UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
-------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from _____ to _____
Commission file number 1-8323
------
CIGNA Corporation
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 06-1059331
------------------------------- -----------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
One Liberty Place, 1650 Market Street
Philadelphia, Pennsylvania 19192
------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (215) 761-1000
--------------
Not Applicable
------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes _x_ No ___
As of June 30, 1999, 199,121,311 shares of the issuer's Common Stock were
outstanding.
<PAGE>
CIGNA CORPORATION
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Income Statements 1
Consolidated Balance Sheets 2
Consolidated Statements of Comprehensive
Income and Changes in Shareholders' Equity 3
Consolidated Statements of Cash Flows 4
Notes to Financial Statements 5
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 11
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 6. Exhibits and Reports on Form 8-K 24
SIGNATURE 25
EXHIBIT INDEX 26
As used herein, "CIGNA" refers to one or more of CIGNA Corporation and its
consolidated subsidiaries.
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
- -----------------------------
CIGNA CORPORATION
CONSOLIDATED INCOME STATEMENTS
(In millions, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES
Premiums and fees $ 3,724 $ 3,354 $ 7,311 $ 6,570
Net investment income 734 789 1,455 1,578
Other revenues 226 168 404 635
Realized investment gains 13 39 24 79
------- ------- ------- -------
Total revenues 4,697 4,350 9,194 8,862
------- ------- ------- -------
BENEFITS, LOSSES AND EXPENSES
Benefits, losses and settlement expenses 3,119 2,930 6,138 5,776
Policy acquisition expenses 58 43 125 90
Other operating expenses 1,051 992 2,094 1,928
------- ------- ------- -------
Total benefits, losses and expenses 4,228 3,965 8,357 7,794
------- ------- ------- -------
INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES 469 385 837 1,068
------- ------- ------- -------
Income taxes (benefits):
Current 213 121 326 534
Deferred (47) 15 (28) (154)
------- ------- ------- -------
Total taxes 166 136 298 380
------- ------- ------- -------
INCOME FROM CONTINUING OPERATIONS 303 249 539 688
Income (loss) from discontinued operations, net of taxes (71) 59 (28) 115
------- ------- ------- -------
INCOME BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE 232 308 511 803
Cumulative effect of accounting change, net of taxes -- -- (91) --
------- ------- ------- -------
NET INCOME $ 232 $ 308 $ 420 $ 803
- ----------------------------------------------------------------======================================================
BASIC EARNINGS PER SHARE
Income from continuing operations $ 1.50 $ 1.16 $ 2.65 $ 3.20
Income (loss) from discontinued operations, net of taxes (0.35) 0.28 (0.14) 0.54
- ----------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of accounting change 1.15 1.44 2.51 3.74
Cumulative effect of accounting change, net of taxes -- -- (0.44) --
- ----------------------------------------------------------------------------------------------------------------------
Net income $ 1.15 $ 1.44 $ 2.07 $ 3.74
- ----------------------------------------------------------------======================================================
DILUTED EARNINGS PER SHARE
Income from continuing operations $ 1.48 $ 1.15 $ 2.61 $ 3.17
Income (loss) from discontinued operations, net of taxes (0.35) 0.27 (0.13) 0.53
- ----------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of accounting change 1.13 1.42 2.48 3.70
Cumulative effect of accounting change, net of taxes -- -- (0.44) --
- ----------------------------------------------------------------------------------------------------------------------
Net income $ 1.13 $ 1.42 $ 2.04 $ 3.70
- ----------------------------------------------------------------======================================================
DIVIDENDS DECLARED PER SHARE $ 0.30 $ 0.29 $ 0.60 $ 0.57
- ----------------------------------------------------------------======================================================
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
1
<PAGE>
CIGNA CORPORATION
CONSOLIDATED BALANCE SHEETS
(In millions, except per share amounts)
<TABLE>
<CAPTION>
As of As of
June 30, December 31,
1999 1998
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities, at fair value (amortized cost, $22,625; $22,663) $ 23,121 $ 24,270
Equity securities, at fair value (cost, $263; $249) 541 477
Mortgage loans 10,115 9,599
Policy loans 3,674 6,185
Real estate 798 733
Other long-term investments 146 170
Short-term investments 243 242
-------- --------
Total investments 38,638 41,676
Cash and cash equivalents 1,262 1,986
Accrued investment income 556 617
Premiums, accounts and notes receivable 2,589 2,481
Reinsurance recoverables 6,737 6,666
Deferred policy acquisition costs 767 730
Property and equipment 700 701
Deferred income taxes 1,269 1,034
Other assets 699 750
Goodwill and other intangibles 2,050 2,090
Separate account assets 36,179 34,808
Net assets of discontinued operations 2,000 2,351
- --------------------------------------------------------------------------------------------------------------
Total assets $ 93,446 $ 95,890
- ---------------------------------------------------------------------------------=============================
LIABILITIES
Contractholder deposit funds $ 27,779 $ 30,607
Unpaid claims and claim expenses 3,639 3,392
Future policy benefits 12,141 12,510
Unearned premiums 496 589
-------- --------
Total insurance and contractholder liabilities 44,055 47,098
Accounts payable, accrued expenses and other liabilities 4,631 4,358
Current income taxes -- 27
Short-term debt 307 272
Long-term debt 1,361 1,428
Separate account liabilities 35,751 34,430
- --------------------------------------------------------------------------------------------------------------
Total liabilities 86,105 87,613
- --------------------------------------------------------------------------------------------------------------
CONTINGENCIES - NOTE 9
SHAREHOLDERS' EQUITY
Common stock (par value, $0.25; shares issued, 267; 265) 67 66
Additional paid-in capital 2,814 2,719
Net unrealized appreciation, fixed maturities $ 160 $ 750
Net unrealized appreciation, equity securities 278 206
Net translation of foreign currencies (223) (114)
-------- --------
Accumulated other comprehensive income 215 842
Retained earnings 7,045 6,746
Less treasury stock, at cost (2,800) (2,096)
- --------------------------------------------------------------------------------------------------------------
Total shareholders' equity 7,341 8,277
- --------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 93,446 $ 95,890
- ---------------------------------------------------------------------------------=============================
SHAREHOLDERS' EQUITY PER SHARE $ 36.87 $ 40.25
- ---------------------------------------------------------------------------------=============================
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
2
<PAGE>
CIGNA CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME AND CHANGES IN
SHAREHOLDERS' EQUITY
(In millions)
<TABLE>
<CAPTION>
Three Months Ended June 30, 1999 1998
- -------------------------------------------------------------------------------------------------------------------
Compre- Share- Compre- Share-
hensive holders' hensive holders'
Income Equity Income Equity
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stock $ 67 $ 66
------- -------
Additional paid-in capital, April 1 2,788 2,695
Issuance of common stock for employee benefits plans 26 9
------- -------
Additional paid-in capital, June 30 2,814 2,704
------- -------
Accumulated other comprehensive income, April 1 503 812
Net unrealized appreciation (depreciation) - fixed maturities $ (335) (335) $ 22 22
Net unrealized appreciation (depreciation) - equity securities 49 49 (2) (2)
------- -------
Net unrealized appreciation (depreciation) on securities (286) 20
Net translation of foreign currencies (2) (2) 3 3
------- -------
Other comprehensive income (loss) (288) 23
------- -------
Accumulated other comprehensive income, June 30 215 835
------- -------
Retained earnings, April 1 6,873 6,129
Net income 232 232 308 308
Common dividends declared (60) (61)
------- -------
Retained earnings, June 30 7,045 6,376
------- -------
Treasury stock, April 1 (2,362) (1,377)
Repurchase of common stock (429) (260)
Other treasury stock transactions, net (9) (4)
------- -------
Treasury stock, June 30 (2,800) (1,641)
- -------------------------------------------------------------------------------------------------------------------
TOTAL COMPREHENSIVE INCOME (LOSS) AND SHAREHOLDERS' EQUITY $ (56) $ 7,341 $ 331 $ 8,340
- ---------------------------------------------------------------------==============================================
Six Months Ended June 30,
- -------------------------------------------------------------------------------------------------------------------
Common stock, January 1 $ 66 $ 66
Issuance of common stock for employee benefits plans 1 --
------- -------
Common stock, June 30 67 66
------- -------
Additional paid-in capital, January 1 2,719 2,655
Issuance of common stock for employee benefits plans 95 49
------- -------
Additional paid-in capital, June 30 2,814 2,704
------- -------
Accumulated other comprehensive income, January 1 842 758
Net unrealized depreciation, fixed maturities $ (590) (590) $ (7) (7)
Net unrealized appreciation, equity securities 72 72 80 80
------- -------
Net unrealized appreciation (depreciation) on securities (518) 73
Net translation of foreign currencies (109) (109) 4 4
------- -------
Other comprehensive income (loss) (627) 77
------- -------
Accumulated other comprehensive income, June 30 215 835
------- -------
Retained earnings, January 1 6,746 5,696
Net income 420 420 803 803
Common dividends declared (121) (123)
------- -------
Retained earnings, June 30 7,045 6,376
------- -------
Treasury stock, January 1 (2,096) (1,243)
Repurchase of common stock (658) (371)
Other treasury stock transactions, net (46) (27)
------- -------
Treasury stock, June 30 (2,800) (1,641)
- -------------------------------------------------------------------------------------------------------------------
TOTAL COMPREHENSIVE INCOME (LOSS) AND SHAREHOLDERS' EQUITY $ (207) $ 7,341 $ 880 $ 8,340
- ---------------------------------------------------------------------==============================================
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
3
<PAGE>
CIGNA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1999 1998
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Income from continuing operations $ 539 $ 688
Adjustments to reconcile income from continuing operations
to net cash provided by (used in) operating activities:
Insurance liabilities 324 452
Reinsurance recoverables (72) (64)
Deferred policy acquisition costs (73) (60)
Premiums, accounts and notes receivable (149) (197)
Accounts payable, accrued expenses, other liabilities and
current income taxes 235 18
Deferred income taxes (28) (154)
Realized investment gains (24) (79)
Depreciation and goodwill amortization 98 108
Gain on sale of businesses (116) (367)
Other, net (24) (192)
------- -------
Net cash provided by operating activities of continuing operations 710 153
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from investments sold:
Fixed maturities 1,303 1,948
Equity securities 57 89
Mortgage loans 135 556
Other 779 853
Investment maturities and repayments:
Fixed maturities 1,423 1,540
Mortgage loans 179 348
Investments purchased:
Fixed maturities (2,800) (3,138)
Equity securities (61) (193)
Mortgage loans (924) (920)
Other (504) (1,485)
Proceeds on sale of businesses 107 1,296
Other, net (146) (152)
------- -------
Net cash provided by (used in) investing activities of continuing operations (452) 742
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Deposits and interest credited to contractholder deposit funds 3,608 4,419
Withdrawals and benefit payments from contractholder deposit funds (3,863) (4,805)
Net change in short-term debt (32) (362)
Repayment of long-term debt -- (99)
Repurchase of common stock (633) (366)
Issuance of common stock 35 17
Common dividends paid (120) (122)
------- -------
Net cash used in financing activities of continuing operations (1,005) (1,318)
------- -------
Effect of foreign currency rate changes on cash and cash equivalents (13) (2)
Net cash (to) from discontinued operations 36 (178)
- ---------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (724) (603)
Cash and cash equivalents, beginning of period 1,986 1,832
- ---------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 1,262 $ 1,229
- -------------------------------------------------------------------------------------------------====================
Supplemental Disclosure of Cash Information:
Income taxes paid, net of refunds $ 281 $ 478
Interest paid $ 61 $ 66
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
4
<PAGE>
CIGNA CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements include the accounts of CIGNA Corporation
and all significant subsidiaries (CIGNA). These consolidated financial
statements have been prepared in conformity with generally accepted accounting
principles. Certain reclassifications have been made to conform with the 1999
presentation.
The interim financial statements are unaudited but include all adjustments
(consisting of normal recurring adjustments) necessary, in the opinion of
management, for a fair statement of financial position and results of operations
for the period reported.
The preparation of interim financial statements necessarily relies heavily on
estimates. This and certain other factors, such as the seasonal nature of
portions of the insurance business as well as competitive and other market
conditions, call for caution in estimating results for the full year based on
interim results of operations.
NOTE 2 - RECENT ACCOUNTING PRONOUNCEMENTS
CIGNA adopted Statement of Position (SOP) 97-3, "Accounting by Insurance and
Other Enterprises for Insurance-Related Assessments" as of January 1, 1999. SOP
97-3, issued by the American Institute of Certified Public Accountants (AICPA),
provides guidance on the recognition and measurement of liabilities for guaranty
fund and other insurance-related assessments such as workers' compensation
second injury funds, medical risk pools and charges related to operating
expenses of state regulatory bodies. The cumulative effect of adopting the SOP
was a reduction of net income of $91 million ($140 million pre-tax), and is
primarily related to the property and casualty business, which has been sold and
which is reported as discontinued operations, as discussed below.
In 1999, CIGNA adopted SOP 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." SOP 98-1, issued by the AICPA in 1998,
specifies the types of costs that must be capitalized and amortized over the
software's expected useful life and the types of costs which must be immediately
recognized as expense. Implementation of this pronouncement did not have a
material effect on results of operations, liquidity or financial condition.
In 1998, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 requires that derivatives be
reported on the balance sheet at fair value. Changes in fair value are to be
recognized in net income or, for derivatives that are hedging market risk
related to future cash flows, in the accumulated other comprehensive income
section of shareholders' equity. Implementation is required by the first quarter
of 2001, with the cumulative effect of adoption reflected in net income and
accumulated other comprehensive income, as appropriate. CIGNA has not determined
the effect or timing of implementation of this pronouncement.
NOTE 3 - ACQUISITIONS AND DISPOSITIONS
On July 2, 1999, CIGNA sold its domestic and international property and casualty
business to ACE Limited for cash proceeds of $3.45 billion. The after-tax gain
on sale, which will be recognized in discontinued operations in the third
quarter, was approximately $1.2 billion. In the second quarter of 1999, CIGNA
began reporting the sold property and casualty business as discontinued
operations and reclassified prior period financial information accordingly.
5
<PAGE>
Summarized financial data for the discontinued operations are outlined below:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Three Months Six Months
Ended Ended
June 30, June 30,
(In millions) 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income Statement Data
Revenues $944 $987 $1,863 $1,904
======================================================
Income (loss) before income
taxes $(110) $86 $(48) $171
Income taxes (benefits) (39) 27 (20) 56
------------------------------------------------------
Income (loss) before
cumulative effect of
accounting change $(71) $59 $(28) $115
- -----------------------------------======================================================
</TABLE>
- -------------------------------------------------------
June 30, December 31,
(In millions) 1999 1998
- -------------------------------------------------------
Balance Sheet Data
Invested assets $7,260 $9,031
Reinsurance recoverables 6,045 6,470
Other assets 7,082 6,240
------------------------
Total assets 20,387 21,741
========================
Insurance liabilities 15,990 16,494
Other liabilities 2,397 2,896
------------------------
Total liabilities 18,387 19,390
========================
Net assets $2,000 $2,351
- ------------------------------========================
Accumulated other comprehensive income associated with the discontinued
operations was $24 million as of June 30, 1999 and $222 million as of December
31, 1998.
In April 1999, CIGNA sold a 29% interest in its Japanese life insurance
operations to Yasuda Fire & Marine Insurance Company Ltd., reducing CIGNA's
ownership interest to 61%. Proceeds of the sale were $105 million. The after-tax
gain, which CIGNA recognized in the second quarter, was $43 million and is
reported in the International Life, Health and Employee Benefits segment.
As of January 1, 1998, CIGNA sold its individual life insurance and annuity
business for cash proceeds of $1.4 billion. The sale resulted in an after-tax
gain of approximately $770 million of which $202 million was recognized upon
closing of the sale. Since the principal agreement to sell this business is in
the form of an indemnity reinsurance arrangement, the remaining gain was
deferred and is being recognized at the rate that earnings from the business
sold would have been expected to emerge, primarily over fifteen years on a
declining basis. CIGNA recognized $16 million of the deferred gain in the second
quarters of 1999 and 1998, and $31 million and $33 million for the six months
ended June 30, 1999 and 1998, respectively.
CIGNA had other acquisitions and dispositions during the six months of 1999 and
1998, the effects of which were not material to the financial statements.
NOTE 4 - INVESTMENTS
Realized Investment Gains and Losses
Realized gains and losses on investments of continuing operations, excluding
policyholder share, were as follows:
- ------------------------------------------------------------------------
Three Months Six Months
Ended Ended
June 30, June 30,
(In millions) 1999 1998 1999 1998
- ------------------------------------------------------------------------
Fixed maturities $5 $-- $10 $20
Equity securities 6 23 13 25
Mortgage loans -- (7) -- 5
Real Estate 2 6 1 7
Other -- 17 -- 22
------------------------------------------
13 39 24 79
Less income taxes 4 13 8 27
- ------------------------------------------------------------------------
Net realized investment gains $9 $26 $16 $52
- ------------------------------==========================================
Fixed Maturities and Equity Securities
Sales of available-for-sale fixed maturities and equity securities, including
policyholder share, for continuing operations were as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Three Months Six Months
Ended Ended
June 30, June 30,
(In millions) 1999 1998 1999 1998
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Proceeds from sales $979 $1,162 $1,360 $2,037
Gross gains on sales 29 70 43 97
Gross losses on sales (7) (28) (8) (41)
- -------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
The components of net unrealized appreciation (depreciation) on securities
(including securities of discontinued operations and excluding policyholder
share) for the three and six months ended June 30 were as follows:
- -------------------------------------------------------------------------------
(In millions) 1999 1998
- -------------------------------------------------------------------------------
Three months ended June 30,
Unrealized appreciation (depreciation) on
securities held, net of taxes (benefits) of $(133)
and $16, respectively. $(249) $ 40
Less gains realized in net income, net of taxes
of $20 and $10, respectively. 37 20
-------------------
Net unrealized appreciation (depreciation) $(286) $ 20
- ----------------------------------------------------------===================
Six months ended June 30,
Unrealized appreciation (depreciation) on
securities held, net of taxes (benefits) of $(244)
and $109, respectively. $(454) $ 219
Less gains realized in net income, net of taxes
of $34 and $78, respectively. 64 146
-------------------
Net unrealized appreciation (depreciation) $(518) $ 73
- ----------------------------------------------------------===================
NOTE 5 - EARNINGS PER SHARE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
(Dollars in millions, Effect of
except per share amounts) Basic Dilution Diluted
- -------------------------------------------------------------------
Three Months Ended June 30,
- -------------------------------------------------------------------
1999
- -------------------------------------------------------------------
<S> <C> <C> <C>
Net income $ 232 -- $ 232
- --------------------------------===================================
Shares (in thousands):
Weighted average 201,729 -- 201,729
Options and restricted
stock grants 3,354 3,354
- -------------------------------------------------------------------
Total shares 201,729 3,354 205,083
- --------------------------------===================================
Earnings per share $ 1.15 $ (0.02) $ 1.13
- --------------------------------===================================
1998
- -------------------------------------------------------------------
Net income $ 308 -- $ 308
- --------------------------------===================================
Shares (in thousands):
Weighted average 213,831 -- 213,831
Options and restricted
stock grants 2,715 2,715
- -------------------------------------------------------------------
Total shares 213,831 2,715 216,546
- --------------------------------===================================
Earnings per share $ 1.44 $ (0.02) $ 1.42
- --------------------------------===================================
Six Months Ended June 30,
- -------------------------------------------------------------------
1999
- -------------------------------------------------------------------
Net income $ 420 -- $ 420
- --------------------------------===================================
Shares (in thousands):
Weighted average 203,294 -- 203,294
Options and restricted
stock grants 3,091 3,091
- -------------------------------------------------------------------
Total shares 203,294 3,091 206,385
- --------------------------------===================================
Earnings per share $ 2.07 $ (0.03) $ 2.04
- --------------------------------===================================
1998
- -------------------------------------------------------------------
Net income $ 803 -- $ 803
- --------------------------------===================================
Shares (in thousands):
Weighted average 214,730 -- 214,730
Options and restricted
stock grants 2,415 2,415
- -------------------------------------------------------------------
Total shares 214,730 2,415 217,145
- --------------------------------===================================
Earnings per share $ 3.74 $ (0.04) $ 3.70
- --------------------------------===================================
</TABLE>
Common shares held as Treasury shares were 67,503,466 and 52,561,178 as of June
30, 1999 and 1998, respectively.
7
<PAGE>
NOTE 6 - REINSURANCE RECOVERABLES
In the normal course of business, CIGNA's insurance subsidiaries enter into
agreements 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.
In connection with the sale of CIGNA's individual life insurance and annuity
business (as discussed in Note 3), the reinsurance recoverable from Lincoln
National Corporation at June 30, 1999 was $6.0 billion.
Failure of reinsurers to indemnify CIGNA, as a result of reinsurer insolvencies
and disputes, could result in losses. However, CIGNA does not expect charges for
unrecoverable reinsurance to have a material effect on its results of
operations, liquidity or financial condition.
In CIGNA's consolidated income statements, premiums and fees were net of ceded
premiums and benefits, losses and settlement expenses were net of reinsurance
recoveries as follows:
- ------------------------------------------------------------------------
Three Months Six Months
Ended Ended
June 30, June 30,
(In millions) 1999 1998 1999 1998
- ------------------------------------------------------------------------
Ceded premiums:
Individual life
insurance and
annuity business sold $101 $108 $164 $221
Other 122 105 229 214
----------------------------------------
Total $223 $213 $393 $435
----------------------------------------
Reinsurance recoveries:
Individual life
insurance and
annuity business sold $ 77 $ 62 $ 99 $118
Other 66 100 154 189
----------------------------------------
Total $143 $162 $253 $307
- -------------------------------========================================
NOTE 7 - SEGMENT INFORMATION
Operating segments are based on CIGNA's internal reporting structure and
generally reflect differences in products; the International Life, Health and
Employee Benefits segment is based on geography. CIGNA uses operating income
(net income excluding after-tax realized investment results, results of
discontinued operations and, in 1999, the cumulative effect of adopting SOP
97-3) to measure the financial results of its segments. Summarized segment
financial information was as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Three Months Six Months
Ended Ended
June 30, June 30,
(In millions) 1999 1998 1999 1998
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Premiums and fees
and other revenues:
Employee Health Care,
Life and Disability
Benefits $ 3,219 $ 2,973 $ 6,355 $ 5,839
Employee Retirement
Benefits and Investment
Services 71 73 133 144
International Life,
Health and Employee
Benefits 482 309 865 587
Other Operations 222 189 441 684
Corporate (44) (22) (79) (49)
- -----------------------------------------------------------------------------------------
Total $ 3,950 $ 3,522 $ 7,715 $ 7,205
- -----------------------------------------------------------------------------------------
Income from continuing
operations:
Operating income (loss):
Employee Health Care,
Life and Disability
Benefits $ 173 $ 143 $ 330 $ 274
Employee Retirement
Benefits and Investment
Services 67 60 130 121
International Life,
Health and Employee
Benefits 44 7 47 16
Other Operations 37 29 67 262
Corporate (27) (16) (51) (37)
--------------------------------------------------------
Total operating income 294 223 523 636
Realized investment gains,
net of taxes 9 26 16 52
- -----------------------------------------------------------------------------------------
Income from continuing
operations $ 303 $ 249 $ 539 $ 688
- ---------------------------------========================================================
</TABLE>
8
<PAGE>
NOTE 8 - 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 Health Care, Life and
Disability Benefits segment. The charge consisted primarily of costs related to
severance and vacated lease space. The cash outlays associated with these
initiatives will continue through 1999 with most having occurred in 1998. As of
June 30, 1999, approximately $12 million of severance was paid to approximately
1,400 employees.
NOTE 9 - CONTINGENCIES AND OTHER MATTERS
Financial Guarantees
CIGNA, through its subsidiaries, is contingently liable for various financial
guarantees provided in the ordinary course of business. For example, CIGNA
guarantees the repayment of industrial revenue bonds and a minimum level of
benefits for certain separate account contracts. In addition, CIGNA has entered
into specialty life reinsurance contracts that guarantee payments for specified
unfavorable changes in variable annuity account values based on underlying
mutual fund investments if account holders expire or elect to receive periodic
income payments.
Although the ultimate outcome of any loss contingencies arising from CIGNA's
financial guarantees may adversely affect results of operations in future
periods, they are not expected to have a material adverse effect on CIGNA's
liquidity or financial condition.
Regulatory and Industry Developments
CIGNA's businesses are subject to a changing social, economic, legal,
legislative and regulatory environment that could affect them. Some of the
changes include initiatives to:
o increase health care regulation;
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, result in increased medical or
administrative costs or reduce product margins. 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 through legislative
actions and court decisions, changes in the ERISA regulations governing claim
appeal procedures imposing increased administrative burdens and costs 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.
In early 1999, the Administration proposed a federal budget that would eliminate
the deferral of taxation of certain statutory income of life insurance
companies. CIGNA has not provided for taxes on $450 million of such income. If
the proposal is enacted, CIGNA will record additional income tax expense of $158
million for the resulting liability. The proposed federal budget also would
limit the deduction of interest expense on the general indebtedness of
corporations owning non-leveraged corporate life insurance policies covering the
lives of officers, employees or directors who are not 20 percent owners of the
corporation. If this latter provision is enacted as proposed, CIGNA does not
anticipate that it will have a material effect on its consolidated results of
operations, liquidity, or financial condition, although it could have a material
adverse effect on the results of operations of the Employee Retirement Benefits
and Investment Services segment.
In 1996, Congress passed legislation that phased out over a three-year period
the tax deductibility of policy loan interest for most leveraged corporate life
insurance products. CIGNA does not expect this legislation to have a material
adverse effect on its
9
<PAGE>
consolidated results of operations, liquidity or financial condition.
In 1998, the National Association of Insurance Commissioners (NAIC) adopted
risk-based capital guidelines for health maintenance organizations (HMOs). CIGNA
expects its HMO subsidiaries to be adequately capitalized under these guidelines
as they become effective in various jurisdictions in 1999.
In 1998, the NAIC adopted standardized statutory accounting principles. Since
these principles have not been adopted by most of the insurance departments of
various jurisdictions in which CIGNA's insurance subsidiaries are domiciled, the
timing and effects of implementation have not yet been determined.
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 the business of administering and insuring employee
benefits programs. While the outcome of litigation cannot be determined, CIGNA
does not expect that litigation currently threatened or pending will result in
losses that differ from recorded reserves by amounts that would be material to
results of operations, liquidity or financial condition.
Brazilian Investment
CIGNA is currently evaluating alternatives relative to its investment in a
Brazilian health care operation. This evaluation could result in changes in this
operation and a possible impairment of up to approximately $325 million,
representing the carrying value of the investment as of July 31, 1999 and other
costs. A decision is expected later in 1999. While CIGNA does not expect that
any charges resulting from this evaluation will be material to its liquidity or
financial condition, they could be material to CIGNA's future results of
operations.
10
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
INTRODUCTION
The following discussion addresses the financial condition of CIGNA Corporation
(CIGNA) as of June 30, 1999, compared with December 31, 1998, and its results of
operations for the quarter and six months ended June 30, 1999, compared with the
same periods last year. This discussion should be read in conjunction with
Management's Discussion and Analysis included in CIGNA's 1998 Annual Report to
Shareholders (pages 10 through 24), to which the reader is directed for
additional information. Due to the seasonality of certain aspects of CIGNA's
business, caution should be used in estimating results for the full year based
on interim results of operations.
Acquisitions and Dispositions
On July 2, 1999, CIGNA sold its domestic and international property and casualty
business to ACE Limited for cash proceeds of $3.45 billion. The after-tax gain
on sale, which will be recognized in discontinued operations in the third
quarter, was approximately $1.2 billion. CIGNA's priorities for use of capital,
including proceeds from the sale, are internal growth, acquisitions, and share
repurchases.
In the second quarter of 1999, CIGNA began reporting the sold property and
casualty business as discontinued operations and reclassified prior period
financial information accordingly.
In April 1999, CIGNA sold a 29% interest in its Japanese life insurance
operations to Yasuda Fire & Marine Insurance Company Ltd., reducing CIGNA's
ownership interest to 61%. Proceeds of the sale were $105 million. The after-tax
gain, which CIGNA recognized in the second quarter, was $43 million and is
reported in the International Life, Health and Employee Benefits segment.
As of January 1, 1998, CIGNA sold its individual life insurance and annuity
business for cash proceeds of $1.4 billion. The sale resulted in an after-tax
gain of approximately $770 million of which $202 million was recognized upon
closing of the sale. Since the principal agreement to sell this business is in
the form of an indemnity reinsurance arrangement, the remaining gain was
deferred and is being recognized at the rate that earnings from the business
sold would have been expected to emerge, primarily over fifteen years on a
declining basis. CIGNA recognized $16 million of the deferred gain in the second
quarters of 1999 and 1998, and $31 million and $33 million for the six months
ended June 30, 1999 and 1998, respectively.
CIGNA continues to conduct strategic and financial reviews of its businesses in
order to deploy its capital most effectively. See page 16 for discussion
regarding CIGNA's Brazilian investments and 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 Health Care, Life and
Disability Benefits segment. The charge consisted primarily of costs related to
severance and vacated lease space. The cash outlays associated with these
initiatives will continue through 1999 with most having occurred in 1998. These
initiatives are expected to result in annual after-tax expense savings of $50
million with approximately two-thirds of the savings having emerged in 1998 and
the full amount expected in 1999.
See Note 8 to the Financial Statements for additional information on cost
reduction initiatives.
Other Matters
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 restrict insurance pricing and the application of underwriting standards;
and
o revise federal tax laws.
In early 1999, the Administration proposed a federal budget that would eliminate
the deferral of taxation of certain statutory income of life insurance
companies. As discussed in Note 9 to the
11
<PAGE>
Financial Statements, CIGNA has not provided for taxes on $450 million of such
income. If the proposal is enacted, CIGNA will record additional income tax
expense of $158 million for the resulting liability. The proposed federal budget
also would limit the deduction of interest expense on the general indebtedness
of corporations owning non-leveraged corporate life insurance policies covering
the lives of officers, employees or directors who are not 20 percent owners of
the corporation. If this latter provision is enacted as proposed, CIGNA does not
anticipate that it will have a material effect on its consolidated results of
operations, liquidity, or financial condition, although it could have a material
adverse effect on the results of operations of the Employee Retirement Benefits
and Investment Services segment.
The eventual effect on CIGNA of the changing environment in which it operates
remains uncertain. For additional information, see Note 9 to the Financial
Statements.
Recent Accounting Pronouncements
CIGNA adopted Statement of Position (SOP) 97-3, "Accounting by Insurance and
Other Enterprises for Insurance-Related Assessments" as of January 1, 1999. SOP
97-3, issued by the American Institute of Certified Public Accountants (AICPA),
provides guidance on the recognition and measurement of liabilities for guaranty
fund and other insurance-related assessments such as workers' compensation
second injury funds, medical risk pools and charges related to operating
expenses of state regulatory bodies. The cumulative effect of adopting the SOP
was a reduction of net income of $91 million ($140 million pre-tax), and is
primarily related to the property and casualty business, which has been sold and
which is reported as discontinued operations, as discussed above.
In 1999, CIGNA adopted SOP 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." SOP 98-1, issued by the AICPA in 1998,
specifies the types of costs that must be capitalized and amortized over the
software's expected useful life and the types of costs which must be immediately
recognized as expense. Implementation of this pronouncement did not have a
material effect on results of operations, liquidity or financial condition. In
1998, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 requires that derivatives be
reported on the balance sheet at fair value. Changes in fair value are to be
recognized in net income or, for derivatives that are hedging market risk
related to future cash flows, in the accumulated other comprehensive income
section of shareholders' equity. Implementation is required by the first quarter
of 2001, with the cumulative effect of adoption reflected in net income and
accumulated other comprehensive income, as appropriate. CIGNA has not determined
the effect or timing of implementation of this pronouncement.
CONSOLIDATED RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
FINANCIAL SUMMARY Three Months Six Months
Ended Ended
June 30, June 30,
(In millions) 1999 1998 1999 1998
- --------------------------------------------------------------------------------
CONTINUING
OPERATIONS:
Premiums and fees $3,724 $3,354 $7,311 $6,570
Net investment income 734 789 1,455 1,578
Other revenues 226 168 404 635
Realized investment
gains 13 39 24 79
-------------------------------------------------
Total revenues 4,697 4,350 9,194 8,862
Benefits and expenses 4,228 3,965 8,357 7,794
-------------------------------------------------
Income before taxes 469 385 837 1,068
Income taxes 166 136 298 380
-------------------------------------------------
Income from
continuing operations 303 249 539 688
Less realized
investment gains,
net of taxes 9 26 16 52
- ------------------------------------------------------------------------------
Operating income* $ 294 $ 223 $ 523 $ 636
- ----------------------------=================================================
CIGNA's consolidated operating income (as defined in the footnote below) for the
second quarter of 1999 included a $43 million after-tax gain recognized on the
sale of a 29% interest in its Japanese life insurance operations. For the six
months of 1998, operating income included a $202 million after-tax gain
recognized on the sale of CIGNA's individual life insurance and annuity
____________________
* Operating income (loss) is defined as net income (loss) excluding after-tax
realized investment results, the results of discontinued operations and, in
1999, the cumulative effect of adopting a new accounting pronouncement.
12
<PAGE>
business. Excluding these items, operating income was $251 million and $480
million for the second quarter and six months of 1999, respectively, compared
with $223 million and $434 million for the same periods last year. The increase
for the second quarter and six month periods primarily reflects improved results
in CIGNA's Employee Health Care, Life and Disability Benefits segment.
After-tax realized investment results of the continuing operations decreased 65%
and 69% in the second quarter and six months of 1999 versus the same periods
last year. These decreases primarily reflect lower gains on sales of real estate
partnerships and equity securities. For additional information, see Note 4 to
the Financial Statements.
Excluding the $43 million and $202 million after-tax gains mentioned above, full
year operating income (which excludes results of discontinued operations and the
gain on sale of the property and casualty business) is expected to improve in
1999 over 1998; however, such improvement could be adversely affected by the
factors noted in the cautionary statement on page 22.
EMPLOYEE HEALTH CARE, LIFE AND DISABILITY BENEFITS
- ------------------------------------------------------------------------------
FINANCIAL SUMMARY Three Months Six Months
Ended Ended
June 30, June 30,
(In millions) 1999 1998 1999 1998
- ------------------------------------------------------------------------------
Premiums and fees $3,064 $2,836 $6,040 $5,573
Net investment income 149 142 287 285
Other revenues 155 137 315 266
--------------------------------------------------
Segment revenues 3,368 3,115 6,642 6,124
Benefits and expenses 3,103 2,889 6,133 5,690
--------------------------------------------------
Income before taxes 265 226 509 434
Income taxes 92 83 179 160
--------------------------------------------------
Operating income $ 173 $ 143 $ 330 $ 274
- ----------------------------==================================================
Realized investment
gains, net of taxes $ 3 $ 18 $ 9 $ 36
- ----------------------------==================================================
Operating income for the Employee Health Care, Life and Disability Benefits
segment increased 21% and 20% for the second quarter and six months of 1999,
compared with the same periods last year. Operating income for the Indemnity and
HMO operations was as follows:
- ------------------------------------------------------------------------
Three Months Six Months
Ended Ended
June 30, June 30,
(In millions) 1999 1998 1999 1998
- ------------------------------------------------------------------------
Indemnity operations $ 78 $ 73 $141 $142
HMO operations 95 70 189 132
- ------------------------------------------------------------------------
Total $173 $143 $330 $274
========================================================================
Indemnity operating income increased 7% for the second quarter and decreased 1%
for the six months of 1999 compared with the same periods last year. These
changes primarily reflect improved guaranteed cost medical claims experience and
improved group life business partially offset for the second quarter and more
than offset for the six months of 1999 by lower earnings on experience-rated
medical business.
HMO operating results for the second quarter and six months of 1999 include net
favorable after-tax adjustments of $6 million and $12 million resulting from
account and tax reviews. HMO results for the second quarter and six months of
1998 include net unfavorable after-tax adjustments of $6 million primarily for
uncollectible receivables of a health care service business. Excluding these
adjustments, HMO results were $89 million and $177 million for the second
quarter and six months of 1999, respectively, compared with $76 million and $138
million for the same periods last year. These improvements reflect rate
increases for guaranteed cost HMO business, improved results in health care
services operations, and membership growth in HMO experience-rated and
alternative funding business.
Premiums and fees increased 8% for the second quarter and six months of 1999
compared to the same periods last year. These increases primarily reflect HMO
and medical indemnity membership growth and rate increases.
13
<PAGE>
Net investment income increased 5% and 1% for the second quarter and six months
of 1999 compared to the same periods of 1998. For the quarter, the increase
reflects growth in invested assets and higher investment yields. For the six
months, the growth in assets was partially offset by lower investment yields.
As of June 30, 1999, total HMO membership was approximately 6.6 million,
representing an increase of 4% since June 30, 1998 and 2% since December 31,
1998. These increases primarily reflect membership growth in experience-rated
and alternative funding programs, partially offset by declines in guaranteed
cost HMO membership. 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.
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 Administrative Services Only (ASO)
plans. Premium equivalents for the second quarter and six months of 1999 were
$3.9 billion and $7.4 billion, respectively. These amounts represent increases
of 21% and 16% compared with the same periods last year. These increases
primarily reflect HMO and PPO membership growth. Premium equivalents were 55%
and 53% of total adjusted premiums and fees for the six months of 1999 and 1998,
respectively. Premium equivalents related to ASO plans accounted for
approximately 51% and 49% of total adjusted premiums and fees for the six months
of 1999 and 1998.
EMPLOYEE RETIREMENT BENEFITS AND INVESTMENT SERVICES
- -----------------------------------------------------------------------
FINANCIAL SUMMARY Three Months Six Months
Ended Ended
June 30, June 30,
(In millions) 1999 1998 1999 1998
- -----------------------------------------------------------------------
Premiums and fees $ 71 $ 73 $133 $144
Net investment income 403 414 790 824
-----------------------------------------
Segment revenues 474 487 923 968
Benefits and expenses 375 397 731 789
-----------------------------------------
Income before taxes 99 90 192 179
Income taxes 32 30 62 58
-----------------------------------------
Operating income $ 67 $ 60 $130 $121
- ----------------------------=========================================
Realized investment
gains, net of taxes $ 6 $ 7 $ 7 $ 13
- ----------------------------=========================================
Operating income for the Employee Retirement Benefits and Investment Services
segment includes favorable non-recurring adjustments totaling $3 million
after-tax in the second quarter and six months of 1999. Excluding these items,
results for the second quarter and six months of 1999, were $64 and $127,
respectively, compared with $60 and $121 for the same periods last year. These
increases in 1999 over 1998 reflect higher earnings from an increased asset
base, partially offset by a shift to lower margin products (separate account
equity funds).
Premiums and fees for the second quarter and six months of 1999 decreased 3% and
8%, respectively, compared with the same periods last year, reflecting a decline
in annuity sales partially offset by higher fees from separate accounts.
Net investment income decreased 3% and 4% for the second quarter and six months
of 1999, primarily reflecting lower investment yields and customers' continued
redirection of a portion of their investments from the general account to
separate accounts.
14
<PAGE>
Assets under management are generally a key determinant of earnings for this
segment. For the six months ended June 30, assets under management and related
activity, including amounts attributable to separate accounts, were as follows:
- --------------------------------------------------------------------
(In millions) 1999 1998
- --------------------------------------------------------------------
Balance - January 1 $ 52,929 $ 48,231
Premiums and deposits 4,063 4,079
Investment results 1,913 1,585
Increase in fair value of assets 594 2,006
Customer withdrawals (2,994) (2,271)
Other, including participant
withdrawals and benefit payments (2,772) (2,962)
- --------------------------------------------------------------------
Balance - June 30 $ 53,733 $ 50,668
====================================================================
For the six months of 1999 and 1998, approximately 64% and 53%, respectively, of
premiums and deposits reflect recurring deposits from existing customers while
the remaining amounts represent sales to new customers and new plan sales to
existing customers. Investment results increased 21% in the six months of 1999,
compared with the same period in 1998. This increase reflects higher realized
capital gains and growth in assets, partially offset by lower investment yields.
The fair value of assets increased less in 1999 than in 1998 primarily due to
lower net appreciation of separate accounts and market value depreciation of
general account fixed maturities. The increase in customer withdrawals is
primarily due to the effect of withdrawals under defined contribution business
in the first quarter of 1999.
Assets under management will continue to be affected by market value
fluctuations for fixed maturities and equity securities.
See Other Matters on page 11 for additional information regarding corporate life
insurance.
INTERNATIONAL LIFE, HEALTH AND EMPLOYEE BENEFITS
- -----------------------------------------------------------------------------
FINANCIAL SUMMARY Three Months Six Months
Ended Ended
June 30, June 30,
(In millions) 1999 1998 1999 1998
- -----------------------------------------------------------------------------
Premiums and fees $ 416 $ 309 $ 794 $ 586
Net investment income 32 29 62 56
Other revenues 66 -- 71 1
-----------------------------------------------
Segment revenues 514 338 927 643
Benefits and expenses 441 327 846 618
-----------------------------------------------
Income before taxes 73 11 81 25
Income taxes 29 4 34 9
-----------------------------------------------
Operating income $ 44 $ 7 $ 47 $ 16
- ----------------------------===============================================
Realized investment
losses, net of taxes $ (1) $-- $ (1) $--
- ----------------------------===============================================
Results for the International Life, Health and Employee Benefits segment for the
second quarter and six months of 1999 include a pre-tax gain of $66 million ($43
million after-tax) included in Other Revenues from the April 1999 sale of a 29%
interest in CIGNA's Japanese life insurance operations. Operating income
associated with the 29% interest that was sold was $2 million for the first
quarter of 1999; $3 million and $5 million for the second quarter and six months
of 1998, respectively; and $10 million for the full year of 1998.
Excluding the gain on sale noted above, operating income was $1 million and $4
million for the second quarter and six months of 1999, respectively. The
declines from the same periods last year are primarily attributable to losses in
the 1999 periods of $8 million and $15 million after-tax from Brazilian health
care operations. CIGNA's health care operations in Brazil include a managed
health care business, which is being consolidated, and an investment in another
health care operation, which is being accounted for under the equity method.
15
<PAGE>
Premiums and fees increased 35% for the second quarter and six months of 1999
compared with the same periods last year. Excluding premiums and fees from the
Brazilian managed health care business (which is being consolidated and was
acquired in the second half of 1998) and the effects of foreign currency
changes, premiums and fees increased 24% for the second quarter and six months
of 1999. These increases reflect growth in Japanese life insurance operations
and, to a lesser extent, growth in life and group benefits business in Southeast
Asia as well as higher health care premiums and fees for expatriate employees of
multinational companies.
Net investment income for the second quarter and six months of 1999 increased
10% and 11%, respectively, compared with the same periods last year. Excluding
the effects of foreign currency changes, the increase was 9% and 7%,
respectively. These increases reflect growth in invested assets partially offset
by lower yields.
CIGNA has expanded its international operations, principally in Brazil, and
expects to continue to pursue international growth through acquisitions and
other investments. CIGNA expects this growth to result in start-up costs and
initial losses.
CIGNA is continuing efforts to improve results in its Brazilian health care
operations, including initiatives to improve the pricing of medical products and
services and to provide for enhanced medical cost controls.
In addition, CIGNA is currently evaluating alternatives relative to its
investment in the Brazilian health care operation that is accounted for under
the equity method. This evaluation could result in changes in this health care
operation and a possible impairment of up to approximately $325 million,
representing the carrying value of the investment as of July 31, 1999 and other
costs. A decision is expected later in 1999. While CIGNA does not expect that
any charges resulting from this evaluation will be material to its liquidity or
financial condition, they could be material to CIGNA's future results of
operations.
OTHER OPERATIONS
- --------------------------------------------------------------------------------
FINANCIAL SUMMARY Three Months Six Months
Ended Ended
June 30, June 30,
(In millions) 1999 1998 1999 1998
- --------------------------------------------------------------------------------
Premiums and fees $ 173 $ 136 $ 344 $ 267
Net investment income 146 196 307 394
Other revenues 49 53 97 417
--------------------------------------------------
Segment revenues 368 385 748 1,078
Benefits and expenses 311 344 645 675
--------------------------------------------------
Income before taxes 57 41 103 403
Income taxes 20 12 36 141
--------------------------------------------------
Operating income $ 37 $ 29 $ 67 $ 262
- ---------------------------==================================================
Realized investment
gains, net of taxes $ 1 $ 1 $ 1 $ 3
- ---------------------------==================================================
Other Operations consist of:
o gain recognition related to the sale of the individual life insurance and
annuity business;
o corporate life insurance on which policy loans are outstanding (leveraged
corporate life insurance);
o life, accident and health reinsurance operations;
o settlement annuity business; and
o certain new business initiatives.
Operating income for the six months of 1998 includes an after-tax gain of $202
million recognized on the sale of the individual life insurance and annuity
business. The gain was $316 million on a pre-tax basis and is reported in Other
Revenues. Excluding this amount, operating income for the second quarter and six
months of 1999 was $37 million and $67 million, respectively, compared with
operating income of $29 million and $60 million for the second quarter and six
months of 1998. The 1999 increases reflect growth in accident and specialty life
reinsurance products.
For the second quarter and six months of 1999, premiums and fees increased 27%
and 29% from the same periods of 1998. These increases also reflect growth in
accident and specialty life reinsurance products partially offset by declining
health reinsurance premiums.
Net investment income decreased 26% and 22% for the second quarter and six
months of 1999 compared with the same periods of 1998. These decreases primarily
reflect lower assets from leveraged corporate life insurance, and, to a lesser
extent, lower yields.
16
<PAGE>
In 1996, Congress passed legislation that phased out over a three-year period
the tax deductibility of policy loan interest for most leveraged corporate life
insurance products. For the second quarter and six months of 1999, revenues of
$82 million and $190 million, and operating income of $9 million and $19 million
were from 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 specialty life reinsurance products of this segment include contracts that
guarantee payments for specified unfavorable changes in variable annuity account
values based on underlying mutual fund investments if account holders expire or
elect to receive periodic income payments. Although these guarantees may
adversely affect CIGNA's consolidated results of operations in future periods,
they are not expected to have a material adverse effect on CIGNA's liquidity or
financial condition.
The personal accident reinsurance business of this segment includes
participation in a workers' compensation program managed by Unicover Managers,
Inc. where disputes have arisen regarding retrocessional coverage. Resolution of
these disputes is likely to take several years. CIGNA does not expect to incur
losses material to its consolidated results of operations, liquidity or
financial condition related to this program.
CORPORATE
- --------------------------------------------------------------------------
FINANCIAL SUMMARY Three Months Six Months
Ended Ended
June 30, June 30,
(In millions) 1999 1998 1999 1998
- --------------------------------------------------------------------------
Operating loss $ (27) $ (16) $ (51) $ (37)
- ----------------------====================================================
Corporate is used to report amounts not allocated to segments, such as interest
expense and intersegment eliminations. The increases in the operating loss in
the second quarter and six months of 1999 primarily reflect higher unallocated
expenses and lower net investment income due to a reduction in investment
assets. Results for all periods include certain corporate overhead expenses
which previously had been allocated to the property and casualty operations.
PROPERTY AND CASUALTY DISCONTINUED OPERATIONS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
FINANCIAL SUMMARY Three Months Six Months
Ended Ended
June 30, June 30,
(In millions) 1999 1998 1999 1998
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Premiums and fees $ 735 $ 761 $ 1,411 $ 1,446
Net investment income 131 153 268 301
Other revenues 61 65 136 130
Realized investment gains 17 8 48 27
-------------------------------------------------------
Total revenues 944 987 1,863 1,904
Benefits and expenses 1,054 901 1,911 1,733
-------------------------------------------------------
Income (loss) before taxes (110) 86 (48) 171
Income taxes (benefits) (39) 27 (20) 56
- ----------------------------------------------------------------------------------------
Income (loss) from
discontinued operations $ (71) $ 59 $ (28) $ 115
- --------------------------------========================================================
</TABLE>
On July 2, 1999, CIGNA sold its property and casualty business. See Acquisitions
and Dispositions on page 11 for additional information. Amounts in the table
above are excluded from CIGNA's results of continuing operations.
The decline in results of the discontinued operations for the second quarter of
1999 compared with the prior year is primarily attributable to a charge of $67
million after-tax resulting from account and other financial reviews of an
insurance-related service business. The decline also reflects unfavorable claim
experience, lower results from insurance-related service business, and the
effects of continued competitive conditions in the property and casualty
insurance markets.
For the six months of 1999, the decline also reflects unfavorable prior year
loss development in the international property and casualty operations primarily
related to catastrophe losses.
The adverse pre-tax effects of prior year development on the results of the
discontinued operations were $64 million and $50 million for the second quarter
of 1999 and 1998 (including asbestos and environmental losses of $40 million and
$27 million for the same periods). For the six months of 1999 and 1998, the
adverse pre-tax effects were $131 million and $98 million (including asbestos
and environmental losses of $81 million and $52 million for the same periods).
17
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Liquidity for CIGNA and its insurance subsidiaries has remained strong as
evidenced by significant amounts of short-term investments and cash and cash
equivalents in the aggregate. Generally, CIGNA has met its operating
requirements by maintaining appropriate levels of liquidity in its investment
portfolio and through utilization of overall positive cash flows.
For the six months of 1999, cash and cash equivalents of continuing operations
decreased approximately $700 million from $2.0 billion as of December 31, 1998.
This decrease primarily reflects payments of dividends on and repurchases of
CIGNA common stock ($753 million), cash used for investing activities ($452
million), and net withdrawals from contractholder deposit funds ($255 million),
partially offset by cash provided by operating activities ($710 million)
reflecting earnings and the timing of operating cash receipts and disbursements.
On July 2, 1999, CIGNA received $3.45 billion in cash upon closing of the sale
of its property and casualty business.
CIGNA's capital resources represent funds available for long-term business
commitments. They primarily consist of retained earnings and proceeds from the
issuance of long-term debt and equity securities. CIGNA's financial strength
provides the capacity and flexibility to enable it to raise funds in the capital
markets through the issuance of such securities. CIGNA continues to be well
capitalized, with sufficient borrowing capacity to meet the anticipated needs of
its businesses.
CIGNA had $1.4 billion of long-term debt outstanding at June 30, 1999, and
December 31, 1998. As of June 30, 1999, CIGNA had approximately $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.
At June 30, 1999, CIGNA's short-term debt amounted to $307 million, an increase
of $35 million from December 31, 1998.
CIGNA has repurchased approximately 8,766,000 shares of its common stock for
$770 million during 1999, including 1,237,500 shares repurchased for $112
million from July 1 through July 31, 1999. On July 28, 1999, CIGNA's Board of
Directors authorized an additional $1 billion of share repurchases. The total
remaining authorization as of July 31, 1999 was $1.02 billion.
INVESTMENT ASSETS - CONTINUING OPERATIONS
- ------------------------------------------------------------
June 30, December 31,
(In millions) 1999 1998
- ------------------------------------------------------------
Fixed maturities $23,121 $24,270
Equity securities 541 477
Mortgage loans 10,115 9,599
Real estate 798 733
Other, primarily policy loans 4,063 6,597
- ------------------------------------------------------------
Total investment assets $38,638 $41,676
============================================================
Additional information regarding CIGNA's investment assets is included in Note 4
to the second quarter 1999 Financial Statements and Notes 2, 4 and 5 to the 1998
Financial Statements as well as the 1998 Form 10-K.
Investment assets as of June 30, 1999 decreased 7% from December 31, 1998. This
decrease primarily reflects a decline of approximately $2.4 billion in policy
loans due to surrenders of leveraged corporate life insurance policies and a
reduction in the fair value of fixed maturities of approximately $1.1 billion
due to increases in interest rates.
Significant amounts of CIGNA's investment assets are attributable to
experience-rated contracts with policyholders (policyholder contracts).
Approximate percentages of investments attributable to policyholder contracts
were as follows:
- --------------------------------------------
June 30, December 31,
1999 1998
- --------------------------------------------
Fixed maturities 40% 39%
Mortgage loans 58% 57%
Real estate 65% 63%
- --------------------------------------------
18
<PAGE>
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 June 30, 1999, the fair value of fixed maturities, including policyholder
share, was greater than amortized cost by $496 million, compared with $1.6
billion as of December 31, 1998. The decrease is primarily attributable to an
increase in interest rates during the six months of 1999.
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 $54 million of potential problem bonds, including amounts attributable
to policyholder contracts, as of June 30, 1999, compared with $58 million as of
December 31, 1998. These amounts are net of cumulative write-downs of $5 million
as of both dates.
CIGNA considers bonds that are delinquent or restructured as to terms, typically
interest rate and in certain cases maturity date, problem bonds. As of June 30,
1999 and December 31, 1998, CIGNA had problem bonds, including amounts
attributable to policyholder contracts, of $165 million and $108 million, net of
related cumulative write-downs of $27 million and $19 million, respectively.
Problem bonds included $14 million and $3 million, respectively, related to
emerging market investments as of June 30, 1999 and December 31, 1998. CIGNA
recognizes interest income on problem bonds only when payment is received.
Mortgage Loans
- --------------------------------------------------------------
June 30, December 31,
1999 1998
- --------------------------------------------------------------
Mortgage loans (in millions) $10,115 $ 9,599
Property type:
Office buildings 39% 37%
Retail facilities 33 34
Apartment buildings 14 15
Industrial 6 7
Hotels 6 5
Other 2 2
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.
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 $54 million as of June 30, 1999, and $55 million as
of December 31, 1998. There were no valuation reserves related to these amounts
in either period.
CIGNA's problem mortgage loans include delinquent and restructured mortgage
loans. Delinquent mortgage loans include those on which payment is overdue by 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.
19
<PAGE>
CIGNA had problem mortgage loans, including amounts attributable to policyholder
contracts, of $96 million and $98 million, as of June 30, 1999 and December 31,
1998, net of valuation reserves of $6 million as of both dates. CIGNA recognizes
interest income on problem mortgage loans only when payment is received.
Real Estate
As of June 30, 1999 and December 31, 1998, investment real estate, net of
reserves and write-downs, included: 1) $449 million and $390 million,
respectively, of real estate held for the production of income, and 2) $349
million and $343 million, respectively, of real estate held for sale, primarily
properties acquired as a result of foreclosure of mortgage loans.
Summary
The effects of write-downs, changes in valuation reserves and non-accruals
related to investment assets for the second quarter and six months ended June
30, 1999 and 1998 were not material to CIGNA's policyholder contracts, results
of operations, liquidity or financial position.
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 Latin American and 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.
YEAR 2000
CIGNA is highly dependent on automated systems and systems applications in
conducting its operations. These systems include information technology (IT)
systems that are used for, among other things, processing claims, billing,
collecting premiums from customers, managing investment activities and
maintaining management information systems. If these systems were unable to
function because of failing to be Year 2000 ready, CIGNA's business operations
would be interrupted, which could have a material adverse effect on CIGNA's
results of operations.
CIGNA's Year 2000 efforts include: 1) identifying systems requiring remediation;
2) assessing what is required to remediate those systems; 3) remediating systems
to be ready for the Year 2000 (by either modifying or replacing them); and 4)
testing systems for Year 2000 readiness, including that they properly interface
with systems of external parties, such as customers and third-party
administrators. CIGNA has completed the identification and assessment phases
with respect to its IT systems that are critical to maintaining operations or
where the failure of those systems would result in significant costs or
disruption of operations ("mission critical systems"). As of June 30, 1999,
CIGNA has substantially completed the remediation and testing of its mission
critical systems.
CIGNA's systems also include non-IT systems, such as telephone, facility
management and other systems using embedded chips. These non-IT systems were
substantially Year 2000 ready as of June 30, 1999.
CIGNA is using both internal and external resources to meet the timetable
established for completion of its Year 2000 efforts. The after-tax costs of Year
2000 efforts (including amounts related to discontinued operations) were
approximately $100 million in 1998 and are expected to be approximately $45
million in 1999. Year 2000 after-tax costs for the second quarter and six months
of 1999 were approximately $10 million and $20 million, respectively.
Approximately 60% of total Year 2000 costs are attributable to existing systems
resources which have been redirected to the Year 2000 efforts. The remaining
amounts represent incremental costs for Year 2000 efforts. Although certain
systems development efforts have been deferred in order to address Year 2000
issues, CIGNA does not expect that this deferral will have a significant adverse
effect on its results of operations or financial condition.
CIGNA has relationships with various third-party entities in the ordinary course
of business. 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 it
20
<PAGE>
invests. CIGNA has identified third-party entities critical to its operations,
and it is assessing and attempting to mitigate its risks with respect to the
potential failure of these entities to be Year 2000 ready by, among other
things, reviewing, where possible, their formal Year 2000 plans and obtaining
Year 2000 readiness affirmations from certain third-party entities. The effect,
if any, on CIGNA's results of operations from the failure of these entities
(including entities on which CIGNA bears credit risk) to be Year 2000 ready is
not reasonably estimable.
While CIGNA expects that its Year 2000 efforts will be successful, it has
completed a comprehensive analysis of the operational problems that would be
reasonably likely to result from the failure by CIGNA and certain third parties
to complete efforts necessary to achieve Year 2000 compliance on a timely basis.
CIGNA has historically had security and backup policies and procedures for
safeguarding critical corporate data. It is supplementing these policies by
developing Year 2000 contingency plans to provide for the continuity of
operations in the event of Year 2000 systems failures or the failure of
third-party entities to be Year 2000 ready. These plans are expected to be
completed and tested prior to the end of 1999.
The costs of CIGNA's Year 2000 efforts and the dates on which CIGNA believes it
will complete such efforts are based on management's best estimates, which were
derived using numerous assumptions regarding future events, including the
continued availability of certain resources, third-party remediation plans, and
other factors. There can be no assurance that these estimates will prove to be
accurate, and actual results could differ materially from those currently
anticipated. Specific factors that could cause such material differences
include, but are not limited to, the availability and costs of personnel trained
in Year 2000 issues, the ability to identify, assess, remediate and test all
relevant computer codes and embedded technology, the risk that reasonable
testing will not uncover all Year 2000 problems, and similar uncertainties.
21
<PAGE>
CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Except for historical information provided in this Management's Discussion and
Analysis 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) an increase in
medical costs in CIGNA's health care operations, including increases in
utilization and costs of medical services; 2) heightened competition,
particularly price competition, reducing product margins and constraining growth
in CIGNA's businesses; 3) significant changes in interest rates; 4) significant
stock market declines resulting in payments contingent on certain variable
annuity account values; 5) the effect on CIGNA's international operations and
investments from further significant deterioration in Latin American and Asian
economies; 6) the results of the evaluation described on page 16 of alternatives
related to an investment in Brazilian health care operations; and 7) proposals
to change federal corporate income taxes.
22
<PAGE>
Part II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting of Shareholders of CIGNA Corporation was held on
April 28, 1999. At the meeting, 174,379,373 shares of Common Stock
were represented and entitled to vote as of March 1, 1999, the record
date; 204,865,115 shares of Common Stock were outstanding and entitled
to vote as of March 1, 1999, the record date. CIGNA shareholders
elected nominees to the Board of Directors and ratified the
appointment of PricewaterhouseCoopers LLP as independent accountants
for 1999.
<TABLE>
<CAPTION>
Votes
Votes For Withheld
--------- --------
<S> <C> <C> <C>
Election of nominee to
Board of Directors for
term expiring in April, 2000
H. Edward Hanway 173,585,696 793,677
Election of nominees to
Board of Directors for
terms expiring in April, 2002
Peter N. Larson 173,617,899 761,474
Joseph Neubauer 173,517,736 861,637
Carol Cox Wait 173,578,954 800,419
Marilyn Ware 173,602,102 777,271
-----------------------------
Votes For Votes Against Abstentions
--------- ------------- -----------
Ratification of Pricewaterhouse-
Coopers as Independent Accountants 173,908,589 94,963 375,821
</TABLE>
23
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) See Exhibit Index.
(b) During the quarterly period ended June 30, 1999, and as of the
filing date, CIGNA filed the following Reports on Form 8-K:
o dated August 2, 1999, Item 5 - containing a news release
regarding its second quarter 1999 results.
o dated July 2, 1999, Item 2 - containing a news release
regarding the sale of its P&C businesses to ACE.
o dated May 3, 1999, Item 5 - containing a news release
regarding its first quarter 1999 results.
24
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed by the undersigned duly
authorized officer, on its behalf and in the capacity indicated.
CIGNA CORPORATION
By: /s/ James A. Sears
-------------------------
James A. Sears
Vice President and
Chief Accounting Officer
Date: August 6, 1999
25
<PAGE>
Exhibit Index
-------------
Method of
Number Description Filing
- ------ ----------- ------
10 Description of Stock Compensation Filed herewith
Plan for Non-Employee Directors
of CIGNA Corporation (as amended
and restated, effective July 1, 1999)
12 Computation of Ratio of Filed herewith
Earnings to Fixed Charges
27.1 Financial Data Schedule Included only in
the EDGAR version of
the Form 10-Q
27.2 Restated Financial Data Schedule Included only in
the EDGAR version of
the Form 10-Q
27.3 Restated Financial Data Schedule Included only in
the EDGAR version of
the Form 10-Q
27.4 Restated Financial Data Schedule Included only in
the EDGAR version of
the Form 10-Q
26
Exhibit 10
Description of
Stock Compensation Plan
for Non-Employee Directors
of CIGNA Corporation
(as amended and restated, effective July 1, 1999)
The Stock Compensation Plan for Non-Employee Directors of CIGNA
Corporation, as amended (the "Plan"), provides certain stock compensation
arrangements to members of CIGNA Corporation's Board of Directors (the "Board")
who are not in the employ of the company.
The Plan provides that the annual retainer paid to the Directors for
their services as Directors shall be $40,000 of which at least $20,000 must be
taken either in shares of CIGNA Corporation Common Stock or deferred pursuant to
the terms of the Deferred Compensation Plan for Directors of CIGNA Corporation.
If payment is made in shares of Common Stock, the shares are issued in four
equal installments within 30 days of the end of each calendar quarter. The
number of shares in each payment is determined by the closing price at which the
Common Stock trades on the last trade date for Common Stock in the quarter for
which payment is being made.
In addition, the Plan provides that Directors may, with respect to any
other retainers or fees paid to them for services as Directors, defer receipt of
all or any portion thereof or elect to receive all or any portion thereof in
either cash or an equivalent amount of Common Stock (provided that no fractional
shares may be issued).
<TABLE>
<CAPTION>
CIGNA CORPORATION EXHIBIT 12
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in millions)
Six Months Ended
June 30,
1999 1998
========================================================================================================================
<S> <C> <C>
Income from continuing operations before income taxes $ 837 $ 1,068
------------- ----------------
Fixed charges included in income:
Interest expense 61 65
Interest portion of rental expense 32 40
------------- ----------------
Total fixed charges included in income 93 105
------------- ----------------
Income available for fixed charges $ 930 $ 1,173
- -------------------------------------------------------------------------------------==================================
RATIO OF EARNINGS TO FIXED CHARGES 10.0 11.2
- -------------------------------------------------------------------------------------==================================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS INCLUDED IN ITEM 1 OF PART I TO CIGNA'S REPORT ON FORM 10-Q
FOR THE PERIOD ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<DEBT-HELD-FOR-SALE> 23,121
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 541
<MORTGAGE> 10,115
<REAL-ESTATE> 798
<TOTAL-INVEST> 38,638
<CASH> 1,262
<RECOVER-REINSURE> 6,737<F1>
<DEFERRED-ACQUISITION> 767
<TOTAL-ASSETS> 93,446
<POLICY-LOSSES> 12,141
<UNEARNED-PREMIUMS> 496
<POLICY-OTHER> 3,639
<POLICY-HOLDER-FUNDS> 27,779
<NOTES-PAYABLE> 1,668
0
0
<COMMON> 67
<OTHER-SE> 7,274
<TOTAL-LIABILITY-AND-EQUITY> 93,446
7,311
<INVESTMENT-INCOME> 1,455
<INVESTMENT-GAINS> 24
<OTHER-INCOME> 404
<BENEFITS> 6,138
<UNDERWRITING-AMORTIZATION> 125
<UNDERWRITING-OTHER> 2,094
<INCOME-PRETAX> 837
<INCOME-TAX> 298
<INCOME-CONTINUING> 539
<DISCONTINUED> (28)<F2>
<EXTRAORDINARY> 0
<CHANGES> (91)<F3>
<NET-INCOME> 420
<EPS-BASIC> 2.07
<EPS-DILUTED> 2.04
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>AMOUNT INCLUDES RECOVERABLES ON PAID AND UNPAID LOSSES.
<F2>AMOUNT RELATES TO THE PROPERTY AND CASUALTY BUSINESS, WHICH WAS SOLD ON
JULY 2, 1999.
<F3>REFLECTS THE CUMULATIVE EFFECT OF ADOPTING A NEW ACCOUNTING PRONOUNCEMENT
FOR INSURANCE-RELATED ASSESSMENTS.
</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, 1998 and Form 10-Q for the periods ended March 31, 1999, September 30, 1998
and June 30, 1998 for CIGNA Corporation and is qualified in its entirety by
reference to such financial statements. However, certain information noted below
has been restated to reflect the reporting of CIGNA's property and casualty
business (which was sold on July 2, 1999) as discontinued operations. Amounts
that have been restated for discontinued operations have been specifically
identified.
</LEGEND>
<RESTATED>
<CIK> 0000701221
<NAME> CIGNA CORPORATION
<MULTIPLIER> 1,000,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR 9-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998 DEC-31-1998 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998 JAN-01-1998 JAN-01-1998
<PERIOD-END> MAR-31-1999 DEC-31-1998 SEP-30-1998 JUN-30-1998
<DEBT-HELD-FOR-SALE> 23,926<F1> 24,270<F1> 33,339 32,920
<DEBT-CARRYING-VALUE> 0 0 0 0
<DEBT-MARKET-VALUE> 0 0 0 0
<EQUITIES> 489<F1> 477<F1> 862 1,089
<MORTGAGE> 9,847 9,599 9,556 9,503
<REAL-ESTATE> 807 733 755 766
<TOTAL-INVEST> 39,833<F1> 41,676<F1> 51,912 51,407
<CASH> 1,468<F1> 1,986<F1> 1,162 1,903
<RECOVER-REINSURE> 6,752<F1><F2> 6,666<F1><F2> 12,567<F2> 12,400<F2>
<DEFERRED-ACQUISITION> 736<F1> 730<F1> 967 951
<TOTAL-ASSETS> 94,229<F1> 95,890<F1> 109,296 110,927
<POLICY-LOSSES> 12,290 12,510 12,205 12,093
<UNEARNED-PREMIUMS> 477<F1> 589<F1> 1,897 1,839
<POLICY-OTHER> 3,567<F1> 3,392<F1> 17,895 17,841
<POLICY-HOLDER-FUNDS> 28,589<F1> 30,607<F1> 30,877 30,524
<NOTES-PAYABLE> 1,694<F1> 1,700<F1> 1,685 1,694
0 0 0 0
0 0 0 0
<COMMON> 67 66 66 66
<OTHER-SE> 7,802 8,211 8,090 8,274
<TOTAL-LIABILITY-AND-EQUITY> 94,229<F1> 95,890<F1> 109,296 110,927
3,587<F1> 13,456<F1> 9,914<F1> 6,570<F1>
<INVESTMENT-INCOME> 721<F1> 3,115<F1> 2,344<F1> 1,578<F1>
<INVESTMENT-GAINS> 11<F1> 134<F1> 121<F1> 79<F1>
<OTHER-INCOME> 178<F1> 946<F1> 785<F1> 635<F1>
<BENEFITS> 3,019<F1> 11,614<F1> 8,655<F1> 5,776<F1>
<UNDERWRITING-AMORTIZATION> 67<F1> 201<F1> 148<F1> 90<F1>
<UNDERWRITING-OTHER> 1,043<F1> 3,978<F1> 2,881<F1> 1,928<F1>
<INCOME-PRETAX> 368<F1> 1,858<F1> 1,480<F1> 1,068<F1>
<INCOME-TAX> 132<F1> 672<F1> 528<F1> 380<F1>
<INCOME-CONTINUING> 236<F1> 1,186<F1> 952<F1> 688<F1>
<DISCONTINUED> 43<F1> 106<F1> 102<F1> 115<F1>
<EXTRAORDINARY> 0 0 0 0
<CHANGES> (91)<F5> 0 0 0
<NET-INCOME> 188 1,292 1,054 803
<EPS-BASIC> 0.92 6.12 4.95 3.74
<EPS-DILUTED> 0.91 6.05 4.90 3.70
<RESERVE-OPEN> 0 9,762<F3><F4> 0 0
<PROVISION-CURRENT> 0 2,049<F3> 0 0
<PROVISION-PRIOR> 0 177<F3> 0 0
<PAYMENTS-CURRENT> 0 910<F3> 0 0
<PAYMENTS-PRIOR> 0 1,745<F3> 0 0
<RESERVE-CLOSE> 0 9,333<F3><F4> 0 0
<CUMULATIVE-DEFICIENCY> 0 177<F3> 0 0
<FN>
<F1> This information has been restated to reflect CIGNA's property and casualty
business, which was sold on July 2, 1999, as discontinued operations.
<F2> Amount includes recoverables on paid and unpaid losses.
<F3> Amount relates to the property and casualty business, which was sold on
July 2, 1999. These reserves are not included in the restated amounts for
Policy-Other.
<F4> Amount is net of reinsurance recoverables.
<F5> Reflects the cumulative effect of adopting a new accounting pronouncement
for insurance-related assessments.
</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 and Form 10-Q for the periods ended March 31, 1998, September 30, 1997
and June 30, 1997 for CIGNA Corporation and is qualified in its entirety by
reference to such financial statements. However, certain information noted below
has been restated to reflect the reporting of CIGNA's property and casualty
business (which was sold on July 2, 1999) as discontinued operations. Amounts
that have been restated for discontinued operations have been specifically
identified.
</LEGEND>
<RESTATED>
<CIK> 0000701221
<NAME> CIGNA CORPORATION
<MULTIPLIER> 1,000,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR 9-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997 JAN-01-1997 JAN-01-1997
<PERIOD-END> MAR-31-1998 DEC-31-1997 SEP-30-1997 JUN-30-1997
<DEBT-HELD-FOR-SALE> 33,190 36,358 35,630 34,470
<DEBT-CARRYING-VALUE> 0 0 0 0
<DEBT-MARKET-VALUE> 0 0 0 0
<EQUITIES> 1,030 854 937 799
<MORTGAGE> 9,401 10,859 10,813 10,973
<REAL-ESTATE> 755 769 1,023 1,040
<TOTAL-INVEST> 51,617 56,578 56,645 55,438
<CASH> 2,322 2,625 1,598 1,944
<RECOVER-REINSURE> 12,433<F2> 6,753<F2> 6,938<F2> 6,926<F2>
<DEFERRED-ACQUISITION> 918 1,542 1,291 1,298
<TOTAL-ASSETS> 111,219 108,199 106,428 103,662
<POLICY-LOSSES> 11,937 11,976 11,896 11,617
<UNEARNED-PREMIUMS> 1,864 1,774 1,852 1,853
<POLICY-OTHER> 17,702 17,906 18,434 18,527
<POLICY-HOLDER-FUNDS> 30,714 30,682 30,271 30,046
<NOTES-PAYABLE> 1,729 2,155 1,943 2,235
0 0 0 0
0 0 0 0
<COMMON> 66 66<F5> 66<F5> 66<F5>
<OTHER-SE> 8,259 7,866<F5> 7,925<F5> 7,482<F5>
<TOTAL-LIABILITY-AND-EQUITY> 111,219 108,199 106,428 103,662
3,216<F1> 11,781<F1> 8,445<F1> 5,312<F1>
<INVESTMENT-INCOME> 789<F1> 3,598<F1> 2,682<F1> 1,787<F1>
<INVESTMENT-GAINS> 40<F1> 93<F1> 24<F1> 33<F1>
<OTHER-INCOME> 467<F1> 483<F1> 362<F1> 236<F1>
<BENEFITS> 2,846<F1> 10,809<F1> 7,779<F1> 4,974<F1>
<UNDERWRITING-AMORTIZATION> 47<F1> 257<F1> 195<F1> 131<F1>
<UNDERWRITING-OTHER> 936<F1> 3,661<F1> 2,575<F1> 1,602<F1>
<INCOME-PRETAX> 683<F1> 1,228<F1> 964<F1> 661<F1>
<INCOME-TAX> 244<F1> 416<F1> 330<F1> 224<F1>
<INCOME-CONTINUING> 439<F1> 812<F1> 634<F1> 437<F1>
<DISCONTINUED> 56<F1> 274<F1> 212<F1> 130<F1>
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 495 1,086 846 567
<EPS-BASIC> 2.30 4.93<F5> 3.83<F5> 2.57<F5>
<EPS-DILUTED> 2.27 4.88<F5> 3.79<F5> 2.55<F5>
<RESERVE-OPEN> 0 10,647<F3><F4> 0 0
<PROVISION-CURRENT> 0 2,120<F3> 0 0
<PROVISION-PRIOR> 0 218<F3> 0 0
<PAYMENTS-CURRENT> 0 901<F3> 0 0
<PAYMENTS-PRIOR> 0 2,117<F3> 0 0
<RESERVE-CLOSE> 0 9,967<F3><F4> 0 0
<CUMULATIVE-DEFICIENCY> 0 218<F3> 0 0
<FN>
<F1> This information has been restated to reflect CIGNA's property and casualty
business, which was sold on July 2, 1999, as discontinued operations.
<F2> Amount includes recoverables on paid and unpaid losses.
<F3> Amount relates to the property and casualty business,
which was sold on July 2, 1999.
<F4> Amount is net of reinsurance recoverables.
<F5> Restated to reflect the three-for-one stock split approved by CIGNA's
shareholders on April 22, 1998.
</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, 1996 and Form 10-Q for the period ended March 31, 1997 for CIGNA Corporation
and is qualified in its entirety by reference to such financial statements.
However, certain information noted below has been restated to reflect the
reporting of CIGNA's property and casualty business (which was sold on July 2,
1999) as discontinued operations. Amounts that have been restated for
discontinued operations have been specifically identified.
</LEGEND>
<RESTATED>
<CIK> 0000701221
<NAME> CIGNA CORPORATION
<MULTIPLIER> 1,000,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> MAR-31-1997 DEC-31-1996
<DEBT-HELD-FOR-SALE> 34,320 34,933
<DEBT-CARRYING-VALUE> 0 0
<DEBT-MARKET-VALUE> 0 0
<EQUITIES> 683 701
<MORTGAGE> 11,066 10,927
<REAL-ESTATE> 1,087 1,102
<TOTAL-INVEST> 55,237 56,061
<CASH> 1,955 1,760
<RECOVER-REINSURE> 6,859<F2> 7,287<F2>
<DEFERRED-ACQUISITION> 1,303 1,230
<TOTAL-ASSETS> 98,752 98,932
<POLICY-LOSSES> 11,587 11,784
<UNEARNED-PREMIUMS> 1,946 1,940
<POLICY-OTHER> 18,400 18,841
<POLICY-HOLDER-FUNDS> 29,800 29,878
<NOTES-PAYABLE> 1,343 1,310
0 0
0 0
<COMMON> 66<F5> 66<F5>
<OTHER-SE> 7,051<F5> 7,142<F5>
<TOTAL-LIABILITY-AND-EQUITY> 98,752 98,932
2,627<F1> 10,499<F1>
<INVESTMENT-INCOME> 886<F1> 3,645<F1>
<INVESTMENT-GAINS> 32<F1> 52<F1>
<OTHER-INCOME> 114<F1> 464<F1>
<BENEFITS> 2,466<F1> 10,006<F1>
<UNDERWRITING-AMORTIZATION> 69<F1> 278<F1>
<UNDERWRITING-OTHER> 785<F1> 3,148<F1>
<INCOME-PRETAX> 339<F1> 1,228<F1>
<INCOME-TAX> 116<F1> 427<F1>
<INCOME-CONTINUING> 223<F1> 801<F1>
<DISCONTINUED> 65<F1> 255<F1>
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 288 1,056
<EPS-BASIC> 1.31<F5> 4.68<F5>
<EPS-DILUTED> 1.30<F5> 4.64<F5>
<RESERVE-OPEN> 0 11,159<F3><F4>
<PROVISION-CURRENT> 0 2,348<F3>
<PROVISION-PRIOR> 0 177<F3>
<PAYMENTS-CURRENT> 0 823<F3>
<PAYMENTS-PRIOR> 0 2,214<F3>
<RESERVE-CLOSE> 0 10,647<F3><F4>
<CUMULATIVE-DEFICIENCY> 0 177<F3>
<FN>
<F1> This information has been restated to reflect CIGNA's property and casualty
business, which was sold on July 2, 1999, as discontinued operations.
<F2> Amount includes recoverables on paid and unpaid losses.
<F3> Amount relates to the property and casualty business, which was sold on July 2, 1999.
<F4> Amount is net of reinsurance recoverables.
<F5> Restated to reflect the three-for-one stock split approved by CIGNA's
shareholders on April 22, 1998.
</FN>
</TABLE>
