announcing its preliminary third quarter 1997 earnings
estimates, and (2) a Report on Form 8-K dated October 30, 1997 containing a copy
of a news release reporting its third quarter 1997 results.
40
<PAGE>
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 26, 1998
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 26, 1998.
Principal Executive Officer: Directors:*
Robert P. Bauman
Robert H. Campbell
Wilson H. Taylor* Alfred C. DeCrane, Jr.
Chairman, Chief Executive Officer Bernard M. Fox
and a Director Peter N. Larson
Marilyn W. Lewis
Paul F. Oreffice
Charles R. Shoemate
Louis W. Sullivan, M.D.
Harold A. Wagner
Principal Accounting Officer: Carol Cox Wait
/s/ Gary A. Swords
- -----------------------------------
Gary A. Swords
Vice President and Chief Accounting
Officer
*By:/s/ Thomas J. Wagner
-----------------------------------
Thomas J. Wagner
Attorney-in-Fact
41
<PAGE>
CIGNA CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENT SCHEDULES
PAGE
Report of Independent Accountants on Financial Statement Schedules........ FS-2
Schedules
I Summary of Investments--Other Than Investments in Related
Parties as of December 31, 1997.................................. FS-3
II Condensed Financial Information of CIGNA Corporation
(Registrant)..................................................... FS-4
III Supplementary Insurance Information.............................. FS-8
IV Reinsurance...................................................... FS-10
V Valuation and Qualifying Accounts and Reserves................... FS-11
VI Supplemental Information Concerning Property-Casualty
Insurance Operations............................................. FS-12
Schedules other than those listed above are omitted because they are not
required or are not applicable, or the required information is shown in the
financial statements or notes thereto, which are incorporated by reference from
CIGNA's Annual Report.
FS-1
<PAGE>
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 10, 1998 appearing on page 46 of the 1997 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 10, 1998
FS-2
<PAGE>
CIGNA CORPORATION AND SUBSIDIARIES
SCHEDULE I
SUMMARY OF INVESTMENTS -- OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 1997
(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............................................ $ 1,816 $ 2,152 $ 2,152
States, municipalities and political subdivisions........ 1,835 2,023 2,023
Foreign governments...................................... 2,284 2,396 2,396
Public utilities......................................... 2,387 2,546 2,546
Convertibles and bonds with warrants attached............ 11 12 12
All other corporate bonds................................ 17,348 18,229 18,229
Asset-backed securities.................................... 8,594 8,991 8,991
Redeemable preferred stocks................................ 9 9 9
------- ------- -------
Total fixed maturities................................. 34,284 36,358 36,358
------- ------- -------
Equity securities
Common stocks:
Industrial, miscellaneous and all other.................. 493 639 639
Banks, trust and insurance companies..................... 79 124 124
Public utilities......................................... 53 73 73
Non-redeemable preferred stocks............................ 23 18 18
------- ------- -------
Total equity securities................................ 648 854 854
Mortgage loans on real estate................................. 10,859 10,859
Policy loans.................................................. 7,253 7,253
Real estate investments (including $344 million of real
estate acquired in satisfaction of debt)................... 769 769
Other long-term investments................................... 273 273
Short-term investments........................................ 212 212
------- -------
Total investments...................................... $54,298 $56,578
======= =======
</TABLE>
FS-3
<PAGE>
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,
------------------------------------------
1997 1996 1995
------- ------ -------
<S> <C> <C> <C>
Intercompany income........................................... $ 2 $ 2 $ 2
------ ------ ------
Total revenues............................................. 2 2 2
------ ------ ------
Operating expenses:
Interest................................................... 118 93 109
Intercompany interest...................................... 20 30 29
Other...................................................... 6 10 5
------ ------ ------
Total operating expenses................................. 144 133 143
------ ------ ------
Loss before income taxes...................................... (142) (131) (141)
Income tax benefit............................................ (39) (39) (34)
------ ------ ------
Loss of parent company........................................ (103) (92) (107)
Equity in income of subsidiaries.............................. 1,189 1,148 318
------ ------ ------
Net income.................................................... $1,086 $1,056 $ 211
====== ====== ======
</TABLE>
See Notes to Condensed Financial Statements on FS-7.
FS-4
<PAGE>
CIGNA CORPORATION AND SUBSIDIARIES
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF CIGNA CORPORATION
(REGISTRANT)
BALANCE SHEETS
(In millions)
<TABLE>
<CAPTION>
As of December 31,
-------------------------
1997 1996
------- -------
<S> <C> <C>
Assets:
Cash and cash equivalents................................................. $ 1 $ --
Investments in subsidiaries............................................... 10,683 9,005
Other assets.............................................................. 77 178
Goodwill.................................................................. 39 56
------- -------
Total assets............................................................ $10,800 $9,239
======= =======
Liabilities:
Intercompany.............................................................. $ 425 $ 422
Short-term debt........................................................... 687 286
Long-term debt............................................................ 1,371 853
Other liabilities......................................................... 385 470
------- -------
Total liabilities....................................................... 2,868 2,031
------- -------
Shareholders' Equity:
Common stock (shares issued, 88).......................................... 88 88
Additional paid-in capital................................................ 2,633 2,572
Net unrealized appreciation-- fixed maturities............................ 752 539
Net unrealized appreciation-- equity securities........................... 132 88
Net translation of foreign currencies..................................... (126) (45)
Retained earnings......................................................... 5,696 4,855
Less treasury stock, at cost.............................................. (1,243) (889)
------- -------
Total shareholders' equity.............................................. 7,932 7,208
------- -------
Total liabilities and shareholders' equity.............................. $10,800 $9,239
======= =======
</TABLE>
See Notes to Condensed Financial Statements on FS-7.
FS-5
<PAGE>
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,
--------------------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income.................................................... $ 1,086 $ 1,056 $ 211
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Equity in income of subsidiaries......................... (1,189) (1,148) (318)
Dividends received from subsidiaries..................... 847 926 545
Other liabilities........................................ (74) (148) 159
Other, net............................................... 104 6 27
------- ------- -------
Net cash provided by operating activities.............. 774 692 624
------- ------- -------
Cash Flows from Investing Activities:
Capital contributions to subsidiaries......................... (1,124) (250) (16)
Other, net.................................................... (10) (14) (6)
------- ------- -------
Net cash used in investing activities.................. (1,134) (264) (22)
------- ------- -------
Cash Flows from Financing Activities:
Net change in intercompany debt............................... 3 253 (471)
Net change in short-term debt................................. 358 (6) (13)
Issuance of long-term debt................................. 600 -- 86
Repayment of long-term debt................................... (39) (157) --
Repurchase of common stock.................................... (335) (292) --
Issuance of common stock...................................... 19 12 21
Common dividends paid......................................... (245) (242) (222)
------- ------- -------
Net cash provided by (used in) financing activities.... 361 (432) (599)
------- ------- -------
Net increase (decrease) in cash and cash equivalents.......... 1 (4) 3
Cash and cash equivalents, beginning of year.................. -- 4 1
------- ------- -------
Cash and cash equivalents, end of year....................... $ 1 $ -- $ 4
======= ======= =======
</TABLE>
See Notes to Condensed Financial Statements on FS-7.
FS-6
<PAGE>
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-- CIGNA acquired the outstanding common stock of Healthsource, Inc.
(Healthsource) on June 25, 1997. The cost of the acquisition was $1.7
billion, reflecting the purchase of Healthsource common stock for $1.4
billion and the retirement of Healthsource debt of $250 million.
As of January 1, 1998, CIGNA sold its individual life insurance and
annuity businesses for cash proceeds of $1.4 billion. The sale
resulted in a gain of approximately $800 million. Since the principal
agreement to sell these businesses is in the form of an indemnity
reinsurance arrangement, approximately $575 million of the gain will
be deferred and amortized over future periods at the rate that
earnings from the businesses sold would have been expected to emerge.
Note 2-- 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; 7.4% Notes due 2007; 8
1/4% Notes due 2007; 7.65% Notes due 2023; 8.3% Notes due 2023; 7 7/8%
Debentures due 2027; 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, 1997 and 1996, the weighted
average interest rate on Medium-term Notes was 8.3% and 8.4%,
respectively.
Maturities of long-term debt for each of the next five years are as
follows: 1998--$82 million; 1999--$10 million; 2000--$53 million;
2001--$145 million; 2002--$36 million.
In 1997, CIGNA issued $300 million of unsecured 7.4% Notes due in 2007
and $300 million of unsecured 7 7/8% Debentures due in 2027.
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, 1997, CIGNA had $1 billion remaining under
effective shelf registration statements 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 $113 million,
$97 million and $113 million for 1997, 1996 and 1995, respectively.
Note 3-- CIGNA Corporation files a consolidated U.S. federal income tax
return with its domestic subsidiaries. Net income taxes paid in
connection with the consolidated return were $536 million, $285
million and $163 million during 1997, 1996 and 1995, respectively.
Note 4-- On February 25, 1998, CIGNA's Board of Directors approved a
three-for-one common stock split, an increase in the number of shares
authorized for issuance from 200 million to 600 million and a decrease
in the par value of common stock from $1 per share to $0.25 per share.
These actions are subject to approval at the April 22, 1998 annual
meeting of shareholders.
FS-7
<PAGE>
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, 1997:
Property and Casualty:
International............................................ $ 518 $ 2,059 $ 2,552
Domestic................................................. 165 -- 6,099
Run-off operations....................................... -- 63 6,601
------ ------- -------
Total Property and Casualty............................ 683 2,122 15,252
Employee Life and Health Benefits.......................... 21 4,273 2,266
Employee Retirement and Savings Benefits................... 106 18,944 --
Individual Financial Services.............................. 732 14,614 388
All Other.................................................. -- 2,705 --
------ ------- -------
Total.................................................. $1,542 $42,658 $17,906
====== ======= =======
Year Ended December 31, 1996:
Property and Casualty:
International............................................ $ 248 $ 2,094 $ 2,628
Domestic................................................. 174 -- 6,469
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):
International............................................ $ 203 $ 2,126 $ 2,569
Domestic................................................. 177 -- 6,121
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
====== ======= =======
</TABLE>
FS-8
<PAGE>
<TABLE>
<CAPTION>
Benefits,
Net losses and Policy Other
Unearned Premiums investment settlement acquisition operating Premiums
premiums and fees (1) income (2) expenses (1) expenses expenses written
-------- ------------ ---------- ------------ ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Year Ended December 31, 1997:
Property and Casualty:
International......................... $ 798 $ 2,615 $ 240 $ 1,685 $ 538 $ 447 $ 1,834
Domestic.............................. 739 1,593 239 1,165 367 420 1,496
Run-off operations ................... 6 22 282 232 14 82 11
------- ------- ------- ------- ------- ------- -------
Total Property and Casualty ........ 1,543 4,230 761 3,082 919 949 3,341
Employee Life and Health Benefits ...... 165 9,512 562 7,084 8 2,781 --
Employee Retirement and Savings Benefits -- 181 1,597 1,258 26 177 --
Individual Financial Services .......... 66 1,012 1,083 1,408 93 357 --
All Other .............................. -- -- 242 197 -- 49 --
------- ------- ------- ------- ------- ------- -------
Total ............................. $ 1,774 $14,935 $ 4,245 $13,029 $ 1,046 $ 4,313 $ 3,341
======= ======= ======= ======= ======= ======= =======
Year Ended December 31, 1996:
Property and Casualty:
International......................... $ 870 $ 2,568 $ 243 $ 1,631 $ 545 $ 435 $ 1,787
Domestic.............................. 862 1,671 259 1,298 383 356 1,637
Run-off operations ................... 17 159 302 332 58 100 76
------- ------- ------- ------- ------- ------- -------
Total Property and Casualty ........ 1,749 4,398 804 3,261 986 891 3,500
Employee Life and Health Benefits ...... 139 8,341 567 6,229 12 2,313 --
Employee Retirement and Savings Benefits -- 235 1,680 1,419 21 181 --
Individual Financial Services .......... 52 942 1,039 1,363 119 333 --
All Other .............................. -- -- 243 201 -- 20 --
------- ------- ------- ------- ------- ------- -------
Total .............................. $ 1,940 $13,916 $ 4,333 $12,473 $ 1,138 $ 3,738 $ 3,500
======= ======= ======= ======= ======= ======= =======
Year Ended December 31, 1995:
Property and Casualty(3):
International......................... $ 956 $ 2,716 $ 268 $ 1,811 $ 561 $ 430 $ 1,817
Domestic.............................. 930 1,749 240 1,375 445 474 1,706
Run-off operations ................... 110 175 286 1,576 41 82 64
------- ------- ------- ------- ------- ------- -------
Total Property and Casualty ........ 1,996 4,640 794 4,762 1,047 986 3,587
Employee Life and Health Benefits ...... 150 8,135 574 6,105 9 2,193 --
Employee Retirement and Savings Benefits -- 258 1,722 1,522 18 159 --
Individual Financial Services .......... 30 881 968 1,268 107 314 --
All Other .............................. -- -- 238 198 -- 16 --
------- ------- ------- ------- ------- ------- -------
Total .............................. $ 2,176 $13,914 $ 4,296 $13,855 $ 1,181 $ 3,668 $ 3,587
======= ======= ======= ======= ======= ======= =======
<FN>
- ------------
(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. Consolidated
Property and Casualty segment amounts, including International, did not
change as a result of the restructuring.
</FN>
</TABLE>
FS-9
<PAGE>
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, 1997:
Life insurance in force....................... $543,241 $60,855 $152,031 $634,417 24.0%
======== ======= ======== ======== ====
Premiums and fees:
Life insurance and annuities................ $ 3,189 $ 272 $ 595 $ 3,512 16.9%
Accident and health insurance............... 8,569 404 574 8,739 6.6
Property and casualty insurance............. 3,534 1,368 518 2,684 19.3
-------- ------- -------- --------
Total..................................... $ 15,292 $ 2,044 $ 1,687 $ 14,935 11.3%
======== ======= ======== ======== ====
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%
======== ======= ======== ======== ====
</TABLE>
FS-10
<PAGE>
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>
1997:
Investment asset valuation reserves:
Mortgage loans................................ $101 $ 16 $15 $ (82) $ 50
Real estate................................... 117 -- (6) (34) 77
Allowance for doubtful accounts:
Premiums, accounts and notes
receivable.................................. 98 61 -- (21) 138
Reinsurance recoverables...................... 711 23 -- (14) 720
Deferred tax asset valuation
allowance..................................... 47 6 -- -- 53
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
<FN>
- ------------
(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.
</FN>
</TABLE>
FS-11
<PAGE>
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, 1997:
Consolidated property-casualty entities....... $419 $15,135 $15 $1,352
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
</TABLE>
FS-12
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Column F Column G Column H Column I Column J Column K
- -----------------------------------------------------------------------------------------------------------------------------------
Claims and claim
adjustment expenses
incurred related to: Amortization Paid claims
Net of deferred and claim
Earned investment Current Prior policy acqui- adjustment Premiums
premiums(2) income year(2) year(2) sition costs expenses(2) written
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Year Ended December 31, 1997:
Consolidated property-casualty entities..... $3,399 $647 $2,120 $ 218 $834 $3,018 $3,341
Year Ended December 31, 1996:
Consolidated property-casualty entities..... $3,576 $687 $2,348 $ 177 $887 $3,037 $3,500
Year Ended December 31, 1995:
Consolidated property-casualty entities..... $3,729 $674 $2,386 $1,498 $950 $3,360 $3,587
<FN>
- ------------
(1) Discounts were computed using an annual interest rate of 9%.
(2) Amounts presented are shown net of the effects of reinsurance.
</FN>
</TABLE>
FS-13
<PAGE>
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 to the registrant's
registrant as last amended August 4, 1997 Form 10-Q for the quarter ended September 30, 1997
and incorporated herein by reference.
3.2 By-Laws of the registrant as last amended and Filed herewith.
restated February 25, 1998
4 Description of Preferred Stock Purchase Rights, Filed as Item 1 and Exhibit 1 to the registrant's Form
including the Rights Agreement dated as of July 8-A Registration Statement dated July 23, 1997 and
23, 1997 between CIGNA Corporation and incorporated herein by reference.
First Chicago Trust Company of New York
Exhibits 10.1 through 10.19 are filed as exhibits pursuant to Item 14(c) of Form 10-K.
10.1 Deferred Compensation Plan for Directors of Filed as Exhibit 10.1 to the registrant's Form 10-K for
CIGNA Corporation, as amended and restated the year ended December 31, 1996 and incorporated
as of January 1, 1997 herein by reference
10.2 Retirement and Consulting Plan for Directors Filed as Exhibit 10.12 to the registrant's Form 10-K for
of CIGNA Corporation, as amended and the year ended December 31, 1993 and incorporated
restated as of May 29, 1991 herein by reference.
10.3 (a) Restricted Stock Plan for Non-Employee Filed as Exhibit 10.15 to the registrant's Form 10-K for
Directors of CIGNA Corporation effective as the year ended December 31, 1993 and incorporated
of September 30, 1989 herein by reference.
(b) Description of First Amendment to the Filed as Exhibit 10.16 to the registrant's Form 10-K for
Restricted Stock Plan for Non-Employee the year ended December 31, 1993 and incorporated
Directors of CIGNA Corporation herein by reference.
10.4 Description of Stock Compensation Plan for Filed as Exhibit 10 to the registrant's Form 10-Q for the
Non-Employee Directors of CIGNA quarter ended June 30, 1997 and incorporated herein by
Corporation, as amended and restated effective reference.
July 1, 1997
10.5 CIGNA Corporation Stock Plan, as amended Filed herewith.
and restated through January 1, 1998
10.6 (a) CIGNA Corporation Executive Stock Incentive Filed as Exhibit 10.4 to the registrant's Form 10-K for
Plan, as amended and restated March 23, 1988 the year ended December 31, 1993 and incorporated
herein by reference.
(b) Amendment No.1 dated as of September 28, Filed as Exhibit 10.5 to the registrant's Form 10-K for
1988 to the CIGNA Corporation Executive the year ended December 31, 1993 and incorporated
Stock Incentive Plan herein by reference.
(c) Amendment No. 2 dated as of March 27, 1991 Filed as Exhibit 10.6 to the registrant's Form 10-K for
to the CIGNA Corporation Executive Stock the year ended December 31, 1993 and incorporated
Incentive Plan herein by reference.
(d) Amendment No.3 dated as of July 31, 1996 to Filed as Exhibit 10.3 to the registrant's Form 10-Q for
the CIGNA Corporation Executive Stock the quarter ended June 30, 1996 and incorporated
Incentive Plan herein by reference.
E-1
<PAGE>
Number Description Method of Filing
- ------ ----------- ----------------
10.7 CIGNA Executive Severance Benefits Plan, Filed as Exhibit 10.11 to the registrant's Form 10-K for
effective as of January 1, 1997 the year ended December 31, 1996 and incorporated
herein by reference.
10.8 (a) CIGNA Executive Incentive Plan effective as Filed as Appendix A to the registrant's Definitive Proxy
of January 1, 1997 Statement on Schedule 14A dated March 19, 1997 and
incorporated herein by reference.
(b) Amendment No. 1 to the CIGNA Executive Filed herewith.
Incentive Plan dated as of February 25, 1998
10.9 CIGNA Long-Term Incentive Plan, as Filed herewith.
amended and restated through January 1, 1998
10.10 (a) Deferred Compensation Plan of CIGNA Filed as Exhibit 10.15 to the registrant's Form 10-K for
Corporation and Participating Subsidiaries, as the year ended December 31, 1995 and incorporated
amended and restated as of January 1, 1996 herein by reference.
(b) Amendment No. 1 dated as of December 16, Filed as Exhibit 10.9(b) to the registrant's Form 10-K
1996 to the Deferred Compensation Plan of for the year ended December 31, 1996 and incorporated
CIGNA Corporation and Participating herein by reference.
Subsidiaries
10.11 (a) CIGNA Supplemental Pension Plan, as Filed as Exhibit 10.1 to the registrant's Form 10-Q for
amended and restated as of July 28, 1993 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 Form 10-Q for
CIGNA Supplemental Pension Plan the quarter ended September 30, 1995 and incorporated
herein by reference.
10.12 Description of CIGNA Corporation Financial Filed as Exhibit 10.9 to the registrant's Form 10-K for
Services Program the year ended December 31, 1993 and incorporated
herein by reference.
10.13 Description of the CIGNA Corporation Key Filed as Exhibit 10.7 to the registrant's Form 10-K for
Management Annual Incentive Bonus Plan the year ended December 31, 1993 and incorporated
herein by reference.
10.14 Agreement dated February 9, 1993 between Filed as Exhibit 10.14 to the registrant's Form 10-K for
Mr. Isom and the registrant 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 Form 10-Q for
Messrs. Taylor and Stewart the quarter ended March 31, 1995 and incorporated
herein by reference.
10.16 Special Retention Agreement dated March 27, Filed as Exhibit 10.26 to the registrant's Form 10-K for
1996 with Mr. Levinson the year ended December 31, 1995 and incorporated
herein by reference.
10.17 Non-Compete Agreement dated October 20, Filed herewith.
1997 between Mr. Taylor and the registrant
E-2
<PAGE>
Number Description Method of Filing
- ------ ----------- ----------------
10.18 Form of Non-Compete Agreement dated Filed herewith.
December 8, 1997 with Messrs. Stewart, Isom,
Hanway and Levinson
10.19 Description of Mandatory Deferral of Non- Filed as Exhibit 10.17 to the registrant's Form 10-K for
Deductible Executive Compensation the year ended December 31, 1996 and incorporated
Arrangement herein by reference.
12 Computation of Ratios of Earnings to Fixed Filed herewith.
Charges
13 Portions of registrant's 1997 Annual Report to Filed herewith.
Shareholders (Entire Annual Report bound in
printed versions of Form 10-K)
21 Subsidiaries of the Registrant Filed herewith.
23 Consent of Independent Accountant Filed herewith.
24.1 Powers of Attorney Filed herewith.
24.2 Certified Resolutions Filed herewith.
27.1 Financial Data Schedule Included only in EDGAR version of the Form 10-K.
27.2 Restated Financial Data Schedule Included only in EDGAR version of the Form 10-K.
27.3 Restated Financial Data Schedule Included only in EDGAR version of the Form 10-K.
</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, PA 19192-2378.
E-3
BY-LAWS
CIGNA
CORPORATION
A Delaware Corporation
Incorporated November 3, 1981
As Amended and Restated
February 25, 1998
<PAGE>
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>
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 27
Section 3. Lost Certificates 27
Section 4. Transfers of Stock 28
Section 5. Transfer Agents and
Registrars 28
Section 6. Regulations 28
Section 7. Fixing the Record Date 29
Section 8. Registered Shareholders 29
ARTICLE VI INDEMNIFICATION
Section 1. General 30
Section 2. Derivative Actions 31
Section 3. Indemnification in Certain
Cases 32
Section 4. Procedure 32
Section 5. Advances for Expenses 32
Section 6. Exclusion of Mandatory
Indemnification and Advances
in Certain Cases 33
Section 7. Rights Not Exclusive 33
Section 8. Insurance 34
Section 9. Definition of Corporation 34
Section 10. Definition of Other Terms 35
Section 11. Right of Indemnitee to
Bring Suit in Certain
Circumstances 35
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<PAGE>
ARTICLE VII GENERAL PROVISIONS Page
Section 1. Dividends 38
Section 2. Reserves 38
Section 3. Seal 39
Section 4. Fiscal Year 39
Section 5. Contributions 39
Section 6. Borrowing, etc. 39
Section 7. Deposits 39
Section 8. Execution of Contracts,
Deeds, etc. 40
Section 9. Voting of Stock in Other
Corporations 40
Section 10. Form of Records 40
Section 11. Repurchase of Stock 41
ARTICLE VIII AMENDMENTS 42
ARTICLE IX DEFINITIONS 42
-iii-
<PAGE>
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>
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>
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>
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>
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>
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>
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>
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>
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>
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
-10-
<PAGE>
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
-11-
<PAGE>
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
-12-
<PAGE>
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.
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SECTION 7. Treasurer. The Treasurer shall:
(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;
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(b) see that all notices are duly given in accordance 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
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officer as may be designated by one of the foregoing.
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
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give a bond or other security for the faithful performance of his 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; Uncertificated Shares. The shares of the
Corporation shall be represented by certificates, provided that the Board of
Directors may provide by resolution or resolutions that some or all of any or
all classes or series of stock shall be uncertificated shares. Any such
resolution shall not apply to shares represented by a certificate until such
certificate is surrendered to the Corporation. Notwithstanding the adoption of
such resolution by the Board of Directors, every holder
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of stock represented by certificates, and upon request every holder of
uncertificated shares, shall be entitled to have a certificate signed by, or in
the name of the Corporation by the 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, representing the number of shares
registered in certificate form. If the Corporation shall be authorized to issue
more than one class of stock or more than one series of any class, the powers,
designations, preferences and relative, 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
powers, 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. Within a
reasonable time after the issuance or transfer of uncertificated stock, the
Corporation shall send to the
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registered owner thereof a written notice containing the information required or
permitted to be set forth or stated on certificates pursuant to this section or
otherwise pursuant to the Delaware General Corporation Law. Except as otherwise
expressly provided by law, the rights and obligations of the holders of
uncertificated stock and the rights and obligations of the holders of
certificates representing stock of the same class and series shall be identical.
SECTION 2. Facsimile Signatures. Any or all of the signatures on a
certificate may be a facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if such person was such officer, transfer agent or registrar at the date of
issue.
SECTION 3. Lost Certificates. The Corporation may issue a new
certificate or certificates, or uncertificated shares, in the place of any
certificate or certificates theretofore issued by the Corporation alleged to
have been lost, stolen, or destroyed. 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
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destruction of any such certificate or the issuance of such new certificate or
uncertificated shares.
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, or upon receipt by the transfer agent of a proper instruction from the
registered holder of uncertificated shares, it shall be the duty of the
Corporation to transfer such shares upon its records and, in connection with the
transfer of a share that will be certificated, to issue a new certificate to the
person entitled thereto and to cancel the old certificate 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, or when proper instructions with respect to the transfer of
uncertificated shares are received, 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.
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
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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
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.
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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
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
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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
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
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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 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
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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, 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
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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 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
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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 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
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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 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
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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,
(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
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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.
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
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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.
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
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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 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
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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 10.5
CIGNA CORPORATION
STOCK PLAN
(As Amended and Restated through January 1, 1998)
ARTICLE 1
Statement of Purpose
The CIGNA Corporation Stock Plan (the "Plan") is intended to reward and provide
incentives for key employees of CIGNA Corporation and its Subsidiaries by
providing them with an opportunity to acquire an equity interest in CIGNA
Corporation, thereby increasing their personal interest in its continued success
and progress. It also is intended to aid the Company in attracting key personnel
of exceptional ability.
ARTICLE 2
Definitions
2.1 Defined Terms. For all purposes of this Plan, except as otherwise
expressly provided or defined herein or unless the context otherwise
requires, the terms defined in this Article shall have the following
meanings:
"Board of Directors" means either the board of directors of CIGNA
Corporation or any duly authorized committee of that board.
"Change of Control" means:
(i) 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 (i) 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 (ii) more than 25% of the voting power of CIGNA
Corporation's outstanding common shares; or
(ii) as a result of a merger or consolidation to which CIGNA Corporation
is a party, either (i) CIGNA Corporation is not the surviving
corporation or (ii) 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
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(iii) 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: (i) were directors at the
beginning of such consecutive 24-month period; or (ii) were elected
by, or on nomination or recommendation of, at least a majority
(consisting of at least nine directors) of the Board.
"Committee" means the People Resources Committee of the Board of Directors
or any successor committee with responsibility for compensation. The
number of Committee members and their qualifications shall at all times be
sufficient to meet the requirements of Securities and Exchange Commission
Rule 16b-3 as in effect from time to time.
"Common Stock" means the common stock, par value $1 per share, of CIGNA
Corporation.
"Company" means CIGNA Corporation, a Delaware corporation, and/or its
Subsidiaries.
"Deferred Compensation Account" means a separate account established
pursuant to a Deferred Compensation Plan.
"Deferred Compensation Plan" means and refers to a deferred compensation
plan of the Company which has been designated by the Committee as a
"Deferred Compensation Plan" for purposes of this Plan.
"Disability" means permanent and total disability as defined in Section
22(e)(3) of the Internal Revenue Code.
"Early Retirement" means a Termination of Employment, after appropriate
notice to the Company, (i) on or after age 55 and before age 65 with
eligibility for immediate annuity benefits under a qualified pension or
retirement plan of the Company, or (ii) upon such terms and conditions
approved by the Committee or officers of the Company designated by the
Board of Directors or the Committee.
"Eligible Employee" means a salaried officer or other key employee of the
Company who (i) occupies a position with the Company that has been
designated by the Committee as an eligible position for participation in
this Plan or (ii) has been specifically authorized or designated by the
Committee to participate in this Plan.
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"Fair Market Value" means the mean between the highest and lowest quoted
selling prices as reported on the Composite Tape (or other successor means
of publishing stock prices) on the date as of which any determination of
such value is or is required to be made, or, if the Composite Tape or such
successor publication is not published on such date, on the next preceding
date of publication. In the absence of such sales, Fair Market Value shall
be determined by the Committee, which shall take into account all relevant
facts and circumstances.
"Incentive Stock Option" means a stock option granted in accordance with
Section 422A of the Internal Revenue Code.
"Participant" means an Eligible Employee to whom any one or more of the
awards authorized in this Plan shall have been granted.
"Payment Date" means the date that payment of an award pursuant to a
Qualifying Incentive Plan, or of a benefit pursuant to a Qualifying
Supplemental Benefit Plan, is made or would have been made but for
deferral pursuant to Section 3.7(b).
"Qualifying Incentive Plan" means any Company bonus plan, short-term or
long-term incentive compensation plan or any other incentive compensation
arrangement, including but not limited to the Company's Performance
Recognition Award Program.
"Qualifying Supplemental Benefit Plan" means any plan of the Company
pursuant to which benefits which would have been paid under a tax
qualified retirement plan but for legal limitations are payable in cash to
eligible employees of the Company.
"Retirement" means a Termination of Employment, after appropriate notice
to the Company, (i) on or after age 65 with eligibility for immediate
annuity benefits under a qualified pension or retirement plan of the
Company, or (ii) upon such terms and conditions approved by the Committee,
or officers of the Company designated by the Board of Directors or the
Committee.
"Subsidiary" means any corporation of which more than 50% of the total
combined voting power of all classes of stock entitled to vote, or other
equity interest, is directly or indirectly owned by CIGNA Corporation; or
a partnership, joint venture or other unincorporated entity of which more
than a 50% interest in the capital, equity or profits is directly or
indirectly owned by CIGNA Corporation.
"Termination for Cause" means a Termination of Employment initiated by the
Company on account of the conviction of Participant of a felony involving
fraud or dishonesty directed against the Company.
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"Termination of Employment" means the termination of the Participant's
active employment relationship with the Company, unless otherwise
expressly provided by the Committee, or the occurrence of a transaction by
which the Participant's employing Company ceases to be a Subsidiary.
"Termination Upon a Change of Control" means a Termination of Employment
upon or within two years after a Change of Control (i) initiated by the
Company or a successor corporation other than pursuant to Termination for
Cause or (ii) initiated by the Participant and pursuant to the
Participant's certification that the Change of Control has rendered him
unable to perform the duties and responsibilities of the position he held
immediately prior to the Change of Control by adverse changes in his
authority, compensation, office location, duties, responsibilities, or
title.
2.2 General. Certain terms are defined in other Articles of this Plan. The
terms defined in this Article and elsewhere in this Plan shall include the
feminine as well as the masculine gender and the plural as well as the singular,
as the context in which they are used requires.
ARTICLE 3
Authorized Stock Incentive Awards
3.1 Authorized Awards. The awards authorized are as follows:
(a) stock options,
(b) stock appreciation rights,
(c) restricted stock grants,
(d) dividend equivalent rights, and
(e) Common Stock in lieu of cash or other awards payable under a Qualifying
Incentive Plan or Qualifying Supplemental Benefit Plan.
3.2 General Powers of the Committee. Subject to the provisions of this Plan,
the Committee is authorized and empowered in its sole discretion to select
Participants and to grant to them any one or more of the awards authorized above
in such amounts and combinations and upon such terms and conditions as it shall
determine.
3.3 Stock Options. The Committee shall have the authority to grant Eligible
Employees options to purchase Common Stock upon such terms and conditions as it
shall establish, including restrictions on the right to exercise options,
subject in all events to the following limitations and provisions of general
application:
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(a) The option price per share of any option shall not be less than the Fair
Market Value on the date of grant. The option price may be paid in cash
or, if the Committee so provides, in Common Stock (including Common Stock
subject to a Restricted Period pursuant to Section 3.5(a)). Common Stock
used to pay the option price shall be valued using the Fair Market Value
on the date of exercise. To the extent the option price is paid in shares
of restricted stock, an equal number of the shares of Common Stock
purchased upon exercise of the option shall be subject to identical
restrictions which shall continue in effect for the remaining part of the
Restricted Period applicable to the restricted stock used to pay the
option price.
(b) No option shall be for a term of more than 10 years from the date of
grant.
(c) No option may be exercised during a leave of absence except to the extent
exercisable immediately prior to commencement of the leave of absence,
unless otherwise expressly provided by the Committee.
(d) In the event of Termination of Employment (including termination during an
approved leave of absence) of a Participant holding an outstanding option
for any reason other than death, Disability or Upon a Change of Control
(in case of an Incentive Stock Option) or for any reason other than death,
Disability, Retirement or Upon a Change of Control (in case of any option
other than an Incentive Stock Option), the term of the option shall expire
on the earlier of the date of Termination of Employment or the expiration
date set forth in the option.
(e) In the event of Termination of Employment due to death or Disability
(including death or Disability during an approved leave of absence) of a
Participant holding an outstanding Incentive Stock Option, the option
shall be fully exercisable immediately and the term of the option shall
expire on the earlier of 12 months from the date of Termination of
Employment or the expiration date set forth in the option.
(f) In the event of Termination of Employment due to death, Disability or
Retirement (including death, Disability or Retirement during an approved
leave of absence) of a Participant holding an outstanding option other
than an Incentive Stock Option, the option shall remain fully exercisable
until the expiration date set forth in the option.
(g) In the event of Termination of Employment Upon a Change of Control of a
Participant holding an outstanding option, the term of the option shall
expire on the earlier of 3 months from the date of Termination of
Employment or the expiration date set forth in the option.
(h) Notwithstanding the provisions of Section 3.3(d), in the event of a
Termination of Employment due to Early Retirement (including Early
Retirement during an approved leave of absence) of a Participant holding
an outstanding option, the Committee or its designee may extend the
exercise period of the option up to 3 months from the date of Termination
of Employment (but not beyond the expiration date set forth in the option)
in the case of an Incentive Stock Option or up to the
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expiration date set forth in the option in the case of an option other
than an Incentive Stock Option.
3.4 Stock Appreciation Rights. The Committee shall have the authority to grant
stock appreciation rights to Eligible Employees who are granted options under
this Plan upon such terms and conditions as it shall establish, subject in all
events to the following limitations and provisions of general application:
(a) Each right shall relate to a specific option granted under this Plan and
shall be granted to the optionee either concurrently with the grant of
such option or at such later time as determined by the Committee.
(b) The right shall entitle an optionee to receive a number of shares of
Common Stock, without payment to the Company, determined by dividing--(1)
the total number of shares which the optionee is eligible to purchase as
of the exercise date under the related option multiplied by the amount by
which the Fair Market Value of a share of Common Stock on the exercise
date of the right exceeds the Fair Market Value of a share of Common Stock
on the date, as determined by the Committee, that the right or related
option was granted to the optionee; by (2) the Fair Market Value of a
share of Common Stock on the exercise date.
(c) In lieu of issuing shares on an exercise of a right, the Committee may
elect to pay the cash equivalent of the Fair Market Value on the date of
exercise of any or all the shares which would otherwise be issuable
pursuant to such exercise.
(d) Shares under an option to which a right is related shall be used not more
than once to calculate a number of shares or cash to be received pursuant
to an exercise of such right.
(e) The number of shares which may be purchased pursuant to an exercise of the
related option will be reduced to the extent such shares are used in
calculating the number of shares or cash to be received pursuant to an
exercise of a related right.
(f) In the event of Termination of Employment of a Participant holding an
outstanding right, the right shall be exercisable only to the extent and
upon the conditions that its related option is exercisable.
3.5 Restricted Stock Grants. The Committee shall have the authority to award
Common Stock to Eligible Employees by grant (a "Grant") upon such terms and
conditions as it shall establish, subject in all events to the following
limitations, restrictions and provisions of general application:
(a) Except as expressly provided below, the Common Stock awarded by a Grant
shall not be sold, transferred, assigned, pledged or otherwise disposed of
by the Participant during the period or periods established by the
Committee (each such period, a "Restricted Period"). Common Stock subject
to a Restricted Period may be used to exercise options pursuant to Section
3.3(a). The
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Committee may establish different Restricted Periods applicable to such
number of the shares of Common Stock evidenced by a single Grant as it
deems appropriate.
(b) The Common Stock awarded by a Grant shall be issued by the Company as of
the date of the Grant. During the Restricted Period, the Participant shall
be entitled to vote the shares. Shares issued as a consequence of stock
dividends, splits or reclassifications shall be issued subject to the same
limitations, restrictions and provisions applicable to the Common Stock
with respect to which they are issued.
(c) In the event of Termination of Employment of a Participant during a
Restricted Period, except Termination Upon a Change of Control or
termination by reason of death or Disability, ownership of the Common
Stock subject to any Restricted Period at the date of Termination of
Employment and all rights therein shall be forfeited to the Company,
unless otherwise expressly provided by the Committee. In the event of
Termination of Employment by reason of Retirement of a Participant during
a Restricted Period, the Committee or its designee in the sole discretion
of either may provide, before the Participant's Retirement, that the
Restricted Period applicable to any outstanding Grant at the date of
Retirement shall lapse immediately upon the Participant's Retirement.
(d) In the event of Termination Upon a Change of Control or Termination of
Employment by reason of death or Disability of a Participant during a
Restricted Period, the Restricted Period applicable to any outstanding
Grant at the date of Termination of Employment shall lapse immediately.
(e) The effect of approved leaves of absence on the running of applicable
Restricted Periods shall be determined by the Committee, provided,
however, that no Restricted Period shall lapse during an approved leave of
absence unless expressly provided by the Committee.
(f) Notwithstanding the other provisions of this Section 3.5, options which
have been granted under this Plan to any Company employees who become
employed by Lincoln National Corporation or one or more of its
subsidiaries or affiliates on or about January 1, 1998 as a result of the
sale of the assets of the CIGNA Individual Insurance Division and which
options remain unexercised and unexpired as of December 31, 1997, shall
not expire before the earlier of (1) 10 years from the date of grant or
(2) the later of the close of business on March 31, 1998 or ninety (90)
days following the closing of such sale of assets.
3.6 Dividend Equivalent Rights. The Committee shall have the authority to
grant dividend equivalent rights to Eligible Employees upon such terms and
conditions as it shall establish, subject in all events to the following
limitations and provisions of general application:
(a) Each right may relate to a specific option granted under this Plan and may
be granted to the optionee either concurrently with the grant of such
option or at such later time as determined by the Committee, or each right
may be granted independent of any option.
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(b) The right shall entitle a holder to receive, for a period of time to be
determined by the Committee, a payment equal to the quarterly dividend
declared and paid by the Company on one share of Common Stock. If the
right relates to a specific option, the period shall not extend beyond the
earliest of the date the option is exercised, the date any stock
appreciation right related to the option is exercised, or the expiration
date set forth in the option.
(c) The Committee shall determine at time of grant whether payment pursuant to
a right shall be immediate or deferred and whether it shall be in the form
of cash or Common Stock, or a combination of cash and Common Stock. If
immediate, the Company shall make payments pursuant to each right within
90 days after the Company has paid the quarterly dividend to holders of
Common Stock. If deferred, the payments shall accumulate (with interest
computed in a manner to be determined by the Committee) until a date or
event specified by the Committee and then shall be made within 90 days
after the occurrence of the specified date or event, unless the right is
forfeited under the terms of the Plan.
(d) In the event of Termination of Employment (including termination during an
approved leave of absence) of a Participant for any reason, any dividend
equivalent right held by such Participant at Termination of Employment
shall be forfeited, unless otherwise expressly provided by the Committee.
3.7 Common Stock in Lieu of Other Awards. The Committee shall have the
authority to award an Eligible Employee Common Stock, including Common Stock
awarded by a Grant under Section 3.5, (collectively referred to as a "Stock
Payment") in lieu of all or a portion (determined by the Committee) of an award
otherwise payable pursuant to a Qualifying Incentive Plan or Qualifying
Supplemental Benefit Plan. The Stock Payment shall comprise the number of shares
of Common Stock that have an aggregate Fair Market Value, determined as of the
Payment Date, equal to the amount of the award in lieu of which the Stock
Payment is made. All Stock Payments shall be subject to the following
limitations and provisions of general application:
(a) Unless the Committee, in its sole discretion, provides otherwise, a Stock
Payment which has been awarded to a Participant who dies or whose
employment otherwise terminates before the Payment Date, shall be paid in
the form of Common Stock to the Participant (or to his spouse or estate).
(b) The right to receive all or a portion of Stock Payments in the form of
Common Stock shall be deferred if the Participant has elected to defer the
award otherwise payable in cash under a Deferred Compensation Plan,
subject to the provisions of such Deferred Compensation Plan.
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ARTICLE 4
Shares Authorized under the Plan
4.1 Maximum Number Authorized. The number of shares of Common Stock Authorized
to be issued pursuant to stock options, rights, Grants or Stock Payments awarded
under this Plan is 3,500,000.
4.2 Maximum Number Per Participant. No more than 10% of the maximum number of
shares of Common Stock authorized pursuant to this Plan shall be acquired by any
one Participant by way of option (including Common Stock subject to option),
right, Grant or Stock Payment under this Plan.
4.3 Unexercised Options, Grant Forfeitures and Options Exercised with Common
Stock.
(a) All Common Stock (1) under options granted under this Plan which expire or
are canceled or surrendered or (2) which is forfeited pursuant to Section
3.5, shall be available for further awards under this Plan upon such
expiration, cancellation, surrender or forfeiture; and
(b) Any Common Stock which is used by a Participant as full or partial payment
to the Company for the purchase of Common Stock acquired upon exercise of
a stock option granted under this Plan, and any shares withheld by the
Company to satisfy a Participant's tax withholding obligations, shall be
available for further awards under this Plan.
4.4 No Fractional Shares. No fractional shares of Common Stock shall be issued
pursuant to this Plan.
4.5 Source of Shares. Common Stock may be issued from authorized but unissued
shares or out of shares held in CIGNA Corporation's treasury, or both.
ARTICLE 5
Antidilution Provisions
Except as otherwise expressly provided herein, the following provisions shall
apply to all Common Stock authorized for issuance, and options, granted or
awarded under this Plan:
5.1 Stock Dividends, Splits, Etc. In the event of a stock dividend, stock
split, or other subdivision or combination of the Common Stock, the number of
shares of Common Stock authorized under this Plan will be adjusted
proportionately. Similarly, in any such event there will be a proportionate
adjustment in the number of shares of Common Stock subject to unexercised stock
options (but without adjustment to the aggregate option price) and in the number
of shares of Common Stock then subject to Restricted Periods under a Grant.
5.2 Merger, Exchange or Reorganization. In the event that the outstanding
shares of Common Stock are changed or converted into, exchanged or exchangeable
for, a different number or kind of shares
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or other securities of CIGNA Corporation or of another corporation, by reason of
a reorganization, merger, consolidation, reclassification or combination,
appropriate adjustment shall be made by the Committee in the number of shares
and kind of Common Stock for which options, rights, Grants and Stock Payments
may be or may have been awarded under this Plan, to the end that the
proportionate interests of Participants shall be maintained as before the
occurrence of such event, provided, however, that in the event of any
contemplated transaction which may constitute a Change of Control of CIGNA
Corporation, the Committee, with the approval of a majority of the members of
the Board of Directors who are not then Participants, may modify any and all
outstanding options, rights, Grants and Stock Payments (except those deferred
pursuant to Section 3.7(b)), so as to accelerate, as a consequence of or in
connection with such transaction, the vesting of a Participant's right to
exercise any such options or stock appreciation right or the unqualified
ownership of Common Stock subject to a Grant or the accelerated payment of any
deferred dividend equivalent rights.
ARTICLE 6
Administration of Plan
6.1 General Administration. The Plan is to be administered by the Committee,
subject to such requirements for review and approval by the Board of Directors
as the Board of Directors may establish.
6.2 Administrative Rules. The Committee shall have the power and authority to
adopt, amend and rescind administrative guidelines, rules and regulations
pertaining to this Plan and to interpret and rule on any questions respecting
any provision of this Plan.
6.3 Committee Members Not Eligible. No member of the Committee shall be
eligible to participate in this Plan.
6.4 Decisions Binding. Decisions of the Committee concerning this Plan shall
be binding on CIGNA Corporation and its Subsidiaries and their respective boards
of directors, and on all Eligible Employees and Participants.
ARTICLE 7
Amendments
All amendments to this Plan shall be in writing and shall be effective when
approved by the Board of Directors, provided, however, that an amendment shall
not be effective without the prior approval of the shareholders of CIGNA
Corporation if such approval is necessary under Internal Revenue Service or
Securities and Exchange Commission regulations, or the rules of the New York
Stock Exchange or any applicable law. The Board of Directors may make any
changes required to conform this Plan and option agreements with applicable
provisions of the Internal Revenue Code or regulations thereunder pertaining
to Incentive Stock Options. Unless otherwise expressly provided by an amendment
or the Board of
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Directors, no amendment to this Plan shall apply to grants of
options, rights or Restricted Stock made before the effective date of the
amendment.
ARTICLE 8
Other Provisions
8.1 Effective Date. This Plan is effective on May 1, 1991 (the "Effective
Date").
8.2 Duration of the Plan. The Plan shall remain in effect until all options
and rights granted under this Plan have been satisfied by the issuance of Common
Stock, or terminated under the terms of this Plan, provided that options,
rights, Grants and Stock Payments under this Plan must be awarded on or after
the Effective Date.
8.3 Early Termination. Notwithstanding the provisions of Section 8.2, the
Board of Directors may terminate this Plan at any time; but no such action by
the Board of Directors shall adversely affect the rights of Participants which
exist under this Plan immediately before its termination.
8.4 General Restriction. No Common Stock issued pursuant to this Plan shall be
sold or distributed by a Participant until all appropriate listing, registration
and qualification requirements and consents and approvals have been obtained,
free of any condition unacceptable to the Board of Directors.
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
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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.
8.6 Withholding Taxes. Whenever Common Stock is to be issued or delivered in
satisfaction of options or other awards granted hereunder, the Company shall
have the right to require the Participant to remit an amount sufficient to
satisfy federal, state and local withholding taxes prior to delivery of any
certificate for such shares. The Committee may require, or permit, the
Participant to remit such amount in whole or in part in Common Stock. If the
Committee permits a Participant to elect to remit such amount in Common Stock,
any such election shall be made on or prior to the date the withholding
obligation arises and be subject to the disapproval of the Committee. The
Committee may establish such additional conditions as it deems appropriate. If
the Participant remits such amount in Common Stock, the number of shares of
Common Stock delivered to or on behalf of a Participant shall be reduced by the
number of shares so remitted. Common Stock so remitted shall be valued using the
Fair Market Value of Common Stock as of the date the withholding obligation
arises.
8.7 Safekeeping of Certificates. The certificate evidencing Common Stock
awarded by a restricted stock grant or purchased upon exercise of an option
shall be retained for safekeeping by the Company, or by a custodian appointed by
the Company, except the Committee may in its discretion cause the certificate to
be delivered to the Participant after a restricted stock grant or a purchase
upon exercise of an option. The Company will deliver any such retained
certificates that are not subject to a Restricted Period to the Participant
within a reasonable period after a Participant requests delivery of such
certificates.
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Exhibit 10.8(b)
Amendment No. 1 to the CIGNA Executive Incentive Plan
dated as of February 25, 1998
The CIGNA Executive Incentive Plan shall be amended by adding a new sentence at
the end of Section 4.4 to read as follows:
In the event of a stock dividend, stock split, or other subdivision or
combination of the Common Stock, the number of shares of Common Stock
and/or Restricted Stock which a Participant may receive as an Award
under this Plan will be adjusted proportionately.
Exhibit 10.9
CIGNA LONG-TERM INCENTIVE PLAN
(As Amended and Restated through January 1, 1998)
ARTICLE 1
Statement of Purpose
The CIGNA Long-Term Incentive Plan (the "Plan") is intended to:
(a) provide incentives for and reward key employees of the Company by providing
them with an opportunity to acquire an equity interest in CIGNA
Corporation, thereby increasing their personal interest in its continued
success and progress;
(b) aid the Company in attracting and retaining key personnel of exceptional
ability;
(c) supplement and balance the Company's salary and incentive bonus programs in
support of CIGNA Corporation's long-term strategic plans;
(d) motivate and reward the maximization of CIGNA Corporation's long-term
financial results; and
(e) encourage decisions and actions by senior level Company executives that are
consistent with the long-range interests of CIGNA Corporation's
shareholders.
ARTICLE 2
Definitions
For all purposes of this Plan, except as otherwise expressly provided or defined
herein or unless the context otherwise requires, the terms defined in this
Article shall have the following meanings:
2.1 "Board of Directors" or "Board" means the board of directors of CIGNA
Corporation or any duly authorized committee of that board.
2.2 "CEO" means the Chief Executive Officer of CIGNA Corporation.
2.3 "Change of Control" means:
(a) a corporation, person or group acting in concert, as described in
Exchange Act Section 14(d)(2), 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
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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.
2.4 "Code" means the Internal Revenue Code of 1986, as amended.
2.5 "Committee" means the People Resources Committee of the Board of Directors
or any successor committee with responsibility for compensation. The number
of Committee members and their qualifications shall at all times be
sufficient to meet the requirements of SEC Rule 16b-3 and Code Section
162(m) as in effect from time to time.
2.6 "Common Stock" means the common stock, par value $1 per share, of CIGNA
Corporation.
2.7 "Company" means CIGNA Corporation, a Delaware corporation, and/or its
Subsidiaries.
2.8 "Deferred Compensation Account" means a separate account established
pursuant to a Deferred Compensation Plan.
2.9 "Deferred Compensation Plan" means a deferred compensation plan or other
arrangement of the Company which has been designated by the Committee as a
"Deferred Compensation Plan" for purposes of this Plan.
2.10 "Disability" means permanent and total disability as defined in Code
Section 22(e)(3).
2.11 "Early Retirement" means a Termination of Employment, after appropriate
notice to the Company, (i) on or after age 55 and before age 65 with
eligibility for immediate annuity benefits under a qualified pension or
retirement plan of the Company, or (ii) upon
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such terms and conditions approved by the Committee or officers of the
Company designated by the Board of Directors or the Committee.
2.12 "Eligible Employee" means a salaried officer or other key employee of the
Company.
2.13 "Exchange Act" means the Securities Exchange Act of 1934, as amended.
2.14 "Fair Market Value" means the mean between the highest and lowest quoted
selling prices as reported on the Composite Tape (or other successor means
of publishing stock prices) on the date as of which any determination of
such value is or is required to be made, or, if the Composite Tape or such
successor publication is not published on such date, on the next preceding
date of publication. In the absence of such sales, Fair Market Value shall
be determined by the Committee, which shall take into account all relevant
facts and circumstances.
2.15 "Incentive Stock Option" means a stock option granted in accordance with
Code Section 422.
2.16 "Participant" means an Eligible Employee to whom any one or more of the
awards authorized in this Plan shall have been granted.
2.17 "Payment" means the compensation due a Participant, or Participant's
estate, under the provisions of the Plan on account of a Unit Award.
2.18 "Payment Date" means the date that payment of an award pursuant to a
Qualifying Incentive Plan, or of a benefit pursuant to a Qualifying
Supplemental Benefit Plan, is made or would have been made but for deferral
pursuant to Section 9.3.
2.19 "Peer Group" means a group of companies, selected by the Committee, whose
financial performance is compared to that of CIGNA Corporation to value
Strategic Performance Units.
2.20 "Performance Period" means the period specified by the Committee with
respect to which Unit Awards and Payments may be made.
2.21 "Performance Points" means the number of points assigned to a particular
year of a Performance Period pursuant to Section 10.3 of the Plan.
2.22 "Plan" means the CIGNA Long-Term Incentive Plan, as it may be amended from
time to time.
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2.23 "Qualifying Incentive Plan" means any Company bonus plan, short-term or
long-term incentive compensation plan or any other incentive compensation
arrangement, including but not limited to the Company's Performance
Recognition Award Program.
2.24 "Qualifying Supplemental Benefit Plan" means any plan of the Company
pursuant to which benefits which would have been paid under a tax qualified
retirement plan but for legal limitations are payable in cash to eligible
employees of the Company.
2.25 "Restricted Period" means the period during which Common Stock awarded
under Article 7 is subject to restrictions on sale, transfer, assignment,
pledge or other disposition under Section 7.2.
2.26 "Restricted Stock" means Common Stock granted to a Participant under
Article 7 while it remains subject to a Restricted Period.
2.27 "Retirement" means a Termination of Employment, after appropriate notice to
the Company, (i) on or after age 65 with eligibility for immediate annuity
benefits under a qualified pension or retirement plan of the Company, or
(ii) upon such terms and conditions approved by the Committee, or officers
of the Company designated by the Board of Directors or the Committee.
2.28 "SEC" means the Securities and Exchange Commission.
2.29 "Strategic Performance Unit" or "Unit" means the smallest amount of
incentive opportunity available for award to a Participant for a specified
Performance Period, with a target value of $75.00 per Unit unless a
different target value is established by the Committee at the time a Unit
Award is made.
2.30 "Subsidiary" means any corporation of which more than 50% of the total
combined voting power of all classes of stock entitled to vote, or other
equity interest, is directly or indirectly owned by CIGNA Corporation; or a
partnership, joint venture or other unincorporated entity of which more
than a 50% interest in the capital, equity or profits is directly or
indirectly owned by CIGNA Corporation.
2.31 "Termination for Cause" means a Termination of Employment initiated by the
Company on account of the conviction of an employee of a felony involving
fraud or dishonesty directed against the Company.
2.32 "Termination of Employment" means the termination of the Participant's
active employment relationship with the Company, unless otherwise expressly
provided by the Committee, or the occurrence of a transaction by which the
Participant's employing Company ceases to be a Subsidiary.
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2.33 "Termination Upon a Change of Control" means a termination of employment
upon or within two years after a Change of Control (i) initiated by the
Company or a successor other than a Termination for Cause or (ii) 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 change caused by the Company in his
office location of more than 35 miles from its location on the date of the
Change of Control.
2.34 "Unit Award" means the assignment of a specific number of Strategic
Performance Units to an Eligible Employee for a Performance Period.
ARTICLE 3
Participation
3.1 Participation. The Eligible Employees who have been specifically authorized
by the Committee pursuant to Section 4.2, or the CEO pursuant to Section 4.3, to
receive awards under the Plan shall become Participants in the Plan.
3.2 Directors. Members of the Board of Directors who are not employed by the
Company are not eligible to participate in the Plan.
ARTICLE 4
Authorized Incentive Awards
4.1 Authorized Awards. The awards authorized are as follows:
(a) stock options (including Incentive Stock Options),
(b) stock appreciation rights,
(c) restricted stock grants,
(d) dividend equivalent rights,
(e) Common Stock in lieu of cash or other awards payable under a Qualifying
Incentive Plan or Qualifying Supplemental Benefit Plan, and
(f) Strategic Performance Units.
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4.2 General Powers of the Committee. Subject to the requirements of Delaware
law, the Committee is authorized and empowered in its sole discretion to select
Participants and to grant to them any one or more of the awards authorized above
in such amounts and combinations and upon such terms and conditions as it shall
determine. No power or authority delegated by the Committee to a designee
hereunder may be exercised to affect the terms and conditions of an award made
to anyone subject to the requirements of Exchange Act Section 16(a) or with
respect to matters which have been reserved to the Board of Directors under the
Delaware General Corporation Law.
4.3 General Powers of the CEO. Subject to the requirements of Delaware law, the
CEO is authorized and empowered in his sole discretion to select Participants
and to grant to them any one or more of the awards authorized in Section 4.1
above in such amounts and combinations and upon such terms and conditions as he
shall determine, subject to the same limitations and provisions that apply to
the Committee, and also subject to the following:
(a) the CEO may not make any grants or awards to or for the benefit of (1)
members of the Board of Directors or (2) anyone subject to the requirements
of Exchange Act Section 16(a);
(b) the CEO must be a member of the Board of Directors at the time he makes any
grant or award under the Plan and must be properly empowered by the Board
of Directors to make such grants and awards; and
(c) the total number of shares of Common Stock which may be issued pursuant to
grants or awards made under the authority of this Section 4.3 is limited to
a maximum of ten percent (10%) of the number of shares of Common Stock
authorized to be issued under the Plan.
ARTICLE 5
Stock Options
5.1 General. The Committee shall have the authority to grant Eligible Employees
options to purchase Common Stock upon such terms and conditions as it shall
establish, including restrictions on the right to exercise options, subject in
all events to the limitations and provisions of general application set forth in
this Article 5.
5.2 Option Price. The option price per share of any option shall not be less
than the Fair Market Value on the date of grant. The option price may be paid in
cash or, if the Committee so provides, in Common Stock (including Restricted
Stock). Common Stock used to pay the option price shall be valued using the Fair
Market Value on the date of exercise. To the extent the option price is paid in
shares of Restricted Stock, an equal number of the shares of Common Stock
purchased upon exercise of the option shall be subject to identical restrictions
which shall
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continue in effect for the remaining part of the Restricted Period applicable to
the Restricted Stock used to pay the option price.
5.3 Maximum Term. No option shall be for a term of more than 10 years from the
date of grant.
5.4 Leave of Absence. No option may be exercised during a leave of absence
except to the extent exercisable immediately prior to commencement of the leave
of absence, unless otherwise expressly provided by the Committee.
5.5 Expiration of Options.
(a) In the event of Termination of Employment (including termination during an
approved leave of absence) of a Participant holding an outstanding option
for any reason other than death, Disability, Retirement or Upon a Change of
Control, the term of the option shall expire on the earlier of the date of
Termination of Employment or the expiration date set forth in the option.
(b) In the event of Termination of Employment due to death or Disability
(including death or Disability during an approved leave of absence) of a
Participant holding an outstanding Incentive Stock Option, the option shall
be fully exercisable immediately and the term of the option shall expire on
the earlier of 12 months from the date of Termination of Employment or the
expiration date set forth in the option.
(c) In the event of Termination of Employment due to death, Disability or
Retirement (including death, Disability or Retirement during an approved
leave of absence) of a Participant holding an outstanding option other than
an Incentive Stock Option, the option shall become exercisable in
accordance with conditions imposed by the Committee, at time of grant or
thereafter, and shall remain fully exercisable until the expiration date
set forth in the option.
(d) In the event of Termination of Employment due to Retirement (including
Retirement during an approved leave of absence) of a Participant holding an
outstanding Incentive Stock Option or Termination of Employment Upon a
Change of Control of a Participant holding an outstanding option, the term
of the option shall expire on the earlier of 3 months from the date of
Termination of Employment or the expiration date set forth in the option.
(e) Notwithstanding the provisions of Section 5.5(a), in the event of a
Termination of Employment due to Early Retirement (including Early
Retirement during an approved leave of absence) of a Participant holding an
outstanding option, the Committee or its designee may extend the exercise
period of the option up to 3 months from the date of Termination of
Employment (but not beyond the expiration
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date set forth in the option) in the case of an Incentive Stock Option, or
up to the expiration date set forth in the option in the case of an option
other than an Incentive Stock Option.
(f) Notwithstanding the other provisions of this Section 5.5, options which
have been granted under this Plan to any Company employees who become
employed by Lincoln National Corporation or one or more of its subsidiaries
or affiliates on or about January 1, 1998 as a result of the sale of the
assets of the CIGNA Individual Insurance Division and which options remain
unexercised and unexpired as of December 31, 1997, shall not expire before
the earlier of (1) 10 years from the date of grant or (2) the later of the
close of business on March 31, 1998 or ninety (90) days following the close
of such sale of assets.
5.6 Option Regrants. No option may, without the prior approval of the
shareholders of CIGNA Corporation, be granted by the Committee if (a) it
replaces in any manner an option previously granted by the Committee and (b) the
option price of the newly granted option is lower than that of such previously
granted and replaced option.
5.7 Automatic Option Grants. The Committee may provide that, to the extent a
Participant pays the option price of options granted under the Plan in Common
Stock, new options will automatically be granted to such Participant, subject to
the following terms and conditions:
(a) the option price per share of any such new option shall not be less than
the Fair Market Value on the date of automatic grant;
(b) the date of automatic grant of such new option shall be the date the former
option is exercised; and
(c) the term of the new option shall not extend beyond the original expiration
date of the former option.
5.8 Incentive Stock Options. The following terms and conditions shall apply to
any options granted under the Plan which are identified as Incentive Stock
Options.
(a) Incentive Stock Options may be granted only to Eligible Employees who are
employed by CIGNA Corporation or a corporation which is either a direct
Subsidiary or an indirect Subsidiary through an unbroken chain of
corporations.
(b) No Incentive Stock Option may be granted under this Plan after February 21,
2005.
(c) No Incentive Stock Option may be granted to any person who, at the time the
option is granted, owns (or is deemed to own under Code Section 424(d))
shares of outstanding Common Stock possessing more than 10% of the total
combined voting
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power of all classes of stock of CIGNA Corporation or a Subsidiary, unless
the exercise price of such option is at least 110% of the Fair Market Value
of the stock subject to the option and such option by its terms is not
exercisable after the expiration of five years from the date such option is
granted.
(d) To the extent that the aggregate Fair Market Value of stock with respect to
which the Incentive Stock Options first become exercisable by a Participant
in any calendar year exceeds $100,000 (taking into account both Common
Stock subject to the Incentive Stock Options under this Plan and stock
subject to Incentive Stock Options under all other Company plans, if any),
such options shall be treated as nonqualified stock options. For this
purpose the Fair Market Value of the stock subject to options shall be
determined as of the date the options were awarded. In reducing the number
of options treated as Incentive Stock Options to meet the $100,000 limit,
the most recently granted options shall be reduced first. To the extent a
reduction of simultaneously granted options is necessary to meet the
$100,000 limit, the Committee may, in the manner and to the extent
permitted by law, designate which shares of Common Stock are to be treated
as shares acquired pursuant to the exercise of an Incentive Stock Option.
(e) There shall be imposed upon any grant of Incentive Stock Options such terms
and conditions as are required to meet the requirements of Code Section
422.
ARTICLE 6
Stock Appreciation Rights
6.1 General. The Committee shall have the authority to grant stock appreciation
rights to Eligible Employees who are granted options under this Plan upon such
terms and conditions as it shall establish, subject in all events to the
limitations and provisions of general application set forth in this Article 6.
6.2 Rights and Options. Each right shall relate to a specific option granted
under this Plan and shall be granted to the optionee either concurrently with
the grant of such option or at such later time as determined by the Committee.
6.3 Nature of Rights. The right shall entitle an optionee to receive a number of
shares of Common Stock, without payment to the Company, determined by dividing:
(a) the total number of shares which the optionee is eligible to purchase as of
the exercise date under the related option multiplied by the amount by
which the Fair Market Value of a share of Common Stock on the exercise date
of the right exceeds the Fair Market Value of a share of Common Stock on
the date, as determined by the Committee, that the right or related option
was granted to the optionee; by
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(b) the Fair Market Value of a share of Common Stock on the exercise date.
6.4 Cash Payments. In lieu of issuing shares on an exercise of a right, the
Committee may elect to pay the cash equivalent of the Fair Market Value on the
date of exercise of any or all the shares which would otherwise be issuable
pursuant to such exercise.
6.5 Related Options. Shares under an option to which a right is related shall be
used not more than once to calculate a number of shares or cash to be received
pursuant to an exercise of such right. The number of shares which may be
purchased pursuant to an exercise of the related option will be reduced to the
extent such shares are used in calculating the number of shares or cash to be
received pursuant to an exercise of a related right.
6.6 Termination of Employment. In the event of Termination of Employment of a
Participant holding an outstanding right, the right shall be exercisable only to
the extent and upon the conditions that its related option is exercisable.
ARTICLE 7
Restricted Stock Grants
7.1 General. The Committee shall have the authority to grant Restricted Stock to
Eligible Employees upon such terms and conditions as it shall establish, subject
in all events to the limitations, restrictions and provisions of general
application set forth in this Article 7. The consideration for a grant of
Restricted Stock may be solely in the form of the recipient's services rendered
to the Company, or may be such other lawful form of consideration as the
Committee shall determine.
7.2 Restricted Period. Except as expressly provided below, Restricted Stock
shall not be sold, transferred, assigned, pledged or otherwise disposed of by
the Participant during the Restricted Period(s) established by the Committee.
Restricted Stock may be used to exercise options pursuant to Section 5.2. The
Committee may establish different Restricted Periods and different restriction
terms applicable to such number of the shares of Restricted Stock evidenced by a
single grant as it deems appropriate.
7.3 Issuance; Voting Rights; Dividends. Restricted Stock granted to a
Participant shall be issued by the Company as of the date of the grant. During
the Restricted Period, the Participant shall be entitled to vote the shares. The
Committee may provide for the current payment of dividends on shares of
Restricted Stock to the holders of such shares. Shares issued as a consequence
of stock dividends, splits or reclassifications shall be issued subject to the
same limitations, restrictions and provisions applicable to the Common Stock
with respect to which they are issued.
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7.4 Termination of Employment.
(a) In the event of Termination of Employment of a Participant during a
Restricted Period, except Termination Upon a Change of Control or
termination by reason of death or Disability, ownership of the Restricted
Stock at the date of Termination of Employment and all rights therein shall
be forfeited to the Company, unless otherwise expressly provided by the
Committee. In the event of Termination of Employment by reason of
Retirement of a Participant during a Restricted Period, the Committee or
its designee in the sole discretion of either may provide, before the
Participant's Retirement, that the Restricted Period applicable to any
outstanding Restricted Stock at the date of Retirement shall lapse
immediately upon the Participant's Retirement.
(b) In the event of Termination Upon a Change of Control or Termination of
Employment by reason of death or Disability of a Participant during a
Restricted Period, the Restricted Period applicable to any outstanding
Restricted Stock at the date of Termination of Employment shall lapse
immediately.
7.5 Leave of Absence. The effect of approved leaves of absence on the running of
applicable Restricted Periods shall be determined by the Committee, provided,
however, that no Restricted Period shall lapse during an approved leave of
absence unless expressly provided by the Committee.
ARTICLE 8
Dividend Equivalent Rights
8.1 General. The Committee shall have the authority to grant dividend equivalent
rights to Eligible Employees upon such terms and conditions as it shall
establish, subject in all events to the following limitations and provisions of
general application set forth in Article 8. The consideration for stock issued
pursuant to dividend equivalent rights may be solely in the form of the
recipient's services rendered to the Company, or may be such other lawful form
of consideration as the Committee shall determine.
8.2 Rights and Options. Each right may relate to a specific option granted under
this Plan and may be granted to the optionee either concurrently with the grant
of such option or at such later time as determined by the Committee, or each
right may be granted independent of any option.
8.3 Nature of Rights. The right shall entitle a holder to receive, for a period
of time to be determined by the Committee, a payment equal to the quarterly
dividend declared and paid by the Company on one share of Common Stock. If the
right relates to a specific
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option, the period shall not extend beyond the earliest of the date the option
is exercised, the date any stock appreciation right related to the option is
exercised, or the expiration date set forth in the option.
8.4 Payments. The Committee shall determine at time of grant whether payment
pursuant to a right shall be immediate or deferred and whether it shall be in
the form of cash or Common Stock, or a combination of cash and Common Stock. If
immediate, the Company shall make payments pursuant to each right within 90 days
after the Company has paid the quarterly dividend to holders of Common Stock. If
deferred, the payments shall accumulate (with interest computed in a manner to
be determined by the Committee) until a date or event specified by the Committee
and then shall be made within 90 days after the occurrence of the specified date
or event, unless the right is forfeited under the terms of the Plan.
8.5 Termination of Employment. In the event of Termination of Employment
(including termination during an approved leave of absence) of a Participant for
any reason, any dividend equivalent right held by such Participant at
Termination of Employment shall be forfeited, unless otherwise expressly
provided by the Committee.
ARTICLE 9
Common Stock in Lieu of Other Awards
9.1 General. The Committee shall have the authority to award an Eligible
Employee either Common Stock or Restricted Stock, or both (collectively referred
to as a "Stock Payment") in lieu of all or a portion (determined by the
Committee) of an award otherwise payable pursuant to a Qualifying Incentive Plan
or Qualifying Supplemental Benefit Plan. The Stock Payment shall comprise the
number of shares of Common Stock (or Restricted Stock) that have an aggregate
Fair Market Value, determined as of the Payment Date, equal to the amount of the
award in lieu of which the Stock Payment is made.
9.2 Death; Termination of Employment. Unless the Committee, in its sole
discretion, provides otherwise, a Stock Payment which has been awarded to a
Participant who dies or whose employment otherwise terminates before the Payment
Date, shall be paid in the form of Common Stock or Restricted Stock, as
applicable, to the Participant (or to his spouse or estate).
9.3 Deferral of Payments. The right to receive all or a portion of Stock
Payments in the form of Common Stock shall be deferred if the Participant has
elected to defer the award otherwise payable in cash under a Deferred
Compensation Plan, subject to the provisions of such Deferred Compensation Plan
and paragraph 10.7(d) of this Plan.
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ARTICLE 10
Strategic Performance Units
10.1 Award of Units.
(a) The Committee shall in its sole discretion make Unit Awards to those
Eligible Employees selected for participation for a Performance Period.
(b) In accordance with guidelines approved by the Committee or actions subject
to ratification by the Committee prior to any resulting Unit Award payment,
the CEO or his designee may make a Unit Award to a person who becomes an
Eligible Employee during a Performance Period.
(c) The number of Units that may be awarded to any Eligible Employee during any
calendar year may not exceed 20,000.
10.2 Financial Measures. At the time Unit Awards are made for a particular
Performance Period, the Committee shall establish in writing the objective
performance goals and the financial measurements which shall be used to measure
the degree to which CIGNA Corporation attains those goals. The objective
performance goals shall be in the form of an annual scoring formula or method
and a Performance Period payout formula, as described in Sections 10.3 and 10.4
below. The financial measurements shall be one or more of the following: return
on equity, adjusted return on equity, earnings, revenue growth, expense ratios
or other expense management measures and total shareholder return. The Committee
shall determine at the time Unit Awards are made whether the financial
measurements require a comparison of CIGNA Corporation's financial results to
the financial results of a Peer Group, in which case composition of the Peer
Group shall be determined by the Committee.
10.3 Performance Points. Using an annual scoring formula or method approved by
the Committee at the time Unit Awards are made and the applicable financial
results, a number of Performance Points will be assigned to each year of a
Performance Period. Based upon the Committee's assessment of factors which
affected financial results, the Committee may adjust downward the number of
Performance Points for each or any year in the Performance Period, but such
adjustment shall not exceed 10 points. The Performance Points for each year of a
Performance Period will be added to compute the total number of Performance
Points to be used in valuing Units for the entire Performance Period.
10.4 Value of Units. The number of Performance Points computed for the
Performance Period will determine, in accordance with a Performance Period
payout formula approved by the Committee when Unit Awards are made, the
preliminary dollar value of a Strategic Performance Unit for the Performance
Period. The preliminary value may be adjusted downward by the Committee based
upon the Committee's evaluation of CIGNA
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Corporation's strategic accomplishments over the Performance Period. The maximum
amount of the downward adjustment per Unit shall not exceed $25.00. The
Committee shall certify in writing that the Unit value for a Performance Period
is based on the degree of CIGNA Corporation's attainment of pre-established
performance goals. The final value of each Strategic Performance Unit may not
exceed $200.00.
10.5 Unit Award Payment.
(a) As soon as practicable after the close of a Performance Period, the Units
shall be valued and Unit Award payments shall be made to those Participants
who are eligible to receive a Payment.
(b) A Participant's Unit Award Payment with respect to a Performance Period
shall equal the value of one Strategic Performance Unit, as determined in
accordance with Section 10.4, multiplied by the number of Units in the Unit
Award made to the Participant.
(c) Notwithstanding the above, the Committee in its sole discretion may reduce
the amount of any Payment to any Participant, eliminate entirely the
Payment to any Participant, or defer the Payment until a later date or
occurrence of a particular event. The Committee's authority under this
Section 10.5(c) shall expire immediately upon a Change of Control.
10.6 Eligibility for Payments.
(a) Except for Payments described in paragraphs (b) and (c) of this Section
10.6, and except in the event of a Termination Upon a Change of Control, a
Participant shall be eligible to receive a Unit Award Payment for a
Performance Period only if the Participant has been employed by the Company
continuously from the date of Participant's Unit Award through the date of
Payment.
(b) For the purposes of this Section 10.6, a leave of absence of less than
three months' duration with the approval of the Company is not considered
to be a break in continuous employment. In the case of a leave of absence
of three months or longer:
(1) the Committee, based on the recommendation of the CEO, shall determine
whether or not the leave of absence constitutes a break in continuous
employment for purposes of a Unit Award Payment; and
(2) if a Participant is on a leave of absence on the date that the Unit
Award Payment is to be made, the Committee may require that the
Participant return to active employment with the Company at the end of
the leave of absence as
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a condition of receiving the Payment, and any determination as to
eligibility for a Payment may be deferred for a reasonable period
after such return.
(c) If the employment of a Participant is terminated by reason of Retirement,
death or Disability after receipt of a Unit Award but before the related
Payment is made, the Committee or its designee shall determine whether a
Payment shall be made to or on behalf of such Participant, and whether the
Payment, if made, shall be in full or prorated based on factors determined
in the sole discretion of the Committee, or its designee. Any such Payment
shall be made to the Participant or the Participant's estate.
(d) In the event of a Termination Upon a Change of Control of a Participant
after the Participant receives a Unit Award but before the related Payment
is made, a Payment in cash shall be made to the Participant within 30 days
following the Termination Upon a Change of Control. The amount of the
Payment shall be an amount equal to the total number of Units contained in
all Unit Awards held by the Participant as of the date of his Termination
Upon a Change of Control multiplied by the greatest of:
(1) the Unit target value;
(2) the highest value established by the Committee for Unit Awards,
including units awarded under the CIGNA Corporation Strategic
Performance Plan, for which any Payments were made to any Participants
during the twelve-month period immediately preceding the date of
Participant's Termination Upon a Change of Control; or
(3) the average of the highest values established by the Committee for the
last two Unit Awards, including units awarded under the CIGNA
Corporation Strategic Performance Plan, paid to any Participants prior
to the date of Participant's Termination Upon a Change of Control.
10.7 Form of Payment.
(a) Except as otherwise provided in Section 10.6(d), Unit Award Payments shall
be made in cash, shares of Common Stock, Restricted Stock, options or a
combination of these forms of Payment, as determined by the Committee in
its sole discretion.
(b) If the Committee requires a Payment to be made wholly or partially in
shares of Common Stock or Restricted Stock as provided in paragraph (a)
above, the Payment shall be made in whole shares, the number of which shall
have an aggregate Fair Market Value which most closely approximates, but
does not exceed, the dollar amount of the Payment if made in cash.
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(c) A Participant's Payment may be deferred in accordance with the provisions
of the Deferred Compensation Plan of CIGNA Corporation and Participating
Subsidiaries or a similar or successor plan.
(d) In case of any deferral under Section 9.3 or paragraph 10.7(c) of the Plan,
the interest rate which may be credited upon such deferred compensation
would be one that would produce a rate of return not considered to be an
impermissible increase in compensation within the meaning of Code Section
162(m).
ARTICLE 11
Shares Authorized under the Plan
11.1 Maximum Number Authorized. The number of shares of Common Stock authorized
to be issued pursuant to stock options, rights, grants, Stock Payments or other
awards under this Plan is 5,000,000.
11.2 Maximum Number Per Participant. Notwithstanding anything contained herein
to the contrary, the aggregate number of shares of Common Stock subject to
options and stock appreciation rights that may be granted during any calendar
year to any individual shall be limited to 500,000. For purposes of this
limitation, if an option is cancelled, such cancelled option shall continue to
be counted during the calendar year of cancellation against the maximum shares
for which options and stock appreciation rights may be granted to an individual.
11.3 Unexercised Options, Grant Forfeitures and Options Exercised with Common
Stock.
(a) All Common Stock (1) under options granted under this Plan which expire or
are canceled or surrendered or (2) which is forfeited pursuant to Section
7.4, shall be available for further awards under this Plan upon such
expiration, cancellation, surrender and forfeiture; and
(b) Any Common Stock which is used by a Participant as full or partial payment
to the Company for the purchase of Common Stock acquired upon exercise of a
stock option granted under this Plan, and any shares withheld by the
Company to satisfy a Participant's tax withholding obligations, shall be
available for further awards under this Plan.
11.4 No Fractional Shares. No fractional shares of Common Stock shall be issued
pursuant to this Plan.
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11.5 Source of Shares. Common Stock may be issued from authorized but unissued
shares or out of shares held in CIGNA Corporation's treasury, or both.
ARTICLE 12
Antidilution Provisions
Except as otherwise expressly provided herein, the following provisions shall
apply to all shares of Common Stock authorized for issuance and all Restricted
Stock and options granted or awarded under this Plan:
12.1 Stock Dividends, Splits, Etc. In the event of a stock dividend, stock
split, or other subdivision or combination of the Common Stock, the number of
shares of Common Stock authorized under this Plan will be adjusted
proportionately. Similarly, in any such event there will be a proportionate
adjustment in the number of shares of Common Stock subject to unexercised stock
options (but without adjustment to the aggregate option price) and in the number
of shares of Restricted Stock outstanding.
12.2 Merger, Exchange or Reorganization. In the event that the outstanding
shares of Common Stock are changed or converted into, exchanged or exchangeable
for, a different number or kind of shares or other securities of CIGNA
Corporation or of another corporation, by reason of a reorganization, merger,
consolidation, reclassification or combination, appropriate adjustment shall be
made by the Committee in the number of shares and kind of Restricted Stock and
Common Stock for which options, rights and Stock Payments may be or may have
been awarded under this Plan, to the end that the proportionate interests of
Participants shall be maintained as before the occurrence of such event,
provided, however, that in the event of any contemplated transaction which may
constitute a Change of Control of CIGNA Corporation, the Committee, with the
approval of a majority of the members of the Board of Directors who are not then
Participants, may modify any and all outstanding Restricted Stock, options,
rights, and Stock Payments (except those deferred pursuant to Section 9.3), so
as to accelerate, as a consequence of or in connection with such transaction,
the vesting of a Participant's right to exercise any such options or stock
appreciation right or the lapsing of the Restricted Periods for shares of
Restricted Stock or the accelerated payment of any deferred dividend equivalent
rights.
ARTICLE 13
Administration of Plan
13.1 General Administration. The Plan is to be administered by the Committee,
subject to such requirements for review and approval by the Board of Directors
as the Board of Directors may establish.
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13.2 Administrative Rules. The Committee shall have full power and authority to
adopt, amend and rescind administrative guidelines, rules and regulations
pertaining to this Plan and to interpret the Plan and rule on any questions
respecting any of its provisions, terms and conditions.
13.3 Committee Members Not Eligible. No member of the Committee shall be
eligible to participate in this Plan.
13.4 Decisions Binding. All decisions of the Committee concerning this Plan
shall be binding on CIGNA Corporation and its Subsidiaries and their respective
boards of directors, and on all Eligible Employees, Participants and other
persons claiming rights under the Plan.
ARTICLE 14
Amendments
All amendments to this Plan shall be in writing and shall be effective when
approved by the Board of Directors, provided, however, that an amendment shall
not be effective without the prior approval of the shareholders of CIGNA
Corporation if such approval is necessary under Internal Revenue Service or SEC
regulations, or the rules of the New York Stock Exchange or any applicable law.
The Board of Directors may make any changes required to conform this Plan and
option agreements with applicable provisions of the Internal Revenue Code or
regulations thereunder pertaining to Incentive Stock Options. Unless otherwise
expressly provided by an amendment or the Board of Directors, no amendment to
this Plan shall apply to grants of options, rights or Restricted Stock made
before the effective date of the amendment. 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.
ARTICLE 15
Other Provisions
15.1 Effective Date. This Plan is effective as of January 1, 1995 (the
"Effective Date"), subject to approval by the shareholders of CIGNA Corporation.
15.2 Duration of the Plan. The Plan shall remain in effect until all options and
rights granted under this Plan have been satisfied by the issuance of Common
Stock, or terminated under the terms of this Plan, and all Performance Periods
related to Unit Awards granted under the Plan have expired.
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15.3 Early Termination. Notwithstanding the provisions of Section 15.2, the
Board of Directors may terminate this Plan at any time; but no such action by
the Board of Directors shall adversely affect the rights of Participants which
exist under this Plan immediately before its termination.
15.4 General Restriction. No Common Stock issued pursuant to this Plan shall be
sold or distributed by a Participant until all appropriate listing, registration
and qualification requirements and consents and approvals have been obtained,
free of any condition unacceptable to the Board of Directors. In no event shall
the value, amount or form of consideration for any award under the Plan be less
than the value or amount, or in other than the form, required by applicable
Delaware law.
15.5 Awards Not Assignable.
(a) No derivative security (as defined in rules promulgated under Exchange Act
Section 16), 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 representative.
(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
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family" shall mean, with respect to any person, a spouse, any child,
stepchild or grandchild, and shall include relationships arising from legal
adoption.
15.6 Withholding Taxes. Upon the exercise of any option or stock appreciation
right, the vesting of any Restricted Stock, or payment of any award described in
Section 4.1(d), (e) or (f), or upon the exercise of an Incentive Stock Option
prior to the satisfaction of the holding period requirements of Code Section
422, the Company shall have the right at its option to:
(a) require the Participant (or personal representative or beneficiary) to
remit an amount sufficient to satisfy federal, state and local withholding
taxes; or
(b) deduct, from any amount payable, the amount of any taxes the Company may be
required to withhold with respect to such transaction.
The Committee may require, or permit, the Participant to remit such amount in
whole or in part in Common Stock. If the Committee permits a Participant to
elect to remit such amount in Common Stock, any such election shall be made on
or prior to the date the withholding obligation arises and be subject to the
disapproval of the Committee. The Committee may establish such additional
conditions as it deems appropriate. If the Participant remits such amount in
Common Stock, the number of shares of Common Stock delivered to or on behalf of
a Participant shall be reduced by the number of shares so remitted. Common Stock
so remitted shall be valued using the Fair Market Value of Common Stock as of
the date the withholding obligation arises.
15.7 Safekeeping of Certificates. The certificate evidencing Common Stock
awarded by a Restricted Stock grant or purchased upon exercise of an option
shall be retained for safekeeping by the Company, or by a custodian appointed by
the Company, except the Committee may in its discretion cause the certificate to
be delivered to the Participant after a Restricted Stock grant or a purchase
upon exercise of an option. The Company will deliver any such retained
certificates that are not subject to a Restricted Period to the Participant
within a reasonable period after a Participant requests delivery of such
certificates.
15.8 Participant's Rights Unsecured. The right of any Participant to receive
future payments under the provisions of the Plan shall be an unsecured claim
against the general assets of the Company.
15.9 Future Participation Not Guaranteed. Participation in the Plan with respect
to a Performance Period is not in and of itself to be construed as evidence of a
right to participate in any subsequent Performance Period. For each successive
Performance Period, participation of an Eligible Employee shall be evidenced
only by the grant to the Eligible Employee by the Committee of a Unit Award.
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15.10 Termination of Employment. CIGNA Corporation and each Subsidiary retain
the right to terminate the employment of any employee at any time for any reason
or no reason, and an award or grant under the Plan to an Eligible Employee is
not, and shall not be construed in any manner to be, a waiver of such right.
15.11 Successors. Any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the business
or assets of CIGNA Corporation, shall assume the liabilities of CIGNA
Corporation under this Plan and perform any duties and responsibilities in the
same manner and to the same extent that CIGNA Corporation would be required to
perform if no such succession had taken place.
15.12 Construction. The terms used in this Plan shall include the feminine as
well as the masculine gender and the plural as well as the singular, as the
context in which they are used requires.
21
Exhibit 10.17
NON-COMPETE AGREEMENT
This Non-Compete Agreement ("Agreement") is dated as of October 20, 1997,
and is between Wilson H. Taylor, who resides at _______________________________
___________________ ("Executive") and CIGNA Corporation, 1650 Market Street,
Philadelphia, Pennsylvania, 19192, a Delaware corporation ("CIGNA").
WHEREAS, as of October 20, 1997 CIGNA granted to Executive an option to
purchase 150,000 shares of CIGNA Common Stock under the CIGNA Long-Term
Incentive Plan (the "Option"), and the People Resources Committee of CIGNA's
Board of Directors provided that the Option shall remain exercisable only until
the earlier of the Option Expiration Date or the end of the period that the
non-compete provisions of this Agreement remain in effect.
NOW, THEREFORE, Executive and CIGNA, intending to be legally bound and in
consideration of the Option grant and the promises in this Agreement, mutually
agree as follows:
1. In addition to the terms defined above, the following definitions apply to
the terms used in this Agreement:
a. "Company" means CIGNA Corporation and its subsidiaries and
affiliates.
b. "Competitor" means any person or business entity that offers for
sale to third parties, in markets that the Company at the relevant
time either serves or is actively planning to serve, any products or
services of a type then provided to customers by the Company.
c. "Option Expiration Date" means October 20, 2007, or any earlier date
that the Option expires under the terms of the Plan and the Option
grant letter and Attachment.
d. "Plan" means the CIGNA Long-Term Incentive Plan, as amended.
e. "Restricted Area" means any geographic area where the Company is
doing business as of the beginning of the Restricted Period or has,
during the one-year period immediately before the beginning of the
Restricted Period, been actively planning to do business.
f. "Restriction Period" means the period(s) described in paragraph 3.
g. "Retirement Date" shall mean the date of Executive's Retirement, as
defined in Section 2.27 of the Plan.
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2. Executive agrees that, during the Restriction Period in the Restricted
Area, he will not:
a. Become an owner (other than as a shareholder with less than a 2%
interest), employee or independent contractor of any Competitor;
b. Solicit or attempt to solicit, directly or indirectly, on behalf of
any Competitor, any person, entity or business that at the time of
the solicitation is (or as of the beginning of the Restriction
Period was) a Company customer to purchase any products or services
of a type then available from Company; or
c. Directly or indirectly, solicit or hire, solicit the employment or
engagement for hire, or otherwise attempt to employ or engage for
hire, as an employee or independent contractor any person who,
within the one-year period immediately before the beginning of the
Restriction Period, has been an officer or employee of the Company,
unless the employment of such officer or employee has been
unilaterally terminated by the Company.
3. a. The Restriction Period shall begin on the Executive's Retirement
Date. Initially, the Restriction Period shall end on the second
anniversary of Executive's Retirement Date.
b. On each anniversary of the Executive's Retirement Date (including
the first anniversary), the Restriction Period shall automatically
be extended for one additional year.
c. The Executive shall, however, have the right to avoid the automatic
extension by providing timely written notice to CIGNA. On the
Retirement Date anniversary immediately following CIGNA's receipt of
the Executive's written notice that he wishes to avoid automatic
extension of the Restriction Period, the Restriction Period will not
be automatically extended, but will end one year later.
d. In any event the Restriction Period shall end no later than the
Option Expiration Date.
4. The consequences of Executive's breach of any of the terms of this
Agreement or of his exercise of the right to avoid the automatic extension of
the Restriction Period shall be as set forth in the Option grant letter and
Attachment to that letter.
5. In any proceeding in which the Executive (or anyone acting on his behalf)
challenges the scope of the restrictions on Executive's post-Retirement
activities under this Agreement (including without limitation any proceeding
related to Executive's Option rights), if a court or arbitrator finds that such
scope is too broad to be enforceable under relevant law, then it is the intent
of both
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parties that the court or arbitrator reduce the scope of the protections, but
only to the extent necessary to make the restrictions legally enforceable.
6. This Agreement is not a contract of employment for any specified term, and
nothing herein is intended to, nor shall be construed as, changing the nature of
Executive's employment from an at-will relationship. This Agreement is limited
to the terms and conditions set forth herein and does not otherwise address
Executive's compensation or benefits, the duties and responsibilities of his
position, or any of the Company's other rights as employer.
7. The Agreement is made and entered into in the Commonwealth of
Pennsylvania, and at all times and for all purposes shall be interpreted,
enforced and governed under its laws, without regard to principles of conflict
of laws.
8. It is agreed that any controversy or claim arising out of or relating to
this Agreement shall be settled exclusively by arbitration in Philadelphia,
Pennsylvania, in accordance with the Commercial Arbitration Rules of the
American Arbitration Association, and judgment upon the award rendered by the
Arbitrator(s) may be entered in any court having jurisdiction thereof.
9. CIGNA's rights and obligations under this Agreement will inure to the
benefit of and be binding upon CIGNA's successors and assigns. Executive's
rights and obligations under this Agreement shall not be assignable without
CIGNA's express, written consent.
10. This Agreement, together with the Option grant letter, the Attachment to
that letter and the Plan, contain the entire agreement between Executive and
CIGNA with respect to the matters addressed herein and fully replaces and
supersedes any and all other prior agreements or understandings between them
related to such matters. Any amendment to this Agreement must be in writing and
signed by both CIGNA and Executive.
IN WITNESS WHEREOF, the persons named below have signed this Agreement on
the dates shown below.
CIGNA Corporation
11/21/97 /s/ Donald M. Levinson
-------- ---------------------------------------
Date By: Donald M. Levinson,
Executive Vice President
11/21/97 /s/ Wilson H. Taylor
-------- ---------------------------------------
Date Wilson H. Taylor
3
Exhibit 10.18
NON-COMPETE AGREEMENT
This Non-Compete Agreement ("Agreement") is dated as of December 8, 1997,
and is between_____________________________, who resides at
____________________________ ____________________________ ("Executive") and
CIGNA Corporation, 1650 Market Street, Philadelphia, Pennsylvania, 19192, a
Delaware corporation ("CIGNA").
WHEREAS, on December 8, 1997 CIGNA granted to Executive an option to
purchase 75,000 shares of CIGNA Common Stock (the "Option"), and the People
Resources Committee of CIGNA's Board of Directors provided that the Option grant
was conditioned on Executive's entering into a non-compete agreement with CIGNA;
NOW, THEREFORE, Executive and CIGNA, intending to be legally bound and in
consideration of the Option grant and the promises in this Agreement, mutually
agree as follows:
1. In addition to the terms defined above, the following definitions apply to
the terms used in this Agreement:
a. "Company" means CIGNA Corporation and its subsidiaries and
affiliates.
b. "Competitor" means any person or business entity that offers for
sale to third parties, in markets that at the relevant time the
Company serves or is actively planning to serve, any products or
services of a type that are then provided to Company customers as
part of the Company's Protected Business.
c. "Protected Business" means those business activities that (1) have
been conducted by the Company to the extent the Executive had any
significant responsibilities for such business at any time during
the twenty-four (24) month period ending on the date Executive's
employment with the Company terminates or (2) have actively been
planned by the Company to the extent Executive has been
significantly involved in such plans at any time during the twelve
(12) month period ending on the date Executive's employment with the
Company terminates.
d. "Restricted Area" means any geographic area where the Company is
conducting any Protected Business.
e. "Restriction Period" means the period beginning on the date
Executive's employment with the Company terminates and ending on the
first anniversary of that date.
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2. Executive agrees that, during the Restriction Period in the Restricted
Area, he will not without the advance written consent of a duly authorized
officer of the Company:
a. Become an owner (other than as a shareholder with less than a 2%
interest), employee or independent contractor of any Competitor;
b. Solicit or attempt to solicit, directly or indirectly, on behalf of
any Competitor, any person, entity or business that at the time of
the solicitation is (or as of the date of Executive's termination of
employment was) a customer of the Company to purchase any products
or services of a type then available from the Company; or
c. Directly or indirectly, solicit or hire, solicit the employment or
engagement for hire, or otherwise attempt to employ or engage for
hire, as an employee or independent contractor any person who,
within the one-year period immediately before the date of
Executive's termination of employment, has been an officer or
employee of the Company, unless the employment of such officer or
employee has been unilaterally terminated by the Company.
3. Executive acknowledges that the Company will have no adequate remedy at
law if Executive violates the terms of paragraph 2 above. In such event,
notwithstanding paragraph 6 below, the Company shall have the right, in addition
to any other rights it may have, to obtain in any court of competent
jurisdiction injunctive relief to restrain any breach or threatened breach of
specific performance of paragraph 2 of this Agreement. If, in any such
proceeding, the court finds that the scope of protections afforded the Company
is too broad to be enforceable under relevant law, then it is the intent of the
parties that the court reduce the scope of the protections, but only to the
extent necessary to make the protections enforceable, and then to enforce the
protections as reduced in scope.
4. This Agreement is not a contract of employment for any specified term, and
nothing herein is intended to, nor shall be construed as, changing the nature of
Executive's employment from an at-will relationship. This Agreement is limited
to the terms and conditions set forth herein and does not otherwise address
Executive's compensation or benefits, the duties and responsibilities of his
position, or any of the Company's other rights as employer.
5. The Agreement is made and entered into in the Commonwealth of
Pennsylvania, and at all times and for all purposes shall be interpreted,
enforced and governed under its laws, without regard to principles of conflict
of laws.
6. It is agreed that any controversy or claim arising out of or relating to
this Agreement, other than the Company's attempt to obtain injunctive relief
under paragraph 3 above, shall be settled exclusively by arbitration in
Philadelphia, Pennsylvania, in accordance with the Commercial Arbitration Rules
of the American Arbitration Association, and judgment upon the award rendered by
the Arbitrator(s) may be entered in any court having jurisdiction thereof.
2
<PAGE>
7. CIGNA's rights and obligations under this Agreement will inure to the
benefit of and be binding upon CIGNA's successors and assigns. Executive's
rights and obligations under this Agreement shall not be assignable without
CIGNA's express, written consent.
8. This Agreement contains the entire agreement between Executive and CIGNA
with respect to the matters addressed herein and fully replaces and supersedes
any and all other prior agreements or understandings between them related to
such matters. Any amendment to this Agreement must be in writing and signed by
both CIGNA and Executive.
IN WITNESS WHEREOF, the persons named below have signed this Agreement on
the dates shown below.
CIGNA Corporation
__________ By:_______________________________
Date _______________________________
_______________________________
__________ _______________________________
Date [executive]
3
Exhibit 12
CIGNA CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in millions)
<TABLE>
<CAPTION>
Year ended December 31,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(In millions)
<S> <C> <C> <C> <C> <C>
Income before income taxes ............................ $1,650 $1,601 $251 $805 $165
------ ------ ---- ------ ----
Fixed charges included in income:
Interest expense................................... 127 102 120 121 124
Interest portion of rental expense................. 94 86 99 102 114
------ ------ ---- ------ ----
Total fixed charges included in income.......... 221 188 219 223 238
------ ------ ---- ------ ----
Income available for fixed charges..................... $1,871 $1,789 $470 $1,028 $403
------ ------ ---- ------ ----
Ratio of earnings to fixed charges..................... 8.5 9.5 2.1 4.6 1.7
====== ====== ==== ====== ====
</TABLE>
<TABLE>
<CAPTION>
HIGHLIGHTS
- -------------------------------------------------------------------------------------------------------------------------
(Dollars in millions, except per share amounts) 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues:
Premiums and fees $14,935 $13,916 $13,914 $13,912 $13,712
Net investment income and other revenues 4,936 4,943 4,808 4,438 4,408
Realized investment gains 167 91 233 42 282
- -------------------------------------------------------------------------------------------------------------------------
Total $20,038 $18,950 $18,955 $18,392 $18,402
- ----------------------------------------------------=====================================================================
Net Income (Loss):
Employee Life and Health Benefits $441 $500 $597 $548 $589
Employee Retirement and Savings Benefits 233 222 194 190 159
Individual Financial Services 208 168 151 136 110
Property and Casualty 275 240 (673) (235) (530)
Other Operations (71) (74) (58) (85) (94)
- -------------------------------------------------------------------------------------------------------------------------
Total $1,086 $1,056 $211 $554 $234
- ----------------------------------------------------=====================================================================
Earnings per share:
Basic $14.79 $14.05 $2.90 $7.74 $3.28
Diluted $14.64 $13.91 $2.88 $7.50 $3.26
Common dividends declared per share $3.32 $3.20 $3.04 $3.04 $3.04
Total assets $108,199 $98,932 $95,903 $86,102 $84,975
Long-term debt $1,465 $1,021 $1,066 $1,389 $1,235
Shareholders' equity $7,932 $7,208 $7,157 $5,811 $6,575
Per share $109.66 $97.15 $93.76 $80.46 $91.30
Common shares outstanding (thousands) 72,332 74,198 76,332 72,225 72,015
Shareholders of record 12,953 14,027 15,131 16,408 17,491
Employees 47,700 42,800 44,700 48,600 50,600
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Earnings per share amounts for years 1993 - 1996 have been restated to reflect
the adoption of Statement of Financial Accounting Standards No. 128, "Earnings
Per Share." For more information regarding the effect of adopting accounting
pronouncements, see the Notes to Financial Statements.
1
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CONSOLIDATED RESULTS OF OPERATIONS
(In millions)
- ---------------------------------------------------------------
FINANCIAL SUMMARY 1997 1996 1995
- ---------------------------------------------------------------
Premiums and fees $14,935 $13,916 $13,914
Net investment income 4,245 4,333 4,296
Other revenues 691 610 512
Realized investment gains 167 91 233
-------------------------------
Total revenues 20,038 18,950 18,955
Benefits and expenses 18,388 17,349 18,704
-------------------------------
Income before taxes 1,650 1,601 251
Income taxes 564 545 40
-------------------------------
Net income $1,086 $1,056 $211
- --------------------------------===============================
Realized investment gains,
net of taxes $115 $54 $178
- --------------------------------===============================
CIGNA's consolidated net income increased 3% in 1997 reflecting improved
results in all segments except for the Employee Life and Health Benefits
segment, which included fourth quarter 1997 after-tax charges of $58 million for
integration costs associated with the acquisition of Healthsource, Inc.
(Healthsource) and $22 million for health care restructuring costs as discussed
below.
CIGNA's consolidated net income increased substantially in 1996 compared to
1995, reflecting third quarter 1995 charges of $774 million after-tax in the
Property and Casualty segment, primarily for asbestos-related and environmental
pollution (A&E) exposures, and a $75 million after-tax charge associated with
cost reduction restructuring initiatives in the Property and Casualty and
Employee Life and Health Benefits segments. Partially offsetting these charges
were significant realized investment gains from the restructuring of the
investment portfolio.
CIGNA's operating income*, excluding the 1997 and 1995 charges noted above,
was $1.1 billion, $1.0 billion and $882 million for 1997, 1996 and 1995,
respectively. The 1997 increase reflects improvements in all business segments,
while the 1996 increase primarily reflects improved results in the Property and
Casualty segment.
Net realized investment gains increased 113% in 1997, reflecting sales of
real estate and fixed maturities. For 1996, realized investment gains decreased
substantially due to the 1995 restructuring of a significant portion of the
Employee Life and Health Benefits and Property and Casualty equity investment
portfolios into fixed income securities. For additional information on net
realized investment gains, see Note 5(B) to the Financial Statements.
Consolidated revenues, excluding realized investment gains, were $19.9
billion, $18.9 billion and $18.7 billion for 1997, 1996 and 1995, respectively.
The 1997 increase primarily reflects growth in the Employee Life and Health
Benefits segment, principally from Healthsource and growth in the Individual
Financial Services segment. Revenue growth for all years was constrained by
continued price competition and strict underwriting standards.
Operating income is expected to improve in 1998; however, such improvement
could be adversely affected by the factors noted in the cautionary statement on
page 23.
OTHER MATTERS
Acquisitions and Dispositions
CIGNA acquired the outstanding common stock of Healthsource on June 25,
1997. The cost of the acquisition was $1.7 billion, reflecting the purchase of
Healthsource common stock for $1.4 billion and the retirement of Healthsource
debt of $250 million. The acquisition was accounted for as a purchase, and was
financed through the issuance of long-term debt of $600 million and a
combination of internally generated funds and short-term debt.
In the fourth quarter of 1997, CIGNA recorded a pre-tax integration charge
of $87 million ($58 million after-tax) in connection with its review of
Healthsource operations. The charge primarily resulted from an analysis of
Healthsource HMO medical reserves, receivable balances and contractual
obligations.
In addition, Healthsource goodwill and other intangibles of $1.5 billion,
recorded at the time of acquisition, were increased by $24 million in the fourth
quarter of 1997. This increase primarily reflects severance of Healthsource
employees, vacated Healthsource lease space and adjustments to Healthsource net
assets to conform to CIGNA's accounting policies. Cash outlays associated with
the Healthsource severance and vacated lease space are expected to be completed
in 1998 and will be funded through liquid assets with no material adverse effect
on CIGNA's liquidity. These initiatives are expected to result in annual
after-tax expense savings of $35 million, primarily resulting from the
elimination of payroll costs and, to a lesser extent, lease costs. Approximately
two-thirds of the savings are expected to emerge in 1998 and the full amount in
1999.
As of January 1, 1998, CIGNA sold its individual life insurance and annuity
businesses for cash proceeds of $1.4 billion. The sale resulted in an after-tax
gain of approximately $800 million. Since the principal agreement to sell these
businesses is in the form of a reinsurance arrangement, approximately $575
million of the gain will be deferred and amortized over future periods, with
approximately $60 million expected to be recognized in 1998. Proceeds from the
sale are expected to be used for internal growth, acquisitions and share
repurchases, with share repurchases being the expected use in the near term.
- --------
*Operating income (loss) is defined as net income (loss) excluding after-tax
realized investment results.
10
<PAGE>
The businesses sold, which are included in the Individual Financial Services
segment, reported the following results:
- ---------------------------------------------------------------
(In millions) 1997 1996 1995
- ---------------------------------------------------------------
Revenues $972 $926 $865
Operating Income $98 $64 $73
Net Income $102 $67 $74
===============================================================
CIGNA continues to conduct strategic and financial reviews of its businesses
in order to deploy its capital most effectively.
See Note 3 to the Financial Statements for additional information on
acquisitions and dispositions.
Cost Reduction Initiatives
In the fourth quarter of 1997, CIGNA adopted a cost reduction plan to
restructure its health care operations, which resulted in a pre-tax charge of
$32 million ($22 million after-tax) in the Employee Life and Health Benefits
segment. The charge consisted primarily of costs related to severance, real
estate and other costs for office closings. The cash outlays associated with
these initiatives will continue through 1999 with most occurring in 1998. CIGNA
will fund the cash outlays through liquid assets, and such funding will not have
a material adverse effect on its liquidity. These initiatives are expected to
result in annual after-tax expense savings of $50 million with approximately
two-thirds of the savings emerging in 1998 and the full amount in 1999.
During 1995, CIGNA recorded a $30 million pre-tax charge ($20 million
after-tax) for cost reduction restructuring initiatives in the Employee Life and
Health Benefits segment. The charge consisted primarily of severance-related
expenses. These initiatives were completed in 1997 with no material difference
from original estimates.
During 1995, CIGNA recorded an $85 million pre-tax charge ($55 million
after-tax) for cost reduction restructuring initiatives in the Property and
Casualty segment. The charges consisted primarily of costs related to severance,
vacated lease space, and costs to exit certain lines of business. These
initiatives were substantially completed in 1997 with no material difference
from original estimates.
See Note 16 to the Financial Statements for additional information on cost
reduction initiatives.
Other
CIGNA is highly dependent on automated systems and systems applications in
conducting its ongoing operations. Such systems are utilized for, among other
things, processing claims, billing and collecting premiums from customers and
managing investment activities. If these systems were unable to process data
accurately because of failing to be Year 2000 ready, these activities would be
interrupted and could have a material adverse effect on CIGNA's results of
operations. By the beginning of 1999, CIGNA expects to substantially complete
modifications or replacement of systems to ensure Year 2000 readiness, with the
remainder being completed by the end of 1999. CIGNA is utilizing both internal
and external resources to meet this timetable. The costs of these efforts are
not expected to have a material adverse effect on consolidated results of
operations. However, such costs could have a material adverse effect on certain
segments' 1998 results of operations.
In addition, CIGNA has relationships with various third party entities in
its ordinary course of business. CIGNA is assessing and attempting to mitigate
its risks with respect to the failure of these entities to be Year 2000 ready.
The effect, if any, on CIGNA's results of operations from the failure of these
entities to be Year 2000 ready is not reasonably estimable. Property and
casualty indemnity losses for Year 2000 claims are not expected to be material,
however, litigation costs to defend or deny such claims are not reasonably
estimable at this time.
In October 1997, Standard and Poor's raised its ratings on CIGNA's senior
debt to A ("Strong," 6th of 22) from A- ("Strong," 7th of 22), and on CIGNA's
commercial paper to A-1 ("Strong," 2nd of 7) from A-2 ("Satisfactory," 3rd of
7). As a result of the sale of CIGNA's individual life insurance and annuity
businesses, Duff & Phelps Credit Rating Co. lowered the claims paying ability
rating of Connecticut General Life Insurance Company, one of CIGNA's principal
life insurance company subsidiaries, to AA+ ("Very High," 2nd of 18) from AAA
("Highest," 1st of 18).
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. The
restructuring is being contested in the courts by certain competitors and
policyholders. Although CIGNA expects the matter to be in litigation for some
time, it expects to ultimately prevail.
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:
o increase health care regulation;
o revise the system of funding cleanup of environmental damages;
o reinterpret insurance contracts long after the policies were
written to provide coverage unanticipated by CIGNA;
o restrict insurance pricing and the application of underwriting
standards; and
o revise federal tax laws.
11
<PAGE>
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
The American Institute of Certified Public Accountants issued Statement of
Position (SOP) 97-3, "Accounting by Insurance and Other Enterprises for
Insurance-Related Assessments" in 1997. SOP 97-3 provides guidance on the
recognition and measurement of liabilities for guaranty fund and other
insurance-related assessments. Implementation is required by the first quarter
of 1999, with the cumulative effect of adopting the SOP reflected in net income
in the year of adoption. CIGNA has not determined the effect or timing of
implementation of this pronouncement.
See Note 2(B) to the Financial Statements for additional information
regarding accounting pronouncements.
EMPLOYEE LIFE AND HEALTH BENEFITS
(In millions)
- ---------------------------------------------------------------
FINANCIAL SUMMARY 1997 1996 1995
- ---------------------------------------------------------------
Premiums and fees $9,512 $8,341 $8,135
Net investment income 562 567 574
Other revenues 454 404 336
Realized investment gains 12 6 122
-------------------------------
Total revenues 10,540 9,318 9,167
Benefits and expenses 9,873 8,554 8,307
-------------------------------
Income before taxes 667 764 860
Income taxes 226 264 263
-------------------------------
Net income $441 $500 $597
- --------------------------------===============================
Realized investment gains,
net of taxes $17 $3 $104
- --------------------------------===============================
Net income for the Employee Life and Health Benefits segment decreased 12%
in 1997 and decreased 16% in 1996. Results for 1997 included after-tax charges
of $58 million for Healthsource integration and $22 million related to cost
reduction initiatives to restructure the health care operations. Also, results
for 1995 included an after-tax charge of $20 million related to cost reduction
restructuring initiatives. See pages 10 and 11 for additional information.
Excluding the above charges, operating income was as follows:
- ----------------------------------------------------------------
(In millions) 1997 1996 1995
- ----------------------------------------------------------------
Indemnity operations $301 $286 $311
HMO operations 203 211 202
- ----------------------------------------------------------------
Total $504 $497 $513
- -------------------------------------===========================
The increase in the indemnity operations in 1997 reflects improved claim
experience from guaranteed cost medical and group life businesses. Partially
offsetting this increase were higher medical costs, and lower earnings from
Administrative Services Only (ASO) business resulting from higher operating
expenses due to customer service initiatives.
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 ASO business and expense savings from the 1995
cost reduction initiatives.
HMO operating income for 1997 and 1996 includes favorable after-tax
adjustments of $6 million and $17 million, respectively, resulting from tax and
other account reviews. Operating income for 1996 also includes a net after-tax
gain of $8 million from sales of subsidiaries. Excluding the above items,
operating income for 1997 and 1996 was $197 million and $186 million,
respectively. The 1997 improvement reflects rate increases, membership growth
and lower dental costs. Partially offsetting these improvements were increased
HMO medical costs, higher operating expenses associated with growth and customer
service initiatives, and Healthsource goodwill and other intangibles
amortization of $18 million.
HMO operating income for 1996 and 1995 excluding the items noted above for
1996 and the favorable after-tax effect of account reviews of $39 million in
1995 was $186 million and $163 million, respectively. The 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.
Premiums and fees increased 14% in 1997 and 3% in 1996. The 1997 increase
reflects $1.0 billion of Healthsource premiums and fees and $200 million from
rate increases and non-Healthsource HMO membership growth. 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 long-term
disability (LTD) business. The 1996 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.
12
<PAGE>
Total medical HMO membership increased 36% in 1997 and 11% in 1996.
Healthsource accounted for 76% of the increase in 1997. The remaining increase
and the increase in 1996 primarily reflect membership growth in medical 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 approximately $10.8 billion in 1997 compared with
$9.6 billion in both 1996 and 1995. The 1997 increase of 13% reflects the
Healthsource acquisition. Excluding Healthsource, 1997 premium equivalents were
level with 1996 and 1995, with all years reflecting growth in HMOs offset by
cancellations and conversions of medical indemnity business to HMOs. Premium
equivalents, as a percentage of total adjusted premiums and fees, were
approximately 55% in 1997, 1996 and 1995. ASO plans accounted for approximately
50% of total adjusted premiums and fees in 1997, 1996 and 1995.
Business mix in 1997, measured by adjusted premiums and fees, was
approximately 40% prepaid health and dental care, 39% medical insurance, 8% 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:
- ----------------------------------------------------------------
(In millions) 1997 1996 1995
- ----------------------------------------------------------------
Insured plans $3,842 $3,814 $3,720
Alternative funding programs 11,052 9,759 9,748
- ----------------------------------------------------------------
Total $14,894 $13,573 $13,468
- ----------------------------------==============================
The 1997 increase in alternative funding programs primarily reflects the
Healthsource acquisition.
Growth in premiums is expected to continue to be constrained by competitive
pressures in both the medical indemnity and HMO markets.
EMPLOYEE RETIREMENT AND SAVINGS BENEFITS
(In millions)
- ----------------------------------------------------------------
FINANCIAL SUMMARY 1997 1996 1995
- ----------------------------------------------------------------
Premiums and fees $181 $235 $258
Net investment income 1,597 1,680 1,722
Realized investment gains 19 35 3
------------------------------
Total revenues 1,797 1,950 1,983
Benefits and expenses 1,461 1,621 1,699
------------------------------
Income before taxes 336 329 284
Income taxes 103 107 90
------------------------------
Net income $233 $222 $194
- ----------------------------------==============================
Realized investment gains,
net of taxes $12 $21 $2
- ----------------------------------==============================
Net income for the Employee Retirement and Savings Benefits segment
increased 5% in 1997 and 14% in 1996. Results for 1997 include a favorable tax
adjustment of $5 million and, for 1996, an after-tax charge of $8 million for
state guaranty fund assessments.
Operating income, excluding the items noted above, was $216 million, $209
million and $192 million in 1997, 1996 and 1995, respectively. The 1997 increase
reflects higher earnings from an increased asset base, partially offset by a
shift to lower margin products (separate account equity funds) and by higher
operating expenses related to growth initiatives. The 1996 increase primarily
reflects higher earnings from an increased asset base.
Premiums and fees decreased 23% in 1997 and 9% in 1996, primarily reflecting
a continued decline in annuity sales.
Net investment income decreased 5% in 1997 and 2% in 1996. These decreases
primarily reflect customers' continued redirection of a portion of their
investments from the general account to separate accounts and, for 1997, lower
investment yields.
13
<PAGE>
Assets under management is generally a key determinant of earnings for this
segment. For the year ended December 31, assets under management and related
activity, including amounts attributable to separate accounts, were as follows:
- ---------------------------------------------------------------
(In millions) 1997 1996
- ---------------------------------------------------------------
Balance -- January 1 $40,587 $38,183
Premiums and deposits 6,864 5,916
Investment results 3,241 2,951
Increase in fair value of assets 2,613 287
Customer withdrawals (2,428) (2,170)
Participant withdrawals, benefit
payments and other (4,592) (4,580)
- ---------------------------------------------------------------
Balance -- December 31 $46,285 $40,587
- --------------------------------------------===================
Premiums and deposits increased 16% in 1997 over 1996. Of this increase,
approximately 70% reflects higher recurring deposits from existing customers
while the remaining increase represents sales to new customers. Sales to new
customers and new plan sales to existing customers were approximately 48% and
52% of the premiums and deposits for 1997 and 1996, respectively. The increase
in investment results reflects continued asset growth and increased investment
earnings from separate accounts. The increase in the fair value of assets
reflects market value appreciation of equity securities in separate accounts
and, to a lesser extent, market value appreciation in fixed maturities in the
general account.
Management expects asset growth to continue to be constrained due to the
lack of growth in the defined benefit market. In addition, assets under
management will continue to be affected by market value fluctuations for fixed
maturities and equity securities.
INDIVIDUAL FINANCIAL SERVICES
(In millions)
- ---------------------------------------------------------------
FINANCIAL SUMMARY 1997 1996 1995
- ---------------------------------------------------------------
Premiums and fees $1,012 $942 $881
Net investment income 1,083 1,039 968
Other revenues 68 81 70
Realized investment gains 13 12 1
----------------------------
Total revenues 2,176 2,074 1,920
Benefits and expenses 1,858 1,815 1,689
----------------------------
Income before taxes 318 259 231
Income taxes 110 91 80
----------------------------
Net income $208 $168 $151
- -----------------------------------============================
Realized investment gains,
net of taxes $8 $7 $1
- -----------------------------------============================
Net income for the Individual Financial Services segment increased 24% in
1997 and 11% in 1996. Results for 1997 include favorable after-tax adjustments
of $9 million resulting from tax and other account reviews. Operating income,
excluding the adjustments in 1997, was $191 million, $161 million and $150
million for 1997, 1996 and 1995, respectively. The increase for 1997 primarily
reflects favorable mortality and growth in the individual life insurance and
reinsurance, and annuity businesses. The increase for 1996 primarily reflects
higher earnings from interest-sensitive products, including leveraged
corporate-owned life insurance (COLI), and, to a lesser extent, favorable
reinsurance claim experience.
In 1997 and 1996, premiums and fees increased 7%. These increases primarily
reflect growth in reinsurance and certain interest-sensitive products, partially
offset by lower leveraged COLI renewal premiums.
Net investment income increased 4% and 7% in 1997 and 1996, respectively.
These increases primarily reflect asset growth in certain interest-sensitive
products and in the annuity business.
Deposits, which are not included in revenues, totaled $2.2 billion, $2.0
billion and $3.2 billion in 1997, 1996 and 1995, respectively. The 1997 increase
primarily reflects asset growth in non-leveraged COLI, partially offset by lower
leveraged COLI and annuity deposits. The 1996 decrease reflects lower leveraged
COLI deposits, due to the legislation discussed below, and lower annuity sales.
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. Revenues of $591 million and operating income of $44 million for 1997
were from leveraged COLI products that are affected by this legislation. CIGNA
does not expect this legislation to have a material effect on its consolidated
results of operations, liquidity or financial condition.
A significant portion of this segment's businesses were sold as of January
1, 1998. See page 10 for further discussion.
PROPERTY AND CASUALTY
(In millions)
- ---------------------------------------------------------------
FINANCIAL SUMMARY 1997 1996 1995
- ---------------------------------------------------------------
Premiums and fees $4,230 $4,398 $4,640
Net investment income 761 804 794
Other revenues 299 240 216
Realized investment gains 78 42 85
------------------------------
Total revenues 5,368 5,484 5,735
Benefits and expenses 4,950 5,138 6,795
------------------------------
Income (loss) before taxes 418 346 (1,060)
Income taxes (benefits) 143 106 (387)
------------------------------
Net income (loss) $275 $240 $(673)
- ---------------------------------==============================
Realized investment gains,
net of taxes $49 $27 $54
- ---------------------------------==============================
14
<PAGE>
CIGNA's domestic property and casualty operations were restructured into
ongoing and run-off operations effective December 31, 1995. Amounts shown below
for the Property and Casualty segment's domestic 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. 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 cost reduction initiatives ($55 million after-tax).
Operating income (loss), excluding the third quarter 1995 charges, was as
follows:
- ---------------------------------------------------------------
Pro
Forma
(In millions) 1997 1996 1995
- ---------------------------------------------------------------
International $127 $135 $128
Domestic 98 76 0
---------------------------
Total ongoing operations 225 211 128
Run-off operations 1 2 (26)
- ---------------------------------------------------------------
Total $226 $213 $102
- ------------------------------------===========================
The decline in the international operations for 1997 reflects unfavorable
claim experience primarily in the fire and casualty lines of business. Also, the
decline reflects higher expenses resulting from business growth initiatives and
charges for severance in both the property and casualty and accident and health
operations. Partially offsetting the decline were higher earnings in the
individual life insurance business, primarily in Japan, resulting from favorable
business mix. The 1996 improvement reflects higher earnings from accident and
health, individual life and employee benefits lines of business, primarily due
to favorable claim experience.
The improvement in the domestic operations for 1997 primarily reflects lower
catastrophe losses partially offset by lower premiums and fees, lower investment
income and an unfavorable tax adjustment of $7 million. The 1996 improvement
reflects lower expenses, primarily resulting from the 1995 cost reduction
initiatives, and higher investment income, primarily due to higher yields.
Results for the run-off operations primarily reflect prior year development
on claim and claim adjustment expense reserves and investment activity. The 1996
improvement in results for the run-off operations primarily reflects lower A&E
losses.
Premiums and fees for the segment decreased 4% in 1997. This decline
primarily reflects 1) the unfavorable effect from foreign currency translation
of approximately $145 million, 2) lower premiums of approximately $88 million
for reinsurance and personal automobile products that are no longer being
actively sold, 3) strict underwriting standards, and 4) the highly competitive
pricing environment in certain domestic and international property and casualty
lines of business. These declines were partially offset by increases in domestic
specialty lines of business including marine and aviation coverages as well as
growth in international accident and health business.
Premiums and fees for the segment decreased 5% in 1996. This decline
primarily reflects 1) the unfavorable effect from foreign currency translation
of approximately $160 million, 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.
Net investment income for 1997 decreased 5% from 1996, primarily reflecting
a lower asset base and an unfavorable effect from currency translation of $11
million. Net investment income for 1996 was about level with 1995.
Pre-tax catastrophe losses, net of reinsurance, were $17 million, $87
million and $71 million in 1997, 1996 and 1995, 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, and $29 million for Texas hail storms in 1995. The effect
of reinsurance on catastrophe losses was not material.
15
<PAGE>
During 1997, CIGNA revised its reinsurance programs. CIGNA's domestic
reinsurance programs now provide approximately 35% recovery for property
catastrophe losses between $60 million and $375 million. Other reinsurance
programs are in place which could provide for the recovery of up to an
additional $300 million on certain losses, including property catastrophes,
depending on the aggregate annual level of losses incurred. These revisions are
expected to result in little or no increase in earnings volatility. CIGNA's
international catastrophe program provides approximately 95% recovery of losses
between $75 million and $300 million. CIGNA's future results of operations could
be volatile, depending on the frequency and severity of future catastrophes.
Loss Reserves and Reinsurance Recoverables
CIGNA's property and casualty loss reserves of $15.1 billion and $16.5
billion as of December 31, 1997 and 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 attempts to improve its loss estimation process by
refining its 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.
CIGNA implemented a new methodology for estimating A&E reserves in the third
quarter of 1995, as discussed on page 17. 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 $6.2 billion and $6.8
billion as of December 31, 1997 and 1996, net of allowances for unrecoverable
reinsurance of $720 million and $711 million, respectively.
CIGNA recognized significant recoveries in 1997, 1996 and 1995 from
reinsurance arrangements, as shown in the table on page 17. 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, 1997 and 1996, approximately 16% and 14%, 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.
16
<PAGE>
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>
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
(In millions) Gross Reinsurance Net Gross Reinsurance Net Gross Reinsurance Net
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Current year $2,961 $(841) $2,120 $3,510 $(1,162) $2,348 $3,522 $(1,136) $2,386
- ------------------------------------------------------------------------------------------------------------------------------------
Prior year development:
Asbestos-related 170 (78) 92 115 (53) 62 298 (43) 255
Environmental pollution 94 (61) 33 58 (26) 32 1,265 (310) 955
Assumed reinsurance
exposures 16 (9) 7 114 (74) 40 73 (41) 32
Unrecoverable
reinsurance -- 23 23 -- 23 23 -- 179 179
Other (71) 134 63 (26) 46 20 7 70 77
- ------------------------------------------------------------------------------------------------------------------------------------
Total prior year
development 209 9 218 261 (84) 177 1,643 (145) 1,498
- ------------------------------------------------------------------------------------------------------------------------------------
Total incurred claims
and claim adjustment
expenses $3,170 $(832) $2,338 $3,771 $(1,246) $2,525 $5,165 $(1,281) $3,884
====================================================================================================================================
</TABLE>
During the third quarter of 1995, CIGNA evaluated newly emerging methods for
estimating A&E liabilities and expanded its claims databases. 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 1997 and 1996 were substantially lower than in prior
years.
Losses for "assumed reinsurance exposures" for 1997 and 1996 resulted from a
review of reserves for certain reinsurance lines of business, including London
reinsurance exposures. For 1995, losses primarily reflect $31 million ($17
million, net of reinsurance) for London reinsurance exposures.
Losses for "unrecoverable reinsurance" are principally due to the failure of
reinsurers to indemnify CIGNA, primarily because of disputes under reinsurance
contracts. Reinsurance disputes continue to increase, particularly on larger and
more complex claims such as those related to asbestos and London reinsurance
market exposures. Future reinsurance disputes 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.
17
<PAGE>
Losses for "other" prior year development in 1997 and 1996 reflect
unfavorable development on workers' compensation and long-term exposures,
partially offset by favorable loss reserve development on commercial packages
and, for 1996, the commercial fire line of business. For 1995, "other" prior
year development reflects unfavorable development on workers' compensation and
long-term exposures, partially offset by favorable loss reserve development on
commercial packages, commercial fire, and general and excess liability lines of
business.
OTHER OPERATIONS
(In millions)
- ---------------------------------------------------------------
FINANCIAL SUMMARY 1997 1996 1995
- ---------------------------------------------------------------
Net loss $(71) $(74) $(58)
- -----------------------------------------======================
Realized investment gains (losses),
net of taxes $29 $(4) $17
- -----------------------------------------======================
Other Operations primarily includes unallocated investment income, expenses
(including 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, and certain new
business initiatives.
Operating losses were $100 million, $70 million and $75 million for 1997,
1996 and 1995, respectively. Increased losses for 1997 primarily reflect
financing costs associated with the Healthsource acquisition and, to a lesser
extent, costs related to certain new business initiatives. Operating losses for
1996 were lower than 1995, primarily reflecting higher income tax benefits in
1996.
LIQUIDITY AND CAPITAL RESOURCES
(In millions)
- ---------------------------------------------------------------
FINANCIAL SUMMARY 1997 1996 1995
- ---------------------------------------------------------------
Short-term investments $212 $847 $510
Cash and cash equivalents 2,625 1,760 2,162
Short-term debt 690 289 414
Long-term debt 1,465 1,021 1,066
Shareholders' equity 7,932 7,208 7,157
- ---------------------------------------------------------------
CIGNA's operations have liquidity requirements that vary among the principal
product lines. Life insurance and pension plan reserves are primarily
longer-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 medium-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 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. Liquidity for CIGNA
and its insurance subsidiaries has remained strong, as evidenced by significant
amounts of short-term investments and cash and cash equivalents.
During 1997, cash and cash equivalents increased $865 million. This
increase primarily reflects cash flows from operating activities ($1.2 billion),
reflecting earnings and the timing of cash receipts and cash disbursements;
proceeds on the issuance of long-term debt ($600 million); net proceeds on
short-term debt ($358 million); and deposits and interest credited, net of
withdrawals, to contractholder deposit funds ($579 million). The increase was
partially offset by cash used in investing activities ($966 million, which
reflects $1.3 billion used to acquire Healthsource), repayment of Healthsource
debt ($250 million), and payments of dividends on and repurchases of CIGNA
common stock ($580 million).
18
<PAGE>
During 1996, cash and cash equivalents decreased $402 million. This decrease
primarily reflects cash used in investing activities ($487 million); payments of
dividends on and repurchases of CIGNA common stock ($534 million); and debt
repayments ($158 million). The decrease was partially offset by cash flows from
operating activities ($700 million) reflecting the timing of cash receipts and
cash disbursements and earnings; and deposits and interest credited, net of
withdrawals, to contractholder deposit funds ($93 million).
During 1995, cash and cash equivalents increased $285 million from $1.9
billion as of December 31, 1994. This increase primarily reflects cash flows
from operating activities ($1.1 billion) reflecting the timing of cash receipts
and cash disbursements and earnings; deposits and interest credited, net of
withdrawals, to contractholder deposit funds ($2.6 billion); and proceeds from
the issuance of long-term debt ($88 million). The increase was partially offset
by cash used in investing activities ($3.3 billion) and payments of dividends on
CIGNA common stock ($222 million).
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, 1997, CIGNA had available approximately $1.2 billion of
committed and uncommitted lines of credit with banks. Subsequent to the sale of
CIGNA's individual life insurance and annuity businesses, CIGNA canceled $500
million of lines of credit in January 1998.
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 $1.5 billion of long-term debt outstanding at December 31, 1997,
including $600 million issued in connection with the Healthsource acquisition,
compared with $1 billion at December 31, 1996. At December 31, 1997, CIGNA had
$1 billion remaining under effective shelf registration statements 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.
CIGNA repurchased 2.1 million shares of its common stock for $340 million
during 1997. From January 1, 1998 through February 25, 1998, an additional
230,000 shares were repurchased for $40 million. The remaining authorization of
CIGNA's Board of Directors for share repurchases as of February 25, 1998 was
$321 million. Decisions regarding share repurchases are subject to prevailing
market conditions and alternative uses of capital.
19
<PAGE>
INVESTMENT ASSETS
Information regarding investment assets held by CIGNA is presented below.
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.
- ---------------------------------------------------------------
(In millions)
FINANCIAL SUMMARY 1997 1996
- ---------------------------------------------------------------
Fixed maturities $36,358 $34,933
Equity securities 854 701
Mortgage loans 10,859 10,927
Real estate 769 1,102
Other, primarily policy loans 7,738 8,398
- ---------------------------------------------------------------
Total investment assets $56,578 $56,061
- --------------------------------------------===================
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:
- ---------------------------------------------------------------
1997 1996
- ---------------------------------------------------------------
Fixed maturities 29% 28%
Mortgage loans 53% 56%
Real estate 64% 58%
- ---------------------------------------------------------------
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, 1997, the fair value of fixed maturities, including
policyholder share, was greater than amortized cost by $2.1 billion, compared
with approximately $1.5 billion as of December 31, 1996. The increase in
unrealized appreciation primarily reflects the downward movement in interest
rates since December 31, 1996.
Quality Ratings
As of December 31, 1997, $35.0 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 22% 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 and 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 $63 million of potential problem bonds, including amounts attributable
to policyholder contracts, as of December 31, 1997, compared with $107 million
as of December 31, 1996. These amounts are net of $10 million and $5 million of
cumulative write-downs, respectively. Potential problem bonds attributable to
policyholder contracts represented 45% and 26% of total potential problem bonds
at December 31, 1997 and 1996, respectively.
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, 1997 and 1996, CIGNA had problem bonds, including amounts
attributable to policyholder contracts, of $137 million and $160 million, net of
related cumulative write-downs of $30 million and $125 million, respectively.
Problem bonds attributable to policyholder contracts represented 24% of total
problem bonds at both December 31, 1997 and 1996.
CIGNA recognizes interest income on problem bonds only when payment is
received. See the Summary on page 22 for the adverse effect of non-accruals and
write-downs for bonds on policyholder contracts and on CIGNA's net income.
20
<PAGE>
Mortgage Loans
- ----------------------------------------------------------------
As of December 31,
1997 1996
- ----------------------------------------------------------------
Mortgage loans (in millions) $10,859 $10,927
Property type:
Retail facilities 40% 43%
Office buildings 34 34
Apartment buildings 13 12
Industrial 5 4
Hotels 5 6
Other 3 1
- ----------------------------------------------------------------
Total 100% 100%
- --------------------------------------------====================
CIGNA's investment strategy requires diversification of the mortgage loan
portfolio. This strategy includes guidelines relative to property type, location
and borrower to reduce its exposure to potential losses. CIGNA routinely
monitors and evaluates the status of its mortgage loans through the review of
loan and property-related information, including cash flows, expiring leases,
financial health of the borrower and major tenants, loan payment history,
occupancy and room rates for hotels and, for all commercial properties,
significant new competition. CIGNA evaluates this information in light of
current economic conditions as well as geographic and property type
considerations.
Potential Problem and Problem Mortgage Loans
Potential problem mortgage loans include:
o fully current loans that are judged by management to have certain
characteristics that increase the likelihood of problem classification;
o fully current loans for which the borrower has requested restructuring; and
o 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 $191 million as of December 31, 1997, and $384
million as of December 31, 1996, net of related valuation reserves of $41
million and $30 million, respectively. Potential problem mortgage loans
attributable to policyholder contracts represented 61% and 63% of total
potential problem mortgage loans at December 31, 1997 and 1996, respectively.
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.
CIGNA had problem mortgage loans, including amounts attributable to
policyholder contracts, of $152 million and $363 million, net of valuation
reserves of $9 million and $71 million, as of December 31, 1997 and 1996,
respectively. Problem mortgage loans attributable to policyholder contracts
represented 51% and 53% of total problem mortgage loans at December 31, 1997 and
1996, respectively.
For 1997 and 1996, the majority of problem mortgage loans related to office
buildings and hotels in the Central and Middle Atlantic regions.
CIGNA recognizes interest income on problem mortgage loans only when payment
is received. See the Summary on page 22 for the effect of non-accruals and
valuation reserves for mortgage loans on policyholder contracts and on CIGNA's
net income.
21
<PAGE>
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:
- ---------------------------------------------------------------
(In millions) 1997 1996
- ---------------------------------------------------------------
Real estate held for sale (primarily
foreclosure properties) $513 $901
Less cumulative write-downs 129 227
Less valuation reserves 29 67
----------------------
355 607
----------------------
Real estate held for the production
of income 462 545
Less valuation reserves 48 50
----------------------
414 495
- ---------------------------------------------------------------
Investment real estate $769 $1,102
- -----------------------------------------======================
Foreclosure properties attributable to policyholder contracts represented
60% and 62% of total foreclosure properties at December 31, 1997 and 1996,
respectively.
For 1997 and 1996, the majority of real estate held for sale related to
office buildings and retail facilities in the Central and Middle Atlantic
regions.
See the Summary below for the effect of real estate write-downs and
valuation reserves on policyholder contracts and on CIGNA's net income.
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 for the year ended December 31 were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
Policyholder Policyholder Policyholder
(In millions) Contracts CIGNA Contracts CIGNA Contracts CIGNA
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Write-downs and
valuation reserves:
Bonds $15 $23 $18 $24 $26 $32
Mortgage loans 15 10 37 16 10 2
Real estate (5) 1 1 1 18 6
- --------------------------------------------------------------------------------------------------------------------------------
Total $25 $34 $56 $41 $54 $40
- ------------------------------==================================================================================================
Non-accruals:
Bonds $2 $9 $8 $15 $12 $13
Mortgage loans (5) (1) 1 -- 6 1
- --------------------------------------------------------------------------------------------------------------------------------
Total $(3) $8 $9 $15 $18 $14
- ------------------------------==================================================================================================
</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, including further significant
deterioration in Asian economies, 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.
22
<PAGE>
MARKET RISK OF FINANCIAL INSTRUMENTS
CIGNA's principal assets and liabilities are financial instruments, which are
subject to the market risk of potential losses from adverse changes in market
rates and prices. CIGNA's primary market risk exposures are: interest rate risk
on fixed rate domestic medium-term instruments and, to a lesser extent,
international medium-term and domestic and international short- and long-term
instruments; foreign currency exchange rate risk, in particular the U.S. dollar
to the Japanese yen, Canadian dollar and certain European currencies; and equity
price risk for domestic and international stocks. CIGNA uses a variety of
techniques to manage its exposures to market risk, as follows:
o CIGNA generally selects investment assets with characteristics such as
duration, yield, currency and liquidity to reflect the underlying
characteristics of related insurance and contractholder liabilities. CIGNA
selects medium-term, fixed rate investments to support interest-sensitive
and experience-rated life and health liabilities subject to liquidity
requirements, shorter- and longer-term investments to support generally
shorter- and longer-term property and casualty and other life and health
claim liabilities, and longer-term investments to support generally
longer-term fully guaranteed products, primarily annuities.
o CIGNA generally conducts its international businesses through foreign
operating entities that maintain assets and liabilities in local currencies,
substantially limiting exchange rate risk to net assets denominated in
foreign currencies.
o CIGNA uses derivative financial instruments to minimize market risk.
Derivative instruments are not used for speculative purposes.
See Notes 2(C) and 4(F) to the Financial Statements for additional
information about financial instruments, including derivative financial
instruments.
Caution should be used in evaluating CIGNA's overall market risk from the
information below, since actual results could differ materially because the
information was developed using estimates and assumptions as described below,
and because insurance contract liabilities and reinsurance recoverables on
unpaid losses are not included in the hypothetical effects (insurance contract
liabilities represent 61% of total liabilities and reinsurance recoverables on
unpaid losses represent 7% of total assets, excluding separate accounts at
December 31, 1997).
The hypothetical effects of changes in market rates or prices on the fair
values of financial instruments, excluding separate account assets and
liabilities (because gains and losses of these accounts generally accrue to the
policyholders), insurance contract liabilities and reinsurance recoverables on
unpaid losses (because insurance contracts are not required for market risk
disclosures), would have been as follows as of December 31, 1997:
o An approximate $1.3 billion net decrease in the fair value of financial
instruments would have occurred if interest rates had increased by 100 basis
points. The change in fair values was determined by estimating the present
value of future cash flows using various models, primarily duration
modeling.
o An approximate $450 million net decrease in the fair value of financial
instruments denominated in foreign currencies would have occurred if the
U.S. dollar had strengthened by 10% in comparison to each of the foreign
currencies held by CIGNA.
o An approximate $85 million decrease in the fair value of equity securities
would have occurred if there had been a 10% decrease in the market prices of
all equity securities. Equity securities at December 31, 1997, included
domestic securities of $564 million, which are primarily managed to reflect
the S&P 500, and international securities of $290 million, substantially all
of which relate to issuers which are based in developed countries (primarily
certain European countries, Japan and Australia).
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 of Financial Condition and Results of Operations, 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; 5) significant changes in interest
rates; and 6) the effect on CIGNA's international operations and investments
from further significant deterioration in Asian economies.
23
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
(In millions, except per share amounts)
- -----------------------------------------------------------------------------------------------------------------------------
For the years ended December 31, 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Premiums and fees $14,935 $13,916 $13,914
Net investment income 4,245 4,333 4,296
Other revenues 691 610 512
Realized investment gains 167 91 233
-----------------------------------------
Total revenues 20,038 18,950 18,955
-----------------------------------------
BENEFITS, LOSSES AND EXPENSES
Benefits, losses and settlement expenses 13,029 12,473 13,855
Policy acquisition expenses 1,046 1,138 1,181
Other operating expenses 4,313 3,738 3,668
-----------------------------------------
Total benefits, losses and expenses 18,388 17,349 18,704
-----------------------------------------
INCOME BEFORE INCOME TAXES 1,650 1,601 251
-----------------------------------------
Income taxes (benefits):
Current 493 419 258
Deferred 71 126 (218)
-----------------------------------------
Total taxes 564 545 40
-----------------------------------------
NET INCOME 1,086 1,056 211
Common dividends declared (245) (242) (222)
Retained earnings, beginning of year 4,855 4,041 4,052
- -----------------------------------------------------------------------------------------------------------------------------
RETAINED EARNINGS, END OF YEAR $5,696 $4,855 $4,041
- --------------------------------------------------------------------------------=============================================
EARNINGS PER SHARE:
Basic $14.79 $14.05 $2.90
- --------------------------------------------------------------------------------=============================================
Diluted $14.64 $13.91 $2.88
- --------------------------------------------------------------------------------=============================================
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
24
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
(In millions, except per share amounts)
- --------------------------------------------------------------------------------------------------------------
As of December 31, 1997 1996
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities, at fair value (amortized cost, $34,284; $33,404) $36,358 $34,933
Equity securities, at fair value (cost, $648; $573) 854 701
Mortgage loans 10,859 10,927
Policy loans 7,253 7,296
Real estate 769 1,102
Other long-term investments 273 255
Short-term investments 212 847
---------------------------
Total investments 56,578 56,061
Cash and cash equivalents 2,625 1,760
Accrued investment income 868 890
Premiums, accounts and notes receivable 4,265 4,229
Reinsurance recoverables 6,753 7,287
Deferred policy acquisition costs 1,542 1,230
Property and equipment 857 802
Deferred income taxes 1,788 1,998
Other assets 1,033 993
Goodwill and other intangibles 2,542 1,068
Separate account assets 29,348 22,614
- --------------------------------------------------------------------------------------------------------------
Total assets $108,199 $98,932
- -----------------------------------------------------------------------------------===========================
LIABILITIES
Contractholder deposit funds $30,682 $29,878
Unpaid claims and claim expenses 17,906 18,841
Future policy benefits 11,976 11,784
Unearned premiums 1,774 1,940
---------------------------
Total insurance and contractholder liabilities 62,338 62,443
Accounts payable, accrued expenses and other liabilities 6,562 5,326
Current income taxes 60 221
Short-term debt 690 289
Long-term debt 1,465 1,021
Separate account liabilities 29,152 22,424
- --------------------------------------------------------------------------------------------------------------
Total liabilities 100,267 91,724
- --------------------------------------------------------------------------------------------------------------
CONTINGENCIES - NOTE 19
SHAREHOLDERS' EQUITY
Common stock (shares issued, 88) 88 88
Additional paid-in capital 2,633 2,572
Net unrealized appreciation, fixed maturities 752 539
Net unrealized appreciation, equity securities 132 88
Net translation of foreign currencies (126) (45)
Retained earnings 5,696 4,855
Less treasury stock, at cost (1,243) (889)
- --------------------------------------------------------------------------------------------------------------
Total shareholders' equity 7,932 7,208
- --------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $108,199 $98,932
- -----------------------------------------------------------------------------------===========================
SHAREHOLDERS' EQUITY PER SHARE $109.66 $97.15
- -----------------------------------------------------------------------------------===========================
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
25
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(In millions)
- ------------------------------------------------------------------------------------------------------------------------------
For the years ended December 31, 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $1,086 $1,056 $211
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Insurance liabilities (665) (351) 550
Reinsurance recoverables 565 (140) 362
Premiums, accounts and notes receivable 85 23 (184)
Deferred policy acquisition costs (217) (89) (66)
Accounts payable, accrued expenses, other liabilities
and current income taxes 328 23 589
Deferred income taxes 71 126 (218)
Realized investment gains (167) (91) (233)
Depreciation and goodwill amortization 255 227 224
Other, net (110) (84) (131)
----------------------------------------------
Net cash provided by operating activities 1,231 700 1,104
----------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from investments sold:
Fixed maturities 5,902 6,076 6,492
Equity securities 304 368 1,668
Mortgage loans 861 676 430
Other (primarily short-term investments) 4,305 4,222 8,491
Investment maturities and repayments:
Fixed maturities 3,588 3,867 3,321
Mortgage loans 634 672 389
Investments purchased:
Fixed maturities (10,309) (9,842) (11,696)
Equity securities (383) (348) (348)
Mortgage loans (1,527) (1,375) (1,829)
Other (primarily short-term investments) (2,731) (4,659) (10,060)
Healthsource acquisition, net cash used (1,305) -- --
Other, net (305) (144) (152)
----------------------------------------------
Net cash used in investing activities (966) (487) (3,294)
----------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Deposits and interest credited to contractholder deposit funds 7,622 7,261 8,472
Withdrawals and benefit payments from contractholder deposit funds (7,043) (7,168) (5,859)
Net change in short-term debt 358 (6) (13)
Issuance of long-term debt 600 -- 88
Repayment of long-term debt (318) (158) (9)
Repurchase of common stock (335) (292) --
Issuance of common stock 19 12 21
Common dividends paid (245) (242) (222)
----------------------------------------------
Net cash provided by (used in) financing activities 658 (593) 2,478
----------------------------------------------
Effect of foreign currency rate changes on cash and cash equivalents (58) (22) (3)
- ------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 865 (402) 285
Cash and cash equivalents, beginning of year 1,760 2,162 1,877
- ------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $2,625 $1,760 $2,162
- --------------------------------------------------------------------------------=============================================
Supplemental Disclosure of Cash Information:
Income taxes paid, net of refunds $620 $360 $233
Interest paid $123 $106 $123
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
26
<PAGE>
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 1997 presentation.
B) Recent Accounting Pronouncements: The Financial Accounting Standards
Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings Per Share" (EPS) in 1997. This pronouncement replaces primary EPS with
basic EPS, which is computed using only weighted average common shares
outstanding without considering common stock equivalents. Also, SFAS No. 128
replaces fully diluted EPS with diluted EPS which is computed similarly to fully
diluted EPS. This pronouncement requires dual presentation of basic and diluted
EPS on the income statement. CIGNA implemented SFAS No. 128 as of December 31,
1997 and restated prior periods based on the new requirements. The effect of
adopting this pronouncement was not material to EPS. See Note 12 for additional
information.
In 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which could change the way segments are
structured and require additional segment disclosure. Although CIGNA has not
determined the timing of implementation of this pronouncement, it will be
adopted no later than the required implementation date of December 31, 1998.
The American Institute of Certified Public Accountants issued Statement of
Position (SOP) 97-3, "Accounting by Insurance and Other Enterprises for
Insurance-Related Assessments" in 1997. SOP 97-3 provides guidance on the
recognition and measurement of liabilities for guaranty fund and other
insurance-related assessments. Implementation is required by the first quarter
of 1999, with the cumulative effect of adopting the SOP reflected in net income
in the year of adoption. CIGNA has not determined the effect or timing of
implementation of this pronouncement.
In 1996, CIGNA implemented 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.
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, 1997 and 1996.
Fair values of off-balance-sheet financial instruments as of December 31, 1997
and 1996 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.
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.
27
<PAGE>
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 and are no longer
depreciated. Adjustments to the carrying value as a result of changes in fair
value subsequent to foreclosure are recorded as valuation reserves. 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.
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:
o property and casualty products are deferred and amortized over the terms of
the insurance policies;
o universal life products and contractholder deposit funds are deferred and
amortized in proportion to the present value of total estimated gross
profits over the expected lives of the contracts;
o 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
o 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 unless such costs are estimated
to be unrecoverable as a result of treating unrealized investment gains and
losses as though they had been realized. In these cases 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 $1.2 billion
and $1.1 billion at December 31, 1997 and 1996, respectively.
I) Other Assets: Other Assets consists of various insurance-related assets,
principally ceded unearned premiums and reinsurance deposits.
J) Goodwill and Other Intangibles: Goodwill represents the excess of the
cost of businesses acquired over the fair
28
<PAGE>
value of their net assets. Other intangible assets primarily represent purchased
customer lists and provider contracts. Goodwill and other intangibles are
amortized over periods ranging from eight to 40 years. CIGNA evaluates the
carrying amount of goodwill and other intangibles by analyzing historical and
estimated future income or undiscounted estimated cash flows of the related
businesses. Goodwill and other intangibles are written down when impaired.
Amortization periods are revised if it is estimated that the remaining period of
benefit of the goodwill and other intangibles has changed. Accumulated
amortization was $1.0 billion and $959 million at December 31, 1997 and 1996,
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, 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 2.0% to 10.9%, generally graded down from one 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 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
amounts 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
amounts credited in accordance with contract provisions.
29
<PAGE>
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, 1997, 1996 and 1995.
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 acquired the outstanding common stock of Healthsource, Inc.
(Healthsource) on June 25, 1997. The cost of the acquisition was $1.7 billion,
reflecting the purchase of Healthsource common stock for $1.4 billion and the
retirement of Healthsource debt of $250 million. The acquisition was accounted
for as a purchase, and was financed through the issuance of long-term debt of
$600 million and a combination of internally generated funds and short-term
debt. The results of operations of Healthsource are included in the accompanying
consolidated financial statements from the date of acquisition. Healthsource
revenues that are not included in CIGNA's results of operations were $971
million and $1.7 billion for the first six months of 1997 and for the full year
1996, respectively. The pro forma effect on CIGNA's net income was not material.
Goodwill and intangible assets associated with the Healthsource acquisition
of $1.5 billion are being amortized on a straight-line basis over periods
ranging from eight to 40 years.
In the fourth quarter of 1997, CIGNA recorded a pre-tax integration charge
of $87 million ($58 million after-tax) in connection with its review of
Healthsource operations. The charge resulted primarily from an analysis of
Healthsource HMO medical reserves, receivable balances and contractual
obligations.
In addition, Healthsource goodwill was increased by $24 million, primarily
for costs associated with the nonvoluntary termination of approximately 900
Healthsource employees in various positions and locations, vacated Healthsource
lease space and adjustments to Healthsource net assets to conform to CIGNA's
accounting policies.
As of January 1, 1998, CIGNA sold its individual life insurance and annuity
businesses for cash proceeds of $1.4 billion. The sale resulted in an after-tax
gain of approximately $800 million. Since the principal agreement to sell these
businesses is in the form of an indemnity reinsurance arrangement, approximately
$575 million of the gain will be deferred and amortized over future periods at
the rate that earnings from the businesses sold would have been expected to
emerge. Revenues for these businesses were $972 million, $926 million and $865
million for the years ended December 31, 1997, 1996 and 1995, respectively, and
net income was $102 million, $67 million and $74 million for the same periods.
CIGNA had other acquisitions and dispositions during 1997, 1996 and 1995,
the effects of which were not material to the financial statements.
NOTE 4 -- INVESTMENTS
A) Fixed Maturities: Fixed maturities are net of cumulative write-downs of
$43 million and $131 million, including policyholder share, as of December 31,
1997 and 1996, respectively.
The amortized cost and fair value by contractual maturity periods for fixed
maturities, including policyholder share, as of December 31, 1997 were as
follows:
- --------------------------------------------------------------
Amortized Fair
(In millions) Cost Value
- --------------------------------------------------------------
Due in one year or less $1,777 $1,811
Due after one year through five years 9,561 9,895
Due after five years through ten years 8,921 9,394
Due after ten years 5,431 6,267
Asset-backed securities 8,594 8,991
- --------------------------------------------------------------
Total $34,284 $36,358
- -------------------------------------------===================
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.
30
<PAGE>
Gross unrealized appreciation (depreciation) for fixed maturities, including
policyholder share, by type of issuer was as follows:
- ------------------------------------------------------------------
December 31, 1997
- ------------------------------------------------------------------
Unrealized Unrealized
Amortized Apprec- Deprec- Fair
(In millions) Cost iation iation Value
- ------------------------------------------------------------------
Federal government
bonds $1,816 $336 $ -- $2,152
State and local
government bonds 1,835 190 (2) 2,023
Foreign government
bonds 2,284 157 (45) 2,396
Corporate securities 19,755 1,206 (165) 20,796
Asset-backed securities 8,594 418 (21) 8,991
- ------------------------------------------------------------------
Total $34,284 $2,307 $(233) $36,358
- -------------------------=========================================
December 31, 1996
- ------------------------------------------------------------------
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
- -------------------------=========================================
Asset-backed securities include investments in CMOs as of December 31, 1997
of $3.5 billion carried at fair value (amortized cost, $3.4 billion), compared
with $3.4 billion carried at fair value (amortized cost, $3.4 billion) as of
December 31, 1996. 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 less than 1% of total CMO investments at December 31,
1997 and 1996, respectively.
At December 31, 1997, contractual fixed maturity investment commitments were
$225 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 85% will be disbursed in 1998.
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:
- --------------------------------------------------------------
(In millions) 1997 1996
- --------------------------------------------------------------
Mortgage loans $10,859 $10,927
--------------------
Real estate:
Held for sale 355 607
Held for the production of income 414 495
--------------------
Total real estate 769 1,102
- --------------------------------------------------------------
Total $11,628 $12,029
- ------------------------------------------====================
At December 31, mortgage loans and real estate investments comprised the
following property types and geographic regions:
- --------------------------------------------------------------
(In millions) 1997 1996
- --------------------------------------------------------------
Property type:
Retail facilities $4,579 $4,822
Office buildings 4,191 4,498
Apartment buildings 1,460 1,420
Industrial 601 431
Hotels 513 684
Other 284 174
- --------------------------------------------------------------
Total $11,628 $12,029
- ------------------------------------------====================
Geographic region:
Central $3,744 $3,762
Pacific 2,473 2,705
Middle Atlantic 1,918 2,025
South Atlantic 1,618 1,688
New England 1,180 1,213
Other 695 636
- --------------------------------------------------------------
Total $11,628 $12,029
- ------------------------------------------====================
Mortgage Loans
At December 31, 1997, scheduled mortgage loan maturities were as follows:
1998 -- $793 million; 1999 -- $1.1 billion; 2000 -- $1.4 billion; 2001 -- $1.2
billion; 2002 -- $1.8 billion; and $4.6 billion thereafter. Actual maturities
could differ from contractual maturities because borrowers may have the right to
prepay obligations, with or without prepayment penalties; the maturity date may
be extended; and loans may be refinanced. During 1997 and 1996, CIGNA refinanced
at current market rates approximately $139 million and $520 million,
respectively, of its mortgage loans relating to borrowers that were unable to
obtain alternative financing.
31
<PAGE>
At December 31, 1997, contractual commitments to extend credit under
commercial mortgage loan agreements amounted to approximately $170 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, 1997, CIGNA's impaired mortgage loans were $393 million,
including $170 million before valuation reserves totaling $50 million, and $223
million, which had no valuation reserves. 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.
During the year ended December 31, changes in reserves for impaired mortgage
loans, including policyholder share, were as follows:
- --------------------------------------------------------------
(In millions) 1997 1996
- --------------------------------------------------------------
Reserve balance - January 1 $101 $88
Transfers to foreclosed real estate (30) (30)
Charge-offs upon sales (52) (20)
Net increase in valuation reserves 31 63
- --------------------------------------------------------------
Reserve balance - December 31 $50 $101
- -------------------------------------------------=============
During 1997 and 1996, impaired mortgage loans, before valuation reserves,
averaged approximately $624 million and $885 million, respectively, and interest
income recorded and cash received on these loans were approximately $35 million
and $75 million in each year.
Real Estate
During 1997, 1996 and 1995, non-cash investing activities included real
estate acquired through foreclosure of mortgage loans, which totaled $85
million, $114 million and $146 million, respectively.
Valuation reserves and cumulative write-downs related to real estate,
including policyholder share, were $206 million and $344 million as of December
31, 1997 and 1996, respectively.
Net income for 1997 and 1996 included net investment income of $10 million
and $15 million, respectively, for real estate held for sale. Write-downs upon
foreclosure and changes in valuation reserves were not material for 1997 and
1996.
C) Short-Term Investments and Cash Equivalents: Short-term investments and
cash equivalents, in the aggregate, primarily included debt securities,
principally federal government bonds of $682 million and corporate securities of
$985 million at December 31, 1997 and, for 1996, 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:
- --------------------------------------------------------------
(In millions) 1997 1996
- --------------------------------------------------------------
Unrealized appreciation:
Fixed maturities $2,307 $1,863
Equity securities 284 198
-------------------------
2,591 2,061
-------------------------
Unrealized depreciation:
Fixed maturities (233) (334)
Equity securities (78) (70)
-------------------------
(311) (404)
-------------------------
2,280 1,657
Less policyholder-related amounts 946 723
-------------------------
Shareholder net unrealized
appreciation 1,334 934
Less deferred income taxes 450 307
- --------------------------------------------------------------
Net unrealized appreciation $884 $627
- -------------------------------------=========================
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 1997, 1996 and 1995 was $257 million, ($471) million and $1.1 billion,
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:
- --------------------------------------------------------------
(In millions) 1997 1996
- --------------------------------------------------------------
Fixed maturities $34 $82
Mortgage loans -- 14
Real estate 141 173
Other long-term investments 8 12
- --------------------------------------------------------------
Total $183 $281
- --------------------------------------------==================
F) Derivative Financial Instruments: CIGNA's investment strategy is to
manage the characteristics of investment assets, such as duration, yield,
currency and liquidity, 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
32
<PAGE>
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.
Underlying contract, notional or principal amounts associated with
derivatives at December 31 were as follows:
- --------------------------------------------------------------
(In millions) 1997 1996
- --------------------------------------------------------------
Interest rate swaps $316 $408
Currency swaps $276 $304
Purchased options $833 $632
Futures $80 $45
- --------------------------------------------------------------
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 $82 million and $112 million at
December 31, 1997 and 1996, respectively, 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, 1997 and 1996.
The effects of interest rate and currency swaps, purchased options and
futures on the components of net income for 1997, 1996 and 1995 were not
material.
As of December 31, 1997 and 1996, CIGNA's variable interest rate investments
consisted of approximately $828 million and $1.5 billion of fixed maturities,
respectively. As of December 31, 1997 and 1996, CIGNA's fixed interest rate
investments consisted of $35.6 billion and $33.4 billion, respectively, of fixed
maturities, and $10.9 billion of mortgage loans for both 1997 and 1996.
G) Other: As of December 31, 1997 and 1996, 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:
- --------------------------------------------------------------
(In millions) 1997 1996 1995
- --------------------------------------------------------------
Fixed maturities $2,566 $2,613 $2,571
Equity securities 23 20 47
Mortgage loans 948 982 932
Policy loans 541 561 511
Real estate 147 223 317
Other long-term investments 78 65 77
Short-term investments 141 110 199
--------------------------------
4,444 4,574 4,654
Less investment expenses 199 241 358
- --------------------------------------------------------------
Net investment income $4,245 $4,333 $4,296
- ------------------------------================================
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 $1.7 billion for
33
<PAGE>
1997, compared with $1.8 billion for both 1996 and 1995. Net investment income
for separate accounts, which is not reflected in CIGNA's revenues, was $1.4
billion, $1.1 billion and $885 million for 1997, 1996 and 1995, respectively.
As of December 31, 1997, fixed maturities and mortgage loans on non-accrual
status, including policyholder share, were $141 million and $176 million,
including restructured investments of $90 million and $137 million,
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. If interest on these investments had been recognized in accordance
with their original terms, net income would have been increased by $8 million,
$15 million and $14 million in 1997, 1996 and 1995, respectively.
B) Realized Investment Gains and Losses: Realized gains (losses) on
investments, excluding policyholder share, for the year ended December 31 were
as follows:
- -------------------------------------------------------------
(In millions) 1997 1996 1995
- -------------------------------------------------------------
Fixed maturities $57 $37 $26
Equity securities 38 24 187
Mortgage loans (15) (23) (3)
Real estate 73 29 19
Other 14 24 4
--------------------------
167 91 233
Less income taxes 52 37 55
- -------------------------------------------------------------
Net realized investment gains $115 $54 $178
- -----------------------------------==========================
Realized investment gains and losses include impairments in the value of
investments, net of recoveries, of $33 million, $51 million and $46 million in
1997, 1996 and 1995, respectively.
Realized investment gains for separate accounts, which are not reflected in
CIGNA's revenues, were $492 million, $305 million and $412 million for 1997,
1996 and 1995, respectively. Realized investment gains (losses) attributable to
policyholder contracts, which also are not reflected in CIGNA's revenues, were
$45 million, $82 million and ($7) million for 1997, 1996 and 1995, respectively.
Sales of available-for-sale fixed maturities and equity securities,
including policyholder share, for the year ended December 31 were as follows:
- ---------------------------------------------------------------
(In millions) 1997 1996 1995
- ---------------------------------------------------------------
Proceeds from sales $6,206 $6,444 $8,160
Gross gains on sales $191 $239 $426
Gross losses on sales $(127) $(158) $(205)
- ---------------------------------------------------------------
NOTE 6 -- DEBT
Short-term and long-term debt consisted of the following at December 31:
- --------------------------------------------------------------
(In millions) 1997 1996
- --------------------------------------------------------------
Short-term
Commercial paper $605 $247
Current maturities of long-term debt 85 42
- --------------------------------------------------------------
Total short-term debt $690 $289
- --------------------------------------------==================
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
7.4 % Notes due 2007 300 --
8 1/4% Notes due 2007 100 100
7.65% Notes due 2023 100 100
8.3% Notes due 2023 100 100
7 7/8% Debentures due 2027 300 --
Medium-term Notes 121 203
Secured Debt (principally by real estate) 94 168
- --------------------------------------------------------------
Total long-term debt $1,465 $1,021
- --------------------------------------------==================
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, 1997 and 1996, the weighted average interest rate on commercial paper was
5.9% and 5.6%, 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, 1997 and 1996, the weighted average interest rate on medium-term
notes was 8.3% and 8.4%, respectively.
In 1997, CIGNA issued $300 million of unsecured 7.4% Notes due in 2007 and
$300 million of unsecured 7 7/8% Debentures due in 2027. The proceeds from these
issues were used for the purchase of Healthsource.
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.
34
<PAGE>
As of December 31, 1997, CIGNA had available approximately $1.2 billion in
committed and uncommitted lines of credit provided by U.S. and foreign banks.
Subsequent to the sale of CIGNA's individual life insurance and annuity
businesses, CIGNA canceled $500 million of lines of credit in January 1998.
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.
As of December 31, 1997, CIGNA had $1 billion remaining under effective
shelf registration statements 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:
1998 -- $85 million; 1999 -- $14 million; 2000 -- $56 million; 2001 -- $148
million; and 2002 -- $38 million.
Interest expense was $127 million, $102 million and $120 million in 1997,
1996 and 1995, respectively.
NOTE 7 -- COMMON AND PREFERRED STOCK
- --------------------------------------------------------------
(Shares in thousands) 1997 1996 1995
- --------------------------------------------------------------
Common: Par value $1
200,000 shares authorized
Outstanding -- January 1 74,198 76,332 72,225
Issued for stock option
and other benefit plans 229 294 504
Issued upon conversion
of 8.2% Convertible
Subordinated Debentures -- -- 3,603
Repurchase of common stock (2,095) (2,428) --
-------------------------------
Outstanding -- December 31 72,332 74,198 76,332
Treasury shares 15,625 13,432 11,014
- --------------------------------------------------------------
Issued -- December 31 87,957 87,630 87,346
- -------------------------------===============================
Stock issued under stock option and other benefit plans resulted in
increases in Additional Paid-in Capital of $61 million, $36 million and $41
million in 1997, 1996 and 1995, respectively. Such stock issuances also
resulted in net increases in Treasury Stock of $14 million, $12 million and $14
million in 1997, 1996 and 1995, respectively. During 1997 and 1996, Treasury
Stock increased by approximately $340 million and $300 million, respectively,
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.
In July 1997, CIGNA's Board of Directors adopted a shareholder rights plan
which will expire on August 4, 2007. The rights attach to all outstanding
shares of common stock and become exercisable upon an acquisition of (or
announcement to acquire) 10% or more of CIGNA's outstanding common stock unless
CIGNA's Board of Directors approves the acquisition. When exercisable, each
right entitles its holder to purchase securities of CIGNA at a substantial
discount or, at the discretion of the Board of Directors, to exchange the
rights for CIGNA common stock on a one-for-one basis. In certain other
circumstances, the rights also entitle the holders to purchase securities of an
acquirer at a substantial discount. CIGNA's Board of Directors may redeem the
rights for one cent each prior to an acquisition of 10% or more of its 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, 1997, 1996
and 1995.
On February 25, 1998, CIGNA's Board of Directors approved a three-for-one
common stock split, an increase in the number of common shares authorized for
issuance from 200 million to 600 million and a decrease in the par value of
common stock from $1 per share to $0.25 per share. These actions are subject to
approval at the April 22, 1998 annual meeting of shareholders. If approved,
earnings per share will be adjusted retroactively to reflect the stock split
and, on a pro forma basis, basic earnings per share would have been $4.93,
$4.68 and $0.97, and diluted earnings per share would have been $4.88, $4.64,
and $0.96, for the years ended December 31, 1997, 1996 and 1995, respectively.
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 may
differ 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 $217 million and $240 million as
of December 31, 1997 and 1996, respectively.
The amounts of statutory net income (loss) for the year ended, and surplus
as of, December 31 were as follows:
- --------------------------------------------------------------
(In millions) 1997 1996 1995
- --------------------------------------------------------------
Life Insurance Companies:
Net income $634 $680 $471
Surplus $3,021 $2,683 $2,672
Property and Casualty
Insurance Companies:
Net income (loss) $192 $164 $(201)
Surplus $1,542 $1,655 $1,589
- --------------------------------------------------------------
35
<PAGE>
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 1998
without prior approval is approximately $1.1 billion. The amount of restricted
net assets as of December 31, 1997 was approximately $6.7 billion.
NOTE 9 -- INCOME TAXES
CIGNA's net deferred tax asset of $1.8 billion and $2 billion as of December
31, 1997 and 1996, 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 $53 million and
$47 million as of December 31, 1997 and 1996, 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 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. Adjustments made to the valuation allowance for 1997, 1996
and 1995 were immaterial.
As of December 31, 1997, CIGNA did not have any tax basis net operating loss
carryforwards. At December 31, 1996, there was a benefit of $53 million
resulting from $150 million of tax basis net operating loss carryforwards.
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, 1997 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 completed its audits for
the years 1982 through 1993, and challenged CIGNA on one issue related to years
prior to 1989. During the third quarter of 1997, the U.S. Tax Court ruled
against CIGNA in connection with this issue. The decision did not have an
effect on results of operations, as liabilities had been previously
established. As a result of this ruling, CIGNA made payments of approximately
$250 million during 1997. CIGNA has appealed the U.S. Tax Court decision to the
U.S. Court of Appeals.
In management's opinion, adequate tax liabilities have been established for
all years.
The tax effect of temporary differences which give rise to deferred income
tax assets and liabilities as of December 31 were as follows:
- ------------------------------------------------------------------
(In millions) 1997 1996
- ------------------------------------------------------------------
Deferred tax assets:
Loss reserve discounting $705 $779
Other insurance and contractholder
liabilities 689 607
Employee and retiree benefit plans 455 450
Investments, net 287 284
Operating loss carryforwards -- 53
Bad debt expense 152 122
Other 194 254
-----------------------
Deferred tax assets before valuation
allowance 2,482 2,549
Valuation allowance for deferred tax
assets (53) (47)
-----------------------
Deferred tax assets, net of valuation
allowance 2,429 2,502
-----------------------
Deferred tax liabilities:
Unrealized appreciation on investments 450 307
Depreciation and amortization 183 112
Policy acquisition expenses 4 36
Other 4 49
-----------------------
Total deferred tax liabilities 641 504
- ------------------------------------------------------------------
Net deferred income tax asset $1,788 $1,998
- -------------------------------------------=======================
The components of income taxes for the year ended December 31 were as
follows:
- ---------------------------------------------------------------
(In millions) 1997 1996 1995
- ---------------------------------------------------------------
Current taxes:
U.S. income $424 $339 $185
Foreign income 69 80 73
------------------------------------
493 419 258
------------------------------------
Deferred taxes (benefits):
U.S. income 68 108 (212)
Foreign income 3 18 (6)
------------------------------------
71 126 (218)
- ---------------------------------------------------------------
Total income taxes $564 $545 $40
- --------------------------=====================================
36
<PAGE>
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:
- ---------------------------------------------------------------
(In millions) 1997 1996 1995
- ---------------------------------------------------------------
Tax expense at nominal rate $577 $560 $88
Tax-exempt interest income (30) (31) (34)
Realized investment results (1) 1 (24)
Dividends received deduction (8) (7) (8)
Amortization of goodwill 26 17 16
Interest on provisions 15 7 10
Resolved federal tax audit issues (13) -- (7)
Other (2) (2) (1)
- ---------------------------------------------------------------
Total income taxes $564 $545 $40
- -------------------------------------==========================
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. Generally, for employees whose service commenced
prior to 1989, benefits are based on their years of service and eligible
compensation during the highest three consecutive years of employment, offset
by a portion of the Social Security benefit for which they are eligible. In
1997, CIGNA amended its Plan for employees whose service commenced after 1988.
Under the new Plan provisions, eligible employees receive annual benefit
credits based on an employee's age and credited service, and quarterly interest
credits based on U.S. Treasury bond rates. The employee's pension benefit
equals the value of accumulated credits, and may be paid at or after separation
from service in a lump sum or an annuity. The amendment did not have a material
effect on CIGNA's results of operations, liquidity or financial condition.
CIGNA funds the Plan at least at the minimum amount required by the Employee
Retirement Income Security Act of 1974 (ERISA).
The following table summarizes the status as of December 31 of pension plans
for which assets exceeded accumulated benefit obligations:
- --------------------------------------------------------------------------
(In millions) 1997 1996
- --------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested benefit obligation $2,244 $1,826
------------------------
Accumulated benefit obligation $2,283 $1,867
------------------------
Pension liability included in Other Liabilities:
Projected benefit obligation $2,632 $2,244
Less plan assets at fair value 2,597 2,288
------------------------
Plan assets (greater) less than projected
benefit obligation 35 (44)
Unrecognized net gain from past
experience 1 72
Unrecognized prior service cost 20 (27)
Unamortized SFAS 87 transition asset 38 48
- --------------------------------------------------------------------------
Pension liability $94 $49
- --------------------------------------------------========================
At December 31, 1997 and 1996, plans under which accumulated benefits
exceeded assets had projected benefit obligations of $293 million and $296
million, respectively, and related assets at fair value of $34 million and $49
million for 1997 and 1996, respectively. The accumulated benefit obligation as
of December 31, 1997 and 1996 related to these plans was $221 million and $211
million, respectively. The pension liability included in Other Liabilities
related to these plans was $188 million and $172 million, respectively.
Components of net pension cost for all plans for the year ended December 31
were as follows:
- --------------------------------------------------------------
(In millions) 1997 1996 1995
- --------------------------------------------------------------
Service cost -- benefits
earned during the year $96 $100 $83
Interest accrued on projected
benefit obligation 188 174 163
Actual return on assets (388) (269) (392)
Net amortization and deferral 203 106 231
- --------------------------------------------------------------
Net pension cost $99 $111 $85
- ------------------------------------==========================
Determination of the projected benefit obligation was based on an estimated
discount rate of 7.0% and 7.5% for 1997 and 1996, respectively, and an estimated
long-term rate of compensation increase of 4.7% for 1997 and 1996. The estimated
long-term rate of return on assets was 9% for 1997 and 1996. 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 shares of CIGNA common stock at December 31, 1997 and 1996, with
a market value of $17 million and $13 million at December 31, 1997 and 1996,
respectively.
37
<PAGE>
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.
The following table summarizes the underfunded plans' benefit obligations
reconciled with the amount included in Other Liabilities as of December 31:
- -------------------------------------------------------------------------
(In millions) 1997 1996
- -------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Retirees $387 $379
Other fully eligible plan participants 13 11
Other active plan participants 78 72
-----------------------
Total accumulated benefit obligations 478 462
Less plan assets at fair value 59 54
-----------------------
Plan assets less than accumulated
benefit obligations 419 408
Unrecognized net gain from past
experience 216 234
Unrecognized prior service cost 236 254
- -------------------------------------------------------------------------
Other postretirement benefit liability $871 $896
- --------------------------------------------------=======================
At December 31, 1997 and 1996, plan assets of $59 million and $54 million,
respectively, represented partial funding for retiree life insurance plans with
accumulated benefit obligations of $141 million and $129 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 1997 and 1996.
Components of net other postretirement benefit cost for the year ended
December 31 were as follows:
- --------------------------------------------------------------
(In millions) 1997 1996 1995
- --------------------------------------------------------------
Service cost -- benefits earned
during the year $6 $10 $14
Interest accrued on benefit
obligation 32 38 44
Actual return on assets (7) (1) (9)
Net amortization and deferral (25) (26) (13)
- --------------------------------------------------------------
Net other postretirement
benefit cost $6 $21 $36
- ------------------------------------==========================
Determination of the accumulated other postretirement benefit obligation
for 1997 and 1996 was based on an estimated discount rate of 7.0% and 7.5%,
respectively, and an estimated long-term rate of compensation increase of 4.5%
for 1997 and 1996. The estimated rate of future increases in per capita cost of
health care benefits (the health care cost trend rate) was 9% decreasing
ratably to 5.5% over four 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 $42 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. These contributions are invested,
at the election of the employee, in one or more of the following investments:
CIGNA common stock fund, several CIGNA and non-CIGNA mutual funds, and a
fixed-income fund. In addition, beginning in 1999, CIGNA may provide additional
matching contributions, depending on its annual performance, which would be
invested in the CIGNA common stock fund. CIGNA's expense for such plans totaled
$42 million, $39 million and $37 million for 1997, 1996 and 1995, respectively.
38
<PAGE>
NOTE 11 -- EMPLOYEE INCENTIVE PLANS
The People Resources Committee of the Board of Directors can award to
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, 1997, 1996
and 1995, stock available for award aggregated 5,002,950 shares, 5,095,415
shares and 6,007,504 shares, respectively.
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 1997, 1996 and 1995 totaled
142,628 shares, 143,278 shares and 321,494 shares, respectively, at a weighted
average fair value per share of $157.03, $118.41 and $74.37, respectively.
Restricted stock grants of 646,035 shares for 1,797 employees were outstanding
at December 31, 1997. 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, vest over periods ranging from one to five years and expire no
later than 10 years after the date of grant. 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.
The following table, which includes approximately one million options
granted in connection with the 1997 Healthsource acquisition, summarizes the
status of, and changes in, common stock options outstanding for the year ended
December 31:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
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 1,627,966 $97.26 1,608,889 $71.15 1,611,949 $65.60
Granted 2,803,411 164.49 871,320 121.15 536,823 79.05
Exercised (1,068,088) 101.62 (803,134) 71.33 (509,533) 61.87
Expired or canceled (18,271) 117.41 (49,109) 89.73 (30,350) 71.85
----------- ---------- ----------
Outstanding -- December 31 3,345,018 152.10 1,627,966 97.26 1,608,889 71.15
- ---------------------------------===============================================================================================
Options exercisable at year-end 1,456,547 $139.22 664,784 $75.62 683,376 $64.80
- ---------------------------------===============================================================================================
</TABLE>
The following table summarizes the range of exercise prices for outstanding
common stock options at December 31, 1997:
- -------------------------------------------------------------
Range of Exercise
Prices
- -------------------------------------------------------------
$16.71 to $151.00 to
$150.00 $318.32
- -------------------------------------------------------------
Options outstanding 1,300,585 2,044,433
Weighted average remaining
contractual life 7.0 years 8.7 years
Weighted average exercise price $110.12 $178.81
Options exercisable 974,938 481,609
Weighted average exercise price $106.74 $204.98
- -------------------------------------------------------------
The weighted average fair value of options granted under employee incentive
plans during 1997, 1996 and 1995 was $38.81, $29.98 and $18.16, respectively.
Fair value of each option grant in 1997, 1996 and 1995 was estimated using the
Black-Scholes option-pricing model with the following assumptions:
- -------------------------------------------------------------
1997 1996 1995
- -------------------------------------------------------------
Dividend yield 2.4% 3.5% 4.6%
Expected volatility 23.7% 26.2% 25.5%
Risk-free interest rate 6.1% 5.9% 7.1%
Expected option life 4 years 6 years 6 years
- -------------------------------------------------------------
CIGNA awards stock options under employee incentive plans with exercise
prices equal to the market price at the date of grant and, therefore, does not
record compensation expense related to stock options. Had CIGNA recorded
compensation expense for stock options based on their fair
39
<PAGE>
value at the grant date using the Black-Scholes option-pricing model, CIGNA's
net income would have been reduced by $22 million, $10 million and $2 million in
1997, 1996 and 1995, respectively. Also, basic and diluted earnings per share
would have been reduced by $0.30, $0.13 and $0.03 in 1997, 1996 and 1995,
respectively.
NOTE 12 -- EARNINGS PER SHARE
Basic and Diluted EPS are computed as follows for the year ended December
31:
- ------------------------------------------------------------------
(Dollars in millions,
except per share Effect of
amounts) Basic Dilution Diluted
- ------------------------------------------------------------------
1997
Net income $1,086 -- $1,086
- ------------------------------====================================
Shares (in thousands):
Weighted average 73,421 -- 73,421
Options and restricted
stock grants 750 750
- ------------------------------------------------------------------
Total shares 73,421 750 74,171
- ------------------------------====================================
EPS $14.79 $(0.15) $14.64
- ------------------------------====================================
1996
Net income $1,056 -- $1,056
- ------------------------------====================================
Shares (in thousands):
Weighted average 75,165 -- 75,165
Options and restricted
stock grants 753 753
- ------------------------------------------------------------------
Total shares 75,165 753 75,918
- ------------------------------====================================
EPS $14.05 $(0.14) $13.91
- ------------------------------====================================
1995
Net income $211 -- $211
- ------------------------------====================================
Shares (in thousands):
Weighted average 72,655 -- 72,655
Options and restricted
stock grants 664 664
- ------------------------------------------------------------------
Total shares 72,655 664 73,319
- ------------------------------====================================
EPS $2.90 $(0.02) $2.88
- ------------------------------====================================
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,
1997 and 1996, approximately 7% 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 $720 million and $711 million as of December 31, 1997 and 1996,
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.
Future charges for unrecoverable reinsurance may materially affect results
of operations in future periods, however, 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:
- -------------------------------------------------------------
(In millions) 1997 1996 1995
- -------------------------------------------------------------
Short-duration contracts
Premiums and fees:
Direct $12,585 $11,577 $11,383
Assumed 1,143 1,099 1,448
Ceded (1,790) (1,904) (2,090)
- -------------------------------------------------------------
Net earned premiums and fees $11,938 $10,772 $10,741
- --------------------------------=============================
Long-duration contracts
Premiums and fees:
Direct $2,707 $2,728 $2,740
Assumed 544 634 595
Ceded (254) (218) (162)
- -------------------------------------------------------------
Net earned premiums and fees $2,997 $3,144 $3,173
- --------------------------------=============================
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 1997, 1996 and 1995 were net
of reinsurance recoveries of $1.3 billion, $1.6 billion and $1.5 billion,
respectively.
40
<PAGE>
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.
Activity in the reserve for unpaid claims and claim adjustment expenses for
the year ended December 31 was as follows:
- -----------------------------------------------------------------------
(In millions) 1997 1996 1995
- -----------------------------------------------------------------------
Gross reserve -- January 1 $16,482 $17,023 $16,825
Less reinsurance recoverable 5,835 5,864 6,190
-------------------------------
Net reserve -- January 1 10,647 11,159 10,635
-------------------------------
Plus incurred claims and
claim adjustment expenses:
Provision for insured
events of the current year 2,120 2,348 2,386
Increase in provision for insured
events of prior years 218 177 1,498
-------------------------------
Total incurred claims and claim
adjustment expenses 2,338 2,525 3,884
-------------------------------
Less payments for claims and
claim adjustment expenses
attributable to:
Insured events of the current year 901 823 971
Insured events of prior years 2,117 2,214 2,389
-------------------------------
Total payments for claims and
claim adjustment expenses 3,018 3,037 3,360
-------------------------------
Net reserve -- December 31 9,967 10,647 11,159
Plus reinsurance recoverable 5,168 5,835 5,864
- -----------------------------------------------------------------------
Gross reserve -- December 31 $15,135 $16,482 $17,023
- ---------------------------------------================================
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 databases. 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 $148
million, $117 million and $1.4 billion for 1997, 1996 and 1995, 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:
- --------------------------------------------------------------------
1997 1996
----------------------------------------------
(In millions) Gross Net Gross Net
- --------------------------------------------------------------------
Asbestos $846 $509 $771 $483
Environmental $1,404 $1,059 $1,492 $1,161
- --------------------------------------------------------------------
Prior year development, other than for A&E claims and charges for
unrecoverable reinsurance, was $70 million, $60 million and $109 million for
1997, 1996 and 1995, respectively.
41
<PAGE>
NOTE 15 -- LEASES AND RENTALS
Rental expenses for operating leases, principally with respect to
buildings, amounted to $234 million, $214 million and $238 million in 1997,
1996 and 1995, respectively.
As of December 31, 1997, future net minimum rental payments under
non-cancelable operating leases were approximately $732 million, payable as
follows: 1998 -- $155 million; 1999 -- $127 million; 2000 -- $95 million; 2001
-- $81 million; 2002 -- $65 million; and $209 million thereafter.
NOTE 16 -- COST REDUCTION INITIATIVES AND
OTHER RESTRUCTURING
A) Employee Life and Health Benefits Restructuring: In the fourth quarter of
1997, CIGNA adopted a cost reduction plan to restructure its health care
operations which resulted in a pre-tax charge of $32 million ($22 million
after-tax) included primarily in Other Operating Expenses in the Employee Life
and Health Benefits segment. The after-tax components of the charge were as
follows: severance, $11 million, for costs associated with nonvoluntary
terminations of approximately 1,300 employees in various functions and
locations; real estate, $4 million, primarily related to vacated lease space;
and other costs, $7 million, primarily related to the exit of certain
operations.
During 1995, CIGNA recorded a $30 million pre-tax charge ($20 million
after-tax), included in Other Operating Expenses, for cost reduction
restructuring initiatives in the Employee Life and Health Benefits segment. The
charge consisted primarily of severance-related expenses representing costs
associated with nonvoluntary terminations covering approximately 2,400
employees. These initiatives were completed in 1997 with no material difference
from original estimates.
B) Property and Casualty Restructuring: 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 recorded an $85 million pre-tax charge ($55 million
after-tax) for cost reduction restructuring initiatives which is included in
Other Operating Expenses for the Domestic Property and Casualty operations. The
charge consisted primarily of severance, representing costs associated with
nonvoluntary terminations of approximately 1,600 domestic employees, and real
estate, primarily related to vacated lease space. These initiatives were
substantially completed in 1997 with no material difference from original
estimates.
42
<PAGE>
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, non-
insurance operations engaged primarily in investment and real estate activities,
and certain new business initiatives.
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 CIGNA'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.
Consolidated Property and Casualty segment amounts, including International,
did not change as a result of the restructuring.
Summarized segment financial information for the year ended and as of
December 31 was as follows:
- ---------------------------------------------------------------
(In millions) 1997 1996 1995
- ---------------------------------------------------------------
REVENUES
Property and Casualty:
International $2,927 $2,859 $3,005
Domestic 2,120 2,147 2,259
----------------------------------
Ongoing operations 5,047 5,006 5,264
Run-off operations 321 478 471
----------------------------------
Total Property and
Casualty 5,368 5,484 5,735
Employee Life and
Health Benefits 10,540 9,318 9,167
Employee Retirement
and Savings Benefits 1,797 1,950 1,983
Individual Financial
Services 2,176 2,074 1,920
Other Operations 157 124 150
- ---------------------------------------------------------------
Total $20,038 $18,950 $18,955
- -----------------------------==================================
INCOME (LOSS) BEFORE
INCOME TAXES
Property and Casualty:
International $257 $248 $203
Domestic 168 111 (35)
----------------------------------
Ongoing operations 425 359 168
Run-off operations (7) (13) (1,228)
----------------------------------
Total Property and
Casualty 418 346 (1,060)
Employee Life and
Health Benefits 667 764 860
Employee Retirement
and Savings Benefits 336 329 284
Individual Financial
Services 318 259 231
Other Operations (89) (97) (64)
- ---------------------------------------------------------------
Total $1,650 $1,601 $251
- -----------------------------==================================
IDENTIFIABLE ASSETS
Property and Casualty:
International $7,430 $7,611 $7,603
Domestic 10,010 10,553 9,843
----------------------------------
Ongoing operations 17,440 18,164 17,446
Run-off operations 7,255 8,043 8,872
----------------------------------
Total Property and
Casualty 24,695 26,207 26,318
Employee Life and
Health Benefits 14,577 11,590 12,206
Employee Retirement
and Savings Benefits 45,927 40,399 37,736
Individual Financial
Services 20,024 17,581 15,913
Other Operations 2,976 3,155 3,730
- ---------------------------------------------------------------
Total $108,199 $98,932 $95,903
- -----------------------------==================================
43
<PAGE>
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, 1997 and 1996, the change in Net Translation
of Foreign Currencies reflects decreases of $81 million (including a tax
benefit of $43 million) and $18 million (including a tax benefit of $11
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:
- ----------------------------------------------------------------
(In millions) 1997 1996 1995
- ----------------------------------------------------------------
Revenues $3,078 $3,125 $3,240
Income before income taxes $292 $265 $82
Identifiable assets $9,341 $9,474 $9,256
- ----------------------------------------------------------------
CIGNA's income before income taxes included aggregate foreign exchange
transaction losses of $1 million in 1997, 1996 and 1995.
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 18 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, 1997 and 1996
was $202 million and $234 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 1997, gains for industrial revenue bonds were $1
million. There were no such gains in 1996 and 1995.
In addition, CIGNA is liable for municipal guarantee business of $816
million and $1.0 billion at December 31, 1997 and 1996, respectively, which
have maturities of up to 33 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, 1997 and 1996,
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, 1997 and 1996, the amount of minimum benefit
guarantees for separate account contracts was $4.8 billion and $4.9 billion,
respectively. Reserves in addition to the separate account liabilities are
established when CIGNA believes a payment will be required under one of these
guarantees. No such reserves were required as of December 31, 1997 and 1996.
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.
44
<PAGE>
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:
o increase health care regulation;
o revise the system of funding cleanup of environmental damages;
o reinterpret insurance contracts long after the policies were written to
provide coverage unanticipated by CIGNA;
o restrict insurance pricing and the application of underwriting standards;
and
o revise federal tax laws.
Some of the more significant issues are discussed below.
Efforts at the federal and state level to increase regulation of the health
care industry could have an adverse effect on CIGNA's health care operations if
they reduce marketplace competition and innovation or result in increased
medical or administrative costs. Matters under consideration that could have an
adverse effect include mandated benefits or services that increase costs
without improving the quality of care, loss of the ERISA preemption of state
law and restrictions on the use of prescription drug formularies. Due to the
uncertainty associated with the timing and content of any proposals ultimately
adopted, the effect on CIGNA's results of operations, liquidity or financial
condition cannot be reasonably estimated at this time.
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 consolidated results of operations, liquidity or financial condition
cannot be reasonably estimated at this time.
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. For 1997, revenues of $591
million and net income of $44 million for the Individual Financial Services
segment were from leveraged COLI products that are affected by this
legislation. CIGNA does not expect this legislation to have a material adverse
effect on its consolidated results of operations, liquidity or financial
condition.
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. Since these principles
have not been finalized, the effect on CIGNA's statutory net income, surplus
and liquidity cannot be reasonably estimated at this time.
CIGNA is contingently liable for possible assessments under regulatory
requirements pertaining to potential insolvencies of unaffiliated insurance
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 $21 million for 1997
and $28 million for 1996 and 1995, 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.
45
<PAGE>
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, 1997 and 1996, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1997, 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.
/s/ Price Waterhouse LLP
Philadelphia, Pennsylvania
February 10, 1998
46
<PAGE>
QUARTERLY FINANCIAL DATA (Unaudited)
The following unaudited quarterly financial data are presented on a
consolidated basis for each of the years ended December 31, 1997 and 1996.
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
1997 *
Total revenues $4,645 $4,719 $5,182 $5,492
Income before income taxes 437 411 427 375
Net income 288 279 279 240
Earnings per share:
Basic 3.92 3.79 3.79 3.29
Diluted 3.89 3.76 3.75 3.26
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
Earnings per share:
Basic 3.15 3.05 3.74 4.12
Diluted 3.12 3.03 3.71 4.08
STOCK AND DIVIDEND DATA
1997
Price range of common stock - high $161 3/8 $187 1/4 $200 3/4 $186 1/4
- low $135 1/4 $139 $175 5/16 $151 1/2
Dividends declared per common share $ .83 $ .83 $ .83 $ .83
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
- ------------------------------------------------------------------------------------------------------------------------------
* The fourth quarter of 1997 includes after-tax charges associated with the integration of Healthsource and the
restructuring of CIGNA's health care operations of $80 million.
</TABLE>
47
<PAGE>
Stock Listing
CIGNA's common shares are listed on the New York, Pacific and Philadelphia stock
exchanges. The ticker symbol is CI.
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Listed below are subsidiaries of CIGNA Corporation as of December 31, 1997
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(w) of
Regulation S-X.
CIGNA Holdings, Inc. (Delaware)
I. Connecticut General Corporation (Connecticut)
A. CG Trust Company (Illinois)
B. CIGNA Associates, Inc. (Connecticut)
C. CIGNA 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 Services, Inc. (Delaware)
F. CIGNA Health Corporation (Delaware)
(1) Healthsource, Inc. (New Hampshire)
(a) Healthsource Connecticut Ventures, Inc. (Connecticut)
(i) Healthsource Connecticut, Inc. (Connecticut)
(b) Healthsource Health Plans, Inc. (North Carolina)
(i) Healthsource North Carolina, Inc. (North Carolina)
(ii) Healthsource North Carolina Administrators, Inc. (North
Carolina)
(c) Healthsource Indiana, Inc. (New Hampshire)
(i) Healthsource Indiana Insurance Company (Indiana)
(ii) Healthsource Indiana Managed Care Plan, Inc. (Indiana)
(d) Healthsource Insurance Group, Inc. (New Hampshire)
(e) Healthsource Kentucky Ventures, Inc. (Kentucky)
(i) Healthsource Kentucky, Inc. (Kentucky)
(ii) Healthsource Kentucky Preferred, Inc. (Kentucky)
(f) Healthsource Maine, Inc. (Maine)
(g) Healthsource Maine Preferred, Inc. (New Hampshire)
(h) Healthsource Management, Inc. (New Hampshire)
(i) Healthsource Syracuse, Inc. (New York)
(a) Healthsource New York, Inc. (New York)
(i) Healthsource HMO of New York, Inc. (New York)
(ii) Healthsource Preferred of New York, Inc.
(New York)
(ii) Healthsource Tennessee, Inc. (Tennessee)
(iii)Healthsource Tennessee Preferred, Inc. (Tennessee)
<PAGE>
(i) Healthsource Massachusetts, Inc. (Massachusetts)
(j) Healthsource Metropolitan New York Holding Company, Inc.
(New Hampshire)
(i) Healthsource New York/New Jersey, Inc. (New York)
(k) Healthsource New Hampshire, Inc. (New Hampshire)
(l) Healthsource Ohio Ventures, Inc. (Ohio)
(i) Healthsource Ohio, Inc. (Ohio)
(ii) Healthsource Ohio Preferred, Inc. (Ohio)
(m) Healthsource Rhode Island, Inc. (Rhode Island)
(n) Healthsource RX, Inc. (New Hampshire)
(o) Healthsource South, Inc. (New Hampshire)
(i) Healthsource Arkansas Ventures, Inc. (Arkansas)
(70% with balance owned by non-affiliate)
(a) Healthsource Arkansas, Inc. (Arkansas)
(b) Healthsource Arkansas Preferred, Inc. (Arkansas)
(ii) Healthsource Insurance Company (Tennessee)
(iii)Healthsource Physicians Group of South Carolina, Inc.
(South Carolina)
(iv) Healthsource Texas, Inc. (Texas)
(v) HS North Texas Ventures, Inc. (Texas)
(a) Healthsource North Texas, Inc. (Texas)
(vi) Provident Health Care Plans, Inc. (Tennessee)
(a) Healthsource Georgia, Inc. (Georgia)
(b) Provident Health Care Plan, Inc. of North Carolina
(North Carolina)
(c) Provident Health Care Plan, Inc. of Tennessee
(Tennessee)
(p) Physicians' Health Systems, Inc. (South Carolina)
(i) Healthsource Insurance Services, Inc. (South Carolina)
(72% with balance owned by
another CIGNA subsidiary)
(ii) Healthsource South Carolina, Inc. (South Carolina)
(2) CIGNA HealthCare of Arizona, Inc. (Arizona)
(a)CIGNA Community Choice, Inc. (Arizona)
(3) CIGNA HealthCare of California, Inc. (California)
(4) CIGNA HealthCare of Colorado, Inc. (Colorado)
(5) CIGNA HealthCare of Connecticut, Inc. (Connecticut)
(6) CIGNA HealthCare of Delaware, Inc. (Delaware)
(7) CIGNA HealthCare of Florida, Inc. (Florida)
(8) CIGNA HealthCare of Georgia, Inc. (Georgia)
(9) CIGNA HealthCare of Illinois, Inc. (Delaware) (99.60% with
balance owned by non-affiliate)
(10) CIGNA Healthplan of Louisiana, Inc. (Louisiana)
(11) CIGNA HealthCare of Massachusetts, Inc. (Massachusetts)
(12) CIGNA HealthCare Mid-Atlantic, Inc. (Maryland)
(13) CIGNA HealthCare of New Jersey, Inc. (New Jersey)
(14) CIGNA HealthCare of New York, Inc. (New York)
(15) CIGNA HealthCare of North Carolina, Inc. (North Carolina)
(16) CIGNA HealthCare of North Louisiana, Inc. (Louisiana)
(17) CIGNA HealthCare of Northern New Jersey, Inc. (New Jersey)
(18) CIGNA HealthCare of Ohio, Inc. (Ohio)
(19) CIGNA HealthCare of Oklahoma, Inc. (Oklahoma)
(20) CIGNA HealthCare of Pennsylvania, Inc. (Pennsylvania)
(21) CIGNA HealthCare of St. Louis, Inc. (Missouri)
(22) CIGNA HealthCare of Tennessee, Inc. (Tennessee)
(23) CIGNA HealthCare of Texas, Inc. (Texas)
(24) CIGNA HealthCare of Utah, Inc. (Utah)
(25) CIGNA HealthCare of Virginia, Inc. (Virginia)
(26) Lovelace Health Systems, Inc. (New Mexico)
<PAGE>
(27) Temple Insurance Company Limited (Bermuda)
G. CIGNA RE Corporation (Delaware)
H. Connecticut General Life Insurance Company (Connecticut)
(1) All-Net Preferred Providers, Inc. (Delaware)
(2) CIGNA Life Insurance Company (Connecticut)
I. Disability Claim Services, Inc. (Delaware)
J. Global Portfolio Strategies, Inc. (Connecticut)
K. INA Life Insurance Company of New York (New York)
L. International Rehabilitation Associates, Inc. d/b/a Intracorp
(Delaware)
M. Life Insurance Company of North America (Pennsylvania)
(1) CIGNA Direct Marketing Company, Inc. (Delaware)
(2) CIGNA Life Insurance Company of Canada (Canada)
(3) INA Himawari Life Insurance Co., Ltd. (Japan) (90% with balance
owned by non-affiliate)
N. MCC Behavioral Care, Inc. (Minnesota)
(1) MCC Behavioral Care of California, Inc. (California)
O. TEL-DRUG, INC. (South Dakota)
II. INA Corporation (Pennsylvania)
A. CIGNA International Holdings, Ltd. (Delaware)
(1) Afia Finance Corporation (Delaware)
(a) CIGNA Brasil Participacoes Ltda. (Brazil)
(i) AMICO Assistencia Medica A Industria E Comercio Ltda.
(Brazil) (50% with balance owned by non-affiliate)
(ii) Excel CIGNA Seguardora S.A. (Brazil) (50% with balance
owned by non-affiliate)
(b) CIGNA Reinsurance New Zealand Limited (New Zealand)
(c) P. T. Asuransi CIGNA Indonesia (Indonesia) (53.51% with
balance owned by non-affiliates)
(2) CIGNA Argentina Compania de Seguros S.A. (Argentina)
(3) CIGNA Brasil Empreendimentos Ltda. (Brazil)
(a) INA Seguradora S.A. (Brazil) (85.80% with 13.79% owned by
another CIGNA affiliate and balance owned by non-affiliates)
(4) CIGNA Compania de Seguros (Chile) S.A. (Chile) (99.13% with
balance owned by non-affiliates)
(5) 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)
(6) CIGNA Insurance Asia Pacific Limited (Australia)
(a) CIGNA Insurance Singapore Limited (Singapore)
(7) CIGNA Insurance Company Limited (Rep. of South Africa)
(8) CIGNA Insurance Company of Puerto Rico (Puerto Rico)
(9) CIGNA Insurance New Zealand Limited (New Zealand)
(a) CIGNA Life Insurance New Zealand Limited (New Zealand)
(10) CIGNA International Corporation (Delaware)
(a) CIGNA Eastern European Corporate Services Sp. z.o.o.
(Poland)
(11) CIGNA International Insurance Company of Hong Kong Limited
(Hong Kong)
(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 Marketing Group, C.A. (Venezuela)
(d) CIGNA Overseas Holdings, Inc. (Delaware)
(i) CIGNA Insurance Company of Europe S.A.-N.V. (Belgium)
(a) CIGNA Life Insurance Company of Europe S.A.-N.V.
(Belgium)
(b) CIGNA STU, S.A. (Poland) (49% with balance owned by
non-affiliate)
(c) CIGNA STU Zycie, S.A. (Poland) (51% with balance
owned by non-affiliate)
(13) CIGNA Worldwide Insurance Company (Delaware)
<PAGE>
(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) ESIS International, Inc. (Delaware)
(15) INACAN Holdings, Ltd. (Canada)
(a) CIGNA Insurance Company of Canada (Canada)
(16) Inversiones INA Limitada (Chile) (98.6% with balance owned by
another CIGNA subsidiary) (a) CIGNA Compania de Seguros de Vida
(Chile) S.A. (Chile) (96.6% with balance owned by non-affiliate)
(b) CIGNA Salud Isapre S.A. (Chile) (99.20% with balance owned
by another CIGNA subsidiary)
(17) LATINA Holdings, Ltd. (Delaware)
(a) CIGNA Seguros de Colombia S.A. (Colombia) (85.76% with
balance owned by other CIGNA subsidiaries and non-affiliate)
(b) Empresa Guatemalteca CIGNA de Seguros, Sociedad Anonima
(Guatemala) (97.375% with balance owned by non-affiliates)
(18) Perdana CIGNA Insurance Berhard (Malaysia) (51% with balance owned
by non-affiliate)
(19) Seguros CIGNA, S.A. (Mexico) (92.98% 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)
(c) ESIS, Inc. (California)
(d) INAC Corp. (Delaware)
(e) INAC Corp. of California (California)
(f) INAMAR Insurance Underwriting Agency, Inc. (New Jersey)
(i) INAMAR Insurance Underwriting Agency, Inc. of
Massachusetts (Massachusetts)
(ii) INAMAR Insurance Underwriting Agency, Inc. of Ohio
(Ohio)
(iii)INAMAR Insurance Underwriting Agency of Texas (Texas)
(g) INAPRO, Inc. (Delaware)
(i) Reinsurance Solutions International, L.L.C. (Delaware)
(50% with balance owned by non-affiliate)
(h) Insurance Company of North America (Pennsylvania)
(i) Atlantic Employers Insurance Company (New Jersey)
(ii) CIGNA Employers Insurance Company (Pennsylvania)
(iii)CIGNA Insurance Company of Ohio (Ohio)
(iv) Indemnity Insurance Company of North America
(Pennsylvania)
(a) Allied Insurance Company (California)
(b) CIGNA Indemnity Insurance Company (Pennsylvania)
<PAGE>
(c) CIGNA Insurance Company of Illinois (Illinois)
(v) 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)
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 No. 333-41011) and Form S-8 (No.
2-76445, No. 2-76444, No. 33-44371, No. 33-51791, No. 33-60053, No. 333-22391
and No. 333-31903) of CIGNA Corporation, of our report dated February 10, 1998
appearing on Page 46 of the 1997 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 26, 1998
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 shares of CIGNA Common Stock under the
CIGNA 401(k) Plan and CIGNA's registration statements on Form S-8
(Registration Numbers 2-76444, 2-76445, 33-51791, 33-44371, 33-60053,
333-31903 and 333-22391);
(iii) all amendments to CIGNA's registration statements on Form S-3
(Registration Numbers 33-65396 and 333- 41011) relating to $1 billion 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, l999.
IN WITNESS WHEREOF, the undersigned has executed this document as of the
23rd day of February, l998.
/s/ Robert P. Bauman
----------------------------------------
Robert P. Bauman
<PAGE>
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 shares of CIGNA Common Stock under the
CIGNA 401(k) Plan and CIGNA's registration statements on Form S-8
(Registration Numbers 2-76444, 2-76445, 33-51791, 33-44371, 33-60053,
333-31903 and 333-22391);
(iii) all amendments to CIGNA's registration statements on Form S-3
(Registration Numbers 33-65396 and 333- 41011) relating to $1 billion 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, l999.
IN WITNESS WHEREOF, the undersigned has executed this document as of the
18th day of February, l998.
/s/ Robert H. Campbell
----------------------------------------
Robert H. Campbell
<PAGE>
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 shares of CIGNA Common Stock under the
CIGNA 401(k) Plan and CIGNA's registration statements on Form S-8
(Registration Numbers 2-76444, 2-76445, 33-51791, 33-44371, 33-60053,
333-31903 and 333-22391);
(iii) all amendments to CIGNA's registration statements on Form S-3
(Registration Numbers 33-65396 and 333- 41011) relating to $1 billion 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, l999.
IN WITNESS WHEREOF, the undersigned has executed this document as of the
19th day of February, l998.
/s/ Alfred C. DeCrane, Jr.
----------------------------------------
Alfred C. DeCrane, Jr.
<PAGE>
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
19th day of February, l997.
/s/ Bernard M. Fox
----------------------------------------
Bernard M. Fox
<PAGE>
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 shares of CIGNA Common Stock under the
CIGNA 401(k) Plan and CIGNA's registration statements on Form S-8
(Registration Numbers 2-76444, 2-76445, 33-51791, 33-44371, 33-60053,
333-31903 and 333-22391);
(iii) all amendments to CIGNA's registration statements on Form S-3
(Registration Numbers 33-65396 and 333- 41011) relating to $1 billion 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, l999.
IN WITNESS WHEREOF, the undersigned has executed this document as of the
23rd day of February, l998.
/s/ Peter N. Larson
----------------------------------------
Peter N. Larson
<PAGE>
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 shares of CIGNA Common Stock under the
CIGNA 401(k) Plan and CIGNA's registration statements on Form S-8
(Registration Numbers 2-76444, 2-76445, 33-51791, 33-44371, 33-60053,
333-31903 and 333-22391);
(iii) all amendments to CIGNA's registration statements on Form S-3
(Registration Numbers 33-65396 and 333- 41011) relating to $1 billion 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, l999.
IN WITNESS WHEREOF, the undersigned has executed this document as of the
20th day of March, l998.
/s/ Marilyn W. Lewis
----------------------------------------
Marilyn W. Lewis
<PAGE>
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/ Paul F. Oreffice
----------------------------------------
Paul F. Oreffice
<PAGE>
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 shares of CIGNA Common Stock under the
CIGNA 401(k) Plan and CIGNA's registration statements on Form S-8
(Registration Numbers 2-76444, 2-76445, 33-51791, 33-44371, 33-60053,
333-31903 and 333-22391);
(iii) all amendments to CIGNA's registration statements on Form S-3
(Registration Numbers 33-65396 and 333- 41011) relating to $1 billion 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, l999.
IN WITNESS WHEREOF, the undersigned has executed this document as of the
23rd day of February, l998.
/s/ Charles R. Shoemate
----------------------------------------
Charles R. Shoemate
<PAGE>
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 shares of CIGNA Common Stock under the
CIGNA 401(k) Plan and CIGNA's registration statements on Form S-8
(Registration Numbers 2-76444, 2-76445, 33-51791, 33-44371, 33-60053,
333-31903 and 333-22391);
(iii) all amendments to CIGNA's registration statements on Form S-3
(Registration Numbers 33-65396 and 333- 41011) relating to $1 billion 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, l999.
IN WITNESS WHEREOF, the undersigned has executed this document as of the
18th day of February, l998.
/s/ Louis W. Sullivan, M.D.
----------------------------------------
Louis W. Sullivan, M.D.
<PAGE>
Exhibit 24.1
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 shares of CIGNA Common Stock under the
CIGNA 401(k) Plan and CIGNA's registration statements on Form S-8
(Registration Numbers 2-76444, 2-76445, 33-51791, 33-44371, 33-60053,
333-31903 and 333-22391);
(iii) all amendments to CIGNA's registration statements on Form S-3
(Registration Numbers 33-65396 and 333- 41011) relating to $1 billion 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, l999.
IN WITNESS WHEREOF, the undersigned has executed this document as of the
23rd day of February, l998.
/s/ Wilson H. Taylor
----------------------------------------
Wilson H. Taylor
<PAGE>
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 shares of CIGNA Common Stock under the
CIGNA 401(k) Plan and CIGNA's registration statements on Form S-8
(Registration Numbers 2-76444, 2-76445, 33-51791, 33-44371, 33-60053,
333-31903 and 333-22391);
(iii) all amendments to CIGNA's registration statements on Form S-3
(Registration Numbers 33-65396 and 333- 41011) relating to $1 billion 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, l999.
IN WITNESS WHEREOF, the undersigned has executed this document as of the
23rd day of February, l998.
/s/ Carol Cox Wait
----------------------------------------
Carol Cox Wait
<PAGE>
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 shares of CIGNA Common Stock under the
CIGNA 401(k) Plan and CIGNA's registration statements on Form S-8
(Registration Numbers 2-76444, 2-76445, 33-51791, 33-44371, 33-60053,
333-31903 and 333-22391);
(iii) all amendments to CIGNA's registration statements on Form S-3
(Registration Numbers 33-65396 and 333- 41011) relating to $1 billion 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, l999.
IN WITNESS WHEREOF, the undersigned has executed this document as of the
23rd day of February, l998.
/s/ Harold A. Wagner
----------------------------------------
Harold A. Wagner
EXHIBIT 24.2
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 25, 1998, 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, 1997, 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: February 25, 1998 /s/ Carol J. Ward
-------------------------------
Carol J. Ward
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS INCORPORATED BY REFERENCE IN ITEM 8 OF PART II TO CIGNA'S
REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<DEBT-HELD-FOR-SALE> 36,358
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 854
<MORTGAGE> 10,859
<REAL-ESTATE> 769
<TOTAL-INVEST> 56,578
<CASH> 2,625
<RECOVER-REINSURE> 6,753<F1>
<DEFERRED-ACQUISITION> 1,542
<TOTAL-ASSETS> 108,199
<POLICY-LOSSES> 11,976
<UNEARNED-PREMIUMS> 1,774
<POLICY-OTHER> 17,906
<POLICY-HOLDER-FUNDS> 30,682
<NOTES-PAYABLE> 2,155
0
0
<COMMON> 88
<OTHER-SE> 7,844
<TOTAL-LIABILITY-AND-EQUITY> 108,199
14,935
<INVESTMENT-INCOME> 4,245
<INVESTMENT-GAINS> 167
<OTHER-INCOME> 691
<BENEFITS> 13,029
<UNDERWRITING-AMORTIZATION> 1,046
<UNDERWRITING-OTHER> 4,313
<INCOME-PRETAX> 1,650
<INCOME-TAX> 564
<INCOME-CONTINUING> 1,086
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,086
<EPS-PRIMARY> 14.79<F2>
<EPS-DILUTED> 14.64<F3>
<RESERVE-OPEN> 10,647<F4>
<PROVISION-CURRENT> 2,120
<PROVISION-PRIOR> 218
<PAYMENTS-CURRENT> 901
<PAYMENTS-PRIOR> 2,117
<RESERVE-CLOSE> 9,967<F4>
<CUMULATIVE-DEFICIENCY> 218
<FN>
<F1>AMOUNT INCLUDES RECOVERABLES ON PAID AND UNPAID LOSSES.
<F2>AMOUNT REPRESENTS BASIC EARNINGS PER SHARE BASED ON SFAS NO. 128.
<F3>AMOUNT REPRESENTS DILUTED EARNINGS PER SHARE BASED ON SFAS NO. 128.
<F4>AMOUNT IS NET OF REINSURANCE RECOVERABLES.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements contained on Form 10-K for the fiscal year ended December
31, 1997 for CIGNA Corporation and is qualified in its entirety by reference to
such statements.
</LEGEND>
<RESTATED>
<CIK> 0000701221
<NAME> CIGNA CORPORATION
<MULTIPLIER> 1,000,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 6-MOS 3-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1997 JAN-01-1997 JAN-01-1996
<PERIOD-END> SEP-30-1997 JUN-30-1997 MAR-31-1997 DEC-31-1996
<DEBT-HELD-FOR-SALE> 35,630 34,470 34,320 34,933
<DEBT-CARRYING-VALUE> 0 0 0 0
<DEBT-MARKET-VALUE> 0 0 0 0
<EQUITIES> 937 799 683 701
<MORTGAGE> 10,813 10,973 11,066 10,927
<REAL-ESTATE> 1,023 1,040 1,087 1,102
<TOTAL-INVEST> 56,773 55,693 55,969 56,534
<CASH> 1,470 1,689 1,223 1,287
<RECOVER-REINSURE> 6,938<F1> 6,926<F1> 6,859<F1> 7,287<F1>
<DEFERRED-ACQUISITION> 1,291 1,298 1,303 1,230
<TOTAL-ASSETS> 106,428 103,662 98,752 98,932
<POLICY-LOSSES> 11,896 11,617 11,587 11,784
<UNEARNED-PREMIUMS> 1,852 1,853 1,946 1,940
<POLICY-OTHER> 18,434 18,527 18,400 18,841
<POLICY-HOLDER-FUNDS> 30,271 30,046 29,800 29,878
<NOTES-PAYABLE> 1,943 2,235 1,343 1,310
0 0 0 0
0 0 0 0
<COMMON> 88 88 88 88
<OTHER-SE> 7,903 7,460 7,029 7,120
<TOTAL-LIABILITY-AND-EQUITY> 106,428 103,662 98,752 98,932
10,795 6,870 3,388 13,916
<INVESTMENT-INCOME> 3,172 2,115 1,053 4,333
<INVESTMENT-GAINS> 81 56 44 91
<OTHER-INCOME> 498 323 160 610
<BENEFITS> 9,433 6,074 3,009 12,473
<UNDERWRITING-AMORTIZATION> 797 534 264 1,138
<UNDERWRITING-OTHER> 3,041 1,908 935 3,738
<INCOME-PRETAX> 1,275 848 437 1,601
<INCOME-TAX> 429 281 149 545
<INCOME-CONTINUING> 846 567 288 1,056
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 846 567 288 1,056
<EPS-PRIMARY> 11.50<F2> 7.71<F2> 3.92<F2> 14.05<F2>
<EPS-DILUTED> 11.37<F3> 7.64<F3> 3.89<F3> 13.91<F3>
<RESERVE-OPEN> 0 0 0 11,159<F4>
<PROVISION-CURRENT> 0 0 0 2,348
<PROVISION-PRIOR> 0 0 0 177
<PAYMENTS-CURRENT> 0 0 0 823
<PAYMENTS-PRIOR> 0 0 0 2,214
<RESERVE-CLOSE> 0 0 0 10,647<F4>
<CUMULATIVE-DEFICIENCY> 0 0 0 177
<FN>
<F1>AMOUNT INCLUDES RECOVERABLES ON PAID AND UNPAID LOSSES.
<F2>AMOUNT REPRESENTS BASIC EARNINGS PER SHARE BASED ON SFAS NO. 128.
<F3>AMOUNT REPRESENTS DILUTED EARNINGS PER SHARE BASED ON SFAS NO. 128.
<F4>AMOUNT IS NET OF REINSURANCE RECOVERABLES.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements contained on Form 10-K for the fiscal year ended December
31, 1997 for CIGNA Corporation and is qualified in its entirety by reference to
such statements.
</LEGEND>
<RESTATED>
<CIK> 0000701221
<NAME> CIGNA CORPORATION
<MULTIPLIER> 1,000,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 6-MOS 3-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1996 JAN-01-1996 JAN-01-1995
<PERIOD-END> SEP-30-1996 JUN-30-1996 MAR-31-1996 DEC-31-1995
<DEBT-HELD-FOR-SALE> 33,888 33,918 34,761 36,241
<DEBT-CARRYING-VALUE> 0 0 0 0
<DEBT-MARKET-VALUE> 0 0 0 0
<EQUITIES> 712 715 689 661
<MORTGAGE> 11,278 11,245 11,285 11,010
<REAL-ESTATE> 1,275 1,262 1,276 1,283
<TOTAL-INVEST> 55,383 55,481 56,100 57,710
<CASH> 2,088 1,434 1,269 1,559
<RECOVER-REINSURE> 7,352<F1> 7,130<F1> 7,176<F1> 7,120<F1>
<DEFERRED-ACQUISITION> 1,211 1,161 1,123 1,109
<TOTAL-ASSETS> 97,347 95,899 95,417 95,903
<POLICY-LOSSES> 11,777 11,750 11,688 12,007
<UNEARNED-PREMIUMS> 2,065 2,059 2,187 2,176
<POLICY-OTHER> 19,159 19,004 19,156 19,303
<POLICY-HOLDER-FUNDS> 29,692 29,292 29,373 30,055
<NOTES-PAYABLE> 1,305 1,443 1,472 1,480
0 0 0 0
0 0 0 0
<COMMON> 88 88 87 87
<OTHER-SE> 6,920 6,797 6,776 7,070
<TOTAL-LIABILITY-AND-EQUITY> 97,347 95,899 95,417 95,903
10,333 6,889 3,390 13,914
<INVESTMENT-INCOME> 3,263 2,194 1,083 4,296
<INVESTMENT-GAINS> 17 (1) 30 233
<OTHER-INCOME> 448 294 142 512
<BENEFITS> 9,337 6,273 3,144 13,855
<UNDERWRITING-AMORTIZATION> 877 594 272 1,181
<UNDERWRITING-OTHER> 2,710 1,806 871 3,668
<INCOME-PRETAX> 1,137 703 358 251
<INCOME-TAX> 387 234 120 40
<INCOME-CONTINUING> 750 469 238 211
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 750 469 238 211
<EPS-PRIMARY> 9.94<F2> 6.20<F2> 3.15<F2> 2.90<F2>
<EPS-DILUTED> 9.84<F3> 6.14<F3> 3.12<F3> 2.88<F3>
<RESERVE-OPEN> 0 0 0 10,635<F4>
<PROVISION-CURRENT> 0 0 0 2,386
<PROVISION-PRIOR> 0 0 0 1,498
<PAYMENTS-CURRENT> 0 0 0 971
<PAYMENTS-PRIOR> 0 0 0 2,389
<RESERVE-CLOSE> 0 0 0 11,159<F4>
<CUMULATIVE-DEFICIENCY> 0 0 0 1,498
<FN>
<F1>AMOUNT INCLUDES RECOVERABLES ON PAID AND UNPAID LOSSES.
<F2>AMOUNT REPRESENTS BASIC EARNINGS PER SHARE BASED ON SFAS NO. 128.
<F3>AMOUNT REPRESENTS DILUTED EARNINGS PER SHARE BASED ON SFAS NO. 128.
<F4>AMOUNT IS NET OF REINSURANCE RECOVERABLES.
</FN>
</TABLE>
