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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 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)
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Delaware 06-1059331
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Liberty Place, Philadelphia, Pennsylvania 19192
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (215) 761-1000
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Securities registered pursuant to section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
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Common Stock, Par Value $0.25; New York Stock Exchange, Inc.
Preferred Stock Pacific Exchange, Inc.
Purchase Rights Philadelphia Stock Exchange, Inc.
Securities registered pursuant to section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of January 31, 2000, was approximately $11.7 billion.
As of January 31, 2000, 168,574,562 shares of the registrant's Common Stock
were outstanding.
Parts I and II of this Form 10-K incorporate by reference information from
the registrant's annual report to shareholders for the year ended December 31,
1999. Part III of this Form 10-K incorporates by reference information from the
registrant's proxy statement to be dated March 22, 2000.
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TABLE OF CONTENTS
Page
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PART I
Item 1. Business
A. Description of Business............................................................. 1
B. Financial Information about Industry Segments ...................................... 2
C. Employee Health Care, Life and Disability Benefits.................................. 3
D. Employee Retirement Benefits and Investment Services................................ 12
E. International Life, Health and Employee Benefits.................................... 17
F. Other Operations.................................................................... 20
G. Investments and Investment Income................................................... 22
H. Regulation.......................................................................... 27
I. Ratings............................................................................. 30
J. Miscellaneous....................................................................... 32
Item 2. Properties............................................................................... 32
Item 3. Legal Proceedings........................................................................ 32
Item 4. Submission of Matters to a Vote of Security Holders...................................... 33
Executive Officers of the Registrant............................................................... 33
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.................... 34
Item 6. Selected Financial Data.................................................................. 34
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................................... 34
Item 7A. Quantitative and Qualitative Disclosures about Market Risk............................... 34
Item 8. Financial Statements and Supplementary Data.............................................. 34
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure............................................................................... 34
PART III
Item 10. Directors and Executive Officers of the Registrant....................................... 34
A. Directors of the Registrant......................................................... 34
B. Executive Officers of the Registrant................................................ 35
Item 11. Executive Compensation................................................................... 35
Item 12. Security Ownership of Certain Beneficial Owners and Management........................... 35
Item 13. Certain Relationships and Related Transactions........................................... 35
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K......................... 35
Signatures......................................................................................... 36
Index to Financial Statement Schedules............................................................. FS-1
Index to Exhibits.................................................................................. E-1
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PART I
Item 1. BUSINESS
A. Description of Business
CIGNA Corporation had consolidated shareholders' equity of $6.1 billion and
assets of $95.3 billion as of December 31, 1999, and revenues from continuing
operations of $18.8 billion for the year then ended. CIGNA Corporation and its
subsidiaries constitute one of the largest investor-owned employee benefits
organizations in the United States. Its subsidiaries are major providers of
health care products and services, group life, accident and disability
insurance, retirement products and services and investment management. CIGNA's
major insurance subsidiary, Connecticut General Life Insurance Company ("CG
Life"), traces its origins to 1865. CIGNA Corporation was incorporated in the
State of Delaware in 1981.
As used in this document, "CIGNA" and the "Company" may refer to CIGNA
Corporation itself, one or more of its subsidiaries, or CIGNA and its
consolidated subsidiaries. CIGNA Corporation is a holding company and is not an
insurance company. Its subsidiaries conduct various businesses, which are
described in this document.
CIGNA's revenues are derived principally from premiums and fees and
investment income. CIGNA conducts its business through the following operating
divisions, the financial results of which are reported in the following
segments:
o Employee Health Care, Life and Disability Benefits Segment (beginning on
page three)
o CIGNA HealthCare
o CIGNA Group Insurance
o Employee Retirement Benefits and Investment Services Segment (beginning on
page 12)
o CIGNA Retirement & Investment Services
o International Life, Health and Employee Benefits Segment (beginning on page
17)
o CIGNA International
o Other Operations (beginning on page 20)
o CIGNA Reinsurance
In addition to the results of CIGNA's reinsurance operations, Other
Operations also includes:
o the deferred gain related to the sale of CIGNA's individual life
insurance and annuity business; and
o the results of CIGNA's corporate life insurance business on which
policy loans are outstanding, settlement annuity business, certain new
business initiatives and non-insurance operations engaged primarily in
investment and real estate activities.
Investment results produced by CIGNA Investment Management on behalf of
CIGNA's insurance operations are reported in each segment's results.
Recent Transaction
On July 2, 1999, CIGNA sold its domestic and international property and
casualty business to ACE Limited for cash proceeds of $3.45 billion. For
additional information about the sale, see page 11 of the Management's
Discussion and Analysis ("MD&A") section of, and Note 3 to the Financial
Statements included in, CIGNA's 1999 Annual Report to Shareholders ("Annual
Report").
Systems Considerations (including Year 2000)
CIGNA's operations are highly dependent on automated systems and systems
applications. In particular, CIGNA relies on information technology (IT) systems
for tasks like processing claims, billing, collecting premiums and managing
investment activities. CIGNA also relies on non-IT systems, such as
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telephone, facility management and other systems using embedded chips.
CIGNA has relationships with various third-party entities in the ordinary
course of business. For example, CIGNA receives data from clients, hires
third-party administrators and banks to perform certain services and bears
credit risk on others, such as entities in which it invests. As of the end of
February 2000, CIGNA's systems were not adversely affected in any material way
by the Year 2000 event and CIGNA was not adversely affected in any material way
because the systems of any third party were not Year 2000 compliant.
CIGNA has historically had security and backup policies and procedures for
safeguarding critical corporate data, as well as business continuity plans. It
supplemented 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 providers. Throughout 2000, CIGNA will continue to
monitor its systems for any Year 2000-related systems issues that have not yet
been identified. However, CIGNA does not expect any Year 2000 problems that
would have a material adverse effect on CIGNA's results of operations, liquidity
or financial condition.
For further information, see page 22 of the MD&A section of CIGNA's Annual
Report.
B. Financial Information about Industry Segments
Financial information in the tables that follow is presented in conformity
with generally accepted accounting principles ("GAAP"), unless otherwise
indicated. Certain reclassifications have been made to 1998 and 1997 financial
information to conform to the 1999 presentation. Industry rankings and
percentages set forth below are for the year ended December 31, 1998, unless
otherwise indicated. Unless otherwise noted, statements set forth in this
document concerning CIGNA's rank or position in an industry or particular line
of business have been developed internally, based on publicly available
information.
Financial data for each of CIGNA's business segments is set forth in Note
15 and financial information for foreign operations is set forth in Note 16 to
the Financial Statements included in CIGNA's Annual Report.
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C. Employee Health Care, Life and Disability Benefits
Principal Products and Markets
CIGNA's Employee Health Care, Life and Disability Benefits operations offer
a wide range of managed care and indemnity products and services to meet the
needs of employers of all sizes.
The customers of these operations range in size from some of the largest
United States corporations to small enterprises, and include employers, multiple
employer groups, unions, professional and other associations, government-
sponsored programs, and other groups. Products are marketed in all 50 states,
the District of Columbia and Puerto Rico.
The following table sets forth the principal products of this segment and
their related net earned premiums and fees. Amounts in the table do not include
"premium equivalents," which are described under "Funding Arrangements"
beginning on page eight.
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Year ended December 31,
---------------------------------
1999 1998 1997
------- ------- -------
(In millions)
Indemnity:
Medical .............................. $ 3,103 $ 2,563 $ 2,161
Life ................................. 1,800 1,755 1,750
Long-term Disability ................. 498 443 487
Dental ............................... 454 400 367
Accidental Death and Dismemberment ... 198 196 198
Short-term Disability ................ 93 79 88
Other ................................ 46 43 44
------- ------- -------
Total ..................................... 6,192 5,479 5,095
------- ------- -------
Managed Care:
Medical .............................. 5,894 5,548 4,089
Dental ............................... 419 394 362
------- ------- -------
Total ..................................... 6,313 5,942 4,451
------- ------- -------
Total Premiums and Fees ................... $12,505 $11,421 $ 9,546
======= ======= =======
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- ----------------------------
As a result of the Healthsource, Inc. ("Healthsource") acquisition, the
financial information and other data reported in this section include
Healthsource from the purchase date of June 25, 1997.
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Health Care Products and Services
Health care products constitute the segment's principal product line. CIGNA
provides a wide array of health care products to satisfy the health benefit
needs of employers and their employees. The products offered include the
following:
o medical and dental indemnity products;
o comprehensive managed care products, such as:
o medical health maintenance organizations ("HMOs"),
o managed dental programs,
o managed behavioral health and substance abuse products and services,
o medical cost and utilization management products and services, and
o managed pharmacy programs;
o preferred provider organizations ("PPOs"); and
o point-of-service plans.
Indemnity Products
CIGNA offers medical and dental indemnity products. These indemnity
products generally do not restrict provider choice. However, because there are
no negotiated arrangements with physicians or hospitals to control unit costs
and there is limited management over the utilization of services, the costs of
such products to customers are higher than managed care products. Under
indemnity arrangements, insureds usually pay deductibles and coinsurance,
subject to annual out-of-pocket maximums, and their benefits may also be subject
to lifetime maximum limits.
Managed Care Products
CIGNA also offers managed care products, including medical, dental,
behavioral health and pharmacy products. CIGNA promotes the delivery of quality
care under its managed care products through internal programs, such as those
that credential practitioners and clinics, by meeting the standards of audits by
federal and state agencies, and by meeting external accreditation standards.
CIGNA's practitioner credentialing policy requires verification of a
current unrestricted professional license, a valid and unrestricted license to
prescribe drugs (as appropriate), board certification or other appropriate
training and hospital privileges at a CIGNA participating facility. In addition,
CIGNA queries the National Practitioner Data Bank to obtain information about
the practitioner's malpractice experience and also obtains Medicare sanction
activity. CIGNA expects practitioners to demonstrate an acceptable history of
malpractice claim experience, adequacy of malpractice insurance coverage and an
acceptable work history. The policy requires practitioners to be recredentialed
every two years.
CIGNA requires its medical facilities to be recredentialed every three
years. To be credentialed, CIGNA requires its medical facilities to have an
unrestricted state license, no sanctions by the Department of Health and Human
Services, accreditation by an approved accrediting organization and adequate
malpractice and general liability coverage.
CIGNA also seeks accreditation of its HMOs by the National Committee for
Quality Assurance ("NCQA"). The NCQA is a nationally recognized external
accrediting agency, which was established to review the quality and medical
management systems of HMOs and other managed care plans. Its accreditation
validates the quality of an HMO's programs. As of December 31, 1999, 80% of
CIGNA's HMOs were accredited by the NCQA.
Managed care products provide for an effective, efficient use of health
care services by coordinating utilization of care and controlling unit costs
through provider contracts. Managed care products include those described below.
Medical HMOs. HMOs are generally the most cost-efficient form of health
care delivery. Members typically choose primary care physicians from CIGNA's
provider network.
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Primary care physicians are responsible for the member's primary medical and
preventive care. Generally, a member must receive a referral from his or her
primary care physician to receive maximum coverage if seeing a network medical
specialist or receiving institutional care.
CIGNA's HMOs include individual practice association ("IPA") models, staff
models and mixed models. The relationship between the HMO and the health care
providers distinguishes the models.
Under an IPA model, the HMO contracts with physicians and hospitals to
provide services. IPAs may cover wide geographic areas and have low fixed costs.
They rely on cost-effective contracts with providers and appropriate utilization
management to deliver quality medical care at an appropriate cost.
In a staff model, physicians and certain other providers are employees of
the HMO. The HMO either owns or leases the medical facilities where the services
are performed. Staff models offer a greater opportunity for direct influence
over medical costs, quality and service, but require more capital investment.
IPAs may offer broader provider choice to the consumer, whereas staff
models generally offer lower costs. Mixed model HMOs offer participants a choice
of IPA and staff model providers.
Certain of CIGNA's HMO providers receive a monthly predetermined fee
(capitation) from CIGNA to cover the cost of certain services available to each
HMO member, regardless of the medical services actually provided to each member.
Other providers are paid by CIGNA on a contracted fee-for-service or other
service-specific basis. Capitation arrangements shift some of the financial risk
from CIGNA to the providers and promote a higher degree of provider-driven
utilization management.
In some cases, CIGNA's HMOs contract with third-party intermediaries to
provide or arrange for the provision of specified health care services for a
fixed amount per member per month (capitation). In the event that the
intermediary is paid but fails to pay its contracted providers, the providers
may attempt to look to the CIGNA HMO for payment. To maintain the provider
network and ensure continuity of care to its members, the CIGNA HMO may, in some
cases, voluntarily make some additional payments to the providers. CIGNA HMOs
currently require a satisfactory letter of credit or other financial guarantee
from the intermediary to protect it from this possible exposure. Older capitated
contracts with intermediaries may not have this protection.
The table below shows the number of IPA, staff and mixed model HMOs as of
December 31:
1999 1998 1997
------- ------- --------
IPA Models............. 58 59 53
Staff Models........... 3 3 3
Mixed Models........... 4 5 5
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As of December 31, 1999, CIGNA's HMO networks included approximately
251,000 physicians and 4,300 hospitals.
CIGNA has contracted with the federal Health Care Financing Administration
("HCFA") to provide HMO coverage for Medicare beneficiaries through certain HMO
networks. These contracts provide for a fixed per member per month premium from
HCFA based upon a formula that calculates the projected cost of services for
each Medicare member. These amounts are updated annually. Members generally
receive additional benefits over standard Medicare fee-for-service coverage,
including pharmacy and vision coverage and reduced cost sharing co-pays. In some
instances, members pay a premium to CIGNA for these additional benefits.
Effective January 1, 2000, CIGNA exited certain Medicare markets, after
concluding that it could not viably sustain the business over time.
CIGNA also has contracted with two state agencies to offer coverage for
individuals eligible for Medicaid. Membership benefits and
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premiums are generally determined by the contracting agencies.
Managed Dental Programs. CIGNA offers managed dental care products through
networks of independent providers in most states. CIGNA contracts with dentists
to provide services to members. Most network dentists receive a monthly
fixed-fee (capitation) for each covered member. Network dentists may also
receive additional fees for certain services. Generally, members are responsible
for a co-payment for certain covered services provided by a network dentist.
Managed Behavioral Health. CIGNA also provides managed behavioral health
and substance abuse coverage and services to HMOs, insurers and employers. CIGNA
provides this coverage through a national network of independent mental health
providers and facilities. While some independent providers receive a monthly
capitation amount, regardless of the services provided to members, most are paid
on a contracted fee-for-service basis. In addition, salaried mental health
professionals staff four behavioral care offices. Members pay a fixed co-payment
for most services, whether from network or staff providers.
Medical Cost and Utilization Management, Managed Pharmacy Programs. In
addition, CIGNA provides disability management and medical cost containment
services to help insurers and employers optimize the quality relative to the
cost of their benefit programs. CIGNA also provides managed pharmacy benefit
programs to HMO and indemnity customers, and mail order pharmaceutical
fulfillment services.
CIGNA offers products that combine features of both indemnity and managed
care products. These products are PPOs and point-of-service plans.
Preferred Provider Organizations
CIGNA has contractual arrangements with doctors, hospitals and other
independent providers to form PPOs. CIGNA has both medical and dental PPO
networks. Under a typical PPO plan, a participant may choose (with certain
exceptions) any health care provider. Within applicable state requirements and
restrictions, CIGNA reimburses PPO participants at a higher percentage for the
costs of care obtained from contracted providers, who are generally paid on a
discounted basis, than it does for care obtained from non-contracted providers.
As of December 31, 1999, 1998 and 1997, CIGNA had 128, 112 and 118 medical PPO
networks. CIGNA's national dental PPO network has approximately 43,000
participating dentists.
When a medical PPO uses a contracted primary care physician as a gatekeeper
("Gatekeeper PPO"), the higher reimbursement level is available only if
participants first consult their contracted primary care physician before
consulting a contracted specialist. As of December 31, 1999, 1998 and 1997,
CIGNA had 37, 36 and 38 Gatekeeper PPO networks in addition to its medical PPO
networks.
Point-of-Service Products
Under point-of-service products, participants generally pay no, or a small,
fixed co-payment to use CIGNA's network providers. Alternatively, participants
may choose to go directly, without a referral, to non-network providers. Use of
non-network providers is subject to certain deductibles and coinsurance that are
generally more costly to the participants than those offered under traditional
indemnity arrangements. Participants in point-of-service plans are considered
HMO members for purposes of the table on page seven.
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Covered Lives
CIGNA's managed care and indemnity products covered the following
approximate number of lives for the periods presented. Covered lives include
participants under guaranteed cost, experience-rated and alternative funding
programs, which are described under "Funding Arrangements" beginning on page
eight.
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Approximate Number of Covered Lives
- -----------------------------------
As of December 31,
--------------------------------
1999 1998 1997
------ ------ ------
(In thousands)
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Medical Covered Lives
Managed Care:
Guaranteed Cost:
Commercial............................................ 1,923 2,172 2,165
Medicare.............................................. 188 147 96
Medicaid.............................................. 74 63 49
Experience-rated and alternative funding................
(including Gatekeeper PPOs)........................... 4,555 4,102 3,551
------ ------ ------
Total Managed Care.................................... 6,740 6,484 5,861
------ ------ ------
Indemnity (estimated):
Medical................................................. 2,432 2,818 3,365
Medical PPO (excluding Gatekeeper PPOs)................. 4,185 3,384 2,481
------ ------ ------
Total Indemnity....................................... 6,617 6,202 5,846
------ ------ ------
Total Medical Covered Lives................................ 13,357 12,686 11,707
====== ====== ======
Behavioral Care............................................ 10,271 9,076 6,502
====== ====== ======
Dental Covered Lives:
Managed Care............................................ 2,898 2,900 2,717
Indemnity and Dental PPO (estimated).................... 10,827 10,493 9,827
------ ------ ------
Total Dental Covered Lives............................ 13,725 13,393 12,544
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Life, Accident and Disability Insurance Products and Services
CIGNA also offers group life insurance, accidental death and dismemberment
insurance, and long-term and short-term disability insurance products and
services. Group insurance products are marketed to employers, employees,
professional and other associations and other groups.
Group life insurance products offered include group term life, group
universal life and group variable universal life insurance. Approximately 7,000
group life insurance policies covering approximately 17.8 million lives were
outstanding as of December 31, 1999. The following table shows group life
insurance in force and cancellation data.
Year Ended
December 31,
-----------------------
1999 1998 1997
---- ---- ----
(In billions)
In force, end of year..... $459 $488 $489
==== ==== ====
Cancellations (lapses
and expirations)........ $ 60 $ 36 $ 64
==== ==== ====
CIGNA markets group long-term and short-term disability products in all
states and statutorily required disability plans in certain states. These
products generally provide a fixed level of income to replace a portion of wages
lost because of disability. CIGNA also offers disability management services to
help employers reduce the cost of their benefit programs.
CIGNA offers personal accident coverage, which consists primarily of
accidental death and dismemberment and travel accident insurance, to employers,
associations and other groups.
Distribution
CIGNA employs group sales representatives to distribute the indemnity and
managed health care products of this segment through national and other
insurance brokers, through insurance consultants and directly to employers.
CIGNA also has a dedicated sales force to sell its Medicare HMO product directly
to consumers. CIGNA's employed representatives sell disability management,
medical and disability cost containment, and managed behavioral health and
substance abuse services directly to insurance companies, HMOs and employer
groups. As of December 31, 1999, the field sales force for the products of this
segment consisted of approximately 800 sales representatives in 111 field
locations.
Funding Arrangements
The segment's indemnity and managed care products are offered through
several funding arrangements: guaranteed cost, retrospectively experience-rated
and alternative funding arrangements. Customers may combine funding arrangements
to benefit from the features of more than one.
Under guaranteed cost arrangements, CIGNA charges a premium and bears the
risk for costs incurred in excess of the premium.
Under retrospectively experience-rated arrangements, a premium that
typically includes a margin to partially protect against adverse claim
fluctuations is determined at the beginning of the policy period and may be
adjusted at the end of the policy period based on the actual incurred costs over
the policy period. CIGNA bears the risk for costs incurred in excess of
premiums, but has the ability to recover this excess from policyholders that
renew their contracts with CIGNA. For additional discussion, see "Pricing,
Reserves and Reinsurance" on page nine.
Products offered on a guaranteed cost basis do not allow for a
retrospective adjustment for actual incurred claims.
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Under alternative funding arrangements, the plan sponsor, rather than
CIGNA, assumes all or a majority of the risk for costs incurred. Alternative
funding arrangements consist primarily of administrative services only ("ASO")
plans and "minimum premium" programs.
Under ASO programs, CIGNA provides claims processing, health quality and
cost containment services (through its provider networks) or utilization
management programs, or a combination of these services, in exchange for an
administrative services fee. The plan sponsor is responsible for self-funding
all claims, but may purchase stop-loss insurance from CIGNA or other insurers
for claims in excess of some predetermined amount in total or for specific types
of claims or both.
Minimum premium programs combine insurance protection with self-funding.
The policyholder self-funds claims up to a predetermined aggregate, maximum
amount and CIGNA bears the risk for claims in excess of that amount.
In 1999, the distribution of earned premiums and fees among funding
arrangements was as follows:
o Guaranteed cost 55%
o Retrospectively experience-rated 35%
o Fees on alternative funding arrangements 10%
Management believes that business volume is best measured by premiums and
fees plus premium equivalents, called adjusted premiums and fees. Premium
equivalents generally equal paid claims under alternative funding programs.
CIGNA would have recorded the amount of these paid claims as additional premiums
if these programs had been written as guaranteed cost or experience-rated
programs.
On this basis, in 1999 the distribution of adjusted premiums and fees among
funding arrangements was as follows:
o Guaranteed cost 25%
o Retrospectively experience-rated 15%
o Alternative funding 60%
Alternative funding programs and their effect on CIGNA's results are more
fully described on page 13 of the MD&A section of CIGNA's Annual Report.
Pricing, Reserves and Reinsurance
Premiums and fees charged for insured group indemnity and managed care
products are generally set in advance of the policy period and are guaranteed
for a one-year duration. Premium rates are either established on a
guaranteed cost basis or using a retrospective experience rating methodology.
Charges to customers established on a guaranteed cost basis at the beginning of
the policy period cannot be adjusted to reflect actual claim experience during
the policy period.
A guaranteed cost pricing methodology reflects assumptions about future
claims, expenses, credit risk, enrollment mix, investment returns, competitive
considerations and profit margins. Those assumptions may be based in whole or in
part on prior experience of the account or on a pool of accounts, depending on
the group size and the statistical credibility of the experience. Generally,
guaranteed cost groups are smaller and less statistically credible than
retrospectively experience-rated groups. In addition, pricing for products that
use networks of contracted providers also reflects assumptions about the impact
of provider contracts on future claims. Premium rates may vary among accounts to
reflect the anticipated contract mix, family size, industry, renewal date, and
other cost-predictive factors. In some states, premium rates must be filed and
approved by the state insurance departments, and state laws may restrict or
limit the use of rating methods.
Premiums established for retrospective experience-rated business may be
adjusted for the actual claim and administrative cost
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experience of the account through an experience settlement process subsequent to
the policy period. To the extent that the cost experience is favorable in
relation to the assumptions in the prospectively determined premium rates, a
portion of the initial premiums may be credited to the policyholder as an
experience refund. If claim experience is adverse in relation to the assumptions
in the initial premiums, the resulting experience deficit may be recoverable,
according to contractual provisions, through future premiums and experience
settlements, provided the contract remains in force.
CIGNA enters into contractual arrangements with HCFA to provide health care
benefits to Medicare beneficiaries. Although CIGNA establishes the benefits
offered and premiums charged to its Medicare HMO enrollees, HCFA determines
reimbursements to CIGNA for Medicare-covered benefits, and its reimbursement
decisions may affect the product's profit margin.
CIGNA contracts on an ASO basis with larger customers who fund their own
claims. CIGNA charges these customers administrative fees based on the expected
cost of administering self-funded programs. These fees reflect anticipated or
actual experience with respect to claim volumes, expenses, competitive
considerations, and profit margins. In some cases, CIGNA provides certain
performance guarantees on functions such as administrative accuracy or response
time.
In addition to paying current benefits and expenses, CIGNA establishes
reserves in amounts estimated to be sufficient to settle reported claims not yet
paid, as well as claims incurred but not yet reported. Also, reserves are
established for estimated experience refunds based on the results of
retrospectively experience-rated policies.
As of December 31, 1999, approximately $2.5 billion, or 40%, of the
reserves comprise liabilities that could be paid within one year, primarily for
medical and dental indemnity and managed care health claims, as well as group
life and accident claims. The remainder primarily includes liabilities for group
long-term disability benefits, group life insurance benefits for disabled and
retired individuals, and benefits paid in the form of annuities to survivors.
CIGNA credits interest on fund balances to experience-rated policyholders
through rates that are either set at CIGNA's discretion or based on actual
investment performance. Generally, for interest-crediting rates set at CIGNA's
discretion, higher rates are credited to funds with longer terms reflecting the
fact that higher yields are generally available on investments with longer
maturities. For 1999, the rates of interest credited ranged from 3.9% to 8.0%,
with a weighted average rate of 5.0%.
The profitability of medical and dental indemnity and managed care products
is dependent upon the accuracy of projections for health care inflation (unit
cost and utilization), the adequacy of fees charged for administration and risk
assumption and, in the case of managed care products, effective medical cost
management. The profitability of other indemnity products depends on the
adequacy of premiums charged relative to claims and expenses, and also, for
disability products, effective medical and rehabilitation management.
CIGNA reduces its exposure to large individual and catastrophe losses under
group life, medical, disability and accidental death contracts by purchasing
reinsurance from unaffiliated reinsurers.
Competition
Group indemnity insurance and managed care businesses are highly
competitive. No one competitor or small number of competitors dominates the
health care market, although in certain locations some HMOs may be dominant. A
large number of insurance companies and other entities compete in offering
similar products. Competition in the health care market exists both for
employer-policyholders and for the employees in those instances where the
employer offers employees the choice of products of more than
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one company. Most group policies are subject to annual review by the
policyholder, who may seek competitive quotations prior to renewal.
The principal competitive factors that affect this segment are price;
quality of service; scope, cost-effectiveness and quality of provider networks;
product responsiveness to customers' needs; cost-containment services;
technology; and effectiveness of marketing and sales. Being responsive to the
needs of employee-consumers as well as of employers is also important. For
certain products with longer-term liabilities, such as group long-term
disability insurance, financial strength of the insurer as indicated by ratings
issued by nationally recognized rating agencies is also a competitive factor.
For more information concerning insurance ratings, see "Ratings" beginning on
page 30.
The principal competitors of CIGNA's group indemnity and managed care
businesses are:
o the large life and health insurance companies that provide group insurance;
o Blue Cross and Blue Shield organizations;
o stand-alone HMOs and PPOs;
o HMOs affiliated with major insurance companies and hospitals; and
o provider-sponsored organizations that are directly contracting with
employer groups.
Competition also arises from smaller regional or specialty companies with
strength in a particular geographic area or product line, administrative service
firms and, indirectly, self-insurers.
CIGNA is one of the largest investor-owned providers of group life and
health indemnity insurance, based on premiums and premium equivalents, and one
of the largest investor-owned HMOs, based on the number of members. It is the
leading provider of group accident insurance, and one of the largest providers
of group long-term disability coverages, based on premiums.
Health Care Regulation
Efforts are underway in the federal and state legislatures and in the
courts to increase regulation of the health care industry and change its
operational practices. Regulatory and operational changes could have an adverse
effect on CIGNA's health care operations if they reduce marketplace competition
and innovation or result in increased medical or administrative costs without
improving the quality of care or member satisfaction.
Pending initiatives to increase health care regulation at the federal level
include "managed care reform" and "patients' bill of rights" legislation. A bill
that recently passed the House of Representatives would expand tort liability
for health plans and undermine the ability of health plans to limit coverage to
medically necessary care. A corresponding bill that recently passed the Senate
lacks similar provisions. Given these differences between the House and Senate
bills and the general uncertainty of the political process, it is not possible
to determine what legislation will be enacted, if any, or what the effect of any
such legislation would be on CIGNA.
Other matters that have been under consideration and that could have an
adverse effect on CIGNA's health care operations include:
o mandated benefits or services that increase costs without improving the
quality of care;
o loss of the Employer Retirement Income Security Act of 1974 ("ERISA")
preemption of state tort laws through legislative actions and court
decisions;
o changes in ERISA regulations imposing increased administrative burdens and
costs;
o restrictions on the use of prescription drug formularies; and
o privacy legislation that interferes with the ability to properly use
medical information for research, coordination of medical care and disease
management.
See pages 27 through 29 for further information about regulation of CIGNA's
businesses and pages 32 and 33 for a description of proposed class action
lawsuits against CIGNA.
11
<PAGE>
D. Employee Retirement Benefits and Investment Services
General
CIGNA's Employee Retirement Benefits and Investment Services businesses
provide investment products and professional services primarily to sponsors of
qualified pension, profit-sharing and retirement savings plans. Its businesses
also offer corporate life insurance, principally to Fortune 1000 companies.
Deposits for this segment for the year ended December 31 were as follows:
-----------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
(In millions)
<S> <C> <C> <C>
Deposits:
Defined Contribution............................... $5,964 $5,366 $5,357
Defined Benefit.................................... 1,910 1,878 1,222
Other, including GICs.............................. 202 357 249
Corporate Life Insurance(1) ....................... 324 359 911
Investment Advisory Accounts(2).................... 106 55 31
------ ------ ------
Total Deposits................................. $8,506 $8,015 $7,770
====== ====== ======
</TABLE>
Assets under management for this segment as of December 31 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
(In millions)
<S> <C> <C> <C>
By Account:
General Account(3):
Guaranteed..................................... $ 4,015 $ 4,243 $ 4,180
Experience-rated............................... 14,318 15,457 16,128
------- ------- -------
18,333 19,700 20,308
Separate Accounts................................ 32,984 29,381 24,715
Corporate Life Insurance(1)...................... 2,960 2,573 2,157
Investment Advisory Accounts(2) ................. 1,477 1,275 1,051
------- ------- -------
Total........................................ $55,754 $52,929 $48,231
======= ======= =======
By Plan Type:
Defined Contribution............................. $30,576 $28,176 $24,482
Defined Benefit.................................. 19,294 19,378 19,051
Other, including GICs(4)......................... 1,447 1,527 1,490
Corporate Life Insurance(1)...................... 2,960 2,573 2,157
Investment Advisory Accounts(2).................. 1,477 1,275 1,051
------- ------- -------
Total........................................ $55,754 $52,929 $48,231
======= ======= =======
<FN>
- ------------------------
Assets under management include assets managed by third-party managers.
(1) Corporate Life Insurance excludes corporate life insurance on which policy
loans are outstanding. For a discussion of corporate life insurance on
which policy loans are outstanding, see "Other Operations" beginning on
page 20.
(2) Investment advisory accounts include assets for individual retirement
account investments and retail brokerage services provided through the
broker dealer operation, and assets for clients for which CIGNA provides
only investment management advice.
(3) General Account assets under management (Defined Contribution, Defined
Benefit and Other, including guaranteed investment contracts ("GICs"))
reflect unrealized appreciation (depreciation) on fixed income securities
of $(147) million, $585 million and $560 million as of December 31, 1999,
1998 and 1997, respectively.
(4) This category also supports defined benefit and defined contribution plans.
</FN>
</TABLE>
12
<PAGE>
Principal Products and Markets
CIGNA offers a broad range of products to both defined benefit and defined
contribution pension plans, profit-sharing plans and retirement savings plans.
CIGNA's primary marketing emphasis is on defined contribution plans, which
provide for participant accounts with benefits based upon the value of
contributions to, and investment returns on, the individual's account. This has
been the fastest growing portion of the pension marketplace for a number of
years. Defined contribution plan assets amounted to 55% of assets under
management for this segment as of December 31, 1999, compared with 53% as of
December 31, 1998. The second largest category of this segment's assets under
management relate to defined benefit plans, under which annual retirement
benefits are fixed or defined by a benefit formula.
CIGNA sells investment products and investment management services, either
separately or as full-service packages with administrative and other
professional services, to pension plan sponsors. CIGNA markets full-service
products that include investment management and pension services to small,
middle and large market customers. In addition, CIGNA sells products to sponsors
of larger plans that look to more than one entity to provide actuarial,
administrative or investment services and products, or combinations thereof.
CIGNA markets a Total Retirement Services(sm) offering which integrates tax
qualified and non-qualified defined contribution and defined benefit products
and services. Non-qualified plans are primarily used to provide supplemental
retirement benefits to highly compensated employees in addition to the benefits
offered under the qualified plan. Total Retirement Services(sm) plans account
for approximately 22% of assets under management.
For defined contribution plans, principally 401(k) plans, CIGNA markets
products that offer investment management services and plan level and
participant recordkeeping, as well as employee communications, enrollment, plan
design, technological support and other consulting services. For defined benefit
plans, CIGNA offers investment, administrative and professional services,
including recordkeeping, plan documentation, and actuarial valuation and
consulting.
Investment management services for CIGNA's defined contribution and defined
benefit products are provided by CIGNA and by third-party managers, including
Fidelity Investments, Warburg Pincus, and Janus. In addition to offering
third-party funds, CIGNA offers its proprietary funds, the Charter Funds, as
investment options for defined benefit and defined contribution plans. CIGNA or
third-party fund managers under contract with CIGNA manage the Charter Funds.
A broker-dealer operation also offers benefit plan participants and other
customers a range of Individual Retirement Account investments and retail
brokerage services. In addition, CIGNA offers single premium annuities, both on
guaranteed and experience-rated bases, and guaranteed investment contracts
("GICs"), which provide guarantees of principal and interest with a fixed
maturity date.
Both defined benefit and defined contribution pension products are
supported by the general asset account ("General Account") and segregated
accounts ("Separate Accounts"). The General Account supports both guaranteed and
experience-rated contracts. As of December 31, 1999, the General
Account-supported contracts accounted for 34% of the underlying investments in
both the defined benefit plans and defined contribution plans, compared with 39%
and 38%, respectively, as of December 31, 1998.
Guaranteed contracts consist of single premium annuities and GICs. As of
December 31, 1999 and 1998, guaranteed single premium annuities accounted for
$2.6 billion and $2.7 billion, respectively, of this segment's General Account
assets under management, and GICs accounted for $1.4 billion and $1.5 billion as
of December 31, 1999 and 1998, respectively.
13
<PAGE>
For 1999 and 1998, the interest rate on reserves for guaranteed single
premium annuities and the interest rate credited on CIGNA's GICs ranged from
3.25% to 12.76%, with a weighted average of 8.32% in 1999 and 8.42% in 1998.
CIGNA's single premium annuities and GICs generally do not permit withdrawal by
the plan sponsor prior to maturity, except that GICs permit withdrawal at market
value in the event of plan termination. None of the GICs include renewal
clauses. Payouts associated with GICs have not been material to the Company's
liquidity or capital resources.
Experience-rated contracts that are supported by the General Account have
no fixed maturity dates and provide for transfer of net investment experience
(including impairments and non-accruals) to policyholders through credited
interest and termination provisions.
Credited interest rates for pooled, experience-rated defined contribution
contracts are declared in advance for six months and may be changed at the
expiration of the six-month period. Pooled contracts are contracts that are
combined for purposes of crediting interest rates and tracking investment
performance. Credited interest rates on other experience-rated contracts
supported by the General Account are generally declared annually in advance and
may be changed prospectively by the Company from time to time. Credited interest
rates reflect investment income and realized gains and losses. Credited interest
rates for 1999 ranged from 5.25% to 8.50% with a weighted average rate of 6.71%,
compared with a range from 5.85% to 9.00% with a weighted average rate of 6.76%
for 1998.
The termination provisions of $3.2 billion, or 100%, of the Company's
liability for experience-rated defined benefit contracts supported by the
General Account that are subject to withdrawal, and the termination provisions
of $3.1 billion, or 31%, of the Company's liability for experience-rated defined
contribution contracts supported by the General Account, provide the
policyholder with essentially two options for withdrawal of assets upon election
to terminate: (a) a lump sum at market value; or (b) annual installments.
Under the market value option, the Company determines the market value of
the underlying investments by discounting expected future investment cash flows
from investment income (including the effect of non-accruals) and repayment of
principal, including the effect of impaired assets. The discount rate assumed is
based on current market interest rates.
Under the installment option, 100% of the contractholder book value is
paid, usually over not more than 10 years. Interest is credited over the
installment period under a formula designed to pass investment income and gains
and losses (reflecting non-accruals and impairments) through to policyholders.
The termination provisions of $7.0 billion, or 69%, of the Company's
liability for experience-rated defined contribution contracts (all of which are
pooled) supported by the General Account contain a book value mechanism for
withdrawal at policyholder termination. Under certain circumstances, payout of
book value is subject to deferral over a period of five to ten years, depending
on the policy form.
The Separate Accounts allow contractholders the flexibility to invest in
specific portfolios and participate directly in the investment results.
Investment options include publicly traded bonds, private placement bonds,
equities, real estate, short-term securities, Charter Funds and funds managed by
third-party managers, such as mutual funds and commingled trusts.
As of December 31, 1999, Separate Account investments accounted for 66% of
the underlying investments in both defined benefit and defined contribution
plans, compared with 61% and 62%, respectively, as of December 31, 1998. As of
December 31, 1999, approximately $28.5 billion, or 86%, of the assets in the
Separate Accounts supported experience-rated contracts under which the risks and
benefits of investment performance generally accrue to the
14
<PAGE>
contractholders, compared with approximately $24.5 billion, or 84%, of Separate
Account assets as of December 31, 1998.
The remaining assets in the Separate Accounts are held under
experience-rated contracts that guarantee a minimum level of benefits. As of
December 31, 1999 and 1998, the amount of minimum benefit guarantees under these
contracts was $4.5 billion and $4.8 billion, respectively. CIGNA establishes a
liability if management believes that CIGNA will be required to make a payment
under a separate account guarantee. For additional information, see Note 17 to
CIGNA's 1999 Financial Statements included in its Annual Report.
CIGNA monitors contract termination experience on an ongoing basis. Of
those assets subject to withdrawal, persistency for 1999 was 92%, compared with
90% for 1998 and 93% for 1997.
Corporate life insurance products are permanent life insurance contracts
that are sold to corporations to provide coverage on the lives of certain of
their employees. Permanent life insurance, which is non-participating, provides
coverage that when adequately funded does not expire after a term of years and
builds a cash value that may equal the full policy amount if the insured is
alive on the policy maturity date. Non-participating insurance does not pay
dividends, but deviations from assumed experience may be reflected in future
policy values.
Corporate life insurance products include universal life and variable
universal life. Universal life policies typically provide flexible coverage and
flexible premium payments. Universal life cash values fluctuate with the amount
of the premiums paid, mortality and expense charges made, and interest credited
to the policy. Variable universal life policies are universal life contracts
where the cash values vary directly with the performance of the investments
underlying the policy.
Interest is credited on nonvariable universal life products at a declared
rate equal to or above a minimum guaranteed rate. Credited interest rates vary
with the characteristics of each product and the anticipated investment results
of the assets backing these products. Where the credited interest rate exceeds
the guaranteed rate, the excess is used to purchase additional insurance or
increase cash values. Credited interest rates on these products for 1999 ranged
from 4.00% to 6.00%, with a weighted average rate of 5.65%, compared with a
range from 4.74% to 7.00%, with a weighted average rate of 6.06% for 1998.
In early 2000, the Administration proposed a federal budget that 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 provision were enacted as proposed, demand for the
corporate life insurance products sold by this segment would be reduced. It is
uncertain whether the budget proposal will result in legislation and, if it
does, what form the legislation might take. However, if it were enacted as
proposed, it could have a material adverse effect on the results of operations
of this segment, but would not have a material adverse effect on CIGNA's
consolidated results of operations, liquidity or financial condition.
In 1996, Congress passed tax legislation that has affected premium and
earnings growth of certain corporate life insurance business on which policy
loans are outstanding. The corporate life insurance affected by the 1996
legislation is reported in "Other Operations" beginning on page 20.
Distribution
CIGNA's retirement products and services are distributed primarily through
salaried retirement plan specialists, independent insurance agents and brokers,
pension plan consultants, investment advisors and other service providers. As of
December 31, 1999, the sales organization consisted of 37 salaried retirement
plan specialists and sales associates and 81 client service representatives and
administrative personnel located in offices across the United States. In
addition, CIGNA's broker-dealer
15
<PAGE>
operation also offers benefit plan participants and other customers a range of
IRA rollover investments and retail brokerage services through 39 registered
representatives. Corporate life insurance products are sold primarily through a
limited number of specialty brokers.
Pricing, Reserves and Reinsurance
Premiums for annuities and corporate life insurance are based on
assumptions about mortality, persistency, expenses, target profit margins,
interest rates and competitive considerations. The long-term profitability of
annuities and corporate life insurance products is affected by the degree to
which future experience deviates from these assumptions. Fees for universal life
insurance products consist of mortality, administrative and surrender charges
assessed against the policyholder's fund balance. Interest credited and
mortality charges for universal life, and mortality charges on variable premium
products, may be adjusted prospectively to reflect expected interest and
mortality experience.
CIGNA establishes reserves for experience-rated contracts in an amount
equivalent to the contractholder funds on deposit with it, including, for
non-pooled contracts, liability for estimated experience refunds based upon the
results of each contract. Profitability on these contracts is based primarily on
margins included in charges for investment and administrative services and risk
assumption. For guaranteed cost contracts, the reserve established is the
present value of expected future obligations based on assumptions about
mortality, investment returns, expenses and target profits, with a margin for
adverse deviation. Profitability on guaranteed cost contracts is affected by the
degree to which future experience deviates from these assumptions.
For corporate life insurance, CIGNA establishes reserves for deposits
received and interest credited to the policyholder, less mortality and
administrative charges assessed against the policyholder's fund balance. In
addition, CIGNA establishes loss reserves for losses incurred but not paid,
based on prior claim experience.
CIGNA reduces its exposure to large single life losses and to multiple
losses arising out of a single occurrence under corporate life insurance
contracts by purchasing reinsurance from unaffiliated reinsurers.
Competition
The retirement plan marketplace is highly competitive. CIGNA's competitors
include mutual fund companies, other insurance companies, banks, investment
advisors, and certain service and professional organizations. No one competitor
or small number of competitors is dominant. Competition focuses on service,
technology, cost, variety of investment options, investment performance and
financial strength.
The largest single retirement plan manager holds less than a 6% market
share, as measured by assets under management. According to a survey published
in "Pensions & Investments," CIGNA ranked 5th among insurers, and 30th among
retirement plan managers overall, in terms of pension and employee retirement
savings plan assets under management. CIGNA ranked 3rd among insurers and 9th
overall in terms of 401(k) plan assets under management according to a separate
survey published in "Pensions & Investments." As of December 31, 1999, 401(k)
plan assets constituted approximately 80% of CIGNA's defined contribution
assets under management, and 44% of assets under management overall by this
segment.
The corporate life insurance marketplace is also highly competitive. The
Company principally competes with a significant number of the largest domestic
life insurance companies that may offer one or more corporate life insurance
products. Competition in this market focuses primarily on product design,
underwriting, price, administrative servicing capabilities and insurer financial
strength, as indicated by ratings issued by nationally recognized agencies.
For more information concerning insurance ratings, see "Ratings" beginning
on page 30.
16
<PAGE>
E. International Life, Health and Employee Benefits
Principal Products and Markets
CIGNA's international life, health and employee benefits operations
("International") provide various coverages, products and services in selected
markets outside the United States, including the United Kingdom, Latin America
(principally Brazil and Chile), Japan, and elsewhere in Asia (principally Hong
Kong, Korea and Taiwan).
The coverages, products and services of this segment include individual and
group life, accident and health, health care and pension products.
The following table sets forth the principal lines of business of this
segment and their related net earned premiums and fees.
-----------------------------------
Year Ended December 31,
---------------------------------
1999 1998 1997
------ ------ ------
(In millions)
Japanese Life Operation:
Individual Life $ 630 $ 487 $ 490
Individual Health 430 271 187
------ ------ ------
Subtotal 1,060 758 677
Health Care 358 277 224
Life, Accident and Health 224 192 175
------ ------ ------
Total Premiums and Fees $1,642 $1,227 $1,076
====== ====== ======
-----------------------------------
International's life insurance operation in Japan (the "Japanese Life
Operation") primarily markets individual insurance, including whole life,
endowment, variable life and term life insurance products, as well as individual
health products that supplement government-provided coverages. Because policy
terms and conditions are required to be approved by the Financial Supervisory
Agency, a Japanese governmental organization, there is a high degree of
standardization of products in this market.
In April 1999, CIGNA sold a 29% interest in its Japanese Life Operation to
Yasuda Fire & Marine Insurance Company Ltd. ("Yasuda"), increasing Yasuda's
ownership interest to 39% and reducing CIGNA's ownership interest to 61%.
Proceeds of the sale were $105 million. The after-tax gain was $43 million.
The health care products of this segment are primarily indemnity insurance
coverages, with some products having managed care or administrative service
aspects. These products provide government-mandated medical benefits in some
markets and offer an alternative or supplement to governmental programs in
others. Health care includes life and medical insurance products that are
provided through group benefit programs as well as medical insurance products
that are marketed directly to individuals.
Health care also includes global group benefits products for employees of
multinational companies (primarily U.S. multinational companies) who work
outside of their country of citizenship. This product group includes medical,
dental, vision, life, accidental death and dismemberment and disability
coverages, as well as primary medical and dental benefits for international
travelers.
Life, accident and health products are designed to meet the insurance,
savings and investment needs of consumers outside of U.S. insurance markets.
These products are marketed on both group and individual bases.
17
<PAGE>
Traditional life insurance products include term, whole life, endowment and
products with variable investment returns. Supplemental products include
accidental death, medical, hospitalization and income protection coverages.
International has made several acquisitions of, and investments in, health
care operations in recent years, including in Brazil and Chile. During 1997,
CIGNA entered into a management contract for one of the largest health care
operations in Brazil and, in 1998, completed the acquisition of a staff model
HMO in Brazil. During the third quarter of 1999, CIGNA completed a review of its
Brazilian operations. As a result of the review, CIGNA decided to withdraw from
the health care operation but to continue to operate the staff model HMO. For
information on the charges resulting from this review, see page 15 of the MD&A
section of CIGNA's Annual Report.
International has established representative offices in China and India, to
facilitate the development of profitable business opportunities. International
has also established start-up operations and entered into joint ventures to
participate in the growing pension markets in Japan and Brazil.
CIGNA intends to pursue international growth through acquisitions and other
investments. This strategy will result in additional start-up costs and initial
losses.
CIGNA generally conducts its international businesses through foreign
operating entities that maintain assets and liabilities in local currencies,
which reduces the exposure to economic loss resulting from unfavorable exchange
rate movements. For information on the effect of foreign exchange exposure, see
pages 15 and 21 of the MD&A section and Notes 2(Q) and 16 to CIGNA's 1999
Financial Statements included in its Annual Report.
Distribution
International distributes its products through a combination of captive
agents, independent agents, agents of strategic partners, financial institutions
and various direct marketing channels. Japanese Life Operation products are
distributed through approximately 18,000 agents, of which about 16,000 are
Yasuda agents. Life, accident and health products are distributed through agents
and financial institutions, and by means of direct marketing and telemarketing
methods under a variety of sponsored arrangements.
Pricing, Reserves and Reinsurance
Premiums for life, accident and health insurance products are based on
assumptions about mortality, morbidity, persistency, expenses and target profit
margins, as well as interest rates and competitive considerations. The
profitability of these products is affected by the degree to which future
experience deviates from these assumptions.
Fees for variable universal life insurance products consist of mortality
charges, administrative load and surrender charges assessed against the
policyholder's fund balance. Mortality charges on variable universal life
insurance products may be adjusted prospectively to reflect changes in expected
mortality experience.
Premiums and fees for health care products reflect assumptions about future
claims, expenses, investment returns, competitive considerations and profit
margins. For products using networks of contracted providers, premiums reflect
assumptions about the impact of provider contracts and utilization management on
future claims. Most of the premium volume for the medical indemnity business is
on a guaranteed cost basis. Other premiums are established on an
experience-rated basis. Most contracts permit rate changes at least annually.
18
<PAGE>
The profitability of health care products is dependent upon the accuracy of
projections for health care inflation (unit cost and utilization), the adequacy
of fees charged for administration and risk assumption and, in the case of
managed care products, effective medical cost management.
In addition to paying current benefits and expenses, CIGNA establishes
reserves in amounts estimated to be sufficient to settle reported claims not yet
paid, as well as claims incurred but not yet reported. Additionally, for
individual life insurance products, CIGNA establishes policy reserves that
reflect the present value of expected future obligations less the present value
of expected future premiums.
CIGNA reduces its exposure to large and/or multiple losses arising out of a
single occurrence by purchasing reinsurance from unaffiliated reinsurers.
Competition
The principal competitive factors that affect International are
underwriting and pricing, relative operating efficiency, relative effectiveness
in medical cost management, quality of provider networks and relationships,
product innovation and differentiation, distribution methodologies and producer
relations, and the quality of claims and policyholder services. In most overseas
markets, perception of financial strength is also an important competitive
factor.
International's primary competitors include U.S.-based companies with
global operations, as well as other, non-U.S., global carriers and indigenous
companies in regional and local markets. For the life, accident and health lines
of business, locally based competitors include financial institutions and
insurance subsidiaries of banks. CIGNA expects that the competitive environment
will intensify as U.S. and European-based insurance and financial services
providers pursue global expansion opportunities.
19
<PAGE>
F. Other Operations
Other Operations consist of:
o deferred gain recognition related to the sale of the individual life
insurance and annuity business;
o corporate life insurance business on which policy loans are
outstanding ("leveraged corporate life insurance");
o life, accident and health reinsurance operations;
o settlement annuity business; and
o new business initiatives.
As of January 1, 1998, CIGNA sold its individual life insurance and annuity
business to subsidiaries of Lincoln National Corporation for cash proceeds of
$1.4 billion. The sale generated an after-tax gain of approximately $770
million. Of this amount, $202 million was recognized when the sale was completed
in 1998. The remaining gain was deferred because the principal agreement to sell
this business was an indemnity reinsurance arrangement. The deferred portion is
being recognized at the rate that earnings from the sold business would have
been expected to emerge, primarily over 15 years on a declining basis. Because
it was an indemnity reinsurance transaction, CIGNA is not relieved of liability
for the reinsured business. For further information about this transaction, see
page 11 of the MD&A section and Note 3 to CIGNA's 1999 Financial Statements
included in its Annual Report.
In 1996, Congress passed legislation implementing a three-year phase-out
period for tax deductibility of policy loan interest for most leveraged
corporate life insurance. The legislation has adversely affected the premiums
and earnings of CIGNA's leveraged corporate life insurance business. The full
effect of this legislation on customers' decisions to maintain these policies is
uncertain. However, customers could fully or partially surrender these policies.
No new policies have been sold since 1997. For additional information on the
impact of the legislation, see page 16 of the MD&A section of CIGNA's Annual
Report.
The reinsurance products reported in Other Operations include coverages for
part or all of the risks written by other insurance companies under life and
annuity policies (both group and individual); accident policies (personal
accident, catastrophe and workers' compensation coverages); and health policies.
CIGNA has entered into specialty life reinsurance contracts that contain
certain guarantees for variable annuities. One type of reinsurance contract
guarantees minimum income benefits based on unfavorable changes in variable
annuity account values. The other type guarantees a minimum death benefit, also
based on unfavorable changes in account values. The variable annuity account
values are based on underlying domestic equity and bond mutual fund investments.
For additional information concerning these contracts and certain contingencies
associated with them, see page 16 of the MD&A section of CIGNA's Annual Report.
Reinsurance products are sold principally in North America and Europe
through a small sales force and through intermediaries. Net earned premiums were
$534 million for 1999, $419 million for 1998 and $347 million for 1997.
Reinsurance coverages generally extend for the same duration as the
underlying direct policies: from one year or less for group life and health,
special risk and individual life term policies, to time of lapse or expiration
at death for permanent individual life, individual annuities and individual
health policies. Most permanent reinsurance coverages have recapture charges to
recover policy acquisition costs and to encourage persistency.
Premiums for assumed reinsurance are based on assumptions about mortality,
morbidity, persistency, expenses and target profit margins as well as interest
rates and competitive considerations. For individual and specialty life and
health reinsurance in force, CIGNA establishes policy reserves that reflect the
present value of expected future obligations less the present value of expected
future premiums. In addition, for reinsurance
20
<PAGE>
products, CIGNA establishes loss reserves for claims received but not yet paid,
based on the amount of the claim received, and for losses incurred but not
reported, based on prior claim experience.
CIGNA's reinsurance business operates in highly competitive markets. More
than 25 companies offer one or more reinsurance products similar to those
offered by CIGNA. The Company competes against other insurance and reinsurance
companies as well as brokers and other non-insurance financial organizations.
Competition in this market focuses on product, service, price, distribution
method and the financial strength ratings issued by nationally recognized
agencies. For more information concerning insurance ratings, see "Ratings"
beginning on page 30.
CIGNA's settlement annuity business is a run-off block of contracts. These
contracts are primarily liability settlements with the majority of payments
guaranteed and not contingent on survivorship.
CIGNA's new business initiatives include a product that integrates CIGNA's
health care and disability management expertise and collaborates with employers
to design, implement and continuously improve integrated employee benefits and
workers' compensation programs.
21
<PAGE>
G. Investments and Investment Income
CIGNA's investment operations provide investment management and related
services in the United States and certain other countries for CIGNA's corporate
and insurance-related invested assets and for large group pension plan sponsors,
institutions, international investors and other clients. CIGNA acquires or
originates, directly or through intermediaries, various investments including
private placements, public securities, mortgage loans, real estate and
short-term investments. It also develops and issues structured investment
products.
CIGNA's assets under management at December 31, 1999 totaled $90.5 billion,
comprising CIGNA corporate and insurance-related invested assets ("invested
assets") of $38.3 billion and advisory portfolio assets of $52.2 billion.
Advisory portfolio assets included $39.8 billion in Separate Accounts of CIGNA's
life insurance subsidiaries and $12.4 billion in other third-party accounts.
Other third-party accounts included $7.4 billion in investment assets
transferred to ACE in 1999 in connection with the sale of the property and
casualty business described above, which, as part of that transaction, continue
to be managed by CIGNA for a five year period, subject to performance
conditions.
CIGNA's investment operations directly manage 100% of the invested assets.
The investment operations directly manage 54% of advisory portfolio assets, and
37% are invested in independent funds managed by unaffiliated third-party
managers. The remaining 9% of advisory portfolio assets are managed through
proprietary arrangements in which CIGNA selects and oversees sub-advisors who
invest assets based on guidelines determined by CIGNA.
Most of the assets under management for CIGNA's Employee Retirement
Benefits and Investment Services business (the "Employee Retirement business")
shown in the chart on page 12 are included in advisory portfolio assets, and the
remainder are invested assets. The investment operations directly manage 60% of
the assets under management for the Employee Retirement business and 32% are
invested in independent funds managed by unaffiliated third-party managers. The
remaining 8% are managed through sub-advisory arrangements.
In recent years, asset allocations, particularly among retirement accounts,
have shifted in part from fixed income securities in CIGNA's General Account to
equity securities in advisory portfolios. Prior to 1999, this allocation shift
resulted in an increase in equity assets invested in independent funds of
unaffiliated third-party managers. Through increased product offerings that use
sub-advisory arrangements, the percentage of equity securities invested in
independent funds managed by unaffiliated third-party managers has decreased to
63% as of December 31, 1999, compared with 74% as of December 31, 1998.
For additional information about investments for the Employee Retirement
business, including information about General and Separate Accounts, see
"Employee Retirement Benefits and Investment Services--Principal Products and
Markets," beginning on page 13.
CIGNA invests in a broad range of asset classes, including domestic and
international fixed maturities and common stocks, mortgage loans, real estate
and short-term investments. Fixed maturity investments include publicly traded
and private placement corporate bonds, government bonds, publicly traded and
private placement asset-backed securities, and redeemable preferred stocks.
Asset-backed securities consist primarily of mortgage-backed securities,
including collateralized mortgage obligations ("CMOs"). CIGNA's CMO holdings are
concentrated in securities with limited prepayment, extension and default risk.
For additional information about CMOs, see pages 19 and 20 of the MD&A section
of CIGNA's Annual Report.
The major portfolios under management in CIGNA's General Account consist of
the combined assets of the Employee Health Care, Life and Disability Benefits
segment, the Employee Retirement Benefits and Investment
22
<PAGE>
Services segment and Other Operations (collectively, "Domestic Employee Benefits
portfolios"). CIGNA generally manages the characteristics of its invested assets
to reflect the underlying characteristics of related insurance and
contractholder liabilities, as well as regulatory and tax considerations
pertaining to those liabilities. CIGNA's insurance and contractholder
liabilities as of December 31, 1999, excluding liabilities of the individual
life insurance and annuity business sold, were associated with the following
products: experience-rated pension, 37%; fully guaranteed investment and annuity
products, 18%; interest-sensitive life insurance, 14%; and other life and
health, 31%. These products, and the investment assets supporting them, are
described below.
Experience-rated pension products primarily consist of defined benefit and
defined contribution pension products. Investments for these products are
selected to support the yield and liquidity needs of the products and are
principally fixed income investments.
Fully guaranteed products primarily include guaranteed investment contracts
("GICs"), single premium annuity products and settlement annuities. Because
these products generally do not permit withdrawal by policyholders prior to
maturity, the amount and timing of future benefit cash flows can be reasonably
estimated. Funds supporting these products are invested in fixed income
investments that generally match the aggregate duration of the investment
portfolio with that of the related benefit cash flows. As of December 31, 1999,
the duration of assets and liabilities for GICs, single premium annuities and
settlement annuities was approximately two years, seven years and nine years,
respectively.
Interest-sensitive products primarily consist of corporate life insurance
products. Invested assets supporting these products are primarily fixed income
investments and policy loans. Fixed income investments emphasize investment
yield while meeting the liquidity requirements of the related liabilities.
Other life and health products consist of various group and individual
life, health and disability products. The supporting invested assets are
structured to emphasize investment income, and the necessary liquidity is
provided through cash flow, short-term investments and public securities. Assets
supporting longer-term disability benefits are generally managed to an aggregate
duration similar to that of the related benefit cash flows.
Investment strategy and results are affected by the amount and timing of
cash available for investment, competition for investments (especially in
private asset classes), economic conditions, interest rates and asset allocation
decisions.
CIGNA routinely monitors and evaluates the status of its investments in
light of current economic conditions, trends in capital markets and other
factors. Such factors include industry segment considerations for fixed maturity
investments, and geographic and property-type considerations for mortgage loan
and real estate investments. Most international fixed maturity investments are
government-backed.
CIGNA's fixed maturity investments, including policyholder share, as of
December 31, 1999, constituted approximately 58% of the Domestic Employee
Benefits portfolios. As of that date, approximately 36% of fixed maturity
investments was attributable to experience-rated pension contracts. CIGNA
reduces credit risk for the portfolios as a whole by investing primarily in
investment grade fixed maturities rated by rating agencies (for public
investments), by CIGNA (for private investments) or by the Securities Valuation
Office of the National Association of Insurance Commissioners (for both public
and private investments). For information about below investment grade holdings,
see page 19 of the MD&A section of CIGNA's Annual Report.
CIGNA's mortgage loan investments, including policyholder share,
constituted approximately 29% of the Domestic Employee Benefits portfolios as of
December 31, 1999. As of that date, approximately 59% of mortgage loan
investments was attributable to
23
<PAGE>
experience-rated pension contracts. Mortgage loan investments are subject to
underwriting criteria addressing loan-to-value ratio, debt service coverage,
cash flow, tenant quality, leasing, market, location and borrower's financial
strength. Such investments consist primarily of first mortgage loans on
commercial properties and are diversified by property type, location and
borrower. The Company invests in fully completed and substantially leased
commercial properties. Virtually all of the Company's mortgage loans are bullet
or balloon payment loans, under which all or a substantial portion of the loan
principal is due at the end of the loan term.
CIGNA's real estate investments are held to produce income or for sale.
Real estate investments, including policyholder share, constituted approximately
2% of the Domestic Employee Benefits portfolios as of December 31, 1999. As of
that date, 65% of real estate investments was attributable to experience-rated
pension contracts.
Real estate investments held to produce income are actively managed to
maximize operating income. These investments consist primarily of stabilized
commercial properties and are diversified relative to property type and
location. CIGNA acquires most real estate held for sale through foreclosure of
mortgage loans. CIGNA rehabilitates, re-leases and sells foreclosed properties
held for sale, a process that usually takes from two to four years unless
management considers a near-term sale preferable. CIGNA sold $49 million of
foreclosed properties in 1999 and $52 million in 1998, and expects to sell
additional foreclosed properties in 2000.
CIGNA generally uses derivative financial instruments to minimize its
exposure to certain market risks. CIGNA also writes derivative instruments to
minimize insurance customers' market risks. For information about CIGNA's use of
derivative financial instruments, see Notes 2(C) and 4(F) to CIGNA's 1999
Financial Statements included in its Annual Report.
See pages 19 through 21 of the MD&A section and Notes 2, 4 and 5 to CIGNA's
1999 Financial Statements included in its Annual Report for additional
information about CIGNA's investments.
Domestic Employee Benefits Investments
The following tables summarize the distribution of investments attributable
to CIGNA's Domestic Employee Benefits portfolios and the related net investment
income from such investments. Approximately 47% of the investments in the
Domestic Employee Benefits portfolios is attributable to experience-rated
pension contracts with policyholders.
In connection with the sale of its individual life insurance and annuity
business, CIGNA transferred $5.4 billion of invested assets to subsidiaries of
Lincoln National Corporation effective January 1, 1998. The transferred invested
assets, which are included in the following tables for 1997, consisted of
approximately $3.3 billion of bonds, $1.4 billion of mortgage loans and $0.7
billion of policy loans.
24
<PAGE>
<TABLE>
<CAPTION>
Domestic Employee Benefits Investments As of December 31,
- -------------------------------------- ------------------
1999 1998 1997
------- ------- -------
(In millions)
<S> <C> <C> <C>
Fixed maturities:
Bonds:
Consumer products................................................. $ 2,574 $ 2,755 $ 3,218
Manufacturing..................................................... 2,330 2,406 2,840
Finance........................................................... 2,179 2,349 3,448
Energy............................................................ 2,078 2,287 2,832
Public utilities.................................................. 1,256 1,409 1,653
States, municipalities and political subdivisions................. 1,214 1,081 738
Transportation.................................................... 1,050 1,149 1,528
U.S. government and government agencies and authorities........... 803 1,170 1,572
Foreign governments(1)............................................ 253 194 199
Other............................................................. 250 296 251
------- ------- -------
Total bonds..................................................... 13,987 15,096 18,279
Asset-backed securities:
United States government agencies, mortgage-backed................ 862 1,503 2,097
Other mortgage-backed............................................. 1,720 1,923 2,522
Other asset-backed................................................ 3,128 3,125 2,644
Redeemable preferred stocks......................................... 3 4 7
------- ------- -------
Total fixed maturities.......................................... 19,700 21,651 25,549
------- ------- -------
Equity securities:
Common stocks:
Industrial and miscellaneous...................................... 468 365 334
Banks, trust and insurance companies.............................. 44 46 49
Public utilities.................................................. 11 27 27
------- ------- -------
Total common stocks............................................. 523 438 410
Non-redeemable preferred stocks..................................... 23 14 18
------- ------- -------
Total equity securities......................................... 546 452 428
------- ------- -------
Mortgage loans:
Commercial:
Office buildings.................................................. 3,878 3,578 3,679
Retail facilities................................................. 3,181 3,275 4,386
Apartments........................................................ 1,327 1,421 1,430
Industrial........................................................ 730 653 560
Hotels............................................................ 505 463 513
Other............................................................. 115 203 261
------- ------- -------
Total commercial................................................ 9,736 9,593 10,829
Agricultural........................................................ - 4 21
------- ------- -------
Total mortgages................................................. 9,736 9,597 10,850
------- ------- -------
Policy loans........................................................... 3,006 6,090 7,146
Real estate............................................................ 786 724 760
Other long-term investments............................................ 200 171 180
Short-term investments................................................. 167 214 114
------- ------- -------
Total investments............................................... $34,141 $38,899 $45,027
======= ======= =======
<FN>
- ----------
These amounts do not include Separate Account assets. See Note 2(D) to the
Financial Statements of CIGNA's Annual Report for a discussion of the method of
valuation of investments.
(1) Comprises fixed maturities of sovereign foreign governments.
</FN>
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
Net Investment Income for Domestic
Employee Benefits Investments Year ended December 31,
- ---------------------------------- -----------------------
1999 1998 1997
------- ------- -------
(Dollar amounts in millions)
<S> <C> <C> <C>
Fixed maturities................................. $ 1,586 $ 1,608 $ 1,857
Equity securities................................ 9 8 13
Mortgage loans................................... 813 800 946
Policy loans..................................... 257 459 532
Real estate...................................... 152 147 202
Other investments................................ 85 86 83
------- ------- -------
Total........................................ 2,902 3,108 3,633
Less investment expenses......................... 145 135 180
------- ------- -------
Net investment income, pre-tax................... $ 2,757 $ 2,973 $ 3,453
======= ======= =======
Net investment yield(1).......................... 7.61% 7.77% 8.05%
======= ======= =======
<FN>
- ----------
(1) The net investment yield is equal to (a) net investment income multiplied
by two, divided by (b) the sum, at the beginning and end of the year, of
cash, invested assets (at cost or amortized cost less impairments) and
investment income due and accrued, less borrowed money, less net investment
income.
</FN>
</TABLE>
International Employee Benefits and Corporate Investments
In addition to the Domestic Employee Benefits portfolios, CIGNA has a
portfolio for CIGNA's International Life, Health and Employee Benefits segment
("International"). Invested assets for International and unallocated corporate
investments totaled $4.2 billion, $2.8 billion and $2.3 billion as of December
31, 1999, 1998 and 1997, respectively. Investments include U.S. and
international fixed maturities, policy loans, mortgage loans and short-term
investments. Net investment income from these investments and from cash and cash
equivalents was $202 million for 1999, $142 million for 1998 and $145 million
for 1997.
26
<PAGE>
H. Regulation
CIGNA's subsidiaries, depending on where they operate, are subject to
federal, state and foreign regulation. CIGNA's insurance subsidiaries and HMOs
are licensed to do business in, and are subject to regulation and supervision
by, state regulatory authorities as well as authorities in the District of
Columbia, certain U.S. territories and various foreign jurisdictions. Some of
CIGNA's HMOs are also federally qualified and subject to regulation as to
benefits, solvency and rates under the federal HMO Act.
Although the extent of regulation varies, most jurisdictions have laws and
regulations governing rates, solvency, standards of conduct and various
insurance and investment products. Licensing of insurers, HMOs and their agents
and the approval of policy forms are usually required. The form and content of
statutory financial statements and the type and concentration of investments are
also regulated. Each insurance and HMO subsidiary is required to file periodic
financial reports with supervisory agencies in most of the jurisdictions in
which it does business, and its operations and accounts are subject to
examination by such agencies at regular intervals.
Most states and certain foreign jurisdictions require licensed insurance
companies to support guaranty associations or indemnity funds, which are
organized to pay claims on behalf of insolvent insurance companies. In the
United States, these associations levy assessments on member insurers in a
particular state to pay such claims. These assessments are levied in proportion
to the member insurers' relative shares of the lines of business that had been
written by the insolvent insurer. The maximum assessment permitted by law in any
one year is generally 2% of annual premiums written by each member in a
particular state with respect to the categories of business involved and
generally may be offset over a five-year period against premium taxes payable in
some states.
In addition, insurance and other companies are subject to a variety of
assessments to fund insurance-related activities such as medical risk pools and
operating expenses of state regulatory bodies. These assessments are levied on
various bases, including companies' proportionate shares of aggregate written
premiums and aggregate incurred or paid losses. For additional information about
guaranty fund and other insurance-related assessments, see Note 17 to CIGNA's
1999 Financial Statements included in its Annual Report.
The National Association of Insurance Commissioners ("NAIC") has developed
model solvency-related laws that many states have adopted. The NAIC also has
developed risk-based capital rules ("RBC rules") for life and health insurance
companies that have also been adopted by many states, and for HMOs that have
been adopted by nine states.
The RBC rules recommend a minimum level of capital depending on the types
and quality of investments held, the types of business written and the types of
liabilities maintained. Depending on the ratio of the insurer's adjusted surplus
to its risk-based capital, the insurer could be subject to various regulatory
actions ranging from increased scrutiny to conservatorship.
CIGNA's insurance subsidiaries are subject to state laws regulating
insurers that are subsidiaries of insurance holding companies. Under such laws,
certain dividends, distributions and other transactions between an insurance
subsidiary and the holding company or its other subsidiaries may require
notification to, or be subject to the approval of, one or more state insurance
commissioners.
In addition, various foreign jurisdictions prescribe minimum surplus
requirements that are based upon liquidity and reserve coverage measures. As of
December 31, 1999, CIGNA's health care and life insurance subsidiaries were
adequately capitalized under applicable RBC rules and foreign surplus rules.
State and federal regulatory scrutiny of HMO and life and health insurance
company marketing and advertising practices, including the adequacy of
disclosure regarding products and their future performance, may result in
27
<PAGE>
increased regulation. States have responded to concerns about marketing,
advertising and administration of insurance by increasing the number and
frequency of market conduct examinations and imposing larger penalties for
violations of laws and regulations pertaining to these functions.
CIGNA's HMOs are subject to regulation and supervision by various
government agencies in the states in which they do business. The extent of
regulation varies, but most jurisdictions regulate licensing, solvency,
contracts and rates. Regulation of these entities also may include standards for
quality assurance, minimum levels of benefits that must be offered and
requirements for availability and continuity of care.
Several states require HMOs to participate in guaranty funds, special risk
pools and administrative funds, and several state legislatures have recently
considered revising their solvency standards and guaranty fund legislation to
encompass HMOs, a trend that is expected to continue. Increasingly, states also
are regulating the relationship between HMOs and their contracted providers, and
are requiring submission of reports on medical utilization and other matters for
managed care products.
Some states require health insurers and HMOs to participate in assigned
risk plans, joint underwriting authorities, pools or other residual market
mechanisms to insure risks not acceptable under normal underwriting standards.
CIGNA sells its products and services to sponsors of employee health care
benefit plans governed by ERISA and, therefore, may be subject to requirements
imposed on ERISA fiduciaries. Proposed revisions to ERISA's regulations could
impose significant and costly changes in the claim payment and appeals
procedures of health insurers and administrators.
In several markets, CIGNA's HMOs offer Medicare programs, which are subject
to federal regulation. Under the Balanced Budget Act of 1997 ("BBA"), Medicare
payments to participating health care plans may be reduced. BBA and related
interim regulations await clarification by the Health Care Financing
Administration, the federal agency that administers the Medicare program.
Additionally, CIGNA has made significant efforts to meet numerous BBA compliance
requirements that took effect January 1, 2000. See page five for additional
information.
The Health Insurance Portability and Accountability Act of 1996 ("HIPAA")
and other federal statutes subject health care insurers to federal regulation.
HIPAA imposes guaranteed issuance, renewal and portability requirements on
health care insurers and, through its "Administrative Simplification"
provisions, establishes new rules to standardize the electronic transmission of
data among insurers, providers and group customers.
CIGNA expects federal and state legislatures and the courts to continue
efforts to increase regulation of the health care industry in 2000. See page 11
for additional information.
In addition, increasing numbers of state and federal laws, as well as
proposed federal rules, impose or seek to impose new privacy standards. These
standards affect how information about individual participants in employee
benefit plans may be handled, used and disclosed.
Regulatory concerns with insurance risk selection have increased
significantly in recent years. For example, some states have imposed
restrictions on the use of underwriting criteria related to AIDS, domestic abuse
and credit reports. Also, various interpretations under the Americans with
Disabilities Act may affect the provision of insurance benefits under certain
types of policies.
The extent of insurance regulation varies significantly among the countries
in which CIGNA conducts its international operations. In many countries, foreign
insurers are faced with greater restrictions than domestic competitors. These
may include discriminatory licensing procedures, compulsory cessions of
reinsurance,
28
<PAGE>
required localization of records and funds, higher premium and income taxes, and
requirements for local participation in an insurer's ownership.
Depending upon their nature, CIGNA's investment management activities and
products with United States jurisdictional contacts and its broker-dealer
activities are subject to U.S. federal securities laws, ERISA, and other federal
and state laws governing investment-related activities and products. Investments
made by United States insurance companies are subject to state insurance laws.
Investment management activities and products outside the United States, and
investments made by non-U.S. insurance companies outside the United States, are
subject to local regulation. In many cases, the investment management activities
and investments of individual insurance companies are subject to regulation by
multiple jurisdictions.
On November 12, 1999 the President signed into law the "Gramm-Leach-Bliley
Financial Modernization Act," which removed many of the restrictions on
affiliations among firms in different financial services businesses, notably
banking, securities and insurance. The Act also contains provisions to protect
the privacy of certain information on individuals held by insurance companies
and financial institutions. Several governmental agencies are expected to
propose standards to implement these privacy provisions. Although it is too
early to assess the effects of this legislation on CIGNA, the Act could result
in additional competition in one or more of the markets in which CIGNA sells its
products and services.
Federal regulation and taxation may affect CIGNA's operations in a variety
of ways. In addition to proposals discussed above related to increased
regulation of the health care industry, current and proposed federal measures
that may significantly affect CIGNA's operations include pension and other
employee benefit regulation, tax legislation and Social Security legislation.
The economic and competitive effects on CIGNA's business operations of the
legislative and regulatory proposals discussed above will depend upon the final
form any such legislation or regulation may take.
29
<PAGE>
I. Ratings
CIGNA and certain of its insurance subsidiaries are rated by nationally
recognized rating agencies. The significance of individual ratings varies from
agency to agency. However, companies assigned ratings at the top end of the
range have, in the opinion of the rating agency, the strongest capacity for
repayment of debt or payment of claims, while companies at the bottom end of the
range have the weakest capacity.
Insurance ratings represent the opinions of the rating agencies on the
financial strength of a company and its capacity to meet the obligations of
insurance policies. The principal agencies that rate the Company's insurance
subsidiaries characterize their insurance rating scales as follows:
o A.M. Best Company, Inc. ("A.M. Best"), A++ to F ("Superior" to "In
Liquidation");
o Moody's Investors Service ("Moody's"), Aaa to C ("Exceptional" to
"Lowest");
o Standard & Poor's Corp. ("S&P"), AAA to R ("Extremely Strong" to
"Regulatory Action"); and
o Duff & Phelps Credit Rating Co. ("DCR"), AAA to DD ("Highest" to
"Order of Liquidation").
As of February 29, 2000, the insurance financial strength ratings for CG
Life were as follows:
CG Life
Insurance Ratings(1)
--------------------
A.M. Best........................... A+
("Superior,"
2nd of 15)
Moody's............................. Aa3
("Excellent,"
4th of 21)
S&P ............................... AA
("Very Strong,"
3rd of 21)
DCR ............................... AA+
("Very high,"
2nd of 18)
- ------------
(1) Includes the rating assigned, the agency's characterization of the rating
and the position of the rating in the agency's rating scale (e.g., CG Life's
rating by A.M. Best is the 2nd highest rating awarded in its scale of 15).
As of February 29, 2000, the insurance financial strength rating for Life
Insurance Company of North America assigned by A.M. Best was A+ ("Superior," 2nd
of 15), and by Moody's was A1 ("Good," 5th of 21).
30
<PAGE>
Debt ratings are assessments of the likelihood that the Company will make
timely payments of principal and interest. The principal agencies that rate
CIGNA's senior debt characterize their rating scales as follows:
o Moody's, Aaa to C ("Best" to "Lowest");
o S&P, AAA to D ("Extremely Strong" to "Default"); and
o DCR, AAA to DD ("Highest" to "Default").
The commercial paper rating scales for those agencies are as follows:
o Moody's, Prime-1 to Not Prime ("Superior" to "Not Prime");
o S&P, A-1+ to D ("Extremely Strong" to "Default"); and
o DCR, D-1+ to D-5 ("Highest" to "Default").
As of February 29, 2000, the debt ratings obtained from the following
agencies were as follows:
-----------------------------------
<TABLE>
<CAPTION>
Debt Ratings(1)
CIGNA CORPORATION
-----------------
Commercial
Senior Debt Paper
----------- -----
<S> <C> <C>
Moody's................................ A3 Prime-2
("Upper-medium-grade," ("Strong,"
7th of 21) 2nd of 4)
S&P.................................... A A-1
("Strong," ("Strong,"
6th of 22) 2nd of 7)
DCR.................................... A+ D-1
("Adequate," ("Very high,"
5th of 18) 2nd of 7)
<FN>
--------------------------
(1) Includes the rating assigned, the agency's characterization of the
rating and the position of the rating in the applicable agency's rating
scale.
</FN>
</TABLE>
-----------------------------------
Ratings are reviewed routinely by the rating agencies and may be changed at
their discretion.
31
<PAGE>
J. Miscellaneous
Portions of CIGNA's insurance business are seasonal in nature. Reported
claims under group health products are generally higher in the first quarter.
CIGNA and its principal subsidiaries are not dependent on business from one
or a few customers. No customer accounted for 10% or more of CIGNA's
consolidated revenues in 1999. CIGNA and its principal subsidiaries are not
dependent on business from one or a few brokers or agents. In addition, CIGNA's
insurance businesses are generally not committed to accept a fixed portion of
the business submitted by independent brokers and agents, and generally all such
business is subject to its approval and acceptance.
CIGNA had approximately 41,900, 49,900, and 47,700 employees as of December
31, 1999, 1998 and 1997, respectively.
Item 2. PROPERTIES
CIGNA's headquarters are located in approximately 50,000 square feet of
leased office space at One Liberty Place, Philadelphia, Pennsylvania. CIGNA
Group Insurance, CIGNA International, and CIGNA's staff support operations are
located in leased premises of approximately 635,000 square feet at Two Liberty
Place, Philadelphia. CIGNA HealthCare, CIGNA Reinsurance and CIGNA Investment
Management are located in a complex of buildings owned by CIGNA, aggregating
approximately 1.4 million total square feet of office space, located at 900-950
Cottage Grove Road, Bloomfield, Connecticut. The Investment operations also
lease approximately 35,000 square feet at Four Times Square, New York, New York.
CIGNA Retirement & Investment Services is located in approximately 268,000 total
square feet of leased office space at 280 Trumbull Street, Hartford,
Connecticut. In addition, CIGNA owns or leases office buildings, or parts
thereof, throughout the United States and in other countries. For additional
information concerning leases and property, see Notes 2(H) and 14 to CIGNA's
1999 Financial Statements included in its Annual Report. This paragraph does not
include information on investment properties.
Item 3. LEGAL PROCEEDINGS
After the managed care industry was publicly targeted in September 1999 by
a group of plaintiffs' trial lawyers, CIGNA was sued in three purported class
action lawsuits. The lawsuits challenge in general terms the mechanisms used by
managed care companies in connection with the delivery of or payment for health
care services. The complaints allege violation of federal law, but do not claim
that any of the alleged practices resulted in any specific injury or that any
member was denied coverage for services that should have been covered. The three
cases are described below. They are in preliminary stages and the Company
intends to defend each of them vigorously.
Pickney v. CIGNA Corporation and CIGNA Health Corporation was filed
November 22, 1999 in the United States District Court for the Southern District
of Mississippi. A plaintiff who seeks to represent a class consisting of all
present and former enrollees in any CIGNA health plan filed the complaint. In
addition, the plaintiff purports to represent a subclass of subscribers who had
coverage through their employers' health benefits plans governed by the Employee
Retirement Income Security Act ("ERISA"). The plaintiff seeks attorneys' fees,
injunctive relief and unspecified damages (including statutory treble damages)
under the Racketeer Influenced and Corrupt Organizations Act ("RICO").
The complaint alleges violations of ERISA and RICO based on alleged
misrepresentations and omissions in CIGNA's advertising, marketing and member
materials. The plaintiff claims the Company intentionally concealed information
from its health plan members concerning the various ways in which benefit
payment and coverage decisions are made and the methods by which providers of
medical services are compensated.
32
<PAGE>
Petersen v. CIGNA Corporation was filed December 17, 1999 in the United
States District Court for the Eastern District of Pennsylvania by a plaintiff
who purports to represent subscribers to HMOs operated by CIGNA. The plaintiff
dismissed this case and, on February 2, 2000, filed a similar action in the same
court naming CG Life as defendant. The complaint seeks injunctive relief and
unspecified damages, and attorneys' fees under ERISA. The plaintiff alleges that
the Company falsely represented that physicians would direct medical care, and
did not disclose methods by which providers of medical care are compensated.
Mangieri v. CIGNA Corporation, Connecticut General Corporation, Edward
Hanway, et al. was filed December 7, 1999 in the United States District Court
for the Northern District of Alabama by a physician who purports to represent
physicians and physician groups compensated by CIGNA for services provided to
CIGNA HMO members. On January 19, 2000, the plaintiffs amended the complaint to
add as defendants Aetna, Inc., Humana, Inc. and certain officers and
subsidiaries of those defendants. The complaint asserts claims under RICO and
seeks unspecified damages (subject to trebling), injunctive relief, punitive
damages and attorneys' fees. The claims are based on allegations relating to the
ways in which CIGNA contracts with and compensates providers of medical
services, and the ways in which CIGNA structures, administers and covers medical
benefits, including pharmacy benefits.
CIGNA is routinely involved in numerous lawsuits arising, for the most
part, in the ordinary course of the business of administering and insuring
employee benefit programs. Although the outcome of litigation is always
uncertain, CIGNA does not believe that any litigation currently threatened or
pending involving CIGNA will result in losses that would be material to results
of operations, liquidity or financial condition.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Executive Officers of the Registrant
Reference is made below to CG Life, which is a subsidiary of CIGNA. All
officers are elected to serve for a one-year term or until their successors are
elected. Principal occupations and employment during the past five years are
listed.
H. EDWARD HANWAY, 48, Chief Executive Officer of CIGNA since January 2000;
President and a Director of CIGNA from January 1999; Chief Operating Officer of
CIGNA from January 1999 until January 2000; President of CIGNA HealthCare from
February 1996 until January 1999; and President of CIGNA International from
February 1989 until February 1996.
THOMAS C. JONES, 53, President of CIGNA Investment Management since October
1997; President of CG Life since March 1995; President of CIGNA Individual
Insurance from February 1995 through December 1997; and President of CIGNA
Reinsurance Property & Casualty from March 1994 until February 1995.
TERRY L. KENDALL, 53, President of CIGNA International Employee Benefits & Life
Insurance since January 1999; Senior Vice President of CIGNA International from
May 1998 until January 1999; and President and Chief Executive Officer of Golden
American Life Insurance Company from September 1993 until April 1998. Golden
American Life Insurance Company is a subsidiary of ING Group, a financial
services company.
JOHN K. LEONARD, 51, President of CIGNA Group Insurance since 1992.
DONALD M. LEVINSON, 54, Executive Vice President of CIGNA since 1988, with
responsibility for Human Resources and Services.
FRANCINE M. NEWMAN, 55, President of CIGNA Reinsurance since 1984.
33
<PAGE>
BYRON D. OLIVER, 57, President of CIGNA Retirement & Investment Services since
1988.
WILLIAM M. PASTORE, 51, President of CIGNA HealthCare since January 1999; Senior
Vice President of CIGNA HealthCare from December 1995 until January 1999; and
Vice President of National Service Operations at Citibank from December 1993
until December 1995. Citibank is a subsidiary of Citigroup, a financial services
company.
JAMES G. STEWART, 57, Executive Vice President and Chief Financial Officer of
CIGNA since 1983.
WILSON H. TAYLOR, 56, Chairman of CIGNA since 1989; Chief Executive Officer of
CIGNA from 1988 until January 2000; and President of CIGNA from 1988 until
January 1999.
THOMAS J. WAGNER, 60, Executive Vice President and General Counsel of CIGNA
since 1992.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information under the caption "Quarterly Financial Data--Stock and
Dividend Data" on page 49 and under the caption "Stock Listing" on the inside
back cover of CIGNA's Annual Report is incorporated by reference, as is the
information from Note 8 to CIGNA's 1999 Financial Statements and the number of
shareholders of record as of December 31, 1999 under the caption "Highlights" on
page one of CIGNA's Annual Report.
Item 6. SELECTED FINANCIAL DATA
The five-year financial information under the caption "Highlights" on page
one of CIGNA's Annual Report is incorporated by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information on pages 10 through 22 of CIGNA's Annual Report is
incorporated by reference.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information under the caption "Market Risk of Financial Instruments" on
page 21 of CIGNA's Annual Report is incorporated by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CIGNA's Consolidated Financial Statements on pages 23 through 47 and the
report of its independent accountants on page 48 of CIGNA's Annual Report are
incorporated by reference, as is the unaudited information set forth under the
caption "Quarterly Financial Data--Consolidated Results" on page 49.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
A. Directors of the Registrant
The information under the captions "Management's nominees for terms to
expire in April 2003" and "Directors who will continue in office" in CIGNA's
proxy statement to be dated March 22, 2000 is incorporated by reference.
34
<PAGE>
B. Executive Officers of the Registrant
See PART I above.
Item 11. EXECUTIVE COMPENSATION
The information under the captions "Non-employer Executive compensation"
and "Director Compensation" in CIGNA's proxy statement to be dated March 22,
2000 is incorporated by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information under the captions "Stock held by directors and executive
officers" and "Largest Security Holders" in CIGNA's proxy statement to be dated
March 22, 2000 is incorporated by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the caption "Transactions with affiliates" in CIGNA's
proxy statement to be dated March 22, 2000 is incorporated by reference.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
A. (1) The following financial statements have been incorporated by
reference from the pages indicated below of CIGNA's Annual Report:
Consolidated Statements of Income for the years ended December 31, 1999,
1998 and 1997 -- page 23.
Consolidated Balance Sheets as of December 31, 1999 and 1998 -- page 24.
Consolidated Statements of Comprehensive Income and Changes in
Shareholders' Equity for the years ended December 31, 1999, 1998 and 1997 --
page 25.
Consolidated Statements of Cash Flows for the years ended December 31,
1999, 1998 and 1997 -- page 26.
Notes to Financial Statements -- pages 27 through 47.
Report of Independent Accountants, PricewaterhouseCoopers LLP -- page 48.
(2) The financial statement schedules are listed in the Index to Financial
Statement Schedules on page FS-1.
(3) The exhibits are listed in the Index to Exhibits beginning on page E-1.
B. During the last quarter of the fiscal year ended December 31, 1999, the
registrant filed a Report on Form 8-K dated November 1, 1999 containing a copy
of a news release reporting its third quarter 1999 results.
35
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed by
its undersigned duly authorized officer, on its behalf and in the capacity
indicated.
Date: March 7, 2000
CIGNA Corporation
By: /s/ JAMES G. STEWART
------------------------------------
James G. Stewart
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 7, 2000.
Principal Executive Officer: Directors:*
Robert P. Bauman
Robert H. Campbell
H. Edward Hanway* Alfred C. DeCrane, Jr.
President, Chief Executive Officer Peter N. Larson
and a Director Joseph Neubauer
Charles R. Shoemate
Louis W. Sullivan, M.D.
Wilson H. Taylor, Chairman
Harold A. Wagner
Principal Accounting Officer: Carol Cox Wait
Marilyn Ware
/s/ JAMES A. SEARS
- -----------------------------------
James A. Sears
Vice President and Chief Accounting
Officer
*By: /s/ THOMAS J. WAGNER
------------------------------------
Thomas J. Wagner
Attorney-in-Fact
36
<PAGE>
CIGNA CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENT SCHEDULES
PAGE
Report of Independent Accountants on Financial Statement Schedules....... FS-2
Schedules
I Summary of Investments--Other Than Investments in Related
Parties as of December 31, 1999................................. FS-3
II Condensed Financial Information of CIGNA Corporation
(Registrant).................................................... FS-4
III Supplementary Insurance Information............................. FS-10
IV Reinsurance..................................................... FS-12
V Valuation and Qualifying Accounts and Reserves.................. FS-13
Schedules other than those listed above are omitted because they are not
required or are not applicable, or the required information is shown in the
financial statements or notes thereto, which are incorporated by reference from
CIGNA's Annual Report.
FS-1
<PAGE>
Report of Independent Accountants on
Financial Statement Schedules
To the Board of Directors
of CIGNA Corporation
Our audits of the consolidated financial statements referred to in our report
dated February 8, 2000 appearing on page 48 of the 1999 Annual Report to
Shareholders of CIGNA Corporation (which report and consolidated financial
statements are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the Financial Statement Schedules listed in the index
on page FS-1 of this Form 10-K. In our opinion, these Financial Statement
Schedules present fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements.
/s/ PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
February 8, 2000
FS-2
<PAGE>
<TABLE>
<CAPTION>
CIGNA CORPORATION AND SUBSIDIARIES
SCHEDULE I
SUMMARY OF INVESTMENTS-- OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 1999
(In millions)
Amount at which
shown in the
Type of Fair consolidated
Investment Cost Value balance sheet
- ---------- ---- ----- -------------
<S> <C> <C> <C>
Fixed maturities:
Bonds:
United States government and government
agencies and authorities............................. $ 662 $ 803 $ 803
States, municipalities and political subdivisions...... 1,259 1,214 1,214
Foreign governments.................................... 1,664 1,752 1,752
Public utilities....................................... 1,352 1,327 1,327
All other corporate bonds.............................. 12,223 12,135 12,135
Asset-backed securities:
United States government agencies,
mortgage-backed...................................... 860 862 862
Other mortgage-backed ................................. 1,776 1,720 1,720
Other asset-backed..................................... 3,312 3,128 3,128
Redeemable preferred stocks.............................. 3 3 3
------- ------- -------
Total fixed maturities............................... 23,111 22,944 22,944
------- ------- -------
Equity securities:
Common stocks:
Industrial, miscellaneous and all other................ 227 500 500
Banks, trust and insurance companies................... 27 50 50
Public utilities....................................... 8 11 11
Non-redeemable preferred stocks.......................... 24 24 24
------- ------- -------
Total equity securities.............................. 286 585 585
------- ------- -------
Mortgage loans on real estate............................... 9,737 9,737
Policy loans................................................ 3,079 3,079
Real estate investments (including $301 million of
real estate acquired in satisfaction of debt)............ 789 789
Other long-term investments................................. 211 211
Short-term investments...................................... 950 950
------- -------
Total investments.................................... $38,163 $38,295
======= =======
</TABLE>
FS-3
<PAGE>
<TABLE>
<CAPTION>
CIGNA CORPORATION AND SUBSIDIARIES
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF CIGNA CORPORATION
(REGISTRANT)
STATEMENTS OF INCOME
(In millions)
For the year ended
December 31,
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Interest income.................................................. $ 1 $ - $ -
Intercompany income.............................................. 1 2 2
------ ------ ------
Total revenues................................................ 2 2 2
------ ------ ------
Operating expenses:
Interest...................................................... 113 123 118
Intercompany interest......................................... 73 42 20
Other......................................................... 47 5 6
------ ------ ------
Total operating expenses.................................... 233 170 144
------ ------ ------
Loss before income taxes......................................... (231) (168) (142)
Income tax benefit............................................... (74) (52) (39)
------ ------ ------
Loss of parent company........................................... (157) (116) (103)
Equity in income of subsidiaries from continuing
operations.................................................... 856 1,302 915
------ ------ ------
Income from continuing operations................................ 699 1,186 812
Income from discontinued operations.............................. 1,166 106 274
------ ------ ------
Income before cumulative effect of accounting change............. 1,865 1,292 1,086
Cumulative effect of accounting change, net of taxes............. (91) - -
------ ------ ------
Net income....................................................... $1,774 $1,292 $1,086
====== ====== ======
See Notes to Condensed Financial Statements on FS-7.
</TABLE>
FS-4
<PAGE>
<TABLE>
<CAPTION>
CIGNA CORPORATION AND SUBSIDIARIES
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF CIGNA CORPORATION
(REGISTRANT)
BALANCE SHEETS
(In millions)
As of December 31,
1999 1998
------- -------
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents................................. $ 1 $ 1
Investments in subsidiaries from continuing
operations.............................................. 10,855 8,166
Other assets.............................................. 111 103
Net assets of discontinued operations..................... - 2,351
------- -------
Total assets............................................ $10,967 $10,621
======= =======
Liabilities:
Intercompany.............................................. $ 3,125 $ 426
Short-term debt........................................... 53 268
Long-term debt............................................ 1,308 1,361
Other liabilities......................................... 332 289
------- -------
Total liabilities....................................... 4,818 2,344
------- -------
Shareholders' Equity:
Common stock (shares issued, 267; 265).................... 67 66
Additional paid-in capital................................ 2,825 2,719
Net unrealized appreciation (depreciation)-- fixed
maturities.............................................. $ (36) $ 750
Net unrealized appreciation-- equity securities........... 184 206
Net translation of foreign currencies..................... 18 (114)
------ ------
Accumulated other comprehensive income.................. 166 842
Retained earnings......................................... 8,290 6,746
Less treasury stock, at cost.............................. (5,199) (2,096)
------- -------
Total shareholders' equity.............................. 6,149 8,277
------- -------
Total liabilities and shareholders' equity.............. $10,967 $10,621
======= =======
See Notes to Condensed Financial Statements on FS-7.
FS-5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CIGNA CORPORATION AND SUBSIDIARIES
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF CIGNA CORPORATION
(REGISTRANT)
STATEMENTS OF CASH FLOWS
(In millions)
For the year ended
December 31,
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Income from continuing operations............................... $ 699 $ 1,186 $ 812
Adjustments to reconcile income from continuing
operations to net cash provided by (used in)
operating activities:
Equity in income of subsidiaries - continuing
operations............................................... (856) (1,302) (915)
Dividends received from subsidiaries - continuing 1,156 2,411 847
Other liabilities.......................................... 152 (117) (96)
Other, net................................................. (31) 45 104
------- ------- -------
Net cash provided by operating activities of
continuing operations ............................... 1,120 2,223 752
------- ------- -------
Cash Flows from Investing Activities:
Capital contributions to subsidiaries - continuing
operations................................................... - (1,028) (1,124)
Other, net...................................................... - (17) (10)
------- ------- -------
Net cash used in investing activities of continuing
operations........................................... - (1,045) (1,134)
------- ------- -------
Cash Flows from Financing Activities:
Net change in intercompany debt................................. 2,384 329 3
Net change in short-term debt................................... (257) (348) 358
Issuance of long-term debt...................................... - - 600
Repayment of long-term debt..................................... (10) (82) (39)
Repurchase of common stock...................................... (3,028) (833) (335)
Issuance of common stock........................................ 42 26 19
Common dividends paid........................................... (238) (243) (245)
------- ------- -------
Net cash provided by (used in) financing activities
of continuing operations.............................. (1,107) (1,151) 361
------- ------- -------
Net cash (to) from discontinued operations ..................... (13) (27) 22
------- ------- -------
Net increase in cash and cash equivalents....................... - - 1
Cash and cash equivalents, beginning of year.................... 1 1 -
------- ------- -------
Cash and cash equivalents, end of year.......................... $ 1 $ 1 $ 1
======= ======= =======
See Notes to Condensed Financial Statements on FS-7.
FS-6
</TABLE>
<PAGE>
CIGNA CORPORATION AND SUBSIDIARIES
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF CIGNA CORPORATION
(REGISTRANT)
NOTES TO CONDENSED FINANCIAL STATEMENTS
The accompanying condensed financial statements should be read in
conjunction with the Consolidated Financial Statements and the accompanying
notes thereto in the Annual Report.
Note 1-- 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 the sale was $1.2 billion. In 1999,
CIGNA began reporting this business as discontinued operations and
reclassified prior year financial information.
As of January 1, 1998, CIGNA sold its individual life insurance and
annuity business for cash proceeds of $1.4 billion. The sale generated
an after-tax gain of approximately $770 million. Of this amount, $202
million was recognized when the sale was completed in 1998. The
remaining gain was deferred because the principal agreement to sell
this business was an indemnity reinsurance arrangement. The deferred
portion is being recognized at the rate that earnings from the sold
business would have been expected to emerge, primarily over 15 years
on a declining basis. CIGNA recognized $62 million of the deferred
gain in 1999 and $66 million of the deferred gain in 1998.
On June 25, 1997, CIGNA acquired the outstanding common stock of
Healthsource, Inc. The total cost of the acquisition, which was
accounted for as a purchase, was $1.7 billion, including $1.4 billion
for the Healthsource common stock and $250 million to repay
outstanding Healthsource debt.
Note 2-- Long-term debt, net of current maturities, consists of CIGNA's 8.16%
Notes due 2000; 8 3/4% Notes due 2001; 7.17% Notes due 2002; 7.4%
Notes due 2003; 6 3/8% Notes due 2006; 7.4% Notes due 2007; 8 1/4%
Notes due 2007; 7.65% Notes due 2023; 8.3% Notes due 2023; 7 7/8%
Debentures due 2027; 8.3% Step Down Notes due 2033; and Medium-term
Notes with interest rates ranging from 6% to 9%, and original maturity
dates from approximately five to ten years. The weighted average
interest rate on CIGNA's outstanding medium-term notes was 8.1% at
December 31, 1999 and 8.2% at December 31, 1998.
Maturities of long-term debt for each of the next five years are as
follows: 2000-$53 million; 2001-$145 million; 2002-$36 million;
2003-$126 million; and none in 2004.
In July 1998, CIGNA completed an offer to exchange its 8.3% Notes due
2023 with 8.3% Step Down Notes due 2033. Holders of approximately $83
million of the Notes due 2023 accepted the offer and tendered their
Notes. CIGNA may redeem these Notes at any time before 2033, at par
plus a possible additional redemption payment. Expenses incurred in
connection with the exchange are not material.
In 1997, CIGNA issued $300 million of unsecured 7.4% Notes due in 2007
and $300 million of unsecured 7 7/8% Debentures due in 2027.
FS-7
<PAGE>
At December 31, 1999, CIGNA had $1 billion remaining under effective
shelf registration statements filed with the Securities and Exchange
Commission, which may be issued as debt securities, equity securities
or both.
Interest paid on short- and long-term debt amounted to $113 million,
$124 million and $113 million for 1999, 1998 and 1997, respectively.
Note 3-- CIGNA Corporation files a consolidated U.S. federal income tax return
with its domestic subsidiaries. Net income taxes paid in connection
with the consolidated return were $437 million, $780 million and $536
million during 1999, 1998 and 1997, respectively.
Note 4-- On April 22, 1998, CIGNA's shareholders approved a three-for-one
common stock split, an increase in the number of common shares
authorized for issuance from 200 million to 600 million and a decrease
in the par value of common stock from $1 per share to $0.25 per share.
Share data throughout the financial statements and notes have been
retroactively adjusted for the stock split as though it had occurred
at the beginning of 1997.
FS-8
<PAGE>
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FS-9
<PAGE>
<TABLE>
<CAPTION>
CIGNA CORPORATION AND SUBSIDIARIES
SCHEDULE III
SUPPLEMENTARY INSURANCE INFORMATION
(In millions)
Deferred Future policy Unpaid
policy benefits and claims
acquisition contractholder and claim
Segment costs deposit funds expenses
------- ----------- -------------- ---------
<S> <C> <C> <C>
Year Ended December 31, 1999:
Employee Health Care, Life and Disability Benefits.................. $ 37 $ 4,395 $2,865
Employee Retirement Benefits and Investment Services................ 164 19,481 12
International Life, Health and Employee Benefits.................... 710 2,866 701
Other Operations.................................................... 16 12,482 557
Corporate........................................................... - - -
------ ------- ------
Total............................................................. $ 927 $39,224 $4,135
====== ======= ======
Year Ended December 31, 1998:
Employee Health Care, Life and Disability Benefits.................. $ 23 $ 4,414 $2,464
Employee Retirement Benefits and Investment Services................ 153 20,197 10
International Life, Health and Employee Benefits.................... 533 2,327 488
Other Operations.................................................... 21 16,179 430
Corporate........................................................... - - -
------ ------- ------
Total............................................................. $ 730 $43,117 $3,392
====== ======= ======
Year Ended December 31, 1997:
Employee Health Care, Life and Disability Benefits.................. $ 22 $ 4,277 $2,311
Employee Retirement Benefits and Investment Services................ 139 20,221 5
International Life, Health and Employee Benefits.................... 354 1,888 321
Other Operations.................................................... 698 16,038 338
Corporate........................................................... - - -
------ ------- ------
Total............................................................. $1,213 $42,424 $2,975
====== ======= ======
FS-10
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Benefits,
Net losses and Policy Other
Unearned Premiums investment settlement acquisition operating
premiums and fees (1) income (2) expenses (1) expenses expenses
-------- -------------- ------------ -------------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
$277 $12,505 $ 571 $ 9,232 $ 10 $3,341
1 273 1,605 1,208 37 240
344 1,642 124 1,192 198 826
52 659 581 890 6 354
- - 78 - - 28
---- ------- ------ ------- ---- ------
$674 $15,079 $2,959 $12,522 $251 $4,789
==== ======= ====== ======= ==== ======
$244 $11,421 $ 589 $ 8,374 $ 9 $3,191
1 257 1,613 1,253 32 220
275 1,227 115 926 152 231
69 551 771 1,061 8 287
- - 27 - - 49
---- ------- ------ ------- ---- ------
$589 $13,456 $3,115 $11,614 $201 $3,978
==== ======= ====== ======= ==== ======
$166 $ 9,546 $ 563 $ 7,098 $ 8 $2,800
1 221 1,655 1,342 26 177
225 1,076 122 862 130 175
64 938 1,235 1,507 93 456
- - 23 - - 53
---- ------- ------ ------- ---- ------
$456 $11,781 $3,598 $10,809 $257 $3,661
==== ======= ====== ======= ==== ======
<FN>
- ---------------
(1) Amounts presented are shown net of the effects of reinsurance.
(2) The allocation of net investment income is based upon the investment year
method, the identification of certain portfolios with specific segments, or
a combination of both.
</FN>
FS-11
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CIGNA CORPORATION AND SUBSIDIARIES
SCHEDULE IV
REINSURANCE
(Dollar amounts in millions)
Percentage
Ceded to Assumed of amount
Gross other from other Net assumed
amount companies companies amount to net
------ --------- --------- ------ ----------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1999:
Life insurance in force.................. $490,475 $73,929 $172,218 $588,764 29.3%
======== ======= ======== ======== ====
Premiums and fees:
Life insurance and annuities........... $ 3,471 $ 634 $ 746 $ 3,583 20.8%
Accident and health insurance.......... 11,318 296 474 11,496 4.1
-------- ------- -------- --------
Total................................ $ 14,789 $ 930 $ 1,220 $ 15,079 8.1%
======== ======= ======== ======== ====
Year Ended December 31, 1998:
Life insurance in force.................. $510,075 $80,978 $160,592 $589,689 27.2%
======== ======= ======== ======== ====
Premiums and fees:
Life insurance and annuities........... $ 3,354 $ 714 $ 641 $ 3,281 19.5%
Accident and health insurance.......... 10,088 358 445 10,175 4.4
-------- ------- -------- --------
Total................................ $ 13,442 $ 1,072 $ 1,086 $ 13,456 8.1%
======== ======= ======== ======== ====
Year Ended December 31, 1997:
Life insurance in force.................. $543,241 $60,855 $152,031 $634,417 24.0%
======== ======= ======== ======== ====
Premiums and fees:
Life insurance and annuities........... $ 3,189 $ 272 $ 595 $ 3,512 16.9%
Accident and health insurance.......... 8,027 320 562 8,269 6.8
-------- ------- -------- --------
Total................................ $ 11,216 $ 592 $ 1,157 $ 11,781 9.8%
======== ======= ======== ======== ====
FS-12
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CIGNA CORPORATION
SCHEDULE V
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(In millions)
Charged Charged
(Credited) (Credited)
Balance at to to other Other Balance
beginning costs and accounts deductions at end
Description of period expenses -describe(1) -describe(2) of period
------------- --------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999:
Investment asset valuation reserves:
Mortgage loans................................ $ 6 $ 1 $ 4 $ - $ 11
Real estate................................... 36 6 11 (15) 38
Allowance for doubtful accounts:
Premiums, accounts and notes
receivable.................................. 80 17 (1) (27) 69
Deferred tax asset valuation
allowance..................................... 6 86 - - 92
1998:
Investment asset valuation reserves:
Mortgage loans................................ $ 50 $ (2) $ (7) $ (35) $ 6
Real estate................................... 29 2 5 - 36
Allowance for doubtful accounts:
Premiums, accounts and notes
receivable.................................. 89 27 - (36) 80
Deferred tax asset valuation
allowance..................................... 6 - - - 6
1997:
Investment asset valuation reserves:
Mortgage loans................................ $101 $ 16 $ 15 $ (82) $ 50
Real estate................................... 67 - (6) (32) 29
Allowance for doubtful accounts:
Premiums, accounts and notes
receivable.................................. 54 55 - (20) 89
Deferred tax asset valuation
allowance..................................... - 6 - - 6
<FN>
- ------------
(1) Change in valuation reserves attributable to policyholder contracts.
(2) Reflects transfer of reserves to other investment asset categories as well
as charge-offs upon sales, repayments and other.
</FN>
FS-13
</TABLE>
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Number Description Method of Filing
- ------ ----------- ----------------
<S> <C> <C>
3.1 Restated Certificate of Incorporation of the Filed as Exhibit 3 to the registrant's
registrant as last amended July 22, 1998 Form 10-Q for the quarter ended June 30,
1998 and incorporated herein by
reference.
3.2 By-Laws of the registrant as last amended and Filed herewith.
restated January 26, 2000
4 (a) Amended and Restated Shareholder Rights Agreement Filed as Item 1 and Exhibit 1 to the
dated as of July 22, 1998 between CIGNA Corporation registrant's Form 8-A/A Amendment No. 1
and First Chicago Trust Company of New York dated July 22, 1998 and incorporated
herein by reference.
(b) Amendment No. 1 dated as of December 14, 1998 to the Filed as Item 1 and Exhibit 1 to the
Amended and Restated Shareholder Rights Agreement registrant's Form 8-A/A Amendment No. 2
between CIGNA Corporation and First Chicago Trust dated December 14, 1998 and incorporated
Company of New York herein by reference.
Exhibits 10.1 through 10.23 are filed as exhibits pursuant to
Item 14(c) of Form 10-K.
10.1 Deferred Compensation Plan for Directors of CIGNA Filed as Exhibit 10.1 to the
Corporation, as amended and restated as of January 1, registrant's Form 10-K for the year
1997 ended December 31, 1996 and incorporated
herein by reference.
10.2 Retirement and Consulting Plan for Directors of CIGNA Filed as Exhibit 10.2 to the
Corporation, as amended and restated as of May 29, registrant's Form 10-K for the year
1991 ended December 31, 1998 and incorporated
herein by reference.
10.3 Restated Restricted Stock Plan for Non-Employee Filed as Exhibit 10 to the registrant's
Directors of CIGNA Corporation dated as of April 22, Form 10-Q for the quarter ended June 30,
1998 1998 and incorporated herein by
reference.
10.4 Description of Stock Compensation Plan for Filed as Exhibit 10 to the registrant's
Non-Employee Directors of CIGNA Corporation, as Form 10-Q for the quarter ended June 30,
amended and restated effective July 1, 1999 1999 and incorporated herein by
reference.
10.5 CIGNA Corporation Stock Plan, as amended and restated Filed as Exhibit 10.5 to the
through February 24, 1999 registrant's Form 10-K for the year
ended December 31, 1998 and incorporated
herein by reference.
10.6 (a) CIGNA Corporation Executive Stock Incentive Plan, as Filed as Exhibit 10.6(a) to the
amended and restated March 23, 1988 registrant's Form 10-K for the year
ended December 31, 1998 and incorporated
herein by reference.
E-1
<PAGE>
(b) Amendment No. 1 dated as of September 28, 1988 to the Filed as Exhibit 10.6(b) to the
CIGNA Corporation Executive Stock Incentive Plan registrant's Form 10-K for the year
ended December 31, 1998 and incorporated
herein by reference.
(c) Amendment No. 2 dated as of March 27, 1991 to the
CIGNA Corporation Executive Stock Incentive Plan Filed as Exhibit 10.6(c) to the
registrant's Form 10-K for the year
ended December 31, 1998 and incorporated
herein by reference.
(d) Amendment No. 3 dated as of July 31, 1996 to the Filed as Exhibit 10.3 to the
CIGNA Corporation Executive Stock Incentive Plan registrant's Form 10-Q for the quarter
ended June 30, 1996 and incorporated
herein by reference.
10.7 (a) CIGNA Executive Severance Benefits Plan effective as Filed as Exhibit 10.11 to the
of January 1, 1997 registrant's Form 10-K for the year
ended December 31, 1996 and incorporated
herein by reference.
(b) Amendment No. 1 effective February 23, 2000 to the Filed herewith.
CIGNA Executive Severance Benefits Plan
10.8 (a) CIGNA Executive Incentive Plan effective as of Filed as Appendix A to the registrant's
January 1, 1997 Definitive Proxy Statement on Schedule
14A dated March 19, 1997 and
incorporated herein by reference.
(b) Amendment No. 1 to the CIGNA Executive Incentive Plan Filed as Exhibit 10.8(b) to the
dated as of February 25, 1998 registrant's Form 10-K for the year
ended December 31, 1997 and incorporated
herein by reference.
10.9 CIGNA Long-Term Incentive Plan, as amended and Filed as Exhibit 10.9 to the
restated through February 24, 1999 registrant's Form 10-K for the year
ended December 31, 1998 and incorporated
herein by reference.
10.10(a) Deferred Compensation Plan of CIGNA Corporation and Filed as Exhibit 10.15 to the
Participating Subsidiaries, as amended and restated registrant's Form 10-K for the year
as of January 1, 1996 ended December 31, 1995 and incorporated
herein by reference.
(b) Amendment No. 1 dated as of December 16, 1996 to the Filed as Exhibit 10.9(b) to the
Deferred Compensation Plan of CIGNA Corporation and registrant's Form 10-K for the year
Participating Subsidiaries ended December 31, 1996 and incorporated
herein by reference.
10.11(a) CIGNA Supplemental Pension Plan, as amended and Filed as Exhibit 10 to the registrant's
restated as of August 1, 1998 Form 10-Q for the quarter ended
September 30, 1998 and incorporated
herein by reference.
(b) Amendment No. 1 dated December 21, 1999 to the CIGNA Filed herewith.
Supplemental Pension Plan, as amended and restated
effective August 1, 1998
E-2
<PAGE>
10.12 Description of CIGNA Corporation Financial Services Filed as Exhibit 10.9 to the
Program registrant's Form 10-K for the year
ended December 31, 1997 and incorporated
herein by reference.
10.13 Description of the CIGNA Corporation Key Management Filed as Exhibit 10.13 to the
Annual Incentive Bonus Plan registrant's Form 10-K for the year
ended December 31, 1998 and incorporated
herein by reference.
10.14 Form of Special Retention Agreement with Messrs. Filed as Exhibit 10.3 to the
Taylor and Stewart registrant's Form 10-Q for the quarter
ended March 31, 1995 and incorporated
herein by reference.
10.15 Special Retention Agreement dated March 27, 1996 with Filed as Exhibit 10.26 to the
Mr. Levinson registrant's Form 10-K for the year
ended December 31, 1995 and incorporated
herein by reference.
10.16 Non-Compete Agreement dated October 20, 1997 between Filed as Exhibit 10.17 to the
Mr. Taylor and the registrant registrant's Form 10-K for the year
ended December 31, 1997 and incorporated
herein by reference.
10.17 Form of Non-Compete Agreement dated December 8, 1997 Filed as Exhibit 10.18 to the
with Messrs. Stewart, Hanway and Levinson registrant's Form 10-K for the year
ended December 31, 1997 and incorporated
herein by reference.
10.18 Description of Mandatory Deferral of Non-Deductible Filed as Exhibit 10.17 to the
Executive Compensation Arrangement registrant's Form 10-K for the year
ended December 31, 1996 and incorporated
herein by reference.
10.19 Special Incentive Agreement with Mr. Taylor dated Filed as Exhibit 10.1 to the
March 17, 1998 registrant's Form 10-Q for the quarter
ended March 31, 1998 and incorporated
herein by reference.
10.20 Special Incentive Agreement with Mr. Stewart dated Filed as Exhibit 10.2 to the
March 17, 1998 registrant's Form 10-Q for the quarter
ended March 31, 1998 and incorporated
herein by reference.
10.21 Special Incentive Agreement with Mr. Levinson dated Filed as Exhibit 10.3 to the
March 17, 1998 registrant's Form 10-Q for the quarter
ended March 31, 1998 and incorporated
herein by reference.
10.22 Special Incentive Agreement with Mr. Hanway dated Filed as Exhibit 10.5 to the
March 17, 1998 registrant's Form 10-Q for the quarter
ended March 31, 1998 and incorporated
herein by reference.
10.23 Non-Compete Agreement and Description of Supplemental Filed herewith.
Pension Arrangement with Mr. Pastore dated November
14, 1997
12 Computation of Ratios of Earnings to Fixed Charges Filed herewith.
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<PAGE>
13 Portions of registrant's 1999 Annual Report to Filed herewith.
Shareholders (Entire Annual Report bound in printed
versions of Form 10-K)
21 Subsidiaries of the Registrant Filed herewith.
23 Consent of Independent Accountants Filed herewith.
24.1 Powers of Attorney Filed herewith.
24.2 Certified Resolutions Filed herewith.
27 Financial Data Schedule Included only in EDGAR version of the
Form 10-K.
</TABLE>
The registrant will furnish to the Commission upon request a copy of any of
the registrant's agreements with respect to its long-term debt.
Shareholders may obtain copies of exhibits by writing to CIGNA Corporation,
Shareholder Services Department, Two Liberty Place, 1601 Chestnut Street, P.O.
Box 7716, Philadelphia, PA 19192-2378.
E-4
Exhibit 3.2
BY-LAWS
CIGNA
CORPORATION
A Delaware Corporation
Incorporated November 3, 1981
As Amended and Restated
January 26, 2000
<PAGE>
INDEX TO BY-LAWS
ARTICLE I OFFICES Page
----
Section 1. Registered Office 4
Section 2. Other Offices 4
ARTICLE II MEETINGS OF SHAREHOLDERS
Section 1. Place of Meetings 4
Section 2. Annual Meeting 4
Section 3. Special Meetings 5
Section 4. Notice of Meetings 5
Section 5. List of Shareholders 6
Section 6. Quorum, Adjournments 6
Section 7. Organization 7
Section 8. Order of and Rules for
Conducting Business 7
Section 9. Voting 7
Section 10. Inspectors of Election 10
Section 11. Nomination of Directors 11
Section 12. Notice of Shareholder
Business 13
ARTICLE III BOARD OF DIRECTORS
Section 1. General Powers 15
Section 2. Number, Qualifications,
Election and Term of Office 15
Section 3. Place of Meetings 16
Section 4. Annual Organization 16
Section 5. Regular Meetings 16
Section 6. Special Meetings 17
Section 7. Notice of Meetings 17
Section 8. Quorum and Manner of Acting 17
Section 9. Organization 18
Section 10. Resignations 18
Section 11. Vacancies 19
Section 12. Removal of Directors 19
Section 13. Compensation 19
Section 14. Committees 19
Section 15. Action by Consent 21
Section 16. Telephonic Meeting 21
ARTICLE IV OFFICERS Page
----
Section 1. Number and Qualifications 21
<PAGE>
Section 2. Resignations 22
Section 3. Removal 22
Section 4. Chairman of the Board 23
Section 5. President and Chief 23
Executive Officer
Section 6. Vice Presidents 24
Section 7. Treasurer 24
Section 8. Corporate Secretary 25
Section 9. Assistant Treasurer 26
Section 10. Assistant Corporate Secretary 26
Section 11. Designation 27
Section 12. Agents and Employees 27
Section 13. Officers' Bonds or Other
Security 27
Section 14. Compensation 27
Section 15. Terms 27
ARTICLE V STOCK CERTIFICATES AND THEIR TRANSFER
Section 1. Stock Certificates 28
Section 2. Facsimile Signatures 29
Section 3. Lost Certificates30
Section 4. Transfers of Stock 30
Section 5. Transfer Agents and
Registrars 31
Section 6. Regulations 31
Section 7. Fixing the Record Date 31
Section 8. Registered Shareholders 32
ARTICLE VI INDEMNIFICATION
Section 1. General 32
Section 2. Derivative Actions 33
Section 3. Indemnification in Certain
Cases 34
Section 4. Procedure 34
Section 5. Advances for Expenses 35
Section 6. Exclusion of Mandatory
Indemnification and Advances
in Certain Cases 35
Section 7. Rights Not Exclusive 35
Section 8. Insurance 36
Section 9. Definition of Corporation 36
Section 10. Definition of Other Terms 37
Section 11. Right of Indemnitee to
Bring Suit in Certain
Circumstances 38
<PAGE>
ARTICLE VII GENERAL PROVISIONS Page
----
Section 1. Dividends 40
Section 2. Reserves 41
Section 3. Seal 41
Section 4. Fiscal Year 41
Section 5. Contributions 41
Section 6. Borrowing, etc. 41
Section 7. Deposits 42
Section 8. Execution of Contracts,
Deeds, etc. 42
Section 9. Voting of Stock in Other
Corporations 42
Section 10. Form of Records 43
Section 11. Repurchase of Stock 43
ARTICLE VIII AMENDMENTS 44
ARTICLE IX DEFINITIONS 44
BY-LAWS OF
CIGNA CORPORATION
(A Delaware Corporation)
ARTICLE I
Offices
SECTION 1. Registered Office. The registered office of the Corporation
within the State of Delaware shall be in the City of Wilmington, County of New
Castle.
SECTION 2. Other Offices. The Corporation may also have offices at such
other places, both within and without the State of Delaware, as the Board of
Directors shall from time to time determine or the business of the Corporation
may require.
<PAGE>
ARTICLE II
Meetings of Shareholders
SECTION 1. Place of Meetings. All meetings of the shareholders for the
election of directors or for any other purpose shall be held at any such place,
either within or without the State of Delaware, as shall be designated from time
to time by the Board of Directors and stated in the notice of the meeting.
SECTION 2. Annual Meeting. The annual meeting of shareholders shall be held
at 1:00 P.M. on the fourth Wednesday in April of each year, if not a legal
holiday, and if a legal holiday, then on the next succeeding day not a legal
holiday, at 1:00 P.M., or on such other date and time as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting. At such annual meeting, the shareholders shall elect, by a plurality
vote, a Board of Directors and transact such other business as may properly be
brought before the meeting.
SECTION 3. Special Meetings. Special meetings of shareholders, unless
otherwise prescribed by statute, may be called at any time by the Board of
Directors or the Chairman of
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<PAGE>
the Board and the President and Chief Executive Officer.
SECTION 4. Notice of Meetings. Except as otherwise expressly required by
statute, written notice of each annual and special meeting of shareholders
stating the place, date and time of the meeting, and, in the case of a special
meeting, the purpose or purposes for which the meeting is called, shall be given
to each shareholder of record entitled to vote thereat not less than ten nor
more than sixty days before the date of the meeting. Business transacted at any
special meeting of shareholders shall be limited to the purposes stated in the
notice. Notice shall be given personally or by mail and, if by mail, shall be
sent in a postage prepaid envelope, addressed to the shareholder at his address
as it appears on the records of the Corporation. Such notice by mail shall be
deemed given at the time when the same shall be deposited in the United States
mail, postage prepaid. Notice of any meeting shall not be required to be given
to any person who attends such meeting, except when such person attends the
meeting in person or by proxy for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened, or who, either before or after the meeting,
shall submit a signed written waiver of notice, in person or by proxy. Neither
the business to be
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<PAGE>
transacted at, nor the purpose of, an annual or special meeting of shareholders
need be specified in any written waiver of notice.
SECTION 5. List of Shareholders. The Corporate Secretary of the
Corporation, or such other person who has charge of the stock ledger of the
Corporation shall prepare and make, at least ten days before each meeting of
shareholders, a complete list of the shareholders entitled to vote at the
meeting, arranged in alphabetical order, showing the address of and the number
of shares registered in the name of each shareholder. Such list shall be open to
the examination of any shareholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city, town or village where the meeting is
to be held, which place shall be specified in the notice of meeting, or, if not
specified, at the place where the meeting is to be held. The list shall be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any shareholder who is present.
SECTION 6. Quorum, Adjournments. The holders of at least two-fifths of the
issued and outstanding stock of the Corporation entitled to vote thereat,
present in person or represented by proxy, shall constitute a quorum for the
transaction of business
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<PAGE>
at all meetings of shareholders, except as otherwise provided by statute or by
the Certificate of Incorporation. If, however, such quorum shall not be present
or represented by proxy at any meeting of shareholders, the shareholders
entitled to vote thereat, present in person or represented by proxy, shall have
the power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present or represented by
proxy. At such adjourned meeting at which a quorum shall be present or
represented by proxy, any business may be transacted which might have been
transacted at the meeting as originally called. If the adjournment is for more
than thirty days, or, if after adjournment a new record date is set, a notice of
the adjourned meeting shall be given to each shareholder of record entitled to
vote at the meeting.
SECTION 7. Organization. At each meeting of shareholders, the Chairman of
the Board, or, in his absence, the President and Chief Executive Officer, or, in
his absence, a chairman designated by the Board of Directors, or in the absence
of such designation a chairman chosen at the meeting, shall act as chairman of
the meeting. The Corporate Secretary or, in her absence or inability to act, the
person whom the chairman of the meeting shall appoint secretary of the meeting
shall act as secretary of the meeting and
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<PAGE>
keep the minutes thereof.
SECTION 8. Order of and Rules for Conducting Business. The order of and the
rules for conducting business at all meetings of the shareholders shall be as
determined by the chairman of the meeting.
SECTION 9. Voting. Except as otherwise provided by statute, the Certificate
of Incorporation, or any resolution or resolutions adopted by the Board of
Directors pursuant to the authority vested in it by the Certificate of
Incorporation, each shareholder of the Corporation shall be entitled at each
meeting of shareholders to one vote for each share of capital stock of the
Corporation standing in his name on the record of shareholders of the
Corporation:
(a) on the date fixed pursuant to the provisions of Section 7 of
Article V of these By-Laws as the record date for the determination of the
shareholders who shall be entitled to notice of and to vote at such
meeting; or
(b) if no such record date shall have been fixed, then at the close of
business on the day next preceding the day on which notice thereof shall be
given, or, if notice is waived by all shareholders, at the close of
business on the day next preceding the day on which the meeting is held.
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<PAGE>
Each shareholder entitled to vote at any meeting of shareholders may vote
in person or may authorize another person or persons to act for him by a proxy
authorized by an instrument in writing or by a transmission permitted by law
delivered to the Inspectors of Election, but no such proxy shall be voted after
three years from its date, unless the proxy provides for a longer period. Any
copy, facsimile telecommunication or other reliable reproduction of the writing
or transmission created pursuant to this paragraph may be substituted or used in
lieu of the original writing or transmission for any and all purposes for which
the original writing or transmission could be used, provided that such copy,
facsimile telecommunication or other reproduction shall be a complete
reproduction of the entire original writing or transmission. A duly executed
proxy shall be irrevocable if it states that it is irrevocable and if, and only
as long as, it is coupled with an interest sufficient in law to support an
irrevocable power. A shareholder may revoke any proxy which is not irrevocable
by attending the meeting and voting in person or by delivering an instrument in
writing or a transmission permitted by law revoking the proxy or constituting
another valid proxy bearing a later date to the Inspectors. Any such proxy shall
be delivered to the Inspectors, or such other person so designated to
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<PAGE>
receive proxies, at or prior to the time designated in the order of business for
so delivering such proxies. When a quorum is present at any meeting, the vote of
the shareholders who are present in person or represented by proxy and who hold
a majority of the voting power of the issued and outstanding stock of the
Corporation represented at such meeting and entitled to vote thereon, shall
decide any question brought before such meeting, unless the question is one upon
which by express provision of statute or of the Certificate of Incorporation or
of these By-Laws, a different vote is required, in which case such express
provision shall govern and control the decision of such question. Unless
required by statute, or determined by the chairman of the meeting to be
advisable, the vote on any question need not be by ballot. On a vote by ballot,
each ballot shall be signed by the shareholder voting, or by his proxy, if there
be such proxy, and shall state the number of shares voted.
SECTION 10. Inspectors of Election. The Board of Directors or the Chairman
of the Board or the President and Chief Executive Officer of the Corporation
shall, in advance of any meeting of shareholders, appoint one or more Inspectors
of Election to act at the meeting or at any adjournment and make a written
report
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<PAGE>
thereof, and may designate one or more persons as alternate Inspectors to
replace any Inspectors who fail to act. If no Inspector or alternate is able to
act at a meeting of shareholders, the chairman of the meeting shall appoint one
or more Inspectors to act at the meeting. Each Inspector, before entering upon
the discharge of his duties, shall take and sign an oath faithfully to execute
the duties of Inspector at such meeting with strict impartiality and according
to his best ability. The Inspectors shall determine the number of shares
outstanding and the voting power of each, the number of shares represented at
the meeting and the validity of proxies and ballots, receive and count all votes
and ballots, determine all challenges and questions arising in connection with
the right to vote, retain for a reasonable period a record of the disposition of
any challenges made to any determination by the Inspectors, and certify their
determination of the number of shares represented at the meeting, and their
count of all votes and ballots and report the same to the chairman of the
meeting, and do such acts as are proper to conduct the election or vote with
fairness to all shareholders. The Inspectors may appoint or retain other persons
or entities to assist the Inspectors in the performance of the duties of the
Inspectors. The date and time of the opening and the closing of
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<PAGE>
the polls for each matter upon which the shareholders will vote at a meeting
shall be announced at the meeting. No ballot, proxies or votes, nor any
revocations thereof or changes thereto, shall be accepted by the Inspectors
after the closing of the polls unless the Court of Chancery upon application by
a shareholder shall determine otherwise. On request of the chairman of the
meeting, the Inspectors shall make a report in writing of any challenge, request
or matter determined by them and shall execute a certificate of any fact found
by them. No director or candidate for the office of director shall act as an
Inspector of an election of directors. Inspectors need not be shareholders.
Section 11. Nomination of Directors. Nominations of persons for election
to the Board of Directors of the Corporation may be made at a meeting of
shareholders (a) by or at the direction of the Board of Directors or (b) by any
shareholder of the Corporation who is a shareholder of record at the time of
giving of notice provided for in this Section, who shall be entitled to vote for
the election of directors at the meeting and who complies with the notice
procedures set forth in this Section. Such nominations, other than those made by
or at the direction of the Board of Directors, shall be made pursuant to timely
notice in
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<PAGE>
writing to the Corporate Secretary of the Corporation. To be timely, a
shareholder's notice shall be delivered to or mailed and received at the
principal executive offices of the Corporation not less than 90 days prior to
the meeting; provided, however, that in the event that less than 90 days' notice
or prior public disclosure of the date of the meeting is given or made to
shareholders, notice by the shareholder to be timely must be so received not
later than the close of business on the 10th day following the day on which such
notice of the date of the meeting was first given or such public disclosure was
first made. Such shareholder's notice shall set forth (a) as to each person whom
the shareholder proposes to nominate for election or reelection as a director
all information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required, in
each case pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (including such person's written consent to being named in the proxy
statement as a nominee and to serving as a director if elected); and (b) as to
the shareholder giving notice (i) the name and address, as they appear on the
Corporation's stock ledger, of such shareholder, (ii) the class and number of
shares of the Corporation which are beneficially owned by such shareholder and
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<PAGE>
(iii) if the shareholder intends to solicit proxies in support of such
shareholder's nominees, a representation to that effect. At the request of the
Board of Directors, any person nominated by the Board of Directors for election
as a director shall furnish to the Corporate Secretary of the Corporation that
information required to be set forth in a shareholder's notice of nomination
which pertains to the nominee. No person shall be eligible for election at any
meeting of shareholders as a director of the Corporation unless nominated in
compliance with the procedures set forth in this Section. The chairman of the
meeting shall, if the facts warrant, determine and declare to the meeting that a
nomination was not made in compliance with the procedures prescribed by the
By-Laws, and if he should so determine, he shall so declare to the meeting and
the defective nominations shall be disregarded. Notwithstanding the foregoing
provisions of this Section, a shareholder shall also comply with all applicable
requirements of the Securities Exchange Act of 1934, as amended, and the rules
and regulations thereunder with respect to the matters set forth in this Section
11.
SECTION 12. Notice of Shareholder Business. At the annual meeting of
shareholders, only such business shall be conducted as
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<PAGE>
shall have been properly brought before the meeting. To be properly brought
before an annual meeting business must be a proper subject for shareholder
action under the Delaware General Corporation Law and must be (a) specified in
the notice of meeting (or any supplement thereto) given by or at the direction
of the Board of Directors, (b) otherwise properly brought before the meeting by
or at the direction of the Board of Directors, or (c) otherwise properly brought
before the meeting by a shareholder of the Corporation who is a shareholder of
record at the time of giving of notice provided for in this Section and who
shall be entitled to vote at the meeting. For business to be properly brought
before an annual meeting by a shareholder, the shareholder must have given
timely notice thereof in writing to the Corporate Secretary of the Corporation.
To be timely, a shareholder's notice must be delivered to or mailed and received
at the principal executive offices of the Corporation, not less than 90 days
prior to the meeting; provided, however, that in the event that less than 90
days' notice or prior public disclosure of the date of the meeting is given or
made to shareholders, notice by the shareholder, to be timely, must be so
received not later than the close of business on the 10th day following the date
on which such notice of the date of the annual meeting was first mailed or
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<PAGE>
such public disclosure was first made. A shareholder's notice to the Corporate
Secretary shall set forth as to each matter the shareholder proposes to bring
before the annual meeting (a) a brief description of the business desired to be
brought before the annual meeting, (b) as to the shareholder giving such notice
(i) the name and address, as they appear on the Corporation's stock ledger, of
such shareholder, (ii) the class and number of shares of the Corporation which
are beneficially owned by such shareholder, and (iii) if the shareholder intends
to solicit proxies in support of such shareholder's proposal, a representation
to that effect; and (c) any material interest of the shareholder in such
business. Notwithstanding anything in the By-Laws to the contrary, no business
shall be conducted at an annual meeting except in compliance with the procedures
set forth in this Section 12. The chairman of the meeting shall, if the facts
warrant, determine and declare to the meeting that business was not properly
brought before the meeting and in compliance with the provisions of this Section
12, and if he should so determine, he shall so declare to the meeting and any
such business not properly brought before the meeting shall not be transacted.
At any special meeting of shareholders, only such business shall be conducted as
shall have been brought before the meeting by or at
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<PAGE>
the direction of the Board of Directors.
ARTICLE III
Board of Directors
SECTION 1. General Powers. The business and affairs of the Corporation
shall be managed by or under the direction of the Board of Directors. The Board
of Directors may exercise all such authority and powers of the Corporation and
do all such lawful acts and things as are not by statute or the Certificate of
Incorporation directed or required to be exercised or done by the shareholders.
SECTION 2. Number, Qualifications, Election and Term of Office. The Board
of Directors shall consist of not less than 8 nor more than 16 directors. The
number of directors may be fixed, from time to time, by the affirmative vote of
a majority of the entire Board of Directors. Any decrease in the number of
directors shall be effective at the time of the next succeeding annual meeting
of shareholders unless there shall be vacancies in the Board of Directors, in
which case such decrease may become effective at any time prior to the next
succeeding annual meeting to the extent of the number of such vacancies.
Directors need not
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<PAGE>
be shareholders. The directors (other than members of the initial Board of
Directors) shall be divided into three classes which shall be divided as evenly
as practicable with respect to the number of members of each class; the term of
office of those of the first class to expire at the annual meeting commencing in
April, 1983; of the second class one year thereafter; of the third class two
years thereafter; and at each annual election held after such classification and
election, directors shall be chosen by class for a term of three years, or for
such shorter term as the shareholders may specify to complete the unexpired term
of a predecessor, or to preserve the division of the directors into classes as
provided herein. Each director shall hold office until his successor shall have
been elected and qualified, or until his death, or until he shall have resigned,
or have been removed, as hereinafter provided in these By-Laws.
SECTION 3. Place of Meetings. Meetings of the Board of Directors shall be
held at such place or places, within or without the State of Delaware, as the
Board of Directors may from time to time determine or as shall be specified in
the notice of any such meeting.
SECTION 4. Annual Organization. Following the Annual Meeting of
Shareholders, the Board of Directors shall elect officers and
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<PAGE>
take such other actions as may be necessary or appropriate for the purpose of
organization of the Corporation.
SECTION 5. Regular Meetings. Regular meetings of the Board of Directors
shall be held at such time and place as the Board of Directors may fix. If any
day fixed for a regular meeting shall be a legal holiday at the place where the
meeting is to be held, then the meeting which would otherwise be held on that
day shall be held at the same hour on the next succeeding business day. Notice
of regular meetings of the Board of Directors need not be given except as
otherwise required by statute or these By-Laws.
SECTION 6. Special Meetings. Special meetings of the Board of Directors may
be called by the Chairman of the Board or the President and Chief Executive
Officer, or by one-third of the members of the Board of Directors of the
Corporation.
SECTION 7. Notice of Meetings. Notice of each special meeting of the Board
of Directors (and of each regular meeting for which notice shall be required)
shall be given by the Corporate Secretary as hereinafter provided in this
Section 7. Any such notice shall state the place, date and time of the meeting.
Except as otherwise required by these By-Laws, such notice need not state the
purposes of such meeting. Notice of each such meeting shall be mailed, postage
prepaid, to each director, addressed to him at his
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<PAGE>
residence or usual place of business, by first-class mail, at least two days
before the day on which such meeting is to be held, or shall be sent addressed
to him at such place by telegraph, cable, telex, telecopier or other similar
means, or be delivered to him personally or be given to him by telephone or
other similar means, at least twelve hours before the time at which such meeting
is to be held. Notice of any such meeting need not be given to any director who
shall, either before or after the meeting, submit a signed waiver of notice or
who shall attend such meeting, except when he shall attend for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened.
SECTION 8. Quorum and Manner of Acting. A majority of the entire Board of
Directors shall constitute a quorum for the transaction of business at any
meeting of the Board of Directors, and, except as otherwise expressly required
by statute or the Certificate of Incorporation or these By-Laws, the act of a
majority of the directors present at any meeting at which a quorum is present
shall be the act of the Board of Directors. In the absence of a quorum at any
meeting of the Board of Directors, a majority of the directors present thereat
may adjourn such meeting to another time and place. Notice of the time and place
of any
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such adjourned meeting shall be given to all of the directors unless such time
and place were announced at the meeting at which the adjournment was taken, in
which case such notice shall only be given to the directors who were not present
thereat. At any adjourned meeting at which a quorum is present, any business may
be transacted which might have been transacted at the meeting as originally
called. The directors shall act only as a Board and the individual directors
shall have no power as such.
SECTION 9. Organization. At each meeting of the Board of Directors, the
Chairman of the Board, or, in the absence of the Chairman of the Board, the
President and Chief Executive Officer, or, in his absence, another director
chosen by a majority of the directors present shall act as chairman of the
meeting and preside thereat. The Corporate Secretary or, in her absence, any
person appointed by the chairman of the meeting shall act as secretary of the
meeting and keep the minutes thereof.
SECTION 10. Resignations. Any director of the Corporation may resign at any
time by giving written notice of his resignation to the Corporation. Any such
resignation shall take effect at the time specified therein or, if the time when
it shall become effective shall not be specified therein, immediately upon its
receipt. Unless otherwise specified therein, the acceptance of
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such resignation shall not be necessary to make it effective.
SECTION 11. Vacancies. Any vacancy in the Board of Directors, whether
arising from death, disqualification, resignation, removal for cause, an
increase in the number of directors or any other cause, may be filled by the
vote of a majority of the directors then in office, though less than a quorum,
or by the sole remaining director. Each director so elected shall hold office
until his successor shall have been elected and qualified.
SECTION 12. Removal of Directors. Any director may be removed, only for
cause, at any time, by the holders of a majority of the voting power of the
issued and outstanding capital stock of the Corporation entitled to vote at an
election of directors.
SECTION 13. Compensation. The Board of Directors shall have authority to
fix the compensation, including fees and reimbursement of expenses, of
directors, including the Chairman of the Board, for services to the Corporation
in any capacity.
SECTION 14. Committees.
(a) The Board shall create an Executive Committee, which shall consist of
no less than two nor more than seven members of the Board and shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the
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business and affairs of the Corporation, and may authorize the seal of the
Corporation to be affixed to all papers which may require it, except the
Executive Committee shall not have the power or authority in reference to the
following matters: (i) approving or adopting, or recommending to the
shareholders, any action or matter expressly required by the General Corporation
Law of the State of Delaware to be submitted to shareholders for approval or
(ii) adopting, amending or repealing any By-Law of the Corporation.
(b) The Board shall create an Audit Committee and a People Resources
Committee, each of which shall consist of three (3) or more members of the Board
of Directors of the Corporation, none of whom shall be employees of the
Corporation or its subsidiaries.
(c) The Board may also create such other committees, with such authority
and duties, as the Board may from time to time deem advisable, and may authorize
any of such committees to appoint one or more subcommittees. Each such committee
or subcommittee, to the extent provided in the resolution creating it, shall
have and may exercise all the powers and authority of the Board of Directors and
may authorize the seal of the Corporation to be affixed to all papers which
require it but shall have no greater powers than those given the Executive
Committee by these By-Laws and as restricted by statute or the Certificate of
Incorporation. Each such committee
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or subcommittee shall serve at the pleasure of the Board of Directors or of the
committee creating it as the case may be, and have such name as may be
determined from time to time by resolution adopted by the Board of Directors or
by the committee creating it. Each committee shall keep regular minutes of its
meeting and report the same to the Board of Directors or the committee creating
it.
(d) The Board of Directors may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee. In addition, in the absence or disqualification of
a member of a committee, the member or members thereof present at any meeting
and not disqualified from voting, whether or not the member or members
constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member.
SECTION 15. Action by Consent. Unless restricted by the Certificate of
Incorporation, any action required or permitted to be taken by the Board of
Directors or any committee thereof may be taken without a meeting if all members
of the Board of Directors or such committee, as the case may be, consent thereto
in writing, and the writing or writings are filed with the minutes of the
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proceedings of the Board of Directors or such committee, as the case may be.
SECTION 16. Telephonic Meeting. Unless restricted by the Certificate of
Incorporation, any one or more members of the Board of Directors or any
committee thereof may participate in a meeting of the Board of Directors or such
committee by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other.
Participation by such means shall constitute presence in person at a meeting.
ARTICLE IV
Officers
SECTION 1. Number and Qualifications. The officers of the Corporation shall
be elected by the Board of Directors and shall include the Chairman of the
Board, the President and Chief Executive Officer, and one or more Vice
Presidents. If the Board of Directors wishes, it may also elect other officers
as may be necessary or desirable for the business of the Corporation; or the
Board may authorize the President and Chief Executive Officer to appoint one or
more classes of officers with such titles (including the titles of Vice
President, Corporate Secretary and Treasurer),
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powers, duties and compensation as may be approved by the appointing officer.
Any two or more offices may be held by the same person, and no officers except
the Chairman of the Board and the President and Chief Executive Officer need be
a director. Each officer shall hold office until his successor shall have been
duly elected or appointed and shall have qualified, or until his death, or until
he shall have resigned or have been removed, as hereinafter provided in these
By-Laws.
SECTION 2. Resignations. Any officer of the Corporation may resign at any
time by giving written notice of such resignation to the Corporation. Any such
resignation shall take effect at the time specified therein or, if the time when
it shall become effective shall not be specified therein, immediately upon
receipt. Unless otherwise specified therein, the acceptance of any such
resignation shall not be necessary to make it effective.
SECTION 3. Removal. Any officer of the Corporation may be removed, either
with or without cause, at any time, by the Board of Directors at any meeting
thereof. Any appointed officer of the Corporation may also be removed, either
with or without cause, at any time, by the Chairman of the Board or the
President and Chief Executive Officer.
SECTION 4. Chairman of the Board.
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The Chairman of the Board shall be a member of the Board of Directors, and shall
preside at all meetings of the shareholders, of the Board of Directors, and of
the Executive Committee at which he shall be present. He may serve as a member
of any committee of the Board except as may otherwise be determined by the Board
or provided in these By-Laws, provided, however, that in his capacity as
Chairman of the Board he shall have the right to attend all meetings of any
committee and to participate in its discussions. He shall perform all duties
incident to the Offices of Chairman of the Board and such other duties as may
from time to time be assigned to him by the Board of Directors.
SECTION 5. President and Chief Executive Officer. The President and Chief
Executive Officer shall be a member of the Board of Directors. He shall be the
Chief Executive Officer of the Corporation and shall have general supervision
over the business and operations of the Corporation, subject, however, to the
control of the Board of Directors. He shall be the chief spokesman for the
Corporation. He may serve as a member of any committee of the Board except as
may otherwise be determined by the Board or provided in these By-Laws, provided,
however, that in his capacity as Chief Executive Officer he shall have the right
to attend all meetings of any committee and to participate in its discussions.
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The President and Chief Executive Officer shall preside at any meetings of the
Board of Directors and the Executive Committee from which the Chairman of the
Board may be absent. He shall perform all duties incident to the Office of
President and Chief Executive Officer, and such other duties as may from time to
time be assigned to him by the Board of Directors.
SECTION 6. Vice Presidents. Each Vice President shall perform such duties
as from time to time may be assigned to him by the Board of Directors, the
Chairman of the Board, the President and Chief Executive Officer, or such other
officer as may be designated by one of the foregoing. In the absence or
disability of the President and Chief Executive Officer, one of the Vice
Presidents, in the order determined by the Board of Directors, shall perform all
duties of the President and Chief Executive Officer except presiding at meetings
of shareholders and Board of Directors, and, when so acting, shall have the
powers of and be subject to the restrictions placed upon the President and Chief
Executive Officer in respect of the performance of such duties.
SECTION 7. Treasurer. The Treasurer shall:
(a) have charge and custody of, and be responsible for, all the funds
and securities of the Corporation;
(b) keep full and accurate accounts of receipts and
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disbursements in books belonging to the Corporation;
(c) deposit all moneys and other valuables to the credit of the
Corporation in such depositories as may be designated by the Board of
Directors or pursuant to its direction;
(d) receive, and give receipts for, moneys due and payable to the
Corporation from any source whatsoever;
(e) disburse the funds of the Corporation and supervise the
investments of its funds, taking proper vouchers therefor;
(f) render to the Board of Directors, whenever the Board of Directors
may require, an account of the financial condition of the Corporation; and
(g) in general, perform all duties incident to the office of Treasurer
and such other duties as from time to time may be assigned to him by the
Board of Directors, or the Chairman of the Board, the President and Chief
Executive Officer, or such other officer as may be designated by one of the
foregoing.
SECTION 8. Corporate Secretary. The Corporate Secretary shall:
(a) keep or cause to be kept in one or more books provided for the
purpose, the minutes of all meetings of the Board of Directors, the
committees of the Board of Directors
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and the shareholders;
(b) see that all notices are duly given in accordance with the
provisions of these By-Laws and as required by law;
(c) be custodian of the records and the seal of the Corporation and
affix and attest the seal to all certificates for shares of the Corporation
(unless the seal of the Corporation on such certificates shall be a
facsimile, as hereinafter provided) and affix and attest the seal to all
other documents to be executed on behalf of the Corporation under its seal;
(d) see that the books, reports, statements, certificates and other
documents and records required by law to be kept and filed are properly
kept and filed; and
(e) in general, perform all duties incident to the office of Corporate
Secretary and such other duties as from time to time may be assigned to her
by the Board of Directors, the Chairman of the Board, the President and
Chief Executive Officer, or such other officer as may be designated by one
of the foregoing.
SECTION 9. The Assistant Treasurer. The Assistant Treasurer, or if there
shall be more than one, the Assistant Treasurers in the order determined by the
Board of Directors (or if there be no such
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determination, then in the order of their seniority), shall, in the absence of
the Treasurer or in the event of the inability or refusal of the Treasurer to
act, perform the duties and exercise the powers of the Treasurer and shall
perform such other duties as from time to time may be assigned by the Board of
Directors, the Chairman of the Board, the President and Chief Executive Officer,
the Treasurer, or such other officer as may be designated by one of the
foregoing.
SECTION 10. The Assistant Corporate Secretary. The Assistant Corporate
Secretary, or if there be more than one, the Assistant Corporate Secretaries in
the order determined by the Board of Directors (or if there be no such
determination, then in the order of their seniority), shall, in the absence of
the Corporate Secretary or in the event of the inability or refusal of the
Corporate Secretary to act, perform the duties and exercise the powers of the
Corporate Secretary and shall perform such other duties as from time to time may
be assigned by the Board of Directors, the Chairman of the Board, the President
and Chief Executive Officer, the Corporate Secretary, or such other officer as
may be designated by one of the foregoing.
SECTION 11. Designation. The Board of Directors may, by resolution,
designate one or more officers to be any of the
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following: Chief Operating Officer, Chief Financial Officer, General Counsel, or
Chief Accounting Officer.
SECTION 12. Agents and Employees. If authorized by the Board of Directors,
the Chairman of the Board, the President and Chief Executive Officer, or any
officer or employee of the Corporation may appoint or employ such agents and
employees as shall be requisite for the proper conduct of the business of the
Corporation, and may fix their compensation and the conditions of their
employment, subject to removal by the appointing or employing person.
SECTION 13. Officers' Bonds or Other Security. If required by the Board of
Directors, any officer of the Corporation shall give a bond or other security
for the faithful performance of his duties, in such amount and with such surety
as the Board of Directors may require.
SECTION 14. Compensation. The compensation of all officers of the
Corporation for their services as such officers shall be fixed from time to time
by the Board of Directors unless by resolution of the Board that authority is
delegated to a committee of the Board, Chairman of the Board, the President and
Chief Executive Officer, or any other officer of the Corporation. An officer of
the Corporation shall not be prevented from receiving
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compensation by reason of the fact that he is also a director of the
Corporation.
SECTION 15. Terms. Unless otherwise specified by the Board of Directors in
any particular election or appointment, each officer shall hold office, and be
removable, at the pleasure of the Board.
ARTICLE V
Stock Certificates and Their Transfer
SECTION 1. Stock Certificates; Uncertificated Shares. The shares of the
Corporation shall be represented by certificates, provided that the Board of
Directors may provide by resolution or resolutions that some or all of any or
all classes or series of stock shall be uncertificated shares. Any such
resolution shall not apply to shares represented by a certificate until such
certificate is surrendered to the Corporation. Notwithstanding the adoption of
such resolution by the Board of Directors, every holder of stock represented by
certificates, and upon request every holder of uncertificated shares, shall be
entitled to have a certificate signed by, or in the name of the Corporation by
the Chairman of the Board, or the President and Chief Executive Officer or a
Vice President, and by the Treasurer or an Assistant Treasurer, or the
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Corporate Secretary or an Assistant Corporate Secretary, representing the number
of shares registered in certificate form. If the Corporation shall be authorized
to issue more than one class of stock or more than one series of any class, the
powers, designations, preferences and relative, participating, optional or other
special rights of each class of stock or series thereof and the qualifications,
limitations or restriction of such preferences and/or rights shall be set forth
in full or summarized on the face or back of the certificate which the
Corporation shall issue to represent such class or series of stock, provided
that, except as otherwise provided in Section 202 of the General Corporation Law
of the State of Delaware, in lieu of the foregoing requirements, there may be
set forth on the face or back of the certificate which the Corporation shall
issue to represent such class or series of stock, a statement that the
Corporation will furnish without charge to each shareholder who so requests the
powers, designations, preferences and relative, participating, optional or other
special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights. Within a
reasonable time after the issuance or transfer of uncertificated stock, the
Corporation shall send to the registered owner thereof a written notice
containing the
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information required or permitted to be set forth or stated on certificates
pursuant to this section or otherwise pursuant to the Delaware General
Corporation Law. Except as otherwise expressly provided by law, the rights and
obligations of the holders of uncertificated stock and the rights and
obligations of the holders of certificates representing stock of the same class
and series shall be identical.
SECTION 2. Facsimile Signatures. Any or all of the signatures on a
certificate may be a facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if such person was such officer, transfer agent or registrar at the date of
issue.
SECTION 3. Lost Certificates. The Corporation may issue a new certificate
or certificates, or uncertificated shares, in the place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost,
stolen, or destroyed. The Corporation may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen, or
destroyed certificate or certificates, or his legal representative,
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to give the Corporation a bond in such sum as it may direct sufficient to
indemnify it against any claim that may be made against the Corporation on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate or uncertificated shares.
SECTION 4. Transfers of Stock. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority or
transfer, or upon receipt by the transfer agent of a proper instruction from the
registered holder of uncertificated shares, it shall be the duty of the
Corporation to transfer such shares upon its records and, in connection with the
transfer of a share that will be certificated, to issue a new certificate to the
person entitled thereto and to cancel the old certificate provided, however,
that the Corporation shall be entitled to recognize and enforce any lawful
restriction on transfer. Whenever any transfer of stock shall be made for
collateral security, and not absolutely, it shall be so expressed in the entry
of transfer if, when the certificates are presented to the Corporation for
transfer, or when proper instructions with respect to the transfer of
uncertificated shares are received, both the transferor and the transferee
request the Corporation to do so.
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SECTION 5. Transfer Agents and Registrars. The Board of Directors may
appoint, or authorize any officer or officers to appoint, one or more transfer
agents and one or more registrars.
SECTION 6. Regulations. The Board of Directors may make such additional
rules and regulations, not inconsistent with these By-Laws, as it may deem
expedient concerning the issue, transfer and registration of certificates for
shares of stock of the Corporation.
SECTION 7. Fixing the Record Date. In order that the Corporation may
determine the shareholders entitled to notice of or to vote at any meeting of
shareholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty nor less than ten
days before the date of such meeting, nor more than sixty days prior to any
other action. A determination of shareholders of record entitled to notice of or
to vote at a meeting of shareholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix
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a new record date for the adjourned meeting.
SECTION 8. Registered Shareholders. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its records as the owner
of shares of stock to receive dividends and to vote as such owner, shall be
entitled to hold liable for calls and assessments a person registered on its
records as the owner of shares of stock, and shall not be bound to recognize any
equitable or other claim to or interest in such share or shares of stock on the
part of any other person, whether or not it shall have express or other notice
thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VI
Indemnification
SECTION 1. General. The Corporation shall indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that such person (i) is or was a director, officer, or
employee of the Corporation, (ii) or is or was a director, officer
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or employee of the Corporation or any of its subsidiaries serving at the request
of the Corporation as a director, officer, employee, agent, trustee or partner
of another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe the conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which such person reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that the conduct was unlawful.
SECTION 2. Derivative Actions. The Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit
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by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that such person is or was a director, officer, or employee
of the Corporation, or is or was a director, officer or employee of the
Corporation or any of its subsidiaries serving at the request of the Corporation
as a director, officer, employee, agent, trustee or partner of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection with the defense or settlement of such action or suit if
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the Corporation and except that
no indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery of the State of
Delaware or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
SECTION 3. Indemnification in Certain Cases. To the extent
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that a director, officer, employee or agent of the Corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Sections 1 and 2 of this Article VI, or in defense of
any claim, issue or matter therein, such person shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection therewith.
SECTION 4. Procedure. Any indemnification under Sections 1 and 2 of this
Article VI (unless ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification of the
director, officer or employee is proper in the circumstances because such person
has met the applicable standard of conduct set forth in such Sections 1 and 2.
Such determination shall be made (a) by a majority vote of the directors who are
not parties to such action, suit or proceeding, even though less than a quorum,
or (b) if there are no such directors, or if such directors so direct, by
independent legal counsel in a written opinion, or (c) by the shareholders.
SECTION 5. Advances for Expenses. Expenses (including attorneys' fees)
incurred in defending any civil, criminal, administrative or investigative
action, suit or proceeding shall be paid by the Corporation in advance of the
final disposition of such
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action, suit or proceeding upon receipt of an undertaking by or on behalf of the
director, officer or employee to repay such amount if it shall be ultimately
determined that such person is not entitled to be indemnified by the Corporation
as authorized in this Article VI.
SECTION 6. Exclusion of Mandatory Indemnification and Advances in Certain
Cases. Notwithstanding any other provision of this Article VI, the Corporation
shall not be obligated to indemnify any person under Sections 1, 2 or 3 of
Article VI or to advance expenses under Section 5 thereof to any person who has
initiated any proceeding or part thereof, unless the initiation of such
proceeding or part thereof was authorized or ratified by the Board of Directors.
SECTION 7. Rights Not Exclusive. The indemnification and advancement of
expenses provided by this Article VI shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may be
entitled under any law, by-law, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in the official capacity of such
person and as to action in another capacity while holding such office, and shall
continue as to a person who has ceased to be a director, officer, employee and
shall inure to the benefit of the
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heirs, executors and administrators of such a person. Any repeal, modification
or amendment of this Article VI shall not adversely affect any rights or
obligations then existing between the Corporation and any then incumbent or
former director, officer, or employee with respect to any facts then or
theretofore existing or any action, suit, or proceeding theretofore or
thereafter brought based in whole or in part upon such facts.
SECTION 8. Insurance. The Corporation shall have power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee, agent, trustee or partner of
another corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against such person and incurred by such person
in any such capacity, or arising out of the status of such person as such,
whether or not the Corporation would have the power to indemnify such person
against such liability under the provisions of this Article VI.
SECTION 9. Definition of Corporation. For the purposes of this Article VI,
references to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a
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consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, employees and
agents, so that any person who is or was a director, officer, employee or agent
of such constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall stand
in the same position under the provisions of this Article VI with respect to the
resulting or surviving corporation as such person would if such person had
served with respect to such constituent corporation if its separate existence
had continued. "The Corporation" shall also include Connecticut General
Corporation and INA Corporation for the period ending at the time that such
corporations became subsidiaries of CIGNA Corporation.
SECTION 10. Definition of Other Terms. For purposes of this Article VI,
references to "other enterprises" shall include employee benefit plans;
references to "fines" shall include any excise taxes or penalties assessed on a
person with respect to any employee benefit plan; and references to "serving at
the request of the Corporation" shall include any service as a director,
officer, employee or agent of the Corporation which imposes duties on, or
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involves services by, such director, officer, employee or agent with respect to
an employee benefit plan, its participants or beneficiaries; and a person who
acted in good faith and in a manner he reasonably believed to be in the interest
of the participants and beneficiaries of an employee benefit plan shall be
deemed to have acted in a manner "not opposed to the best interests of the
Corporation" as referred to in this Article VI.
SECTION 11. Right of Indemnitee to Bring Suit in Certain Circumstances. Any
person entitled to indemnification under this Article VI is referred to in this
section as an "indemnitee." If after the occurrence of a Change of Control (as
defined in this section) a claim under Sections 1, 2, 3 or 5 of this Article VI
is not paid in full by the Corporation within sixty days after a written claim
has been received by the Corporation, except in the case of a claim for an
advancement of expenses, in which case the applicable period shall be twenty
days, the indemnitee may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim. If successful in whole or
in part in any suit, or in a suit brought by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the indemnitee
shall be entitled to be paid also the expense of prosecuting or defending such
suit. In (i) any suit brought by the
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indemnitee to enforce a right to indemnification hereunder (but not in a suit
brought by the indemnitee to enforce a right to an advancement of expenses) it
shall be a defense that, and (ii) in any suit by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking the Corporation
shall be entitled to recover such expenses upon a final adjudication that, the
indemnitee has not met any applicable standard for indemnification set forth in
the Delaware General Corporation Law. Neither the failure of the Corporation
(including its board of directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
suit that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set forth in
the Delaware General Corporation Law, nor an actual determination by the
Corporation (including its board of directors, independent legal counsel, or its
stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the indemnitee to
enforce a right to indemnification or to an advancement of expenses hereunder,
or by the Corporation to recover
-47-
<PAGE>
an advancement of expenses pursuant to the terms of an undertaking, the burden
of proving that the indemnitee is not entitled to be indemnified, or to such
advancement of expenses, under this Section or otherwise shall be on the
Corporation.
"Change of Control" shall mean that:
(a) A corporation, person or group acting in concert as described in
Section 14(d)(2) of the Securities Exchange Act of 1934 as amended (the
"Exchange Act"), holds or acquires beneficial ownership, within the meaning of
Rule 13d-3 promulgated under the Exchange Act, of a number of preferred or
common shares of the Corporation having voting power which is either: (1) more
than 50 percent of the voting power of the shares which voted in the election of
directors of the Corporation at the shareholders' meeting immediately preceding
such determination; or, (2) more than 25 percent of the voting power of common
shares outstanding of the Corporation; or,
(b) As a result of a merger or consolidation to which the Corporation is a
party, either: (1) the Corporation is not the surviving corporation; or, (2)
Directors of the Corporation immediately prior to the merger or consolidation
constitute less
-48-
<PAGE>
than a majority of the board of directors of the surviving corporation; or,
(c) A change occurs in the composition of the Board at any time during any
consecutive 24-month period such that the "Continuity Directors" cease for any
reason to constitute a majority of the Board. For purposes of the preceding
sentence, "Continuity Directors" shall mean those members of the Board who
either: (1) were directors at the beginning of such consecutive 24-month period,
or, (2) were elected by, or upon nomination or recommendation of, at least a
majority (consisting of at least nine directors) of the Board.
ARTICLE VII
General Provisions
SECTION 1. Dividends. Subject to the provisions of statute and the
Certificate of Incorporation, dividends upon the shares of capital stock of the
Corporation may be declared by the Board of Directors at any regular or special
meeting. Dividends may be paid in cash, in property or in shares of stock of the
Corporation, unless otherwise provided by statute or the Certificate of
Incorporation.
-49-
<PAGE>
SECTION 2. Reserves. Before payment of any dividend, there may be set aside
out of any funds of the Corporation available for dividends such sum or sums as
the Board of Directors may, from time to time, in its absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation or
for such other purpose as the Board of Directors may think conducive to the
interests of the Corporation. The Board of Directors may modify or abolish any
such reserves in the manner in which it was created.
SECTION 3. Seal. The seal of the Corporation shall be in such form as shall
be approved by the Board of Directors.
SECTION 4. Fiscal Year. The fiscal year of the Corporation shall be fixed,
and once fixed, may thereafter be changed, by resolution of the Board of
Directors.
SECTION 5. Contributions. The Board of Directors shall have the authority
from time to time to make such contributions as the Board in its discretion
shall determine, for public and charitable purposes.
SECTION 6. Borrowing, etc. No officer, agent or employee of the Corporation
shall have any power or authority to borrow money on its behalf, to pledge its
credit, or to mortgage or pledge its
-50-
<PAGE>
real or personal property, except within the scope and to the extent of the
authority delegated by resolution of the Board of Directors. Authority may be
given by the Board for any of the above purposes and may be general or limited
to specific instances.
SECTION 7. Deposits. All funds of the Corporation shall be deposited from
time to time to the credit of the Corporation in such banks, trust companies, or
other depositories as the Board of Directors may approve or designate, and all
such funds shall be withdrawn only upon checks, drafts, notes or other orders
for payment signed by such one or more officers, employees or other persons as
the Board shall from time to time determine.
SECTION 8. Execution of Contracts, Deeds, etc. The Board of Directors may
authorize any officer or officers, agent or agents, in the name and on behalf of
the Corporation to enter into or execute and deliver any and all deeds, bonds,
mortgages, contracts and other obligations or instruments, and such authority
may be general or confined to specific instances.
SECTION 9. Voting of Stock in Other Corporations. If authorized by the
Board of Directors, any officer of the Corporation may appoint an attorney or
attorneys (who may be or include such officer), in the name and on behalf of the
Corporation, to cast the votes which the Corporation may be
-51-
<PAGE>
entitled to cast as a shareholder or otherwise in any other corporation any of
whose shares or other securities are held by or for the Corporation, at meetings
of the holders of the shares or other securities of such other corporation, or
in connection with the ownership of such shares or other securities, to consent
in writing to any action by such other corporation, and may instruct the person
or persons so appointed as to the manner of casting such votes or giving such
consent, and may execute or cause to be executed in the name and on behalf of
the Corporation and under its seal such written proxies or other instruments as
such proxy may deem necessary or proper in the circumstances.
SECTION 10. Form of Records. Any records maintained by the Corporation in
the regular course of its business, including its stock ledger, books of
account, and minute books, may be kept on, or be in the form of punch cards,
magnetic tape, photographs, microphotographs, or any other information storage
device, provided that the records so kept can be converted into clearly legible
form within a reasonable time. The Corporation shall so convert any records so
kept upon the request of any person entitled to inspect the same.
SECTION 11. Repurchase of Stock. Without the approval of the holders of a
majority of the issued and outstanding stock of the
-52-
<PAGE>
Corporation entitled to vote at any meeting of shareholders, the Corporation
shall not knowingly purchase, either directly or indirectly, any of the
Corporation's Common Stock at a price materially in excess of its market price
from any person, unless (i) such purchase is pursuant to the same offer and
terms as made on a pro-rata basis to all holders of such shares, (ii) such
purchase is made by the Corporation from an employee benefit or similar plan now
or hereafter maintained by the Corporation or its subsidiaries or affiliates, or
(iii) such purchase is made from a holder of less than one hundred shares.
-53-
<PAGE>
ARTICLE VIII
Amendments
These By-Laws may be amended or repealed or new By-Laws may be adopted (a)
by action of the holders of at least eighty percent (80%) of the voting power of
all outstanding voting stock of the Corporation entitled to vote generally at
any annual or special meeting of shareholders or (b) by action of the Board of
Directors at a regular or special meeting thereof. Any By-Law or By-Laws made by
the Board of Directors may be amended or repealed by action of the shareholders
by the vote required by (a) above at any annual or special meeting of
shareholders.
ARTICLE IX
Definitions
The term "Certificate of Incorporation," as used herein, includes not only
the original Certificate of Incorporation filed to create the Corporation but
also all other certificates, agreements of merger or consolidation, plans of
reorganization, or other instruments, howsoever designated, which are filed
pursuant to the Delaware General Corporation Law, and which have the effect of
amending or supplementing in some respect this Corporation's
-54-
<PAGE>
original Certificate of Incorporation.
-55-
Exhibit 10.7(b)
AMENDMENT NO. 1 TO THE
CIGNA EXECUTIVE SEVERANCE BENEFITS PLAN
Under Section 4.1 of the CIGNA Executive Severance Benefits Plan (the
"Plan"), CIGNA Corporation has retained the right to amend the Plan. CIGNA
Corporation wishes to amend the Plan to change the severance benefits payable to
executives terminated following a Change of Control (as defined in the Plan) and
to permit Plan changes following a Change of Control with the consent of
affected executives.
Effective February 23, 2000, CIGNA Corporation amends the Plan as follows:
1. Section 1.19 is amended entirely as follows:
1.19 "Termination upon a Change of Control" means the termination upon or
within two (2) years following a Change of Control of a Participant's
employment with CIGNA (a) initiated by CIGNA or a successor, other
than a Termination for Cause, or (b) initiated by the Participant
after determining in the Participant's reasonable judgment that there
has been a material reduction in the Participant's authority, duties
or responsibilities, any reduction in the Participant's compensation,
or any changes caused by CIGNA or successor in the Participant's
principle office location of more than thirty-five (35) miles from its
location on the date of the Change of Control. Participant shall have
notified the Executive Vice President - Human Resources and Services
or the Chief Executive Officer in writing that he has experienced a
material reduction, and shall describe the event that he believes
constitutes a material reduction. The written explanation of reduction
must be delivered within 30 calendar days after such reduction and at
least two weeks before termination.
2. New Section 1.20 is added at the end Article 1:
1.20 "Covered Senior Executive" means the following Covered Executives: the
Chief Executive Officer of CIGNA Corporation, the Chief Operating
Officer of CIGNA Corporation and the President (or other chief
officer) of each CIGNA Corporation operating and staff division if the
Covered Executive reports directly to either the Chief Executive
Officer or the Chief Operating Officer of CIGNA Corporation.
3. Sections 3.3 and 3.4 are amended entirely as follows:
3.3 Basic Severance Pay. Instead of Basic Severance Pay under Schedule II
of the Severance Pay Plan, a Terminated Participant's Basic Severance
Pay shall be calculated and paid as follows:
<PAGE>
(a) Basic Severance Pay shall equal the Terminated Participant's base
salary rate, stated in weekly terms, multiplied by 156 weeks for
Covered Senior Executives and 104 weeks for all other Covered
Executives. The "base salary rate" shall be the Terminated
Participant's base salary rate immediately before the Termination
of Employment Date or on the date of the Change of Control,
whichever rate is higher.
(b) Unless the Terminated Participant elects a lump sum payment,
Basic Severance Pay shall be paid to Covered Senior Executives in
78 equal biweekly installments over 156 weeks and to other
Covered Executives in 52 equal biweekly installments over 104
weeks.
3.4 Supplemental Severance Pay.
(a) Instead of Supplemental Severance Pay under Schedule II of the
Severance Pay Plan, a Terminated Participant's Supplemental
Severance Pay shall be the product of the Base Amount described
in paragraph 3.4(b) and the applicable Multiplier described in
paragraph 3.4(c).
(b) The Base Amount shall be the higher of:
(1) the last bonus actually received by the Terminated
Participant; or
(2) the amount of the Target Award that was applicable to the
Terminated Participant immediately preceding the Change of
Control. "Target Award" means (A) the target bonus award
established by the Board or Committee for determining
appropriate levels of incentive compensation payments under
the CIGNA Management Incentive Plan or the CIGNA Executive
Incentive Plan or (B) for any position for which no such
target award has been established, the median level of
annual incentive compensation paid for executives in
comparable positions by a group of competitor companies,
which median level has been approved by the Board or
Committee.
(c) The Multiplier shall be:
(1) 300% for Covered Senior Executives; and
(2) 200% for all other Covered Executives.
(d) Supplemental Severance Pay shall be paid to the Terminated
Participant in 52 equal bi-weekly installments over a two-year
period, unless the Terminated Participant elects a lump sum
payment.
2
<PAGE>
4. Section 4.1 is amended entirely as follows:
4.1 Amendment; Termination. This Plan may be amended, modified or
terminated by the Board or Committee, in the sole and absolute
discretion of either, at any time, prior to 6 months before a Change
of Control. For the period beginning 6 months before and ending two
years following a Change of Control, no amendment, modification or
termination which would adversely affect a Participant in any manner
may be made without the express written consent of that Participant.
CIGNA Corporation causes this Amendment No. 1 to the CIGNA Executive Severance
Benefits Plan to be executed on February 23, 2000, by its duly authorized
officer.
Attest: CIGNA CORPORATION
/s/ Carol J. Ward By: /s/ H. Edward Hanway
- -------------------------- ------------------------
Carol J. Ward H. Edward Hanway
Corporate Secretary President and Chief Executive Officer
3
Exhibit 10.11(b)
AMENDMENT NO. 1
To The
CIGNA SUPPLEMENTAL PENSION PLAN
(Amended and Restated effective August 1, 1998)
CIGNA Corporation has retained the right to amend the CIGNA
Supplemental Pension Plan ("Plan") under Article VI, Section 6.2 of the Plan,
and CIGNA Corporation wishes to amend the Plan's benefit payment provisions.
Therefore, the Plan is amended, unless another date is indicated
below, effective September 1, 1999 and only for Plan participants who have not
as of that date terminated employment with the Company, as follows:
1. Section 4.1(a) of Article IV of the Plan is entirely amended effective
as of January 1, 1999 for all Participants, to read:
4.1 Standard Form of Benefits
(a) Except as provided in Section 4.2, the Supplemental Pension Benefit
under Section 3.1 shall be paid to the Participant in the form of a
single lump sum in the January following Participant's severance from
employment with the Company or, if later, the January following the
year in which the Participant reaches age 55.
2. Section 4.2(a) of Article IV of the Plan is amended by adding a new
paragraph at the end to read:
A Participant may make a written request to the Plan Administrator for
an Optional Payment Method for 25%, 50%, 75% or 100% of his entire
Supplemental Pension Benefit (determined as of the date of
participant's severance from employment).
3. Section 4.2(b) is entirely amended to read:
(b) A Participant may request that the date of payment under Section 4.1 or
the date payments begin under Section 4.2(a) be postponed to January of
any later year, but no later than the year after the Participant
reaches age 70. A request for a postponed payment by a Participant who
also requests an Optional Payment Method for 25%, 50% or 75% of his
Supplemental Pension Benefit (or whose prior request for such an
Optional Payment Method has been approved) will be approved only if the
requested date of future payment under Section 4.1 is the same as the
requested date future payments begin under Section 4.2(a).
4. Section 4.2(e) of Article IV of the Plan is entirely amended to read:
<PAGE>
(e) A Participant may, before his termination of employment date, make a
written request to the Plan Administrator for an Optional Payment
Method for 25%, 50%, 75% or 100% of his Supplemental Pension Benefit
(determined as of the date of Participant's severance from employment),
a change to another Optional Payment Method or a change to the standard
single lump sum form of benefit under Section 4.1.
5. Section 4.3(b) of Article IV of the Plan is entirely amended to read:
(b) The Supplemental Pre-Retirement Surviving Spouse Benefit shall be paid
to the eligible Spouse as soon as practicable after the Participant's
death. The form of payment shall be:
(1) A single lump sum to the extent and in the same proportion
that the Participant had not elected any Optional Payment
Method under Section 4.2(a);
(2) Annual installments for the period selected by the
Participant, to the extent and in the same proportion that
the Participant had elected an Optional Payment Method under
Section 4.2(a)(3); or
(3) Annual installments for 15 years (with any remaining
installments payable to the Spouse's Beneficiary if the
Spouse dies before all installments are paid), to the extent
and in the same proportion that the Participant elected an
Optional Payment Method under Section 4.2(a)(1) or (2).
6. Section 4.4 of Article IV of the Plan is entirely amended to read:
If a Plan B Participant dies before the Supplemental Pension Benefit payment has
been made under Section 4.1 (or before the date as of which payments have
commenced under Section 4.2), the Participant's Supplemental Pension Benefit
shall be paid to the Participant's Beneficiary as soon as practicable after the
Participant's death. The form of payment shall be:
(1) A single lump sum to the extent and in the same proportion
that the Participant had not elected any Optional Payment
Method under Section 4.2(a);
(2) Annual installments for the period selected by the
Participant, to the extent and in the same proportion that
the Participant had elected an Optional Payment Method under
Section 4.2(a)(3); or
(3) Annual installments for 15 years (with any remaining
installments payable to the Beneficiary's Beneficiary if the
first Beneficiary dies before all installments are paid), to
the extent and in the same proportion that the
2
<PAGE>
Participant elected an Optional Payment Method under Section
4.2(a)(1) or (2).
7. Section 4.5 of Article IV of the Plan is amended by entirely replacing
paragraphs (b) and (c), and by adding at the end a new paragraph (d), to read:
(b) To the extent a Plan A Participant has been paid a Supplemental
Pension Benefit in the form of a single lump sum under Sections 4.1,
4.5(a) or 4.6(b), or has received payments in the form of any Optional
Payment Method under Section 4.2, and is later rehired by any Company,
he shall not, upon subsequent Retirement or other termination of
employment, be entitled to any additional Supplemental Pension Benefit
under this Plan based upon any Credited Service used in the
calculation of the initial Supplemental Pension Benefit payment.
Furthermore, any Credited Service that is or would be disregarded
under the preceding sentence in computing a Plan A Participant's
Supplemental Pension Benefit shall also be disregarded in computing
any benefits payable to Participant's Spouse under Sections 4.3 after
Participant's reemployment.
(c) To the extent a Plan B Participant is paid a Supplemental Pension
Benefit in the form of a single lump sum under Sections 4.1, 4.5(a) or
4.6(b) and is later rehired by any Company, he shall not, upon
subsequent Retirement or other termination of employment, be entitled
to any additional Supplemental Pension Benefit under this Plan based
upon any Benefit Credits or Interest Credits used in the calculation
of the initial Supplemental Pension Benefit payment. Furthermore, any
Credits that are or would be disregarded under the preceding sentence
in computing a Plan B Participant's Supplemental Pension Benefit shall
also be disregarded in computing any benefits payable to Participant's
Beneficiary under Section 4.4 after Participant's reemployment.
(d) If a Participant who has been paid a Supplemental Pension Benefit in
the form of any Optional Payment Method under Section 4.2 is rehired by
any Company, upon his subsequent Retirement or other termination of
employment, the Plan Administrator shall reduce any additional
Supplemental Pension Benefit then payable under this Plan to the extent
the Participant received part of his Supplemental Pension benefit
before his rehire.
CIGNA Corporation causes this Amendment No. 1 to the CIGNA Supplemental Pension
Plan to be executed on December 21, 1999, by its duly authorized officer.
Attest: CIGNA CORPORATION
/s/ Carol J. Ward By:/s/ Wilson H. Taylor
- -------------------------- -----------------------------
Carol J. Ward Wilson H. Taylor
Corporate Secretary Chairman and Chief Executive Officer
3
Exhibit 10.23
AGREEMENT
This Agreement is dated November 14, 1997, and is between William M. Pastore,
who resides at ____________________________________________ (referred to as "MR.
PASTORE"), and Connecticut General Life Insurance Company, a Connecticut
corporation (referred to as "Employer").
MR. PASTORE and Employer, intending to be legally bound and in consideration of
the promises in this Agreement and Release, mutually agree as follows:
1. Employer agrees to provide to MR. PASTORE the supplemental pension
described in a memorandum dated November 14, 1997 from H. Edward Hanway,
President, CIGNA Healthcare, to MR. PASTORE. MR. PASTORE agrees that the above
promise and the supplemental pension are adequate consideration for his promises
set forth below.
2. For the twenty-four month period (in the event MR. PASTORE's
employment is involuntarily terminated without cause, the period shall be twelve
(12) months) beginning on the day immediately following the date MR. PASTORE
terminates employment with a CIGNA division and does not immediately begin
working for another CIGNA division (hereinafter "Termination Date"), MR. PASTORE
will not, within any part of the United States where a CIGNA division for which
MR. PASTORE worked during his CIGNA career (hereinafter "Former CIGNA Division")
is doing business or where, during the one-year period ending on Termination
Date, a Former CIGNA Division has been actively planning to do business:
a. engage directly or indirectly, in any capacity (including
but not limited to owner, sole proprietor, partner,
shareholder (unless his holding is for investment purposes
only and is limited to less than 1% of the total combined
voting power of all shares), employee, agent, consultant,
officer or director) in any business which competes with the
HealthCare Division or a Former CIGNA Division; and
b. Solicit or attempt to solicit, directly or indirectly, on
behalf on any person, corporation or other entity in
competition with a Former CIGNA Division, any person, entity
or business that at the time of the solicitation is (or as
of Termination Date was) a Former CIGNA Division customer to
purchase any products or services of a type currently
available from a Former CIGNA Division; and
c. directly or indirectly, solicit or hire, solicit the
employment or engagement for hire, or otherwise attempt to
employ or engage for hire, as an employee or independent
contractor any person who within the eighteen month period
ending on Termination Date has been an officer or employee
of any CIGNA company, unless the employment of such officer
or employee has been unilaterally terminated by the CIGNA
company.
<PAGE>
3. MR. PASTORE acknowledges that the Employer will have no adequate
remedy at law MR. PASTORE violates the terms of paragraph 2 above. In such
event, Employer shall have the right, in addition to any other rights it may
have, to obtain in any court of competent jurisdiction injunctive relief to
restrain any breach or threatened breach of specific performance of paragraph 2
of this Agreement. If, in any such proceeding, the court finds that the scope of
protections afforded Employer or its affiliates is too broad to be enforceable
under relevant law, then it is the intent of the parties that the court reduce
the scope of the protections, but only to the extent necessary to make the
protections enforceable, and then to enforce the protections as reduced in
scope.
4. Employer and MR. PASTORE agree that any of the following types of
disagreements, disputes or claims shall be resolved exclusively by arbitration
in Hartford County, Connecticut in accordance with the Employment Dispute
Resolution Rules of the American Arbitration Association, as modified by
Employer, and judgment upon the award rendered by the Arbitrator may be entered
in any court having jurisdiction over the matter:
a. those arising out of or relating to the validity of this
Agreement or how it is interpreted or implemented; and
b. those involving in any way MR. PASTORE's employment with
Employer or the termination of that employment.
5. This Agreement is made and entered into in the State of Connecticut,
and at all times and for all purposes shall be interpreted, enforced and
governed under the laws of Connecticut.
6. This Agreement contains the entire agreement between MR. PASTORE and
Employer and fully replaces and supersedes any and all prior agreements or
understandings between them concerning the subject matter of this Agreement. MR.
PASTORE and Employer have not relied upon any other statement, agreement or
contract, whether written or oral, in deciding to enter into this Agreement. Any
amendment to this Agreement must be in writing and signed by both Employer and
MR. PASTORE.
IN WITNESS WHEREOF, the persons named below have signed this Agreement and
Release on the dates shown below.
12/10/97 /s/ H. Edward Hanway
- --------------- -------------------------
Date H. Edward Hanway
on behalf of
CONNECTICUT GENERAL LIFE INSURANCE
COMPANY
12/9/97 /s/ William M. Pastore
- --------------- ----------------------------
Date William M. Pastore
<PAGE>
11/14/97
Bill Pastore
Example Pension Calculations & Enhanced Benefit
ASSUMPTIONS
- Salary of $345K, bonus of $275K
- 5% increases in salary and bonus each year
- No plan changes at CITICORP
- 8% interest rate
RESTORATION OF CITICORP BENEFIT (ORIGINAL 11/14/95 OFFER LETTER)
o If you had stayed at CITICORP and worked until age 55 and earned your
current salary projected at a 5% increase per year, your total pension would
have been approximately $200,000 per year at age 55.
o Your original offer letter includes a commitment from CIGNA to ensure that
the total of your vested CITICORP pension plus CIGNA pension benefits
(qualified and non-qualified) will provide the equivalent of this benefit
(including death benefits) if you work here until age 55, with the pension
payments beginning no sooner than age 55.
o The offer letter also includes a provision that if you are involuntarily
terminated prior to age 55 except for cause, you will receive severance
equal to the sum of one year's salary, your target bonus and the cash value
of your unvested restricted stock.
ENHANCED BENEFIT
o If you remain at CIGNA until age 55 or you are involuntarily terminated
(except for cause) prior to age 55, you will receive the restoration and
severance benefits as described above with the following modifications,
contingent upon your signing a standard 2-year non-compete agreement:
- CIGNA will determine the pension which would have been earned by you
had you remained at CITICORP with your Average Annual Compensation
based on amounts actually received at CIGNA (the "hypothetical CITICORP
pension").
- Your Average Annual Compensation for this calculation will be the
average of your salary plus half of your bonus paid for the 5
highest-paid calendar years during the final 10 years of your
employment with CIGNA. The 5 highest-paid calendar years used do not
have to be consecutive. If you do not have 5 calendar years of CIGNA
service at retirement, the average of your total years of CIGNA
employment will be used. For example, if you have 3 years of service,
your annual compensation (salary plus half of bonus paid) in each of
those 3 years is added together, then divided by three to get your
Average Annual Compensation.
- The number of years of service will be based on your actual years and
full months at CITICORP plus your actual years and full months at CIGNA
plus the period of full months (if any) you receive severance payments
from CIGNA; however, the additional service for severance payments
cannot result in total service exceeding 30 years.
- CIGNA will pay you the difference between your actual vested pension at
CITICORP and the hypothetical CITICORP pension. These payments will
come from the qualified, funded CIGNA pension plan to the extent
possible, with the remainder paid as a non-qualified unfunded benefit.
o Based on the same assumptions as above, at age 55 your total pension would
be approximately $280,000 per year payable at age 55, and at age 51 it would
be $205,000 per year also payable at age 55.
o The overall cost to CIGNA for your total special pension arrangement is
approximately $1.6-2.0 million.
<TABLE>
<CAPTION>
Exhibit 12
CIGNA CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in millions)
Year Ended December 31,
-----------------------------------------------------
1999 1998 1997 1996 1995
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income from continuing operations before
income taxes................................... $1,219 $1,858 $1,228 $1,228 $1,257
------ ------ ------ ------ ------
Fixed charges included in income:
Interest expense............................... 116 126 127 102 120
Interest portion of rental expense............. 51 63 94 86 99
------ ------ ------ ------ ------
Total fixed charges included in income............ 167 189 221 188 219
Minority interest................................. 31 - - - -
------ ------ ------ ------ ------
Income available for fixed charges................ $1,417 $2,047 $1,449 $1,416 $1,476
======================================================
RATIO OF EARNINGS TO FIXED CHARGES................ 8.5 10.8 6.6 7.5 6.7
======================================================
</TABLE>
Highlights
<TABLE>
<CAPTION>
Exhibit 13
- -----------------------------------------------------------------------------------------------------------------------------------
(Dollars in millions, except per share amounts) 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues:
Premiums and fees and other revenues $ 15,814 $ 14,402 $ 12,264 $ 10,963 $ 10,716
Net investment income 2,959 3,115 3,598 3,645 3,621
Realized investment gains 8 134 93 52 140
- -----------------------------------------------------------------------------------------------------------------------------------
Total revenues $ 18,781 $ 17,651 $ 15,955 $ 14,660 $ 14,477
- -------------------------------------------------------------======================================================================
Income from Continuing Operations:
Operating Income (Loss):
Employee Health Care, Life and Disability Benefits $ 728 $ 617 $ 425 $ 497 $ 489
Employee Retirement Benefits and Investment Services 265 248 230 210 197
International Life, Health and Employee Benefits (342) 17 21 5 (4)
Other Operations 122 313 180 155 151
Corporate (78) (97) (113) (95) (100)
- -----------------------------------------------------------------------------------------------------------------------------------
Total operating income 695 1,098 743 772 733
Realized investment gains, net of taxes 4 88 69 29 118
- -----------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations $ 699 $ 1,186 $ 812 $ 801 $ 851
- -------------------------------------------------------------======================================================================
Earnings per share from continuing operations:
Basic $ 3.59 $ 5.62 $ 3.69 $ 3.55 $ 3.90
Diluted $ 3.54 $ 5.56 $ 3.65 $ 3.52 $ 3.87
Common dividends declared per share $ 1.20 $ 1.15 $ 1.11 $ 1.07 $ 1.01
Total assets $ 95,333 $ 95,890 $ 89,369 $ 78,497 $ 75,276
Long-term debt $ 1,359 $ 1,428 $ 1,462 $ 1,019 $ 1,064
Shareholders' equity $ 6,149 $ 8,277 $ 7,932 $ 7,208 $ 7,157
Per share $ 36.24 $ 40.25 $ 36.55 $ 32.38 $ 31.25
Common shares outstanding (thousands) 169,697 205,650 216,996 222,594 228,996
Shareholders of record 11,716 12,441 12,953 14,027 15,131
Employees 41,900 49,900 47,700 42,800 44,700
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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 Statement of Position 97-3, "Accounting
by Insurance and Other Enterprises for Insurance-Related Assessments." For more
information regarding the effect of adopting accounting pronouncements, see the
Notes to Financial Statements.
As discussed in Note 3, CIGNA sold its domestic and international property and
casualty business in July 1999. In 1999, CIGNA began reporting this business as
discontinued operations and reclassified prior year financial information.
1
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
- --------------------------------------------------------------
INDEX
Consolidated Results of Continuing Operations 10
Other Matters 11
Employee Health Care, Life and Disability Benefits 13
Employee Retirement Benefits and Investment Services 14
International Life, Health and Employee Benefits 15
Other Operations 16
Corporate 17
Discontinued Property and Casualty Operations 17
Liquidity and Capital Resources 17
Investment Assets - Continuing Operations 19
Market Risk of Financial Instruments - Continuing
Operations 21
Year 2000 22
Cautionary Statement 22
- --------------------------------------------------------------
CONSOLIDATED RESULTS OF CONTINUING OPERATIONS
(In millions)
- --------------------------------------------------------------
Financial Summary 1999 1998 1997
- --------------------------------------------------------------
Premiums and fees $15,079 $13,456 $11,781
Net investment income 2,959 3,115 3,598
Other revenues 735 946 483
Realized investment gains 8 134 93
--------------------------------
Total revenues 18,781 17,651 15,955
Benefits and expenses 17,562 15,793 14,727
--------------------------------
Income before taxes 1,219 1,858 1,228
Income taxes 520 672 416
--------------------------------
Income from continuing
operations 699 1,186 812
Less realized investment
gains, net of taxes 4 88 69
- --------------------------------------------------------------
Operating income $ 695 $ 1,098 $ 743
- ------------------------------================================
Operating Income
Operating income is defined as net income excluding after-tax realized
investment results, the results of discontinued operations and, in 1999, the
cumulative effect of adopting SOP 97-3 (see Note 2(B) to the Financial
Statements).
CIGNA's consolidated operating income included certain nonrecurring items. The
most significant of these items are presented in the table below and discussed
under "Other Matters" on pages 11-13.
- --------------------------------------------------------------------------
(In millions) 1999 1998 1997
- --------------------------------------------------------------------------
Operating income $ 695 $ 1,098 $ 743
Charge related to certain
Brazilian investments 400 -- --
Restructuring and integration costs 10 -- 80
Gain on sale of partial
interest in Japanese life
insurance operation (43) -- --
Gain on sale of individual
life insurance and annuity
business -- (202) --
- --------------------------------------------------------------------------
Adjusted operating income $ 1,062 $ 896 $ 823
- ----------------------------------------==================================
The 19% increase in adjusted operating income in 1999 primarily reflects
improved operating results in CIGNA's Employee Health Care, Life and Disability
Benefits segment and investment income on proceeds from the sale of the property
and casualty business.
The 9% increase in adjusted operating income in 1998 reflects improved results
in both the Employee Health Care, Life and Disability Benefits segment and the
Employee Retirement Benefits and Investment Services segment. The 1998 increase
was partially offset by lower operating income in Other Operations.
10
<PAGE>
Realized Investment Results
The decrease in after-tax realized investment results in 1999 primarily reflects
lower gains on sales of fixed maturities, real estate partnerships, equity
securities and mortgage loans. The increase in 1998 reflects higher gains on
sales of fixed maturities, equity securities and mortgage loans, partially
offset by lower gains on sales of real estate. For additional information, see
Note 5(B) to the Financial Statements.
Revenues
Consolidated revenues, excluding realized investment gains, were $18.8 billion
in 1999, $17.5 billion in 1998 and $15.9 billion in 1997. The 1999 increase is
largely the result of growth in two segments. The Employee Health Care, Life and
Disability Benefits segment had higher revenues due to rate increases and
membership growth. The International Life, Health and Employee Benefits segment
had higher revenues due to growth in the Japanese life insurance operation. The
1999 increase was partially offset by the absence of the 1998 pre-tax gain of
$316 million (reported in other revenues) recognized upon the sale of the
individual life insurance and annuity business.
The 1998 increase reflects growth in two segments. The Employee Health Care,
Life and Disability Benefits segment had higher revenues due to the acquisition
of Healthsource (discussed below) and, to a lesser extent, rate increases and
membership growth. In addition, the International Life, Health and Employee
Benefits segment had higher revenues due to growth in the Japanese life
insurance operation. Also, revenues in 1998 included the pre-tax gain of $316
million recognized upon the sale of the individual life insurance and annuity
business. The 1998 increase was partially offset by the absence of 1997 revenues
of $972 million from the sold individual life insurance and annuity business.
Outlook for 2000
Excluding the nonrecurring items presented above, management expects full year
operating income to improve in 2000. However, such improvement could be
adversely affected by factors such as those noted in the cautionary statement on
page 22.
OTHER MATTERS
Acquisitions and Dispositions
Sale of property and casualty business. 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 the sale was $1.2 billion. In
1999, CIGNA began reporting this business as discontinued operations and
reclassified prior year financial information. CIGNA's priorities for use of
capital, including proceeds from the sale, are internal growth, acquisitions and
share repurchase.
Brazilian investments. In the third quarter of 1999, CIGNA recognized an
after-tax charge of $400 million attributable to certain Brazilian investments.
See page 15 for more information about these investments.
Sale of partial interest in Japanese life insurance operation. In April 1999,
CIGNA sold a 29% interest in its Japanese life insurance operation to Yasuda
Fire & Marine Insurance Company Ltd., reducing CIGNA's ownership interest to
61%. Proceeds of the sale were $105 million. CIGNA reported the $43 million
after-tax gain on this sale in the International Life, Health and Employee
Benefits segment.
Sale of individual life insurance and annuity business. As of January 1, 1998,
CIGNA sold its individual life insurance and annuity business for cash proceeds
of $1.4 billion. The sale generated an after-tax gain of approximately $770
million. Of this amount, $202 million was recognized when the sale was completed
in 1998. The remaining gain was deferred because the principal agreement to sell
this business was an indemnity reinsurance arrangement. The deferred portion is
being recognized at the rate that earnings from the sold business would have
been expected to emerge, primarily over 15 years on a declining basis. CIGNA
recognized $62 million of the deferred gain in 1999 and $66 million in 1998. In
1997, revenues for the sold business were $972 million and operating income was
$98 million.
Acquisition of Healthsource, Inc. On June 25, 1997, CIGNA acquired the
outstanding common stock of Healthsource, Inc. The total cost of the
acquisition, which was accounted for as a purchase, was $1.7 billion, including
$1.4 billion for the Healthsource common stock and $250 million to repay
outstanding Healthsource debt. The acquisition was financed by issuing $600
million in long-term debt, supplemented by short-term debt and CIGNA's operating
cash flows.
CIGNA conducts regular strategic and financial reviews of its businesses to
ensure that its capital is used effectively. See Note 3 to the Financial
Statements for additional information on acquisitions and dispositions.
11
<PAGE>
Regulatory and Industry Developments
CIGNA's businesses are subject to a changing social, economic, legal,
legislative and regulatory environment. Some of the more significant current
issues that may affect CIGNA's businesses include:
o efforts to expand tort liability of health plans;
o proposed class action lawsuits targeting certain health care companies,
including CIGNA;
o initiatives to increase health care regulation;
o initiatives to restrict insurance pricing and the application of
underwriting standards; and
o efforts to revise federal tax laws.
Health care regulation. Efforts are underway in the federal and state
legislatures and in the courts to increase regulation of the health care
industry and change its operational practices. Regulatory and operational
changes could have an adverse effect on CIGNA's health care operations if they
reduce marketplace competition and innovation or result in increased medical or
administrative costs without improving the quality of care.
Pending initiatives to increase health care regulation at the federal level
include "managed care reform" and "patients' bill of rights" legislation. A bill
that recently passed the House of Representatives would expand tort liability
for health plans and undermine the ability of health plans to limit coverage to
medically necessary care. A corresponding bill that recently passed the Senate
does not include such provisions. Given these differences between the House and
Senate bills and the general uncertainty of the political process, it is not
possible to determine what legislation will be enacted, if any, or what the
effect of any such legislation would be on CIGNA.
Other regulatory changes that have been under consideration and that could have
an adverse effect on CIGNA's health care operations include:
o mandated benefits or services that increase costs without improving the
quality of care;
o loss of the Employee Retirement Income Security Act of 1974 (ERISA)
preemption of state tort laws through legislative actions and court
decisions;
o changes in ERISA regulations imposing increased administrative burdens and
costs;
o restrictions on the use of prescription drug formularies; and
o privacy legislation that interferes with the ability to properly use
medical information for research, coordination of medical care and disease
management.
Class action lawsuits and other litigation. CIGNA and several health care
industry competitors have had proposed class action lawsuits filed against them
by a coalition of plaintiffs' attorneys. These lawsuits allege violations under
RICO and ERISA. CIGNA is routinely involved in numerous other lawsuits arising,
for the most part, in the ordinary course of the business of administering and
insuring employee benefit programs. Although the outcome of litigation is always
uncertain, CIGNA does not believe that any litigation currently threatened or
pending involving CIGNA will result in losses that would be material to results
of operations, liquidity or financial condition.
Federal budget proposals. The Administration's proposed budget for fiscal year
2001 would tax amounts previously accumulated in a policyholders' surplus
account. If enacted, CIGNA will record additional income tax expense of $158
million (see Note 9 to the Financial Statements for more information).
The proposed budget also would restrict the tax benefits for corporations owning
non-leveraged corporate life insurance policies. If enacted as proposed, CIGNA
does not anticipate that this provision will have a material effect on its
consolidated results of operations, liquidity or financial condition, but 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 17 to the Financial
Statements.
Cost Reduction and Integration Initiatives
Subsequent to the sale of the property and casualty business in the third
quarter of 1999, CIGNA adopted a plan to reduce costs. Adoption of the plan
resulted in a charge of $15 million ($10 million after-tax), primarily for
severance expenses, which was recorded in Corporate ($7 million after-tax) and
the International Life, Health and Employee Benefits segment ($3 million
after-tax). CIGNA expects to substantially complete this plan by mid-2000.
In the fourth quarter of 1997, CIGNA's health care operations adopted a cost
reduction plan and completed a review of Healthsource's operations. The cost
reduction plan resulted in an after-tax charge of $22 million, primarily for
severance costs and office closings. The review of Healthsource's operations
resulted in an after-tax integration charge of $58 million primarily for
Healthsource's HMO reserves, receivables and contractual obligations.
12
<PAGE>
As of December 31, 1999, CIGNA had fully implemented both the 1997 cost
reduction plan and the integration plan for Healthsource operations.
Implementation of the cost reduction plan resulted in no material changes to the
original estimates. CIGNA recorded adjustments to the integration charge
resulting in increases to net income of $12 million in 1999 and $10 million in
1998. These amounts are included in the net favorable HMO adjustments discussed
below.
Accounting Pronouncements
For information on recent accounting pronouncements, see Note 2(B) to the
Financial Statements.
EMPLOYEE HEALTH CARE, LIFE AND DISABILITY BENEFITS
(In millions)
- ------------------------------------------------------------------
Financial Summary 1999 1998 1997
- ------------------------------------------------------------------
Premiums and fees $ 12,505 $ 11,421 $ 9,546
Net investment income 571 589 563
Other revenues 630 542 454
------------------------------------
Segment revenues 13,706 12,552 10,563
Benefits and expenses 12,583 11,574 9,906
------------------------------------
Income before taxes 1,123 978 657
Income taxes 395 361 232
------------------------------------
Operating income $ 728 $ 617 $ 425
- ------------------------------====================================
Realized investment
gains (losses), net of
taxes $ (2) $ 54 $ 17
- ------------------------------====================================
Operating Income
Operating income for the Employee Health Care, Life and Disability Benefits
segment increased 18% in 1999 and 45% in 1998. Results for 1997 included
after-tax charges of $58 million for Healthsource integration and $22 million
related to cost reduction initiatives to restructure the health care operations.
Excluding these items, operating income for the Indemnity and HMO operations was
as follows:
- ------------------------------------------------
(In millions) 1999 1998 1997
- ------------------------------------------------
Indemnity operations $327 $314 $302
HMO operations 401 303 203
- ------------------------------------------------
Total $728 $617 $505
- -------------------------=======================
Indemnity results increased 4% in 1999, primarily reflecting the following:
o higher earnings in the group life business;
o improved results for the Administrative Services Only (ASO) business; and
o favorable guaranteed cost medical claim experience.
These improvements were partially offset by lower earnings in the
experience-rated health care and long-term disability businesses.
The improvement in 1998 indemnity results reflects favorable claim experience in
the following businesses:
o guaranteed cost medical;
o group life; and
o long-term disability.
Partially offsetting these increases were lower earnings from experience-rated
health care business.
HMO results included net favorable after-tax adjustments from account and tax
reviews of $23 million in 1999, $7 million in 1998 and $6 million in 1997.
Excluding those items, the increases in HMO operating results for 1999 and 1998
reflect the following:
o rate increases for guaranteed cost HMO business;
o higher earnings in the dental, behavioral, pharmacy and disability
management service businesses;
o membership growth in the HMO alternative funding business; and
o lower operating expenses per member.
These improvements were partially offset by increased medical costs, primarily
higher pharmacy and outpatient costs and, for 1998, higher amortization of
goodwill and other intangibles associated with the Healthsource acquisition.
Premiums and Fees
Premiums and fees increased 9% in 1999 and 20% in 1998, primarily due to HMO and
medical indemnity rate increases, membership growth and, in 1998, the addition
of Healthsource.
Premium Equivalents
Management believes that business volume is best measured by premiums and fees
plus premium equivalents, called adjusted premiums and fees. Premium equivalents
generally equal paid claims under alternative funding programs. CIGNA would have
recorded the amount of these paid claims as additional premiums if these
programs had been written as guaranteed cost or experience-rated programs. Under
alternative funding programs, the customer assumes all or a portion of the
responsibility for funding claims. The most common alternative funding programs
offered by CIGNA are minimum premium and ASO plans. CIGNA generally earns a
lower margin on these programs than under guaranteed cost or experience-rated
programs. Adjusted premiums and fees were as follows for the year ended December
31:
- ---------------------------------------------------------------
(In millions) 1999 1998 1997
- ---------------------------------------------------------------
Premiums and fees $12,505 $11,421 $ 9,546
Premium equivalents 15,385 13,039 10,807
- ---------------------------------------------------------------
Adjusted premiums and fees $27,890 $24,460 $20,353
- -------------------------------================================
13
<PAGE>
The 1999 increase of 18% in premium equivalents primarily reflects HMO and
Preferred Provider Organization (PPO) membership growth in alternative funding
programs. The 1998 increase of 21% reflects the Healthsource acquisition and
growth in alternative funding HMO programs.
Net Investment Income
Net investment income decreased 3% in 1999 primarily because investment yields
were lower than they were in 1998. Net investment income increased 5% in 1998
because CIGNA acquired Healthsource's assets, partially offset by lower
investment yields.
HMO Medical Membership
Total HMO medical membership increased 4% in 1999 and 11% in 1998. CIGNA gained
members in alternative funding programs in both years. Membership declined in
guaranteed cost HMO programs during 1999.
Business Mix
Business mix in 1999, measured by adjusted premiums and fees, was approximately:
o 44% HMO medical and dental care;
o 39% medical indemnity;
o 8% dental indemnity;
o 6% life insurance;
o 2% long-term disability insurance; and
o 1% other insurance coverages.
EMPLOYEE RETIREMENT BENEFITS AND INVESTMENT SERVICES
(In millions)
- -------------------------------------------------------
Financial Summary 1999 1998 1997
- -------------------------------------------------------
Premiums and fees $ 273 $ 257 $ 221
Net investment income 1,605 1,613 1,655
-----------------------------
Segment revenues 1,878 1,870 1,876
Benefits and expenses 1,485 1,505 1,545
-----------------------------
Income before taxes 393 365 331
Income taxes 128 117 101
-----------------------------
Operating income $ 265 $ 248 $ 230
- --------------------------=============================
Realized investment
gains, net of
taxes $ 7 $ 25 $ 15
- --------------------------=============================
Operating Income
The increases in operating income of 7% in 1999 and 8% in 1998 reflect higher
earnings from an increased asset base reflecting growth in separate account
assets partially offset by lower general account assets. The increases also
reflect higher earnings from non-leveraged corporate life insurance business
resulting from an increased asset base and, in 1998, favorable mortality
experience. In 1998, the increase was partially offset by a shift of assets to
lower margin products, such as separate account equity funds.
See "Federal budget proposals" on page 12 for additional information regarding
corporate life insurance.
Segment Revenues
Premiums and fees are principally asset management and administrative charges
from general and separate accounts and amounts earned from non-leveraged
corporate insurance. Net investment income primarily represents earnings from
general account assets. Most of this net investment income is credited to
customers and included in benefits and expenses.
Segment revenues are level for the years noted above, reflecting higher fees
from separate accounts and, in 1998, higher revenues from non-leveraged
corporate insurance. These increases were offset by lower net investment income
due to lower general account assets.
Assets Under Management
Assets under management are a key determinant of earnings for this segment. The
following table shows assets under management and related activity, including
amounts attributable to separate accounts for the year ended December 31. Assets
under management will continue to be affected by market value fluctuations for
fixed maturities and equity securities.
- ---------------------------------------------------------------
(In millions) 1999 1998
- ---------------------------------------------------------------
Balance - January 1 $ 52,929 $ 48,231
Premiums and deposits 8,529 8,048
Investment results 5,085 3,432
Increase in fair value of assets 745 2,704
Customer withdrawals (5,637) (3,573)
Other, including participant
withdrawals and benefit payments (5,897) (5,913)
- ---------------------------------------------------------------
Balance - December 31 $ 55,754 $ 52,929
- ----------------------------------------=======================
Premiums and deposits. In 1999, approximately 59% of premiums and deposits were
from existing customers, and 41% were from sales to new customers and new plan
sales to existing customers. In 1998, 55% of premiums and deposits were from
existing customers.
Investment results. Investment results increased 48% in 1999 due primarily to
higher realized capital gains.
Fair value of assets. The increase in the fair value of assets was substantially
lower in 1999 than 1998. This was primarily due to a decline in the fair value
of fixed maturities caused by the rise in interest rates and lower market value
appreciation on equity securities.
Customer withdrawals. Most of the increase in customer withdrawals in 1999 was
attributable to four customers.
14
<PAGE>
INTERNATIONAL LIFE, HEALTH AND EMPLOYEE BENEFITS
<TABLE>
<CAPTION>
(In millions)
- ---------------------------------------------------------------------------------------
Financial Summary 1999 1998 1997
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Premiums and fees $1,642 $1,227 $1,076
Net investment income 124 115 122
Other revenues 71 4 2
--------------------------------
Segment revenues 1,837 1,346 1,200
Benefits and expenses 2,216 1,309 1,167
--------------------------------
Income (loss) before taxes (379) 37 33
Income taxes (benefits) (37) 20 12
--------------------------------
Operating income (loss) $ (342) $17 $ 21
- ------------------------------------------------------================================
Realized investment gains (losses), net of taxes $ (1) $ -- $ 2
- ------------------------------------------------------================================
</TABLE>
Operating income (loss) for the International Life, Health and Employee Benefits
segment included certain nonrecurring items summarized in the table below:
- ------------------------------------------------------------
(In millions) 1999 1998 1997
- ------------------------------------------------------------
Operating income (loss) $(342) $ 17 $ 21
Charge related to certain
Brazilian investments 400 -- --
Restructuring costs 3 1 --
Gain on sale of partial
interest in Japanese life
insurance operation (43) -- --
- ------------------------------------------------------------
Adjusted operating income $ 18 $ 18 $ 21
- ---------------------------------===========================
Brazilian Operations
During the third quarter of 1999, CIGNA completed a review of its Brazilian
operations, including analyses of future estimated cash flows. These operations
consist primarily of a health care operation and a managed health care business.
After completing this review, CIGNA decided to withdraw from the health care
operation but will continue to operate the managed health care business. As a
result, CIGNA recorded an aggregate after-tax charge of $400 million, consisting
of the following items:
o $305 million for the carrying value of the health care operation from which
CIGNA is withdrawing, certain loans guaranteed by CIGNA and exit costs; and
o $95 million for impairment of other investments, primarily goodwill.
CIGNA's withdrawal from the health care operation could be challenged. While the
outcome of any regulatory or legal actions cannot be determined, CIGNA does not
expect that such actions would result in additional losses material to its
consolidated results of operations, liquidity or financial condition.
Adjusted Operating Income
Adjusted operating income in 1999 primarily reflects favorable growth and
product mix in the Japanese life insurance operation. This growth was partially
offset by less favorable claim experience in the health care business for
expatriate employees of multinational companies, unfavorable economic conditions
in Latin America and unfavorable mortality experience in the group life
business. Operating losses from Brazilian health care operations of $15 million
in 1999 (excluding the charges noted above) were comparable with 1998.
The decline in 1998 adjusted operating income reflects operating losses from
Brazilian health care operations, unfavorable economic conditions in Asia and
expenses incurred to expand operations, primarily in Poland. Partially
offsetting these decreases were higher earnings in the Japanese life insurance
operation, reflecting higher business volume and favorable product mix, as well
as growth in the health care business for expatriate employees of multinational
companies.
Premiums and Fees
Premiums and fees increased 34% in 1999 and 14% in 1998. Excluding premiums and
fees from the retained Brazilian managed health care business (which were not
included in results until the fourth quarter of 1998) and the effects of foreign
currency changes, premiums and fees increased 21% in 1999 and 22% in 1998. These
increases reflect:
o growth in the Japanese life insurance operation;
o higher health care premiums and fees for expatriate employees of
multinational companies; and
o for 1999, growth in life and group benefits business in Asia.
CIGNA intends to pursue international growth through acquisitions and other
investments. This strategy will result in start-up costs and initial losses.
15
<PAGE>
OTHER OPERATIONS
(In millions)
- -------------------------------------------------------------------
Financial Summary 1999 1998 1997
- -------------------------------------------------------------------
Premiums and fees $ 659 $ 551 $ 938
Net investment income 581 771 1,235
Other revenues 195 514 151
---------------------------------
Segment revenues 1,435 1,836 2,324
Benefits and expenses 1,250 1,356 2,056
---------------------------------
Income before taxes 185 480 268
Income taxes 63 167 88
---------------------------------
Operating income 122 313 180
Gain on sale of individual
life insurance and
annuity business -- (202) --
Deferred gain recognized (62) (66) --
Operating income of
individual life insurance
and annuity business -- -- (98)
---------------------------------
Adjusted operating income $ 60 $ 45 $ 82
- ----------------------------------=================================
Realized investment gains,
net of taxes $ -- $ 9 $ 35
- ----------------------------------=================================
Other Operations includes:
o the deferred gain recognized from the 1998 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.
Adjusted Operating Income
The increase in 1999 adjusted operating income reflects improved results in the
health, accident and specialty life reinsurance businesses, partially offset by
reductions in leveraged corporate life insurance business due to policy
surrenders.
The decrease in 1998 adjusted operating income primarily reflects unfavorable
claim experience in the health and accident reinsurance operations and increased
operating expenses for new business initiatives. This decrease was partially
offset by growth in the specialty life reinsurance business.
Premiums and Fees
Premiums and fees increased 20% in 1999 and 11% in 1998, excluding 1997 premiums
and fees from the sold individual life insurance and annuity business. The 1999
increase reflects growth in the personal accident reinsurance business,
partially offset by a reduced volume of health reinsurance premiums. The 1998
increase is due to growth in specialty life reinsurance, partially offset by a
reduced volume of renewal premiums for leveraged corporate life insurance.
Net Investment Income
Net investment income decreased 25% in 1999 and decreased slightly in 1998,
excluding 1997 net investment income from the sold individual life insurance and
annuity business. Investment income declined in both years primarily because
CIGNA held fewer assets from leveraged corporate life insurance. In 1998, yields
were generally lower than they had been in prior years. The 1998 decline was
partially offset by higher assets from specialty life reinsurance products.
Other Revenues
Other revenues in 1998 includes a pre-tax gain of $316 million from the sale of
the individual life insurance and annuity business.
Other Matters
Tax benefits for corporate life insurance. In 1996, Congress passed legislation
implementing a three-year phase-out period for tax deductibility of policy loan
interest for most leveraged corporate life insurance products. As a result,
management expects revenues and operating income associated with these products
to continue to decline. In 1999, revenues of $350 million and operating income
of $32 million were from products affected by this legislation.
Specialty life reinsurance contracts. CIGNA has entered into specialty life
reinsurance contracts that contain certain guarantees for variable annuities.
One type of reinsurance contract guarantees minimum income benefits based on
unfavorable changes in account values. The other type guarantees a minimum death
benefit, also based on unfavorable changes in account values. The variable
annuity account values are based on underlying domestic equity and bond mutual
fund investments.
For those reinsurance contracts that guarantee minimum income benefits, CIGNA
has purchased reinsurance from third parties, which substantially reduces the
risk of these contracts.
For those reinsurance contracts that guarantee a minimum death benefit,
management is reviewing alternatives to manage the equity market and interest
rate risks associated with these guarantees. As part of this review, CIGNA is
considering whether to modify certain reserve assumptions for the liabilities
associated with the minimum death benefit contracts. The guarantees under these
contracts and changes that could result from this review could adversely affect
CIGNA's consolidated results of operations in future periods. However,
management does not expect them to have a material adverse effect on CIGNA's
liquidity or financial condition.
Unicover. The reinsurance operations include a 35% share in the primary layer of
a workers' compensation reinsurance pool, which was managed by Unicover
Managers,
16
<PAGE>
Inc. until recently. The pool had obtained reinsurance for a significant portion
of its exposure to claims. Disputes have arisen regarding this reinsurance
(retrocessional) coverage of the pool. Two of the retrocessionaires have
commenced arbitration against Unicover and the pool members seeking rescission
or damages. In addition, these retrocessionaires have separately asserted that
CIGNA participates in an upper layer of reinsurance for the pool, which CIGNA
denies. Resolution of these matters is likely to take some time. Although the
outcome of these matters is uncertain, CIGNA does not expect them to result in
losses material to CIGNA's consolidated results of operations, liquidity or
financial condition.
CORPORATE
(In millions)
- ---------------------------------------------------
Financial Summary 1999 1998 1997
- ---------------------------------------------------
Operating loss $(78) $(97) $(113)
- ----------------------=============================
Corporate reflects amounts not allocated to segments, such as:
o interest expense on corporate debt;
o net investment income on unallocated investments;
o intersegment eliminations; and
o certain corporate overhead expenses (including overhead expenses previously
allocated to the property and casualty business which have been
reclassified to Corporate).
The reduced operating loss in 1999 primarily reflects higher net investment
income resulting from the investment of the proceeds of the sale of the property
and casualty business in 1999. This improvement is partially offset by a $7
million after-tax restructuring charge (primarily severance-related costs)
recorded in the third quarter of 1999 for cost reduction initiatives.
The reduced loss for 1998 is primarily attributable to a decrease in unallocated
corporate expenses.
DISCONTINUED PROPERTY AND CASUALTY OPERATIONS
(In millions)
- -----------------------------------------------------------------
Financial Summary 1999 1998 1997
- -----------------------------------------------------------------
Premiums and fees $1,411 $2,957 $3,154
Net investment income 268 590 647
Other revenues 136 281 286
Realized investment gains 48 22 74
---------------------------------
Total revenues 1,863 3,850 4,161
Benefits and expenses 1,911 3,698 3,739
---------------------------------
Income (loss) before taxes (48) 152 422
Income taxes (benefits) (20) 46 148
---------------------------------
Income (loss) from
operations (28) 106 274
Gain on sale, net of taxes
of $1,152 1,194 -- --
- -----------------------------------------------------------------
Income from
discontinued operations $1,166 $ 106 $ 274
- --------------------------------=================================
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 loss from operations for 1999 includes results through the sale date. The
decline in results in 1999 is primarily attributable to:
o an after-tax charge of $67 million resulting from account and other
financial reviews of an insurance-related service business;
o unfavorable claim experience;
o declining results from insurance-related service business; and
o the effects of continued competitive conditions in the property and
casualty insurance markets.
The decline in income from operations for 1998 primarily reflects:
o increased after-tax catastrophe losses of approximately $80 million;
o after-tax restructuring costs of $18 million; and
o unfavorable claim experience, primarily in the international operations.
LIQUIDITY AND CAPITAL RESOURCES
(In millions)
- ------------------------------------------------------------
Financial Summary 1999 1998 1997
- ------------------------------------------------------------
Short-term investments $ 950 $ 242 $ 137
Cash and cash equivalents $2,232 $1,986 $1,832
Short-term debt $ 57 $ 272 $ 690
Long-term debt $1,359 $1,428 $1,462
Shareholders' equity $6,149 $8,277 $7,932
- ------------------------------------------------------------
Liquidity
CIGNA's operations have liquidity requirements that vary among the principal
product lines.
Life insurance and pension plan reserves are primarily longer-term liabilities.
Liquidity requirements are usually stable and predictable, and are supported
primarily by medium-term, fixed-income investments.
Accident and health reserves, including long-term disability, consist of both
short-term and long-term liabilities. The settlement of reported claims is
generally stable and predictable, but usually shorter term, requiring greater
liquidity.
CIGNA normally meets its operating requirements by:
o maintaining appropriate levels of liquidity in its investment portfolio;
o using cash flows from operating activities (operating cash flows); and
o matching investment maturities to the duration of the related insurance and
contractholder liabilities.
17
<PAGE>
Operating cash flows consist of operating income adjusted to reflect the timing
of cash receipts and disbursements for premiums and fees, investment income and
benefits, losses and expenses.
Each of CIGNA's insurance subsidiaries may use operating cash flows to fund its
operations. However, CIGNA is only permitted to use operating cash flows to meet
other external liquidity needs (such as to make dividend, interest or debt
payments) if its insurance subsidiaries can pay dividends or make loans or other
distributions to CIGNA, which are subject to various regulatory restrictions.
Liquidity for CIGNA and its insurance subsidiaries has remained strong, as
evidenced by significant combined amounts of short-term investments and cash and
cash equivalents. However, the demand for funds may exceed available cash if:
o management uses cash for investment opportunities;
o an insurance or contractholder liability becomes due before related
investment assets mature; or
o insurance subsidiaries are unable to distribute cash due to regulatory
restrictions.
In those cases, CIGNA's size and diversity provide the flexibility to satisfy
liquidity needs through short-term borrowings. At December 31, 1999, CIGNA had
approximately $435 million available under committed and uncommitted bank lines
of credit.
Cash flows from continuing operations for the year ended December 31 were as
follows:
- ------------------------------------------------------------
(In millions) 1999 1998 1997
- ------------------------------------------------------------
Operating activities $ 1,817 $ 886 $ 1,455
Investing activities $ 2,495 $ 871 $(1,573)
Financing activities $(4,213) $(1,553) $ 677
- ------------------------------------------------------------
Cash and cash equivalents increased $246 million in 1999 and $154 million in
1998. The increase primarily reflects cash flows from operating and investing
activities, substantially offset by cash used in financing activities, as
follows:
1999:
- ----
o Cash flows from investing activities consisted of the $3.45 billion
proceeds on the sale of the property and casualty business, partially
offset by net investment purchases.
o Cash used in financing activities primarily reflects the payment of
dividends on and repurchase of CIGNA's common stock ($3.3 billion),
repayment of debt ($284 million) and net withdrawals from contractholder
deposit funds ($705 million).
1998:
- ----
o Cash flows from investing activities consisted of net proceeds of $1.3
billion on the sale of the individual life insurance and annuity business,
partially offset by investments of approximately $350 million in
international initiatives.
o Cash used in financing activities consisted of payments of dividends on and
repurchase of CIGNA's common stock ($1.1 billion) and repayment of debt
($456 million).
Capital Resources
CIGNA's capital resources (primarily retained earnings and the proceeds from the
issuance of long-term debt and equity securities) represent funds available for
long-term business commitments. Capital resources:
o provide protection for policyholders;
o furnish the financial strength to support the business of underwriting
insurance risks; and
o facilitate continued business growth.
Senior management and the Board of Directors, guided by regulatory requirements,
determine the amount of capital resources that CIGNA must maintain. Management
allocates resources to new long-term business commitments when returns,
considering the risks, look promising and when the resources available to
support existing business are adequate.
CIGNA's financial strength provides the capacity and flexibility to raise funds
in the capital markets. At December 31, 1999, CIGNA had $1 billion remaining
under effective shelf registration statements filed with the Securities and
Exchange Commission, which may be issued as debt securities, equity securities
or both. Management and the Board of Directors will consider market conditions
and internal capital requirements when deciding whether CIGNA should issue new
securities.
CIGNA's Board of Directors has authorized a stock repurchase plan. Decisions to
repurchase shares depend on market conditions and alternative uses of capital.
Under this plan, stock repurchase activity for the year ended December 31 was as
follows:
- --------------------------------------------------------------------------------
(In millions, except per share amounts) 1999 1998 1997
- --------------------------------------------------------------------------------
Shares repurchased 36.7 12.4 6.3
Cost of shares repurchased $ 3,055 $ 822 $ 340
Average price per share $ 83.24 $ 66.29 $ 53.97
- --------------------------------------------------------------------------------
From January 1, 2000 through February 23, 2000, an additional 2.4 million shares
were repurchased for $189 million. On January 26, 2000, CIGNA's Board of
Directors authorized an additional $1 billion of share repurchases. The total
remaining authorization as of February 23, 2000 was $1.5 billion.
18
<PAGE>
INVESTMENT ASSETS - CONTINUING OPERATIONS
Information regarding investment assets held by CIGNA is presented below.
Additional information regarding CIGNA's investment assets and related
accounting policies is included in Notes 2, 4 and 5 to the Financial Statements
and in CIGNA's Form 10-K.
(In millions)
- ----------------------------------------------------------
As of December 31,
Financial Summary 1999 1998
- ----------------------------------------------------------
Fixed maturities $22,944 $24,270
Equity securities 585 477
Mortgage loans 9,737 9,599
Real estate 789 733
Other, primarily policy loans 4,240 6,597
- ----------------------------------------------------------
Total investment assets $38,295 $41,676
- ---------------------------------=========================
The 8% decrease in investment assets as of December 31, 1999 is primarily due
to:
o a $3.1 billion decline in policy loans on leveraged corporate life
insurance policies; and
o a $1.7 billion reduction in the fair value of fixed maturities due to
increases in interest rates; partially offset by
o $730 million of short-term investments purchased with proceeds of the sale
of the property and casualty business.
A significant portion of CIGNA's investment assets are attributable to
experience-rated contracts with policyholders (policyholder contracts). The
following table shows, as of December 31, the percentage of investment assets
(excluding separate account assets) that policyholder contracts represent:
- ------------------------------------------------------
1999 1998
- ------------------------------------------------------
Fixed maturities 36% 39%
Mortgage loans 59% 57%
Real estate 65% 63%
- ------------------------------------------------------
Under the experience-rating process, net investment income and gains and losses
on assets related to policyholder contracts generally accrue to the
policyholders. Consequently, write-downs, changes in valuation reserves and
non-accruals on investments attributable to policyholder contracts do not affect
CIGNA's net income except under unusual circumstances.
Fixed Maturities
The fair value of investments in fixed maturities (bonds) as of December 31 was
as follows:
- ---------------------------------------------------------
(In millions) 1999 1998
- ---------------------------------------------------------
Federal government and agency $ 803 $ 1,171
State and local government 1,214 1,081
Foreign government 1,752 1,538
Corporate 13,465 13,929
Federal agency mortgage-backed 862 1,503
Other mortgage-backed 1,720 1,922
Other asset-backed 3,128 3,126
- ---------------------------------------------------------
Total $ 22,944 $ 24,270
- -----------------------------------======================
Additional information regarding fixed maturities follows:
Quality ratings. As of December 31, 1999, $21.4 billion, or 93% of the fixed
maturities in CIGNA's investment portfolio were investment grade, and the
remaining $1.5 billion were below investment grade (BA and below, or
equivalent). Most of the bonds that are below investment grade are rated at the
higher end of the non-investment grade spectrum. Approximately 21% of CIGNA's
below investment grade securities are attributable to policyholder contracts.
Private placement investments are generally less marketable than public bonds,
but yields on these investments tend to be higher than yields on publicly
offered debt with comparable credit risk. CIGNA has several controls on its
participation in private placements. In particular, CIGNA:
o performs a credit analysis of each issuer;
o diversifies investments by industry and issuer; and
o requires financial and other covenants that allow CIGNA to monitor issuers
for deteriorating financial strength so CIGNA can take remedial actions, if
warranted.
Because of the higher yields and the inherent risk associated with privately
placed investments and below investment grade securities, gains or losses from
such investments could significantly affect future results of operations.
However, management does not expect such gains or losses to be material to
CIGNA's liquidity or financial condition.
Asset-backed securities are debt obligations secured by pools of mortgages,
mortgage-backed securities, federal agency securities or corporate debt
obligations. CIGNA's investment in asset-backed securities included
collateralized mortgage obligations (CMOs) of $1.5 billion at December 31, 1999
and $2.2 billion at December 31, 1998. These investments were carried at fair
value, with an amortized cost of $1.6 billion at December 31, 1999, and $2.1
billion at December 31, 1998.
19
<PAGE>
Certain of the CMOs that CIGNA holds are backed by Aaa/AAA-rated federal
agencies. Most others have high quality ratings because credit enhancements have
been provided by subordinated securities or mortgage insurance from
Aaa/AAA-rated insurance companies.
CIGNA's CMO holdings are concentrated in securities with limited prepayment,
extension and default risk.
Mortgage Loans
CIGNA's mortgage loans are diversified by property type, location and borrower
to reduce exposure to potential losses. CIGNA routinely monitors and evaluates
the status of its mortgage loans through the review of loan and property-related
information, including cash flows, expiring leases, financial health of the
borrower and major tenants, loan payment history, occupancy and room rates for
hotels and, for commercial properties, significant new competition. CIGNA
evaluates this information in light of current economic conditions as well as
geographic and property type considerations.
Problem and Potential Problem Bonds and Mortgage Loans
Problem bonds and mortgage loans are delinquent or have been restructured as to
terms (interest rate or maturity date). Potential problem bonds and mortgage
loans are fully current, but management believes they have certain
characteristics that increase the likelihood that they will become "problems."
CIGNA also considers mortgage loans to be potential problems if:
o the borrower has requested restructuring; or
o principal or interest payments are past due by more than 30 but fewer than
60 days.
The following table presents problem and potential problem bonds and mortgage
loans, and includes amounts attributable to policyholder contracts as of
December 31:
- ----------------------------------------------------
(In millions) 1999 1998
- ----------------------------------------------------
Problem bonds, including $14 and
$3, respectively, related to
emerging market investments $151 $108
Potential problem bonds $ 77 $ 58
Problem mortgage loans $ 85 $ 98
Potential problem mortgage loans $149 $ 55
- ----------------------------------------------------
Real Estate
Investment real estate includes both income-producing property and real estate
held for sale. Most of the real estate held for sale in 1999 and 1998 was office
buildings and retail facilities in the Central and Middle Atlantic regions that
were acquired as a result of foreclosure of mortgage loans.
As of December 31, investment real estate (including amounts attributable to
policyholder contracts) and related cumulative write-downs and valuation
reserves were as follows:
- --------------------------------------------------------
(In millions) 1999 1998
- --------------------------------------------------------
Real estate held for sale $450 $511
Less cumulative write-downs 100 132
Less valuation reserves 38 36
-----------------
312 343
-----------------
Real estate held to produce income 523 435
Less cumulative write-downs 46 45
-----------------
477 390
- --------------------------------------------------------
Investment real estate $789 $733
- ---------------------------------------=================
At December 31, 1999 and 1998, 60% of the carrying value of the properties
acquired through foreclosure were attributable to policyholder contracts.
Summary
CIGNA's investment asset write-downs, non-accruals and changes in valuation
reserves were not material to CIGNA's policyholder contracts, results of
operations, liquidity or financial condition for the periods presented. CIGNA
expects additional investment losses to occur in the normal course of business.
However, assuming no significant deterioration in economic conditions, CIGNA
does not expect additional losses 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.
20
<PAGE>
MARKET RISK OF FINANCIAL INSTRUMENTS - CONTINUING OPERATIONS
A portion of CIGNA's assets and liabilities are financial instruments, which are
subject to the risk of potential losses from adverse changes in market rates and
prices. CIGNA's primary market risk exposures are:
o Interest-rate risk on fixed rate domestic medium-term instruments and, to a
lesser extent, international medium-term and domestic and international
short- and long-term instruments. Changes in market interest rates affect
the value of instruments that promise a fixed return.
o Foreign currency exchange rate risk in the U.S. dollar to the Japanese yen,
the Canadian dollar, the Chilean peso and the euro. An unfavorable change
in exchange rates lowers the carrying value of net assets denominated in
foreign currencies.
o Equity price risk for stocks and for reinsurance contract guarantees for
variable annuity account values with underlying mutual fund investments.
CIGNA's investment in domestic equity securities (which are primarily
managed to mirror the S&P 500) was $541 million at December 31, 1999, and
$442 million at December 31, 1998. CIGNA held $44 million in international
securities at December 31, 1999, and $35 million at December 31, 1998.
Substantially all of CIGNA's international securities were issued by
entities based in developed countries, such as certain European countries
and Japan. Reinsurance contract guarantees for variable annuity account
values are based primarily on underlying domestic stock and bond mutual
funds (see page 16 for additional information).
CIGNA uses a variety of techniques to manage its exposure to market risk:
o CIGNA generally selects investment assets with characteristics (such as
duration, yield, currency and liquidity) that correspond to the underlying
characteristics of its related insurance and contractholder liabilities so
that CIGNA can match the investments to its obligations. Medium-term, fixed
rate investments support interest-sensitive, experience-rated and health
liabilities (subject to liquidity requirements). Shorter- and longer-term
investments support generally shorter- and longer-term life and health
claim liabilities. Longer-term investments generally support longer-term,
fully guaranteed products--primarily annuities.
o CIGNA generally conducts its international business through foreign
operating entities that maintain assets and liabilities in local
currencies. This substantially limits exchange rate risk to net assets
denominated in foreign currencies.
o CIGNA generally uses derivative financial instruments to minimize certain
market risks.
See Notes 2(C) and 4(F) to the Financial Statements for additional information
about financial instruments, including derivative financial instruments.
The following hypothetical examples illustrate the effect of changes in market
rates or prices on the fair value of certain financial instruments. Actual
results could differ materially because the examples were developed using
estimates and assumptions. In addition, the following assets and liabilities are
excluded from the hypothetical effects:
o insurance contract liabilities, which represented 53% of CIGNA's total
liabilities (excluding separate accounts) at December 31, 1999, and 54% at
December 31, 1998; and reinsurance recoverables on unpaid losses, which
represented 12% of CIGNA's total assets (excluding separate accounts) at
December 31, 1999, and 11% at December 31, 1998, because insurance
contracts are excluded from requirements for these disclosures; and
o separate account assets and liabilities (because gains and losses in these
accounts generally accrue to policyholders except for amounts invested by
CIGNA).
Subject to these exclusions, the hypothetical effects of changes in market rates
or prices on the fair values of financial instruments would have been as follows
as of December 31:
- --------------------------------------------------------------------------------
Market scenario for certain
noninsurance financial
instruments Loss in fair value
1999 1998
- --------------------------------------------------------------------------------
100 basis point increase in
interest rate $1.0 billion $1.1 billion
10% strengthening in U.S. dollar
to each foreign currency $380 million $300 million
10% decrease in market prices
for equity exposures $ 70 million $ 50 million
- --------------------------------------------------------------------------------
The effect of an increase in interest rates was determined by estimating the
present value of future cash flows using various models, primarily duration
modeling.
The effect of a strengthening of the U.S. dollar relative to each of the foreign
currencies held by CIGNA was estimated as 10% of the U.S. dollar equivalent fair
value.
The effect of a decrease in the market prices of all equity securities was
estimated as 10% of their fair value.
21
<PAGE>
YEAR 2000
CIGNA Information Systems
CIGNA is highly dependent on automated systems and systems applications in
conducting its operations. In particular, CIGNA relies on information technology
(IT) systems for tasks like processing claims, billing, collecting premiums and
managing investment activities. CIGNA also relies on non-IT systems, such as
telephone, facility management and other systems using embedded computer chips.
As of the end of February 2000, CIGNA's systems have not been adversely affected
in any material way by the Year 2000 event.
Third-Party Systems
CIGNA has relationships with various third-party entities in the ordinary course
of business. For example, CIGNA receives data from clients, hires third-party
administrators and banks to perform certain services and bears credit risk on
others, such as entities in which it invests. As of the end of February 2000,
CIGNA has not been adversely affected in any material way because the systems of
any third party were not Year 2000 compliant.
Contingency Plans
CIGNA has historically had security and backup policies and procedures for
safeguarding critical corporate data, as well as business continuity plans. It
supplemented 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 providers to be Year 2000 ready.
Throughout 2000, CIGNA will continue to monitor its systems for any Year
2000-related systems issues that have not yet been identified. However, CIGNA
does not expect any Year 2000 problems that would have a material adverse effect
on CIGNA's results of operations, liquidity or financial condition.
Cost of Year 2000 Efforts
CIGNA used both internal and external resources to complete its Year 2000
efforts. The after-tax costs of those efforts (including amounts related to
discontinued operations) were approximately $35 million in 1999 and $100 million
in 1998.
Approximately 60% of total Year 2000 costs are attributable to existing systems
resources that were redirected to Year 2000 efforts. The remaining amounts
represent incremental costs for Year 2000 efforts. Although certain systems
development efforts were 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.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
CIGNA and its representatives may from time to time make written and oral
forward-looking statements, including statements contained in CIGNA's filings
with the Securities and Exchange Commission and in its reports to shareholders.
These statements may contain information about financial prospects, economic
conditions, trends and known uncertainties. CIGNA cautions the reader that
actual results could differ materially from those that management expects,
depending on the outcome of certain factors. In some cases, CIGNA describes
uncertainties when offering a forward-looking statement. Some factors that could
cause CIGNA's actual results to differ materially from the forward-looking
statements include:
1. increases in medical costs in CIGNA's health care operations, including
increased use and costs of medical services;
2. increased medical, administrative or other costs resulting from
legislative, regulatory and litigation challenges to CIGNA's health care
business (see page 12 for more information);
3. heightened competition, particularly price competition, which could reduce
product margins and constrain growth in CIGNA's businesses;
4. significant changes in interest rates;
5. significant stock market declines resulting in payments contingent on
certain variable annuity account values (see page 16 for more information);
6. significant deterioration in economic conditions, which could have an
adverse effect on CIGNA's investments; and
7. proposals to change federal income taxes.
This list of important factors may not be complete. CIGNA will not update any
forward-looking statement that may be made by or on behalf of CIGNA prior to the
next required filing with the Securities and Exchange Commission.
22
<PAGE>
Consolidated Statements of Income
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
(In millions, except per share amounts)
- ---------------------------------------------------------------------------------------------------
For the years ended December 31, 1999 1998 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Premiums and fees $ 15,079 $ 13,456 $ 11,781
Net investment income 2,959 3,115 3,598
Other revenues 735 946 483
Realized investment gains 8 134 93
---------- ---------- ----------
Total revenues 18,781 17,651 15,955
---------- ---------- ----------
Benefits, Losses and Expenses
Benefits, losses and settlement expenses 12,522 11,614 10,809
Policy acquisition expenses 251 201 257
Other operating expenses 4,789 3,978 3,661
---------- ---------- ----------
Total benefits, losses and expenses 17,562 15,793 14,727
---------- ---------- ----------
Income From Continuing Operations Before Income Taxes 1,219 1,858 1,228
---------- ---------- ----------
Income taxes (benefits):
Current 473 839 462
Deferred 47 (167) (46)
---------- ---------- ----------
Total taxes 520 672 416
---------- ---------- ----------
Income From Continuing Operations 699 1,186 812
---------- ---------- ----------
Discontinued Operations
Income (loss) from operations, net of taxes (28) 106 274
Gain on sale, net of taxes 1,194 -- --
---------- ---------- ----------
Income From Discontinued Operations 1,166 106 274
---------- ---------- ----------
Income Before Cumulative Effect of Accounting Change 1,865 1,292 1,086
Cumulative Effect of Accounting Change, Net of Taxes (91) -- --
---------- ---------- ----------
Net Income $ 1,774 $ 1,292 $ 1,086
- ---------------------------------------------------------==========================================
Basic Earnings Per Share
Income from continuing operations $ 3.59 $ 5.62 $ 3.69
Income from discontinued operations 5.99 0.50 1.24
- ---------------------------------------------------------------------------------------------------
Income before cumulative effect of accounting change 9.58 6.12 4.93
Cumulative effect of accounting change, net of taxes (0.46) -- --
- ---------------------------------------------------------------------------------------------------
Net income $ 9.12 $ 6.12 $ 4.93
- ---------------------------------------------------------==========================================
Diluted Earnings Per Share
Income from continuing operations $ 3.54 $ 5.56 $ 3.65
Income from discontinued operations 5.91 0.49 1.23
- ---------------------------------------------------------------------------------------------------
Income before cumulative effect of
accounting change 9.45 6.05 4.88
Cumulative effect of accounting change, net of taxes (0.46) -- --
- ---------------------------------------------------------------------------------------------------
Net income $ 8.99 $ 6.05 $ 4.88
- ---------------------------------------------------------==========================================
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
23
<PAGE>
Consolidated Balance Sheets
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
(In millions, except per share amounts)
- ----------------------------------------------------------------------------------------------------------------------
As of December 31, 1999 1998
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments:
Fixed maturities, at fair value (amortized cost, $23,111; $22,663) $ 22,944 $ 24,270
Equity securities, at fair value (cost, $286; $249) 585 477
Mortgage loans 9,737 9,599
Policy loans 3,079 6,185
Real estate 789 733
Other long-term investments 211 170
Short-term investments 950 242
---------- ----------
Total investments 38,295 41,676
Cash and cash equivalents 2,232 1,986
Accrued investment income 500 617
Premiums, accounts and notes receivable 2,475 2,481
Reinsurance recoverables 6,768 6,666
Deferred policy acquisition costs 927 730
Property and equipment 715 701
Deferred income taxes 1,156 1,034
Other assets 517 750
Goodwill and other intangibles 1,955 2,090
Separate account assets 39,793 34,808
Net assets of discontinued operations -- 2,351
- ----------------------------------------------------------------------------------------------------------------------
Total assets $ 95,333 $ 95,890
- -----------------------------------------------------------------------------------===================================
Liabilities
Contractholder deposit funds $ 26,599 $ 30,607
Unpaid claims and claim expenses 4,135 3,392
Future policy benefits 12,625 12,510
Unearned premiums 674 589
---------- ----------
Total insurance and contractholder liabilities 44,033 47,098
Accounts payable, accrued expenses and other liabilities 4,552 4,385
Short-term debt 57 272
Long-term debt 1,359 1,428
Separate account liabilities 39,183 34,430
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities 89,184 87,613
- ----------------------------------------------------------------------------------------------------------------------
Contingencies - Note 17
Shareholders' Equity
Common stock (shares issued, 267; 265) 67 66
Additional paid-in capital 2,825 2,719
Net unrealized appreciation (depreciation), fixed maturities $ (36) $ 750
Net unrealized appreciation, equity securities 184 206
Net translation of foreign currencies 18 (114)
---------- ----------
Accumulated other comprehensive income 166 842
Retained earnings 8,290 6,746
Less treasury stock, at cost (5,199) (2,096)
- ----------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 6,149 8,277
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 95,333 $ 95,890
- -----------------------------------------------------------------------------------===================================
Shareholders' Equity Per Share $ 36.24 $ 40.25
- -----------------------------------------------------------------------------------===================================
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
24
<PAGE>
Consolidated Statements of Comprehensive Income and Changes in
Shareholders' Equity
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
(In millions, except per share amounts)
- ---------------------------------------------------------------------------------------------------------------------------
For the years ended December 31, 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
Compre- Share- Compre- Share- Compre- Share-
hensive holders' hensive holders' hensive holders'
Income Equity Income Equity Income Equity
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Common Stock, beginning of year $ 66 $ 66 $ 66
Issuance of common stock for employee
benefit plans 1 -- --
- ---------------------------------------------------------------------------------------------------------------------------
Common Stock, end of year 67 66 66
- ---------------------------------------------------------------------------------------------------------------------------
Additional Paid-In Capital, beginning
of year 2,719 2,655 2,594
Issuance of common stock for employee
benefit plans 106 64 61
- ---------------------------------------------------------------------------------------------------------------------------
Additional Paid-In Capital, end of year 2,825 2,719 2,655
- ---------------------------------------------------------------------------------------------------------------------------
Accumulated Other Comprehensive
Income, beginning of year 842 758 582
Net unrealized appreciation (depreciation),
fixed maturities $ (786) (786) $ (2) (2) $ 213 213
Net unrealized appreciation (depreciation),
equity securities (22) (22) 74 74 44 44
--------- --------- ---------
Net unrealized appreciation (depreciation)
on investments (808) 72 257
Net translation of foreign currencies 132 132 12 12 (81) (81)
--------- --------- ---------
Other comprehensive income (loss) (676) 84 176
- ---------------------------------------------------------------------------------------------------------------------------
Accumulated Other Comprehensive Income,
end of year 166 842 758
- ---------------------------------------------------------------------------------------------------------------------------
Retained Earnings, beginning of year 6,746 5,696 4,855
Net income 1,774 1,774 1,292 1,292 1,086 1,086
Common dividends declared
(per share: $1.20; $1.15; $1.11) (230) (242) (245)
- ---------------------------------------------------------------------------------------------------------------------------
Retained Earnings, end of year 8,290 6,746 5,696
- ---------------------------------------------------------------------------------------------------------------------------
Treasury Stock, beginning of year (2,096) (1,243) (889)
Repurchase of common stock (3,055) (822) (340)
Other treasury stock transactions, net (48) (31) (14)
- ---------------------------------------------------------------------------------------------------------------------------
Treasury Stock, end of year (5,199) (2,096) (1,243)
- ---------------------------------------------------------------------------------------------------------------------------
Total Comprehensive Income and
Shareholders' Equity $ 1,098 $ 6,149 $ 1,376 $ 8,277 $ 1,262 $ 7,932
- ---------------------------------------------------========================================================================
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
25
<PAGE>
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
(In millions)
- -------------------------------------------------------------------------------------------------------------
For the years ended December 31, 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Income from continuing operations $ 699 $ 1,186 $ 812
Adjustments to reconcile income from continuing operations
to net cash provided by (used in) operating activities:
Insurance liabilities 1,151 764 676
Reinsurance recoverables (99) (159) (2)
Deferred policy acquisition costs (133) (120) (210)
Premiums, accounts and notes receivable (420) (338) 46
Accounts payable, accrued expenses, other
liabilities and current income taxes 87 92 280
Deferred income taxes 47 (167) (46)
Realized investment gains (8) (134) (93)
Depreciation and goodwill amortization 225 218 179
Gain on sale of businesses (excluding discontinued operations) (163) (418) --
Charge attributable to Brazilian investments 478 -- --
Other, net (47) (38) (187)
--------- --------- ---------
Net cash provided by operating activities of
continuing operations 1,817 886 1,455
--------- --------- ---------
Cash Flows from Investing Activities
Proceeds from investments sold:
Fixed maturities 3,033 3,395 1,962
Equity securities 107 137 82
Mortgage loans 810 1,271 861
Other (primarily short-term investments) 3,433 1,003 1,669
Investment maturities and repayments:
Fixed maturities 2,773 3,213 2,765
Mortgage loans 466 470 634
Investments purchased:
Fixed maturities (5,925) (5,903) (6,088)
Equity securities (119) (64) (74)
Mortgage loans (1,511) (1,851) (1,527)
Other (primarily short-term investments) (3,692) (1,349) (284)
Sale of property and casualty business 3,450 -- --
Sale of individual life insurance and annuity business,
net proceeds -- 1,296 --
Healthsource acquisition, net cash used -- -- (1,305)
Other acquisitions and dispositions, net cash provided (used) 107 (336) (111)
Other, net (437) (411) (157)
--------- --------- ---------
Net cash provided by (used in) investing activities
of continuing operations 2,495 871 (1,573)
--------- --------- ---------
Cash Flows from Financing Activities
Deposits and interest credited to contractholder deposit funds 7,585 7,050 7,641
Withdrawals and benefit payments from contractholder deposit funds (8,290) (7,097) (7,043)
Net change in short-term debt (257) (348) 358
Issuance of long-term debt -- -- 600
Repayment of long-term debt (27) (108) (318)
Repurchase of common stock (3,028) (833) (335)
Issuance of common stock 42 26 19
Common dividends paid (238) (243) (245)
--------- --------- ---------
Net cash provided by (used in) financing activities
of continuing operations (4,213) (1,553) 677
--------- --------- ---------
Effect of foreign currency rate changes on cash and cash equivalents 9 22 (12)
Net cash (to) from discontinued operations 138 (72) 380
- -------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 246 154 927
Cash and cash equivalents, beginning of year 1,986 1,832 905
- -------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 2,232 $ 1,986 $ 1,832
- -------------------------------------------------------------------------====================================
Supplemental Disclosure of Cash Information:
Income taxes paid, net of refunds $ 511 $ 843 $ 620
Interest paid $ 116 $ 128 $ 123
- -------------------------------------------------------------------------------------------------------------
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
26
<PAGE>
Notes to Financial Statements
Note 1 -- Description of Business
CIGNA Corporation's subsidiaries provide group life and health insurance,
managed care products and related services, and retirement and investment
products and services. CIGNA operates throughout the United States and in
selected international locations.
Note 2 -- Summary of Significant Accounting Policies
A. Basis of Presentation
---------------------
The consolidated financial statements include the accounts of CIGNA Corporation
and all significant subsidiaries, which are referred to collectively as "CIGNA."
These consolidated financial statements were prepared in conformity with
generally accepted accounting principles. Amounts recorded in the financial
statements reflect management's estimates and assumptions about medical costs,
interest rates and other factors. Significant estimates are discussed in these
Notes.
Results of the property and casualty business are now reported as discontinued
operations because CIGNA sold that business in July (discussed in Note 3).
Unless otherwise indicated, amounts in these Notes exclude the effects of
discontinued operations. Certain other reclassifications have been made to prior
years' amounts to conform to the 1999 presentation.
B. Recent Accounting Pronouncements
--------------------------------
Insurance-related assessments. CIGNA adopted Statement of Position (SOP) 97-3,
"Accounting by Insurance and Other Enterprises for Insurance-Related
Assessments," as of January 1, 1999. Issued by the American Institute of
Certified Public Accountants, this SOP guides companies in measuring and
recording liabilities for insolvency fund and other insurance-related
assessments, such as workers' compensation second injury funds, medical risk
pools and charges for operating expenses of state regulatory bodies. The
cumulative effect of adopting the SOP was a $91 million ($140 million pre-tax)
reduction in CIGNA's net income. Most of this effect resulted from the property
and casualty business, which has been sold and is reported as discontinued
operations.
Internal use software. In 1999, CIGNA adopted SOP 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use." This SOP
specifies the types of costs that must be capitalized and amortized over the
software's expected useful life and the types of costs that must be immediately
recognized as expense. Implementation of this SOP did not have a material effect
on results of operations, liquidity or financial condition. The effect of this
pronouncement in future periods will vary based on the level of software
development costs incurred.
Derivative instruments and hedging activities. In 1998, the Financial Accounting
Standards Board 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 recognized in net income or, for derivatives that
hedge market risk related to future cash flows, in accumulated other
comprehensive income. Companies are required to implement SFAS No. 133 by the
first quarter of 2001, showing the cumulative effect of adoption in net income
and accumulated other comprehensive income. CIGNA has not determined whether it
will adopt these changes before the required implementation date or what their
effect will be.
C. Financial Instruments
---------------------
In the normal course of business, CIGNA enters into transactions involving
various types of financial instruments. These financial instruments include
investments (such as fixed maturities and equity securities), short- and
long-term debt, and off-balance-sheet instruments (such as investment and loan
commitments and financial guarantees). These instruments may change in value due
to interest rate and market fluctuations, and most have credit risk. CIGNA
evaluates and monitors each financial instrument individually and, when
management considers it appropriate, uses certain derivative instruments or
obtains collateral or other forms of security to minimize risk of loss.
Most financial instruments that are subject to fair value disclosure
requirements (such as fixed maturities and equity securities) are carried in the
financial statements at amounts that approximate fair value. At the end of 1999
and 1998, the fair values of mortgage loans, contractholder deposit funds
(non-insurance products), and long-term debt were not materially different from
their carrying amounts. Fair values of off-balance-sheet financial instruments
were not material.
Fair values of financial instruments are based on quoted market prices when
available. When market prices are not available, management estimates fair value
based on discounted cash flow analyses, which use current interest rates for
similar financial instruments with comparable terms and credit quality.
Management estimates the fair value of liabilities for contractholder deposit
funds using the amount payable on demand and, for those deposit funds not
payable on demand, using discounted cash flow analyses. In many cases, an
estimate of the fair value of a financial instrument may differ significantly
from the amount that could be realized if the instrument were sold immediately.
27
<PAGE>
D. Investments
-----------
CIGNA's accounting policies for investment assets are discussed below.
Fixed maturities and mortgage loans. Investments in fixed maturities include
bonds, mortgage- and other asset-backed securities and redeemable preferred
stocks. These investments are classified as available for sale and are carried
at fair value. Fixed maturities are considered impaired, and amortized cost is
written down to fair value, when management expects a decline in value to
persist.
Mortgage loans are carried at unpaid principal balances. Impaired loans are
carried at the fair value of the underlying collateral. Mortgage loans are
considered impaired when it is probable that CIGNA will not collect all amounts
due according to the terms of the loan agreement.
When an investment is current, CIGNA recognizes interest income when it is
earned. CIGNA stops recognizing interest income on fixed maturities and mortgage
loans when they are delinquent or restructured for troubled borrowers to modify
basic financial terms, such as to reduce the interest rate or extend the
maturity date. Net investment income on these investments is recognized only
when payment is received.
Real estate. Investment real estate can be held to produce income or for sale.
CIGNA carries real estate held to produce income at depreciated cost less any
write-downs to fair value due to impairment. Depreciation is generally
calculated using the straight-line method based on the estimated useful life of
each asset.
CIGNA acquires most real estate held for sale through foreclosure of mortgage
loans. At the time of foreclosure, properties are valued at fair value less
estimated costs to sell, and are reclassified from mortgage loans to real estate
held for sale. After foreclosure, these investments are carried at the lower of
fair value at foreclosure or current fair value less estimated costs to sell,
and are no longer depreciated. Valuation reserves reflect changes in fair value
after foreclosure. CIGNA rehabilitates, re-leases and sells foreclosed
properties held for sale, a process that usually takes from two to four years
unless management considers a near-term sale preferable.
CIGNA uses several methods to determine the fair value of real estate, but
relies primarily on discounted cash flow analyses and, in some cases,
third-party appraisals.
Equity securities and short-term investments. CIGNA classifies equity securities
and short-term investments as available for sale and carries them at fair value,
which for short-term investments approximates cost. Equity securities include
common and non-redeemable preferred stocks.
Policy loans. Policy loans are carried at unpaid principal balances.
Investment gains and losses. Realized investment gains and losses result from
sales, investment asset write-downs and changes in valuation reserves and are
based on specifically identified assets. CIGNA's net income does not include
gains and losses on investment assets related to experience-rated pension
policyholders' contracts and participating life insurance policies (policyholder
share) because these amounts generally accrue to the policyholders.
Unrealized gains and losses on investments carried at fair value are included in
accumulated other comprehensive income, net of policyholder share and deferred
income taxes.
Derivative financial instruments. Note 4(F) discusses CIGNA's accounting
policies for derivative financial instruments.
E. Cash and Cash Equivalents
-------------------------
Cash equivalents consist of short-term investments that mature in three months
or less at the time of purchase.
F. Reinsurance Recoverables
------------------------
Reinsurance recoverables are estimates of amounts that CIGNA will receive from
reinsurers. Allowances are established for amounts owed to CIGNA under
reinsurance contracts that management believes will not be received.
G. Deferred Policy Acquisition Costs
---------------------------------
Acquisition costs consist of commissions, premium taxes and other costs that
CIGNA incurs to acquire new business. Acquisition costs for:
o Contractholder deposit funds and universal life products are deferred and
amortized in proportion to the present value of total estimated gross
profits over the expected lives of the contracts.
o Annuity and other individual life insurance products are deferred and
amortized, generally in proportion to the ratio of annual revenue to the
estimated total revenues over the contract periods.
o Other products are expensed as incurred.
Management estimates future revenues less expected claims on products that carry
deferred policy acquisition costs. If that estimate is less than the deferred
costs, CIGNA reduces deferred policy acquisition costs and records an expense.
28
<PAGE>
H. Property and Equipment
----------------------
Property and equipment are carried at cost less accumulated depreciation. When
applicable, cost includes interest, real estate taxes and other costs incurred
during construction. CIGNA calculates depreciation principally using the
straight-line method based on the estimated useful life of each asset.
Accumulated depreciation was $877 million at December 31, 1999, and $853 million
at December 31, 1998.
I. Other Assets
------------
Other assets consist primarily of various insurance-related assets.
J. Goodwill and Other Intangibles
------------------------------
Goodwill represents the excess of the cost of businesses acquired over the fair
value of their net assets. Other intangible assets primarily represent purchased
customer lists and provider contracts.
CIGNA amortizes goodwill and other intangibles on a straight-line basis over
periods ranging from five to 40 years. Management revises amortization periods
if it believes there has been a change in the length of time that the
intangibles will continue to have value. Accumulated amortization was $317
million at December 31, 1999, and $244 million at December 31, 1998.
For businesses that have recorded goodwill, management analyzes historical and
estimated future income or undiscounted cash flows. If such results are lower
than the amount recorded as goodwill, CIGNA reduces goodwill and records an
expense.
K. Separate Accounts
-----------------
Separate account assets and liabilities are policyholder funds maintained in
accounts with specific investment objectives. These accounts are carried at
market value. The investment income, gains and losses of these accounts
generally accrue to the policyholders and are not included in CIGNA's revenues
and expenses.
L. Contractholder Deposit Funds
----------------------------
Liabilities for contractholder deposit funds include deposits received from
customers for investment-related and universal life products and investment
earnings on their fund balances. These liabilities are adjusted to reflect
administrative charges, policyholder share of unrealized appreciation or
depreciation on investment assets and, for universal life fund balances,
mortality charges.
M. Unpaid Claims and Claim Expenses
--------------------------------
Liabilities for unpaid claims and claim expenses are estimates of payments to be
made under health coverages for reported claims and for losses incurred but not
yet reported. Management develops these estimates using actuarial methods based
upon historical data for payment patterns, cost trends, product mix,
seasonality, utilization of health care services and other relevant factors.
When estimates change, CIGNA records the adjustment in benefits, losses and
settlement expenses.
N. Future Policy Benefits
----------------------
Future policy benefits are liabilities for estimated future obligations under
traditional life and health policies and annuity products currently in force.
Management develops these estimates using premium assumptions for group annuity
policies and assumes receipt of premiums until benefits are paid for individual
life policies. These estimation techniques rely on assumptions as to future
investment yield, mortality and withdrawals that allow for adverse deviation.
Future policy benefits for individual life insurance and annuity policies are
computed using interest rate assumptions that generally decline over the first
20 years and range from 2% to 11%. Mortality, morbidity and withdrawal
assumptions are based on either CIGNA's own experience or actuarial tables.
O. Unearned Premiums
-----------------
Premiums for group life, accident and health insurance are recognized as revenue
on a pro rata basis over the contract period. The unrecognized portion of these
premiums is recorded as unearned premiums.
P. Other Liabilities
-----------------
Other liabilities consist principally of postretirement and postemployment
benefits and various insurance-related liabilities, including amounts related to
reinsurance contracts and guaranty fund assessments that management can
reasonably estimate.
Q. Translation of Foreign Currencies
---------------------------------
CIGNA's foreign operations primarily use the local currencies as their
functional currencies. CIGNA uses exchange rates as of the balance sheet date to
translate assets and liabilities.
The translation gain or loss on functional currencies, net of applicable taxes,
is generally reflected in accumulated other comprehensive income. CIGNA uses
average exchange rates during the year to translate revenues and expenses.
29
<PAGE>
R. Premiums and Fees, Revenues and Related Expenses
------------------------------------------------
Premiums for group life, accident and health insurance and prepaid health
coverages are recognized as revenue on a pro rata basis over the contract
period. Benefits, losses and settlement expenses are recognized when incurred.
Premiums for individual life insurance and individual and group annuity
products, excluding universal life and investment-related products, are
recognized as revenue when due. Benefits, losses and settlement expenses are
matched with premiums.
Revenue for investment-related products is recognized as follows:
o Net investment income on assets supporting investment-related products is
recognized as earned.
o Contract fees, which are based upon related administrative expenses, are
assessed against the customer's fund balance ratably over the contract
year.
Benefit expenses for investment-related products consist primarily of income
credited to policyholders in accordance with contract provisions.
Revenue for universal life products is recognized as follows:
o Net investment income on assets supporting universal life products is
recognized as earned.
o Fees for mortality are recognized ratably over the policy year.
o Administration fees are recognized as services are provided.
o Surrender charges are recognized as earned.
Benefit expenses for universal life products consist of benefit claims in excess
of policyholder account balances which are recognized when filed, and amounts
credited in accordance with contract provisions.
S. Participating Business
----------------------
CIGNA's participating life insurance policies entitle policyholders to earn
dividends that represent a portion of the earnings of CIGNA's life insurance
subsidiaries. Participating insurance in force accounted for approximately 6% of
CIGNA's total life insurance in force at the end of 1999, 1998 and 1997.
T. Income Taxes
------------
CIGNA and its domestic subsidiaries file a consolidated United States federal
income tax return. The consolidated group is segregated into subgroups of life
insurance and non-life insurance companies.
Consolidation of these subgroups for tax purposes is subject to statutory
restrictions on the percentage of eligible non-life tax losses that can be
applied to offset life company taxable income.
CIGNA's foreign subsidiaries file tax returns in accordance with applicable
foreign law. Tax returns for domestic subsidiaries owning those foreign
affiliates include taxable income and credits for taxes paid by those foreign
affiliates.
CIGNA generally recognizes deferred income taxes when assets and liabilities
have different values for financial statement and tax reporting purposes
(temporary differences).
Note 9 contains detailed information about CIGNA's income taxes.
Note 3 -- Acquisitions and Dispositions
CIGNA conducts regular strategic and financial reviews of its businesses so that
capital is used effectively. As a result of these reviews, CIGNA may acquire or
dispose of assets, subsidiaries or lines of business. Significant transactions
for 1999, 1998 and 1997 are described below.
Sale of property and casualty business. 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 the sale was $1.2 billion. In
1999, CIGNA began reporting this business as discontinued operations and
reclassified prior year financial information.
Summarized financial data for the discontinued operations are outlined below:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
(In millions) 1999 1998 1997
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Income Statement Data
Revenues $ 1,863 $ 3,850 $ 4,161
---------- ---------- ----------
Income (loss) before income taxes
(benefits) (48) 152 422
Income taxes (benefits) (20) 46 148
---------- ---------- ----------
Income (loss) from operations (28) 106 274
Gain on sale, net of taxes of $1,152 1,194 -- --
- ---------------------------------------------------------------------------------
Income from discontinued operations $ 1,166 $ 106 $ 274
- -----------------------------------------========================================
- ----------------------------------------------------
December 31,
(In millions) 1998
- ----------------------------------------------------
Balance Sheet Data
Invested assets $ 9,031
Reinsurance recoverables 6,470
Other assets 6,240
----------
Total assets 21,741
----------
Insurance liabilities 16,494
Other liabilities 2,896
----------
Total liabilities 19,390
- ----------------------------------------------------
Net assets $ 2,351
- -----------------------------------------===========
</TABLE>
30
<PAGE>
Accumulated other comprehensive income associated with the discontinued
operations was $222 million as of December 31, 1998. The gain on the sale
reflects the recognition of after-tax foreign currency translation losses of
$139 million (net of tax benefits of $80 million) and net unrealized
appreciation on securities of $163 million (net of taxes of $65 million).
Brazilian investments. During the third quarter of 1999, CIGNA completed a
review of its Brazilian operations, including analyses of future estimated cash
flows. These operations consist primarily of a health care operation and a
managed health care business. After completing this review, CIGNA decided to
withdraw from the health care operation but will continue to operate the managed
health care business. As a result, CIGNA recorded an aggregate after-tax charge
of $400 million, consisting of the following items:
o $305 million for the carrying value of the health care operation from which
CIGNA is withdrawing, certain loans guaranteed by CIGNA and exit costs; and
o $95 million for impairment of other investments, primarily goodwill.
The charge includes the recognition of foreign currency translation losses of
$89 million (net of a tax benefit of $48 million).
CIGNA's withdrawal from the health care operation could be challenged. While the
outcome of any regulatory or legal actions cannot be determined, CIGNA does not
expect that such actions would result in additional losses material to its
consolidated results of operations, liquidity or financial condition.
Sale of partial interest in Japanese life insurance operation. In April 1999,
CIGNA sold a 29% interest in its Japanese life insurance operation to Yasuda
Fire & Marine Insurance Company Ltd., reducing CIGNA's ownership interest to
61%. Proceeds of the sale were $105 million. CIGNA reported the $43 million
after-tax gain on this sale in the International Life, Health and Employee
Benefits segment.
Sale of individual life insurance and annuity business. As of January 1, 1998,
CIGNA sold its individual life insurance and annuity business for cash proceeds
of $1.4 billion. The sale generated an after-tax gain of approximately $770
million. Of this amount, $202 million was recognized when the sale was completed
in 1998. The remaining gain was deferred because the principal agreement to sell
this business was an indemnity reinsurance arrangement. The deferred portion is
being recognized at the rate that earnings from the sold business would have
been expected to emerge, primarily over 15 years on a declining basis. CIGNA
recognized $62 million of the deferred gain in 1999 and $66 million of the
deferred gain in 1998.
As part of the sale, CIGNA transferred invested assets of $5.4 billion and
various other assets and liabilities, and recorded a reinsurance recoverable of
$5.8 billion for insurance liabilities retained.
In 1997, revenues for the sold business were $972 million and net income was
$102 million.
Acquisition of Healthsource, Inc. On June 25, 1997, CIGNA acquired the
outstanding common stock of Healthsource, Inc. The total cost of the
acquisition, which was accounted for as a purchase, was $1.7 billion, including
$1.4 billion for the Healthsource common stock and $250 million to repay
outstanding Healthsource debt. The acquisition was financed by issuing $600
million in long-term debt supplemented by short-term debt and CIGNA's operating
cash flows.
Healthsource's results of operations are included in the accompanying
consolidated financial statements from the date that CIGNA acquired
Healthsource. Healthsource's 1997 revenues prior to that date were $971 million.
CIGNA's net income would not have changed significantly if CIGNA had acquired
Healthsource at the beginning of 1997.
CIGNA amortizes goodwill and intangible assets of $1.5 billion associated with
the Healthsource acquisition on a straight-line basis over periods ranging from
eight to 40 years.
Note 4 -- Investments
A. Fixed Maturities
----------------
The amortized cost and fair value by contractual maturity periods for fixed
maturities, including policyholder share, were as follows at December 31, 1999:
- -----------------------------------------------------------------------
(In millions) Amortized Fair
Cost Value
- -----------------------------------------------------------------------
Due in one year or less $ 1,422 $ 1,417
Due after one year through five years 6,189 6,204
Due after five years through ten years 6,173 6,131
Due after ten years 3,379 3,482
Mortgage- and other asset-backed securities 5,948 5,710
- -----------------------------------------------------------------------
Total $23,111 $22,944
- ------------------------------------------------=======================
Actual maturities could differ from contractual maturities because issuers may
have the right to call or prepay obligations, with or without penalties. Also,
in some cases CIGNA may extend maturity dates.
31
<PAGE>
Gross unrealized appreciation (depreciation) on fixed maturities, including
policyholder share, by type of issuer was as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
December 31, 1999
- ------------------------------------------------------------------------------------
Amortized Unrealized Unrealized Fair
(In millions) Cost Appreciation Depreciation Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federal government
and agency $ 662 $ 146 $ (5) $ 803
State and local
government 1,259 12 (57) 1,214
Foreign government 1,664 107 (19) 1,752
Corporate 13,578 302 (415) 13,465
Federal agency
mortgage-backed 860 12 (10) 862
Other mortgage-backed 1,776 17 (73) 1,720
Other asset-backed 3,312 21 (205) 3,128
- ------------------------------------------------------------------------------------
Total $23,111 $ 617 $ (784) $22,944
- -----------------------------=======================================================
- ------------------------------------------------------------------------------------
December 31, 1998
- ------------------------------------------------------------------------------------
Federal government
and agency $ 721 $ 451 $ (1) $ 1,171
State and local
government 1,033 49 (1) 1,081
Foreign government 1,424 150 (36) 1,538
Corporate 13,140 970 (181) 13,929
Federal agency
mortgage-backed 1,450 55 (2) 1,503
Other mortgage-backed 1,875 58 (11) 1,922
Other asset-backed 3,020 130 (24) 3,126
- ------------------------------------------------------------------------------------
Total $22,663 $ 1,863 $ (256) $24,270
- ----------------------------========================================================
</TABLE>
At December 31, 1999, CIGNA had commitments to purchase $46 million of fixed
maturities. Most of these commitments are to purchase unsecured investment grade
bonds, bearing interest at a fixed market rate. These bond commitments are
diversified by issuer and maturity date. CIGNA expects to disburse approximately
80% of the committed amount in 2000.
B. Mortgage Loans and Real Estate
------------------------------
CIGNA's mortgage loans and real estate investments are diversified by property
type and location. Mortgage loans are also diversified by borrower. These loans,
which are secured by the related property, are generally made at less than 75%
of the property's value.
At December 31, the carrying values of mortgage loans and real estate
investments, including policyholder share, were as follows:
- -----------------------------------------------------
(In millions) 1999 1998
- -----------------------------------------------------
Mortgage loans $ 9,737 $ 9,599
--------- ---------
Real estate:
Held for sale 312 343
Held to produce income 477 390
--------- ---------
Total real estate 789 733
- -----------------------------------------------------
Total $10,526 $10,332
- ------------------------------=======================
At December 31, mortgage loans and real estate investments comprised the
following property types and geographic regions:
- --------------------------------------------------
(In millions) 1999 1998
- --------------------------------------------------
Property type:
Retail facilities $ 3,290 $ 3,412
Office buildings 4,351 4,049
Apartment buildings 1,327 1,434
Industrial 789 692
Hotels 510 468
Other 259 277
- --------------------------------------------------
Total $10,526 $10,332
- ---------------------------=======================
Geographic region:
Central $ 2,914 $ 3,279
Pacific 2,525 2,273
Middle Atlantic 1,753 1,590
South Atlantic 1,711 1,516
New England 973 1,065
Other 650 609
- --------------------------------------------------
Total $10,526 $10,332
- ---------------------------=======================
32
<PAGE>
Mortgage loans. At December 31, 1999, scheduled mortgage loan maturities were as
follows (in billions): $1.1 in 2000, $0.9 in 2001, $1.2 in 2002, $1.7 in 2003,
$1.3 in 2004, and $3.5 thereafter.
Actual maturities could differ from contractual maturities for several reasons.
Borrowers may have the right to prepay obligations, with or without prepayment
penalties; the maturity date may be extended; and loans may be refinanced.
At December 31, 1999, CIGNA had commitments to extend credit under commercial
mortgage loan agreements of approximately $122 million, most of which were at a
fixed market rate of interest. These loan commitments are diversified by
property type and geographic region. CIGNA expects to disburse the committed
amounts in 2000.
At December 31, impaired mortgage loans and valuation reserves were as follows:
- ---------------------------------------------------------
(In millions) 1999 1998
- ---------------------------------------------------------
Impaired loans with no valuation
reserves $ 188 $ 133
Impaired loans with valuation
reserves 57 26
------- -------
Total impaired loans 245 159
Less valuation reserves (11) (6)
- ---------------------------------------------------------
Net impaired loans $ 234 $ 153
- -------------------------------------====================
During the year ended December 31, changes in reserves for impaired mortgage
loans, including policyholder share, were as follows:
- ---------------------------------------------------------
(In millions) 1999 1998
- ---------------------------------------------------------
Reserve balance - January 1 $ 6 $ 50
Transfers to foreclosed real estate -- (26)
Charge-offs upon sales -- (9)
Net change in valuation reserves 5 (9)
- ---------------------------------------------------------
Reserve balance - December 31 $ 11 $ 6
- -----------------------------------------================
Impaired mortgage loans, before valuation reserves, averaged approximately $187
million in 1999, and $294 million in 1998. Interest income recorded and cash
received on impaired loans were approximately $20 million in 1999 and $12
million in 1998.
During 1999, CIGNA refinanced approximately $99 million of its mortgage loans at
current market rates for borrowers unable to obtain alternative financing,
compared to $135 million in 1998.
Real estate. During 1999, non-cash investing activities included $13 million of
real estate acquired through foreclosure of mortgage loans, compared to $37
million for 1998 and $85 million for 1997. The total of valuation reserves and
cumulative write-downs related to real estate, including policyholder share, was
$184 million at the end of 1999, compared to $213 million at the end of 1998.
Net investment income from real estate held for sale was $11 million for 1999
and $9 million for 1998. Write-downs upon foreclosure and changes in valuation
reserves were not material for 1999 or 1998.
C. Short-Term Investments and Cash Equivalents
-------------------------------------------
Short-term investments and cash equivalents were primarily debt
securities--principally federal government bonds of $1.1 billion and corporate
securities of $1.3 billion at December 31, 1999. CIGNA held $314 million in
federal government bonds and $1.2 billion in corporate securities at December
31, 1998.
33
<PAGE>
D. Net Unrealized Appreciation (Depreciation) on Investments
---------------------------------------------------------
Unrealized appreciation (depreciation) on investments carried at fair value at
December 31 was as follows:
- --------------------------------------------------------------
(In millions) 1999 1998
- --------------------------------------------------------------
Unrealized appreciation:
Fixed maturities $ 617 $ 1,863
Equity securities 310 241
--------- ---------
927 2,104
--------- ---------
Unrealized depreciation:
Fixed maturities (784) (256)
Equity securities (11) (13)
--------- ---------
(795) (269)
--------- ---------
132 1,835
Less policyholder-related amounts (93) 897
--------- ---------
Shareholder net unrealized
appreciation 225 938
Less deferred income taxes 77 327
--------- ---------
Net unrealized appreciation of
continuing operations 148 611
Net unrealized appreciation
included in net assets of
discontinued operations -- 345
- --------------------------------------------------------------
Net unrealized appreciation $ 148 $ 956
- --------------------------------------========================
Changes in net unrealized appreciation (depreciation) on investments, including
discontinued operations, for the year ended December 31 were as follows:
- --------------------------------------------------------------------------
(In millions) 1999 1998 1997
- --------------------------------------------------------------------------
Unrealized appreciation
(depreciation) on investments held $(916) $ 366 $ 495
Less taxes (benefits) (321) 129 176
-------- ------- -------
Unrealized appreciation
(depreciation), net of taxes (595) 237 319
-------- ------- -------
Gains realized in net income 305 254 95
Less taxes 92 89 33
-------- ------- -------
Gains realized in net income,
net of taxes 213 165 62
- --------------------------------------------------------------------------
Changes in net unrealized
appreciation (depreciation) $(808) $ 72 $ 257
- -------------------------------------------===============================
E. Non-Income Producing Investments
--------------------------------
At December 31, the carrying values of investments, including policyholder
share, that were non-income producing during the preceding 12 months were as
follows:
- -------------------------------------------------
(In millions) 1999 1998
- -------------------------------------------------
Fixed maturities $ 9 $ 23
Mortgage loans 1 2
Real estate 76 68
Other long-term investments 31 6
- -------------------------------------------------
Total $117 $ 99
- ---------------------------------================
F. Derivative Financial Instruments
--------------------------------
CIGNA's investment strategy is to manage the characteristics of investment
assets--such as duration, yield, currency, and liquidity--to reflect the varying
characteristics of the related insurance and contractholder liabilities. In
implementing its investment strategy, CIGNA substantially limits its use of
derivative instruments to hedging applications designed to minimize interest
rate, foreign currency and equity price risks. The effects of derivatives were
not material for 1999, 1998 or 1997.
Hedge accounting treatment. Accounting rules provide that companies may only use
hedge accounting when it is probable that there will be a high correlation
between the changes in fair value or cash flow of a derivative instrument and
the changes in fair value or cash flow of the related hedged asset or liability.
These changes are recognized together in net income and generally offset each
other.
When hedge accounting treatment does not apply, CIGNA records the derivative at
fair value. Changes in fair value are then recognized in net income, or in
contractholder liabilities for certain derivatives associated with
experience-rated pension policyholders.
Credit risk. CIGNA routinely monitors exposure to credit risk associated with
swap and option contracts, and diversifies the portfolio among approved dealers
of high credit quality to minimize risk.
34
<PAGE>
Derivative instruments used. The table below presents information about the
nature and accounting treatment of CIGNA's derivative financial instruments, and
includes their underlying notional amounts (in millions) at December 31:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Notional
Instrument Risk Hedged Purpose Cash Flows Accounting Policy Amounts
1999
1998
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Swaps Interest rate and CIGNA hedges the CIGNA periodically Fair value is $359
foreign currency risk interest or foreign exchanges cash flow reported currently
currency cash flows differences between in fixed maturities $368
of fixed maturities variable and fixed and net interest
to match associated interest rates or cash flows are
liabilities between two reported in net
(currency swaps are currencies for both investment income.
primarily Canadian principal and
dollars, pounds interest.
sterling, Swiss
francs and euros).
- --------------------------------------------------------------------------------------------------------------------------------
Forward Interest rate risk CIGNA hedges fair CIGNA periodically Fair value is $1,793
Swaps value changes of exchanges the reported currently
fixed maturity and difference between in long-term --
mortgage loan variable and fixed investments, with
investments held rate asset cash changes in
primarily for flows, beginning at contractholder
experience-rated a future date. deposit funds.
pension
policyholders.
--------------------------------------------------------------------------------------
CIGNA hedges fair CIGNA terminates the Fair value is $288
value changes of swap and receives or recorded in
fixed maturity and pays the resulting investments --
mortgage loan gain or loss when purchased when swaps
investments to be investments are are terminated, and
purchased. purchased. is amortized to net
investment income or
reported in full as
realized gains or
losses if
investments are
sold.
- --------------------------------------------------------------------------------------------------------------------------------
Written and Primarily equity risk CIGNA writes CIGNA receives Fair values are Written
Purchased reinsurance (pays) an up-front reported currently $2,275
Options contracts to fee and will in other liabilities
minimize customers' periodically pay and other assets, $1,087
market risks and (receive) with changes
purchases unfavorable changes reported in other -----------
reinsurance in variable annuity revenues or other Purchased
contracts to account values based operating expenses. $1,822
minimize the market on underlying mutual
risks assumed. These funds when account $872
contracts are holders elect to
accounted for as receive minimum
written and income payments.
purchased options.
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
35
<PAGE>
G. Other
-----
As of December 31, 1999 and 1998, CIGNA did not have a concentration of
investments in a single issuer or borrower exceeding 10% of shareholders'
equity.
Note 5 -- Investment Income and Gains and Losses
A. Net Investment Income
---------------------
The components of net investment income, including policyholder share, for the
year ended December 31 were as follows:
- -----------------------------------------------------------------
(In millions) 1999 1998 1997
- -----------------------------------------------------------------
Fixed maturities $1,687 $1,695 $1,949
Equity securities 9 8 14
Mortgage loans 813 800 948
Policy loans 260 466 542
Real estate 152 159 213
Other long-term investments 44 34 21
Short-term investments 145 91 95
-------- -------- --------
3,110 3,253 3,782
Less investment expenses 151 138 184
- -----------------------------------------------------------------
Net investment income $2,959 $3,115 $3,598
- ---------------------------------================================
Net investment income attributable to policyholder contracts, which is included
in CIGNA's revenues and is primarily offset by amounts included in benefits,
losses and settlement expenses, was approximately $1.4 billion for 1999, $1.6
billion for 1998, and $1.7 billion for 1997. Net investment income for separate
accounts, which is not reflected in CIGNA's revenues, was $1.7 billion for 1999,
$1.5 billion for 1998 and $1.4 billion for 1997.
Fixed maturities and mortgage loans on non-accrual status, including
policyholder share, were as follows at December 31:
- ---------------------------------------------------
(In millions) 1999 1998
- ---------------------------------------------------
Restructured $187 $181
Delinquent 12 28
- ---------------------------------------------------
Total non-accrual investments $199 $209
- -----------------------------------================
In 1999, net investment income was $9 million higher than it would have been
under the original terms of these investments, reflecting collections of
unrecognized interest income. For 1998 and 1997, net investment income would
have been higher by $4 million and $8 million in those years if interest on
these non-accrued investments had been recognized in accordance with their
original terms.
B. Realized Investment Gains and Losses
------------------------------------
Realized gains and losses on investments, excluding policyholder share, for the
year ended December 31 were as follows:
- -----------------------------------------------------------------
(In millions) 1999 1998 1997
- -----------------------------------------------------------------
Fixed maturities $ (17) $ 48 $ 10
Equity securities 19 33 5
Mortgage loans (1) 14 (15)
Real estate 3 13 73
Other 4 26 20
------- ------- -------
8 134 93
Less income taxes 4 46 24
- -----------------------------------------------------------------
Net realized investment gains $ 4 $ 88 $ 69
- -----------------------------------==============================
Realized investment gains and losses included impairments in the value of
investments, net of recoveries, of $27 million in 1999 and $33 million in 1997.
In 1998, realized investment gains and losses included recoveries in the value
of investments, net of impairments, of $5 million.
Realized investment gains that are not reflected in CIGNA's revenues for the
year ended December 31 were as follows:
- ------------------------------------------------------------
(In millions) 1999 1998 1997
- ------------------------------------------------------------
Separate accounts $2,285 $ 493 $ 484
Policyholder contracts $ 5 $ 98 $ 45
- ------------------------------------------------------------
Sales of available-for-sale fixed maturities and equity securities, including
policyholder share, for the year ended December 31 were as follows:
- ----------------------------------------------------------------
(In millions) 1999 1998 1997
- ----------------------------------------------------------------
Proceeds from sales $ 3,140 $ 3,532 $ 2,044
Gross gains on sales $ 89 $ 230 $ 78
Gross losses on sales $ (44) $ (50) $ (98)
- ----------------------------------------------------------------
36
<PAGE>
Note 6 -- Debt
Short-term and long-term debt consisted of the following at December 31:
- ----------------------------------------------------------
(In millions) 1999 1998
- ----------------------------------------------------------
Short-term
Commercial paper $ -- $ 257
Current maturities of long-term
debt 57 15
- ----------------------------------------------------------
Total short-term debt $ 57 $ 272
- --------------------------------------====================
Long-term
Unsecured debt:
8.16% Notes due 2000 $ -- $ 25
8 3/4% Notes due 2001 100 100
7.17% Notes due 2002 25 25
7.4% Notes due 2003 100 100
6 3/8% Notes due 2006 100 100
7.4% Notes due 2007 300 300
8 1/4% Notes due 2007 100 100
7.65% Notes due 2023 100 100
8.3% Notes due 2023 17 17
7 7/8% Debentures due 2027 300 300
8.3% Step Down Notes due 2033 83 83
Medium-term Notes 83 111
Secured debt (principally by
real estate) 51 67
- ----------------------------------------------------------
Total long-term debt $1,359 $1,428
- --------------------------------------====================
CIGNA issues commercial paper primarily to manage imbalances between operating
cash flows and existing commitments, to meet working capital needs, and to take
advantage of current investment opportunities. Commercial paper borrowing
arrangements are supported by various lines of credit. There was no commercial
paper outstanding as of December 31, 1999. As of December 31, 1998, the weighted
average interest rate on CIGNA's commercial paper was 5.5%.
CIGNA's medium-term notes have original maturity dates ranging from
approximately five to ten years, and interest rates ranging from 6% to 9%. The
weighted average interest rate on CIGNA's outstanding medium-term notes was 8.1%
at December 31, 1999 and 8.2% at December 31, 1998.
In July 1998, CIGNA completed an offer to exchange its 8.3% Notes due 2023 with
8.3% Step Down Notes due 2033. Holders of approximately $83 million of the Notes
due 2023 accepted the offer and tendered their Notes. CIGNA may redeem these
Notes at any time before 2033, at par plus a possible additional redemption
payment. Expenses incurred in connection with the exchange were not material.
In 1997, CIGNA issued $300 million of unsecured 7.4% Notes due in 2007 and $300
million of unsecured 7 7/8% Debentures due in 2027. The proceeds from these
issues were used for the purchase of Healthsource.
As of December 31, 1999, CIGNA had available approximately $435 million in
committed and uncommitted lines of credit provided by U.S. and foreign banks.
These lines of credit generally have terms ranging from one to three years, and
are paid for with a combination of fees and bank balances. Interest that CIGNA
would be charged for using these lines of credit is negotiated for each
individual transaction.
At December 31, 1999, CIGNA had $1 billion remaining under effective shelf
registration statements filed with the Securities and Exchange Commission, which
may be issued as debt securities, equity securities or both.
Maturities of long-term debt for each of the next five years are as follows (in
millions): $57 in 2000, $148 in 2001, $39 in 2002, $129 in 2003 and $3 in 2004.
Interest expense was $116 million in 1999, $126 million in 1998 and $127 million
in 1997.
Note 7 -- Common and Preferred Stock
On April 22, 1998, CIGNA's shareholders approved a three-for-one common stock
split, an increase in the number of common shares authorized for issuance from
200 million to 600 million and a decrease in the par value of common stock from
$1 per share to $0.25 per share. Share and per share data throughout the
financial statements and notes have been retroactively adjusted for the stock
split as though it had occurred at the beginning of 1997.
- -------------------------------------------------------------------------------
(Shares in thousands) 1999 1998 1997
- -------------------------------------------------------------------------------
Common: Par value $0.25
600,000 shares authorized
Outstanding--January 1 205,650 216,996 222,594
Issued for stock option and other
benefit plans 739 1,055 687
Repurchase of common stock (36,692) (12,401) (6,285)
--------- --------- ---------
Outstanding--December 31 169,697 205,650 216,996
Treasury shares 97,149 59,530 46,875
- -------------------------------------------------------------------------------
Issued--December 31 266,846 265,180 263,871
- ----------------------------------------=======================================
In 1997, CIGNA's Board of Directors adopted a shareholder rights plan, which
will expire on August 4, 2007. The rights attach to all outstanding shares of
common stock, and will become exercisable if a third party acquires (or
announces that it will acquire) 10% or more of CIGNA's outstanding common stock
unless CIGNA's Board of Directors approves the acquisition. When exercisable,
each right entitles its holder to purchase CIGNA securities at a
37
<PAGE>
substantial discount or, at the discretion of the Board of Directors, to
exchange the rights for CIGNA common stock on a one-for-one basis. In some
cases, a right also entitles its holder to purchase securities of an acquirer at
a substantial discount. CIGNA's Board of Directors may authorize the redemption
of the rights for $.0033 each before a third party acquires 10% or more of
CIGNA's common stock, and thereafter under certain circumstances.
CIGNA has authorized a total of 25 million shares of $1 par value preferred
stock. No shares of preferred stock were outstanding at December 31, 1999, 1998
or 1997.
Note 8 -- Shareholders' Equity and Dividend Restrictions
State insurance departments that regulate CIGNA's insurance subsidiaries
prescribe accounting practices (which differ in some respects from generally
accepted accounting principles) to determine statutory net income and surplus
(shareholders' equity).
CIGNA's life insurance subsidiaries' statutory net income for the year ended,
and surplus as of, December 31 were as follows:
- ---------------------------------------------------
(In millions) 1999 1998 1997
- ---------------------------------------------------
Net income $ 937 $ 947 $ 634
Surplus $3,166 $2,858 $3,021
- ---------------------------------------------------
CIGNA's insurance subsidiaries are subject to various restrictions that limit
the amount of annual dividends or other distributions (such as loans or cash
advances) available to their shareholders without prior approval of regulatory
authorities. The maximum dividend distribution that CIGNA's insurance
subsidiaries may make during 2000 without prior approval is approximately $830
million. The amount of restricted net assets as of December 31, 1999 was
approximately $5.0 billion.
Note 9 -- Income Taxes
CIGNA's net deferred tax assets of $1.2 billion as of December 31, 1999, and
$1.0 billion as of December 31, 1998, reflect management's belief that CIGNA's
taxable income in future years will be sufficient to realize the net deferred
tax assets. This determination is based on CIGNA's earnings history and future
expectations.
The valuation allowance reflects management's assessment as to the future
realizability of deferred tax assets. During 1999, the net increase in the
valuation allowance was $86 million relating primarily to certain foreign
operations.
Through 1983, a portion of CIGNA's life insurance companies' statutory income
was not subject to current income taxation, but was accumulated in a designated
policyholders' surplus account. Additions to the account were no longer
permitted beginning in 1984. CIGNA's existing account balance of $450 million
would result in a $158 million tax liability only if it were distributed to
shareholders or exceeded a prescribed amount. Accordingly, CIGNA has not
provided taxes on this amount, as management believes it remote that these
conditions will be met. However, see Note 17 for further information regarding
this matter.
CIGNA's federal income tax returns are routinely audited by the Internal Revenue
Service (IRS). In management's opinion, adequate tax liabilities have been
established for all years. The IRS has completed audits for the years 1982
through 1993, and challenged CIGNA on one issue related to pre-1989 years. In
April 1999, the U.S. Court of Appeals affirmed the Tax Court's ruling in favor
of the IRS. The decision did not affect net income as liabilities had been
previously established. CIGNA made tax payments of approximately $115 million in
1998 and $250 million during 1997 in connection with this issue.
The tax effect of temporary differences which give rise to deferred income tax
assets and liabilities as of December 31 were as follows:
- -----------------------------------------------------------------
(In millions) 1999 1998
- -----------------------------------------------------------------
Deferred tax assets:
Employee and retiree benefit
plans $ 430 $ 463
Investments, net 317 273
Other insurance and
contractholder liabilities 312 273
Deferred gain on sale of business 235 290
Policy acquisition expenses 175 183
Bad debt expense 22 26
Other 4 35
--------- ---------
Deferred tax assets before
valuation allowance 1,495 1,543
Valuation allowance for deferred
tax assets (92) (6)
--------- ---------
Deferred tax assets, net of
valuation allowance 1,403 1,537
--------- ---------
Deferred tax liabilities:
Depreciation and amortization 169 176
Unrealized appreciation on
investments 77 327
Other 1 --
--------- ---------
Total deferred tax liabilities 247 503
- -----------------------------------------------------------------
Net deferred income tax assets $ 1,156 $ 1,034
- ------------------------------------------=======================
Current income taxes payable were $22 million as of December 31, 1999 and $27
million as of December 31, 1998.
38
<PAGE>
The components of income taxes for the year ended December 31 were as follows:
- ---------------------------------------------------------------
(In millions) 1999 1998 1997
- ---------------------------------------------------------------
Current taxes:
U.S. income $ 418 $ 772 $ 453
Foreign income 24 27 9
State income 31 40 --
------- ------- -------
473 839 462
------- ------- -------
Deferred taxes (benefits):
U.S. income 51 (145) (51)
Foreign income -- (11) 5
State income (4) (11) --
------- ------- -------
47 (167) (46)
- ---------------------------------------------------------------
Total income taxes $ 520 $ 672 $ 416
- --------------------------------===============================
State income taxes were not material in 1997.
Total income taxes for the year ended December 31 were different from the amount
computed using the nominal federal income tax rate of 35% for the following
reasons:
- ----------------------------------------------------------------------
(In millions) 1999 1998 1997
- ----------------------------------------------------------------------
Tax expense at nominal rate $ 427 $ 650 $ 430
Tax-exempt interest income (17) (14) (11)
Dividends received deduction (11) (12) (8)
Amortization of goodwill 18 17 14
State income tax (net of federal
income tax benefit) 17 18 --
Change in valuation allowance 86 -- 6
Resolved federal tax audit issues (7) -- (21)
Other 7 13 6
- ----------------------------------------------------------------------
Total income taxes $ 520 $ 672 $ 416
- ---------------------------------------===============================
Note 10 -- Pension and Other Postretirement Benefit Plans
A. Pension and Other Postretirement Benefit Plans
----------------------------------------------
CIGNA and certain of its subsidiaries provide pension and certain health care
and life insurance benefits to eligible retired employees, spouses and other
eligible dependents through various plans.
The following table summarizes the obligations and assets related to these plans
as of and for the years ended December 31:
- --------------------------------------------------------------------------------
Other
Pension Postretirement
Benefits Benefits
- --------------------------------------------------------------------------------
(In millions) 1999 1998 1999 1998
- --------------------------------------------------------------------------------
Change in benefit
obligation
Benefit obligation,
January 1 $ 3,086 $ 2,925 $ 469 $ 478
Service cost 93 106 5 4
Interest cost 195 191 33 31
(Gain) loss from past
experience (353) 32 34 (7)
Benefits paid from
plan assets (185) (137) (16) (1)
Benefits paid--
other (22) (20) (27) (32)
Divestiture (305) -- (21) --
Amendments -- -- (26) --
Other (25) (11) -- (4)
- --------------------------------------------------------------------------------
Benefit obligation,
December 31 2,484 3,086 451 469
- --------------------------------------------------------------------------------
Change in plan
assets
Fair value of plan
assets, January 1 2,922 2,631 64 59
Actual return on plan
assets 653 361 -- 6
Employer
contributions 10 67 -- --
Benefits paid (185) (137) (16) (1)
Divestiture (130) -- -- --
Other (3) -- -- --
- --------------------------------------------------------------------------------
Fair value of plan
assets, December 31 3,267 2,922 48 64
- --------------------------------------------------------------------------------
Net benefit obligation
(asset) (783) 164 403 405
Unrecognized net
gain from past
experience 880 67 167 214
Unrecognized prior
service cost -- (23) 198 213
Unamortized SFAS 87
transition asset 10 24 -- --
- --------------------------------------------------------------------------------
Net amount
recognized in the
balance sheet $ 107 $ 232 $ 768 $ 832
- ----------------------------====================================================
Prepaid benefit cost $ -- $ (14) $ -- $ --
Accrued benefit
liability 144 290 768 832
Intangible asset (37) (44) -- --
- --------------------------------------------------------------------------------
Net amount
recognized in the
balance sheet $ 107 $ 232 $ 768 $ 832
- ----------------------------====================================================
39
<PAGE>
The sale of the property and casualty business resulted in $150 million of gain
from pension benefits and $46 million of gain from other postretirement
benefits, which were reported as part of the gain on sale.
At December 31, 1999, pension plans with accumulated benefits exceeding assets
had projected benefit obligations of $181 million and related assets at fair
value of $16 million. At December 31, 1998, such plans had projected benefit
obligations of $318 million and related assets at fair value of $29 million. The
accumulated benefit obligation related to these plans was $142 million at
December 31, 1999 and $238 million at December 31, 1998.
CIGNA funds the pension plans at least at the minimum amount required by the
Employee Retirement Income Security Act of 1974 (ERISA). Substantially all
pension plan assets are invested in the separate accounts of Connecticut General
Life Insurance Company (CGLIC) and Life Insurance Company of North America,
which are CIGNA subsidiaries, or immediate participation guaranteed investment
contracts issued by CGLIC. Plan assets also include 292,500 shares of CIGNA
common stock, with a market value of $24 million at December 31, 1999 and $23
million at December 31, 1998.
Components of net pension cost, excluding the amount recognized as part of the
gain on sale noted above, for the year ended December 31 were as follows:
- ---------------------------------------------------------------------
(In millions) 1999 1998 1997
- ---------------------------------------------------------------------
Service cost $ 93 $ 106 $ 96
Interest cost 195 191 188
Expected return on plan assets (213) (208) (185)
Gain on curtailments -- -- (3)
Amortization of:
Net loss from past experience 8 4 3
Prior service cost 2 4 7
SFAS 87 transition asset (10) (10) (10)
- ---------------------------------------------------------------------
Net pension cost $ 75 $ 87 $ 96
- --------------------------------------===============================
Unfunded retiree health benefit plans had accumulated benefit obligations of
$333 million at December 31, 1999 and $327 million at December 31, 1998. At the
end of 1999 retiree life insurance plans with accumulated benefit obligations of
$118 million were partially funded with plan assets of $48 million, compared
with accumulated benefit obligations of $142 million (partially funded with plan
assets of $64 million) at the end of 1998. These plan assets were invested in
the general account of CGLIC.
Components of net other postretirement benefit cost, excluding the amount
recognized as part of the gain on sale noted above, for the year ended December
31 were as follows:
- ------------------------------------------------------------------
(In millions) 1999 1998 1997
- ------------------------------------------------------------------
Service cost $ 5 $ 4 $ 6
Interest cost 33 31 32
Expected return on plan assets (4) (4) (4)
Amortization of:
Net gain from past experience (9) (10) (11)
Prior service cost (15) (17) (17)
- ------------------------------------------------------------------
Net other postretirement
benefit cost $ 10 $ 4 $ 6
- --------------------------------------============================
The estimated rate of future increases in the per capita cost of health care
benefits was 9%, decreasing to 5.5% over seven years. This estimate reflects
CIGNA's current claim experience and management's estimate that rates of growth
will decline in the future. A 1% increase or decrease in the estimated rate
would change 1999 reported amounts as follows:
- ------------------------------------------------------------
(In millions) Increase Decrease
- ------------------------------------------------------------
Effect on total service and interest
cost $ 2 $ (2)
Effect on postretirement benefit
obligation $ 22 $(20)
- ------------------------------------------------------------
Management determined the projected pension benefit obligation and the
accumulated other postretirement benefit obligation based on the following
weighted average assumptions at December 31:
- ------------------------------------------------------------------
1999 1998 1997
- ------------------------------------------------------------------
Discount rate 8% 6.75% 7%
Expected return on plan assets:
Projected pension benefit
obligation 9% 9% 9%
Accumulated other
postretirement benefit
obligation 7% 7% 7%
Expected rate of compensation
increase:
Projected pension benefit
obligation 5.1% 5.1% 5.1%
Accumulated other
postretirement benefit
obligation 4.5% 4.5% 4.5%
- ------------------------------------------------------------------
40
<PAGE>
B. 401(k) Plans
------------
CIGNA sponsors various 401(k) plans in which CIGNA matches a portion of
employees' pre-tax contributions. Employees may invest in one or more of the
following funds: CIGNA common stock fund, several diversified stock funds, a
bond fund and a fixed-income fund.
CIGNA may elect to increase its matching contributions if CIGNA's annual
performance meets certain targets. A substantial amount of CIGNA's matching
contributions are invested in the CIGNA common stock fund. CIGNA's expense for
these plans was $45 million for 1999, $51 million for 1998 and $42 million for
1997.
Note 11 -- Employee Incentive Plans
The People Resources Committee of the Board of Directors awards stock options
and restricted stock to employees. Other authorized types of stock-based awards,
which have been used to a very limited extent, include common stock issued
instead of cash compensation and stock appreciation rights issued with stock
options. Dividend equivalent rights are also authorized, but have not been
issued.
CIGNA had the following number of shares of common stock available for award at
December 31: 10.4 million in 1999, 12.7 million in 1998 and 15.3 million in
1997.
Stock options. CIGNA awards options to purchase CIGNA common stock at the market
price of the stock on the grant date. Options vest over periods ranging from one
to five years, and expire no later than 10 years after the grant date.
When senior executive employees use shares of stock in lieu of cash to exercise
certain outstanding options, CIGNA issues replacement options equal to the
number of shares used. Like ordinary options, replacement options are
exercisable at the market price of CIGNA common stock on their grant date.
Replacement options vest six months after the grant date, and expire on the
expiration date of the original option.
The table below shows the status of and changes in common stock options during
the last three years, including approximately 3 million options granted in the
1997 Healthsource acquisition:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
(Shares in thousands) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding--January 1 10,979 $ 56.70 10,035 $ 50.70 4,884 $ 32.42
Granted 5,115 83.28 4,213 64.01 8,410 54.83
Exercised (3,247) 52.65 (2,939) 46.12 (3,204) 33.87
Expired or canceled (2,084) 67.99 (330) 61.80 (55) 39.14
--------- ---------- ---------
Outstanding--December 31 10,763 68.37 10,979 56.70 10,035 50.70
- ------------------------------------=======================================================================================
Options exercisable at year-end 4,721 $ 63.91 4,397 $ 53.35 4,370 $ 46.41
- ------------------------------------=======================================================================================
</TABLE>
The increase in expired or canceled options in 1999 is due to the sale of the
property and casualty business.
The following table summarizes the range of exercise prices for outstanding
common stock options at December 31, 1999:
- -------------------------------------------------------------------
Range of Exercise Prices
- -------------------------------------------------------------------
$ 16.73 $ 80.00
to to
(Shares in thousands) $ 79.53 $ 106.11
- -------------------------------------------------------------------
Options outstanding 6,290 4,473
Weighted average remaining
contractual life 6.7 years 8.0 years
Weighted average exercise price $ 56.22 $ 85.45
Options exercisable 3,492 1,229
Weighted average exercise price $ 53.57 $ 93.30
- -------------------------------------------------------------------
41
<PAGE>
The weighted average fair value of options granted under employee incentive
plans was $17.54 for 1999, $13.87 for 1998 and $12.94 for 1997, using the
Black-Scholes option-pricing model and the following assumptions:
- ------------------------------------------------------------------
1999 1998 1997
- ------------------------------------------------------------------
Dividend yield 1.6% 1.7% 2.4%
Expected volatility 26.0% 25.9% 23.7%
Risk-free interest rate 4.9% 5.5% 6.1%
Expected option life 3 years 3 years 4 years
- ------------------------------------------------------------------
CIGNA does not record compensation expense related to stock options because
their exercise price is equal to the market price of CIGNA common stock at the
grant date. If CIGNA had recorded compensation expense for stock options based
on their fair value at the grant date using the Black-Scholes option-pricing
model, net income would have been reduced by $39 million in 1999, $30 million in
1998 and $22 million in 1997. Diluted earnings per share would have been reduced
by $0.17 in 1999, $0.14 in 1998 and $0.10 in 1997.
Restricted stock. CIGNA makes restricted stock grants with vesting periods
ranging from three to five years. Recipients are entitled to receive dividends
and to vote during the vesting period, but forfeit their awards if their
employment is terminated before the vesting date. Grants of restricted shares of
CIGNA common stock were as follows:
- -------------------------------------------------------------
(Shares in thousands) Weighted Average
Shares Fair Value
Year Granted Per Share
- -------------------------------------------------------------
1999 403 $80.51
1998 457 $62.91
1997 428 $52.34
- -------------------------------------------------------------
Compensation cost related to these grants was $17 million in 1999, $14 million
in 1998 and $12 million in 1997. At the end of 1999, approximately 2,100
employees held 1.2 million restricted shares.
Note 12 -- Earnings Per Share
Basic and diluted earnings per share (EPS) for income from continuing operations
are computed as follows for the year ended December 31:
- ------------------------------------------------------------------------------
(Dollars in millions, except per Effect of
share amounts) Basic Dilution Diluted
- ------------------------------------------------------------------------------
1999
- ------------------------------------------------------------------------------
Income from continuing operations $ 699 $ -- $ 699
- --------------------------------------========================================
Shares (in thousands):
Weighted average 194,609 -- 194,609
Options and restricted stock
grants 2,639 2,639
- -----------------------------------------------------------------------------
Total shares 194,609 2,639 197,248
- --------------------------------------========================================
EPS $ 3.59 $ (0.05) $ 3.54
- --------------------------------------========================================
1998
- -----------------------------------------------------------------------------
Income from continuing operations $ 1,186 $ -- $ 1,186
- --------------------------------------========================================
Shares (in thousands):
Weighted average 210,948 -- 210,948
Options and restricted stock
grants 2,499 2,499
- -----------------------------------------------------------------------------
Total shares 210,948 2,499 213,447
- --------------------------------------========================================
EPS $ 5.62 $ (0.06) $ 5.56
- --------------------------------------========================================
1997
- -----------------------------------------------------------------------------
Income from continuing operations $ 812 $ -- $ 812
- --------------------------------------========================================
Shares (in thousands):
Weighted average 220,263 -- 220,263
Options and restricted stock
grants 2,250 2,250
- -----------------------------------------------------------------------------
Total shares 220,263 2,250 222,513
- --------------------------------------========================================
EPS $ 3.69 $ (0.04) $ 3.65
- --------------------------------------========================================
42
<PAGE>
Note 13 -- Reinsurance
In the normal course of business, CIGNA's insurance subsidiaries enter into
agreements with other insurance companies to assume and cede reinsurance.
Reinsurance is ceded primarily to limit losses from large exposures and to
permit recovery of a portion of direct losses. Reinsurance does not relieve the
originating insurer of liability. CIGNA evaluates the financial condition of its
reinsurers and monitors their concentrations of credit risk (arising from
similar geographic regions, activities or economic characteristics).
At December 31, 1999, CIGNA had a reinsurance recoverable of $6.0 billion from
Lincoln National Corporation that arose from the sale of CIGNA's individual life
insurance and annuity business to Lincoln through an indemnity reinsurance
transaction. See Note 3 for information about this sale.
Failure of reinsurers to indemnify CIGNA, whether because of reinsurer
insolvencies or contract disputes, could result in losses. However, management
does not expect charges for unrecoverable reinsurance to have a material effect
on CIGNA's 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, in the following amounts:
- --------------------------------------------------------------------------------
(In millions) 1999 1998 1997
- --------------------------------------------------------------------------------
Short-duration contracts
Premiums and fees:
Direct $ 12,124 $ 10,706 $ 8,509
Assumed 566 492 613
Ceded (312) (349) (338)
- --------------------------------------------------------------------------------
Net earned premiums and fees $ 12,378 $ 10,849 $ 8,784
- ---------------------------------------=========================================
Long-duration contracts
Premiums and fees:
Direct $ 2,665 $ 2,736 $ 2,707
Assumed 654 594 544
Ceded:
Individual life insurance and
annuity business sold (462) (557) --
Other (156) (166) (254)
- --------------------------------------------------------------------------------
Net earned premiums and fees $ 2,701 $ 2,607 $ 2,997
- ---------------------------------------=========================================
Reinsurance recoveries
Individual life insurance and
annuity business sold $ 362 $ 424 $ --
Other 323 325 437
- --------------------------------------------------------------------------------
Total $ 685 $ 749 $ 437
- ---------------------------------------=========================================
The effects of reinsurance on written premiums and fees for short-duration
contracts were not materially different from the amounts shown in the above
table.
Note 14 -- Leases and Rentals
Rental expenses for operating leases, principally for office space, amounted to
$143 million in 1999, $125 million in 1998 and $164 million in 1997.
As of December 31, 1999, future net minimum rental payments under non-cancelable
operating leases were approximately $549 million, payable as follows (in
millions): $107 in 2000, $98 in 2001, $85 in 2002, $73 in 2003, $60 in 2004 and
$126 thereafter.
Note 15 -- Segment Information
Operating segments are based on CIGNA's internal reporting structure. Segments
generally reflect groups of related products, but the International Life, Health
and Employee Benefits segment is based on geography. CIGNA presents segment
information as follows:
Employee Health Care, Life and Disability Benefits, which combines CIGNA's
Health Care and Group Insurance segments, offers a range of indemnity group
health and managed care products and services through guaranteed cost,
experience-rated and alternative funding arrangements such as administrative
services only and minimum premium plans. This segment also offers group life and
disability coverages.
Employee Retirement Benefits and Investment Services provides investment
products and professional services primarily to sponsors of qualified pension,
profit sharing and retirement savings plans. This segment also provides certain
corporate and variable life insurance products.
International Life, Health and Employee Benefits provides life, accident, health
and employee benefits (group life, health and pensions) coverages and services,
primarily outside the United States.
43
<PAGE>
CIGNA also reports results in two other categories:
Other Operations includes the deferred gain recognized from the 1998 sale of the
individual life insurance and annuity business, corporate life insurance on
which policy loans are outstanding (leveraged corporate life insurance), life,
accident and health reinsurance operations, settlement annuity business and
certain new business initiatives.
Corporate reflects amounts not allocated to segments, such as interest expense
on corporate debt, net investment income on unallocated investments,
intersegment eliminations and certain corporate overhead expenses (including
overhead expenses previously allocated to the property and casualty business
which have been reclassified to Corporate).
CIGNA measures the financial results of its segments using operating income (net
income excluding after-tax realized investment results, results of discontinued
operations and, in 1999, the cumulative effect of an accounting change). CIGNA
determines operating income for each segment consistent with the accounting
policies for the consolidated financial statements, except that amounts included
in Corporate as discussed above are not allocated to segments. CIGNA allocates
other corporate general, administrative and systems expenses on systematic
bases. Income taxes are generally computed as if each segment were filing
separate income tax returns.
CIGNA's operations are not materially dependent on one or a few customers,
brokers or agents.
Summarized segment financial information for the year ended and as of December
31 was as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
(In millions) 1999 1998 1997
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Employee Health Care, Life
and Disability Benefits
Premiums and fees and other
revenues $ 13,135 $ 11,963 $ 10,000
Net investment income 571 589 563
---------- ---------- ----------
Segment revenues $ 13,706 $ 12,552 $ 10,563
Income tax expense $ 395 $ 361 $ 232
Operating income $ 728 $ 617 $ 425
Assets under management:
Invested assets $ 7,864 $ 8,388 $ 8,060
Separate account assets 2,038 1,702 1,440
---------- ---------- ----------
Total $ 9,902 $ 10,090 $ 9,500
- --------------------------------------------=======================================
Employee Retirement
Benefits and Investment
Services
Premiums and fees and other
revenues $ 273 $ 257 $ 221
Net investment income 1,605 1,613 1,655
---------- ---------- ----------
Segment revenues $ 1,878 $ 1,870 $ 1,876
Income tax expense $ 128 $ 117 $ 101
Operating income $ 265 $ 248 $ 230
Assets under management:
Invested assets $ 19,751 $ 20,543 $ 21,426
Separate account assets 34,662 30,718 25,934
---------- ---------- ----------
Total $ 54,413 $ 51,261 $ 47,360
- --------------------------------------------=======================================
International Life, Health
and Employee Benefits
Premiums and fees and other
revenues $ 1,713 $ 1,231 $ 1,078
Net investment income 124 115 122
---------- ---------- ----------
Segment revenues $ 1,837 $ 1,346 $ 1,200
Income tax expense (benefit) $ (37) $ 20 $ 12
Equity in net loss of investees $ (360) $ (18) $ --
Operating income (loss) $ (342) $ 17 $ 21
Assets under management:
Invested assets $ 3,422 $ 2,774 $ 2,279
Separate account assets 142 93 67
---------- ---------- ----------
Total $ 3,564 $ 2,867 $ 2,346
- --------------------------------------------=======================================
Other Operations
Premiums and fees and other
revenues $ 854 $ 1,065 $ 1,089
Net investment income 581 771 1,235
---------- ---------- ----------
Segment revenues $ 1,435 $ 1,836 $ 2,324
Income tax expense $ 63 $ 167 $ 88
Operating income $ 122 $ 313 $ 180
Assets under management:
Invested assets $ 6,526 $ 9,968 $ 15,541
Separate account assets 2,951 2,295 1,907
---------- ---------- ----------
Total $ 9,477 $ 12,263 $ 17,448
- --------------------------------------------=======================================
</TABLE>
44
<PAGE>
- --------------------------------------------------------------------------
(In millions) 1999 1998 1997
- --------------------------------------------------------------------------
Corporate
Premiums and fees, other
revenues and eliminations $ (161) $ (114) $ (124)
Net investment income 78 27 23
---------- ---------- ----------
Segment revenues $ (83) $ (87) $ (101)
Income tax benefit $ (33) $ (39) $ (41)
Operating loss $ (78) $ (97) $ (113)
Invested assets $ 732 $ 3 $ 2
- ----------------------------------========================================
Realized Investment Gains
Realized investment gains $ 8 $ 134 $ 93
Income tax expense 4 46 24
---------- ---------- ----------
Realized investment gains,
net of taxes $ 4 $ 88 $ 69
- ----------------------------------========================================
Total
Premiums and fees and
other revenues $ 15,814 $ 14,402 $ 12,264
Net investment income 2,959 3,115 3,598
Realized investment gains 8 134 93
---------- ---------- ----------
Total revenues $ 18,781 $ 17,651 $ 15,955
Income tax expense $ 520 $ 672 $ 416
Operating income from
continuing operations $ 695 $ 1,098 $ 743
Realized investment gains,
net of taxes 4 88 69
---------- ---------- ----------
Income from continuing
operations $ 699 $ 1,186 $ 812
- ----------------------------------========================================
Assets under management
Invested assets $ 38,295 $ 41,676 $ 47,308
Separate account assets 39,793 34,808 29,348
---------- ---------- ----------
Total $ 78,088 $ 76,484 $ 76,656
- ----------------------------------========================================
Premiums and fees and other revenues by product type were as follows for the
year ended December 31:
- -------------------------------------------------------------------------
(In millions) 1999 1998 1997
- -------------------------------------------------------------------------
Health Maintenance Organizations $ 6,393 $ 5,971 $ 4,451
Medical and Dental Indemnity 3,824 3,195 2,729
Group Life 1,861 1,813 1,797
Other 3,736 3,423 3,287
- -------------------------------------------------------------------------
Total $15,814 $14,402 $12,264
- --------------------------------------===================================
Note 16 -- Foreign Operations
CIGNA provides international life, accident, health and employee benefits
insurance coverages on a direct and reinsured basis, primarily through the
International Life, Health and Employee Benefits segment (see page 44) in Japan,
Latin America, the Pacific region and Europe.
In 1999, the net translation of foreign currencies included in accumulated other
comprehensive income increased by $132 million (including a tax benefit of $75
million), compared to an increase of $12 million (including taxes of $7 million)
in 1998 and a decrease of $81 million (including a tax benefit of $43 million)
in 1997.
Premiums and fees and other revenues by geographic region for the year ended
December 31 were as follows:
- ------------------------------------------------------
(In millions) 1999 1998 1997
- ------------------------------------------------------
Domestic $14,091 $13,105 $11,139
Foreign 1,723 1,297 1,125
- ------------------------------------------------------
Total $15,814 $14,402 $12,264
- -------------------===================================
CIGNA's aggregate foreign exchange transaction losses and foreign long-lived
assets for the year ended and as of December 31, 1999, 1998 and 1997 were not
material.
Note 17 -- Contingencies
A. Financial Guarantees
--------------------
CIGNA, through its subsidiaries, is contingently liable for various financial
guarantees provided in the ordinary course of business. CIGNA also secures
reinsurance to recover a portion of amounts paid in connection with a financial
guarantee.
Specialty life reinsurance contracts. CIGNA has entered into specialty life
reinsurance contracts that contain certain guarantees for variable annuities.
One type of reinsurance contract guarantees minimum income benefits based on
unfavorable changes in account values. The other type guarantees a minimum death
benefit, also based on unfavorable changes in account values. The variable
annuity account values are based on underlying domestic equity and bond mutual
fund investments.
Those reinsurance contracts that guarantee minimum income benefits are accounted
for as written options. CIGNA has purchased reinsurance from third parties,
which substantially reduces the risk of these contracts. See Note 4(F) for
additional information.
45
<PAGE>
For those reinsurance contracts that guarantee a minimum death benefit, reserves
are established in amounts adequate to meet the estimated future obligations.
These estimates are based on various assumptions as to equity market conditions
and premiums, as well as interest, mortality and lapse rates, allowing for
adverse deviation. As of December 31, 1999, the amount of recorded liabilities
was $83 million, compared to recorded liabilities of $52 million as of December
31, 1998.
Management is reviewing alternatives to manage the associated equity market and
interest rate risks for contracts that guarantee a minimum death benefit. As
part of this review, CIGNA is considering whether to modify certain reserve
assumptions for the liabilities associated with the minimum death benefit
contracts. The guarantees under these contracts and changes that could result
from this review could adversely affect CIGNA's consolidated results of
operations in future periods. However, management does not expect them to have a
material adverse effect on CIGNA's liquidity or financial condition.
Separate account contracts. CIGNA guarantees a minimum level of benefits for
certain separate account contracts. If assets in these separate accounts are
insufficient to fund minimum policy benefits, CIGNA is obligated to pay the
difference.
As of December 31, 1999, CIGNA guaranteed minimum benefits of $4.9 billion for
separate account contracts, compared to $5.4 billion at the end of 1998.
The management fee that CIGNA charges to separate accounts includes a guarantee
fee. These fees are recognized in income as earned.
CIGNA establishes a liability if management believes that CIGNA will be required
to make a payment under a separate account contract guarantee. No such
liabilities were required as of December 31, 1999 or 1998. If CIGNA becomes
obligated to make payments as a result of these guarantees, those obligations
may adversely affect CIGNA's results of operations in future periods. However,
management does not expect these guarantee obligations to have a material
adverse effect on CIGNA's liquidity or financial condition.
Industrial revenue bonds. As of December 31, 1999 and 1998, CIGNA guaranteed $85
million of industrial revenue bond issues. These bond issues will be outstanding
for up to 16 more years. If the issuers default, CIGNA will be required to make
periodic payments based on the original terms of the bonds. Unlike many debt
obligations, an event of default under these bonds will not cause all scheduled
principal and interest payments to be due immediately.
CIGNA limits its exposure to credit risk due to default by the primary borrower
by reviewing the creditworthiness of guaranteed parties and by monitoring credit
conditions regularly. CIGNA establishes a reserve if management believes that
CIGNA will be required to make a payment under a financial guarantee.
B. Regulatory and Industry Developments
------------------------------------
CIGNA's businesses are subject to a changing social, economic, legal,
legislative and regulatory environment. Some of the more significant current
issues that may affect CIGNA's businesses include:
o efforts to expand tort liability of health plans;
o proposed class action lawsuits targeting certain health care
companies, including CIGNA;
o initiatives to increase health care regulation;
o initiatives to restrict insurance pricing and the application of
underwriting standards; and
o efforts to revise federal tax laws.
Health care regulation. Efforts are underway in the federal and state
legislatures and in the courts to increase regulation of the health care
industry and change its operational practices. Regulatory and operational
changes could have an adverse effect on CIGNA's health care operations if they
reduce marketplace competition and innovation or result in increased medical or
administrative costs without improving the quality of care.
Pending initiatives to increase health care regulation at the federal level
include "managed care reform" and "patients' bill of rights" legislation. A bill
that recently passed the House of Representatives would expand tort liability
for health plans and undermine the ability of health plans to limit coverage to
medically necessary care. A corresponding bill that recently passed the Senate
does not include such provisions. Given these differences between the House and
Senate bills and the general uncertainty of the political process, it is not
possible to determine what legislation will be enacted, if any, or what the
effect of any such legislation would be on CIGNA.
46
<PAGE>
Other regulatory changes that have been under consideration and that could have
an adverse effect on CIGNA's health care operations include:
o mandated benefits or services that increase costs without improving
the quality of care;
o loss of the ERISA preemption of state tort laws through legislative
actions and court decisions;
o changes in ERISA regulations imposing increased administrative burdens
and costs;
o restrictions on the use of prescription drug formularies; and
o privacy legislation that interferes with the ability to properly use
medical information for research, coordination of medical care and
disease management.
Federal budget proposals. The Administration's proposed budget for fiscal year
2001 would tax amounts previously accumulated in a policyholders' surplus
account. If enacted, CIGNA will record additional income tax expense of $158
million (see Note 9 for more information).
The proposed budget also would restrict the tax benefits for corporations owning
non-leveraged corporate life insurance policies. If enacted as proposed, CIGNA
does not anticipate that this provision will have a material effect on its
consolidated results of operations, liquidity or financial condition, but it
could have a material adverse effect on the results of operations of the
Employee Retirement Benefits and Investment Services segment.
Tax benefits for corporate life insurance. In 1996, Congress passed legislation
implementing a three-year phase-out period for tax deductibility of policy loan
interest for most leveraged corporate life insurance products. As a result,
management expects revenues and operating income associated with these products
to continue to decline. In 1999, revenues of $350 million and operating income
of $32 million were from products affected by this legislation.
Risk-based capital guidelines. In 1998, the National Association of Insurance
Commissioners (NAIC) adopted risk-based capital guidelines for health
maintenance organizations (HMOs), and states in which CIGNA's HMO subsidiaries
are domiciled have begun to implement these guidelines. CIGNA expects its HMO
subsidiaries to continue to be adequately capitalized under these guidelines.
Statutory accounting principles. In 1998, the NAIC adopted standardized
statutory accounting principles. Although many states have indicated their
intent to adopt these principles, certain states in which CIGNA's primary
insurance subsidiaries are domiciled have not formally adopted them. As a
result, CIGNA has not determined the timing or effect of implementing these
principles.
Insolvency funds. Various states maintain funds to pay the obligations of
insolvent insurance companies. These funds are financed with assessments against
all insurance companies. In some states, insurance companies can recover a
portion of these assessments through a reduction in future premium taxes.
CIGNA's insurance and HMO subsidiaries recorded pre-tax charges for continuing
operations of $8 million for 1999, $18 million for 1998 and $28 million for 1997
for insolvency fund and other insurance-related assessments that can be
reasonably estimated, before giving effect to future premium tax recoveries.
In addition, as discussed in Note 2(B) under "Recent Accounting Pronouncements",
CIGNA recorded a $91 million reduction of net income in the first quarter of
1999 to reflect the effect of implementing SOP 97-3 for insurance-related
assessments. Most of this charge related to the property and casualty business,
which CIGNA sold and reports as discontinued operations.
Although future assessments and payments may adversely affect results of
operations in future periods, management does not expect these amounts to have a
material adverse effect on CIGNA's liquidity or financial condition.
C. Class Action Lawsuits and Other Litigation
------------------------------------------
CIGNA and several health care industry competitors have had proposed class
action lawsuits filed against them by a coalition of plaintiffs' attorneys.
These lawsuits allege violations under RICO and ERISA. CIGNA is routinely
involved in numerous other lawsuits arising, for the most part, in the ordinary
course of the business of administering and insuring employee benefit programs.
Although the outcome of litigation is always uncertain, CIGNA does not believe
that any litigation currently threatened or pending involving CIGNA will result
in losses that would be material to results of operations, liquidity or
financial condition.
47
<PAGE>
Report of Management
The management of CIGNA is responsible for the consolidated financial statements
and all other information presented in this Annual Report. The financial
statements have been prepared in conformity with generally accepted accounting
principles, determined by management to be appropriate, and include amounts
based on management's informed estimates and judgments. Financial information
presented elsewhere in this Annual Report is consistent with the financial
statements. The appropriateness of data underlying such financial information is
monitored through internal accounting controls, internal auditors, independent
accountants and the Board of Directors acting through an Audit Committee.
CIGNA maintains a system of internal accounting controls designed to reasonably
assure the integrity and reliability of financial reporting and to provide
reasonable assurance to management and the Board of Directors that assets are
safeguarded and that transactions are executed in accordance with management's
authorization and recorded properly. The system of internal accounting controls
is supported by the selection and training of qualified personnel, by the
appropriate division of responsibilities and by the company-wide communication
of written policies and procedures.
In its corporate policy addressing business ethics, CIGNA has stated its intent
to achieve the highest level of legal and ethical standards in the conduct of
its business activities. Management provides employees with a copy of this
policy. Signed statements are obtained annually from officers, certain other
employees and directors attesting to their review of, and compliance with,
CIGNA's business ethics policy.
The Audit Committee of the Board of Directors reviews and reports to the full
Board on the appropriateness of CIGNA's accounting policies, the adequacy of its
financial controls and the reliability of financial information reported to the
public. The Committee is composed solely of outside directors. Ongoing Committee
activities include reviewing reports of management, internal auditors and the
independent accountants regarding accounting policies and practices, audit
results and internal accounting controls and assessing CIGNA's relationship with
its independent accountants. The Committee has direct access to the internal
auditors and independent accountants and meets with them without management
present.
The consolidated financial statements have been audited by CIGNA's independent
accountants, PricewaterhouseCoopers LLP, in accordance with generally accepted
auditing standards and have been reviewed by the Audit Committee of the Board of
Directors. This audit by PricewaterhouseCoopers LLP included an evaluation of
the internal accounting control structure to the extent necessary to determine
the audit procedures required to express their opinion on the consolidated
financial statements.
Management reviews recommendations of the internal auditors and independent
accountants concerning the system of internal accounting controls and responds
to such recommendations with corrective actions, as appropriate. Management
believes that, as of December 31, 1999, the system of internal accounting
controls is adequate to provide the reasonable assurances discussed herein and
that there are no material deficiencies in the design or operation of the system
of internal accounting controls.
Report of Independent Accountants
[PRICEWATERHOUSECOOPERS LOGO]
TO THE BOARD OF DIRECTORS
AND SHAREHOLDERS OF CIGNA CORPORATION
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, comprehensive income and changes in
shareholders' equity and cash flows present fairly, in all material respects,
the financial position of CIGNA Corporation and its subsidiaries (the Company)
at December 31, 1999 and 1998, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
February 8, 2000
48
<PAGE>
Quarterly Financial Data (unaudited)
The following unaudited quarterly financial data are presented on a
consolidated basis for each of the years ended December 31, 1999 and 1998.
Quarterly financial results necessarily rely heavily on estimates. This and
certain other factors, such as the seasonal nature of portions of the insurance
business, require caution in drawing specific conclusions from quarterly
consolidated results.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
(In millions, except per share amounts) Three Months Ended
- ------------------------------------------------------------------------------------------------------------------
March 31 June 30 Sept. 30 Dec. 31
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Consolidated Results
1999*
Total revenues from continuing operations $ 4,497 $ 4,697 $ 4,689 $ 4,898
Income (loss) from continuing operations
before income taxes 368 469 (63) 445
Income (loss) from continuing operations 236 303 (132) 292
Income (loss) from discontinued operations 43 (71) 1,194 --
Income before cumulative effect of accounting change 279 232 1,062 292
Cumulative effect of accounting change (91) -- -- --
Net income 188 232 1,062 292
Earnings per share from income before cumulative effect
of accounting change:
Basic 1.36 1.15 5.44 1.65
Diluted 1.34 1.13 5.44 1.63
1998**
Total revenues from continuing operations $ 4,512 $ 4,350 $ 4,302 $ 4,487
Income from continuing operations
before income taxes 683 385 412 378
Income from continuing operations 439 249 264 234
Income (loss) from discontinued operations 56 59 (13) 4
Net income 495 308 251 238
Net income per share:
Basic 2.30 1.44 1.20 1.16
Diluted 2.27 1.42 1.19 1.14
Stock and Dividend Data
1999
Price range of common stock -- high $ 86.50 $ 98.63 $ 94.38 $ 87.25
-- low $ 73.56 $ 81.25 $ 74.50 $ 63.44
Dividends declared per common share $ .30 $ .30 $ .30 $ .30
1998
Price range of common stock -- high $ 69.33 $ 71.75 $ 74.50 $ 82.38
-- low $ 56.00 $ 67.25 $ 57.19 $ 62.00
Dividends declared per common share $ .29 $ .29 $ .29 $ .29
- ------------------------------------------------------------------------------------------------------------------
<FN>
* The third quarter of 1999 includes an after-tax gain of $1.2 billion from the
sale of the property and casualty business, an after-tax charge of $400 million
attributable to certain Brazilian investments and an after-tax charge of $10
million for restructuring costs. The second quarter of 1999 includes an
after-tax gain of $43 million from the sale of a partial interest in CIGNA's
Japanese life insurance operation.
** The fourth quarter of 1998 includes after-tax charges of $19 million for
restructuring activities (principally associated with the property and casualty
operations); the first quarter of 1998 includes an after-tax gain of $202
million recognized as of January 1, 1998, from the sale of the individual life
insurance and annuity business.
</FN>
</TABLE>
49
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
Listed below are subsidiaries of CIGNA Corporation as of December 31, 1999
with their jurisdictions of organization shown in parentheses. Those
subsidiaries not listed would not, in the aggregate, constitute a "significant
subsidiary" of CIGNA Corporation, as that term is defined in Rule 1-02(w) of
Regulation S-X.
CIGNA Holdings, Inc. (Delaware)
I. Connecticut General Corporation (Connecticut)
A. CG Trust Company (Illinois)
B. CIGNA Dental Health, Inc. (Florida)
(1) CIGNA Dental Health of California, Inc. (California)
(2) CIGNA Dental Health of Colorado, Inc. (Colorado)
(3) CIGNA Dental Health of Delaware, Inc. (Delaware)
(4) CIGNA Dental Health of Florida, Inc. (Florida)
(5) CIGNA Dental Health of Kansas, Inc. (Kansas)
(6) CIGNA Dental Health of Kentucky, Inc. (Kentucky)
(7) CIGNA Dental Health of Maryland, Inc. (Delaware)
(8) CIGNA Dental Health of New Jersey, Inc. (New Jersey)
(9) CIGNA Dental Health of New Mexico, Inc. (New Mexico)
(10) CIGNA Dental Health of North Carolina, Inc. (North Carolina)
(11) CIGNA Dental Health of Ohio, Inc. (Ohio)
(12) CIGNA Dental Health of Pennsylvania, Inc. (Pennsylvania)
(13) CIGNA Dental Health of Texas, Inc. (Texas)
(14) CIGNA Dental Health Plan of Arizona, Inc. (Arizona)
C. CIGNA Financial Services, Inc. (Delaware)
D. CIGNA Health Corporation (Delaware)
(1) Healthsource, Inc. (New Hampshire)
(a) Healthsource Corporate Services, Inc. (New Hampshire)
(i) Healthsource Innovative Medical Management, Inc. (New
Hampshire)
(b) Healthsource Health Plans, Inc. (North Carolina)
(i) CIGNA HealthCare of North Carolina, Inc. (North
Carolina)
(ii) Healthsource North Carolina, Inc. (North Carolina)
(iii) Healthsource North Carolina Administrators, Inc.
(North Carolina)
(c) Healthsource Indiana, Inc. (New Hampshire)
(i) Healthsource Indiana Insurance Company (Indiana)
(ii) Healthsource Indiana Managed Care Plan, Inc. (Indiana)
(d) Healthsource Insurance Group, Inc. (New Hampshire)
(e) Healthsource Kentucky, Inc. (Kentucky)
(f) Healthsource Maine, Inc. (Maine)
(g) Healthsource Maine Preferred, Inc. (New Hampshire)
(h) Healthsource Management, Inc. (New Hampshire)
(i) Healthsource Syracuse, Inc. (New Hampshire)
(a) Healthsource HMO of New York, Inc. (New York)
(b) Healthsource Preferred of New York, Inc.(New York)
(ii) CIGNA HealthCare of Tennessee, Inc. (Tennessee)
(iii)Healthsource Tennessee Preferred, Inc. (Tennessee)
(i) CIGNA HealthCare of Massachusetts, Inc. (Massachusetts)
(j) Healthsource Metropolitan New York Holding Company, Inc.
(New Hampshire)
(i) Healthsource New York/New Jersey, Inc. (New York)
(k) Healthsource New Hampshire, Inc. (New Hampshire)
(l) Healthsource Ohio Preferred, Inc. (Ohio)
<PAGE>
(m) Healthsource Preferred, Inc. (New Hampshire)
(n) Healthsource Rhode Island, Inc. (Rhode Island)
(o) Healthsource RX, Inc. (New Hampshire)
(p) Healthsource South, Inc. (New Hampshire)
(i) CIGNA HealthCare of Georgia, Inc. (Georgia)
(ii) CIGNA HealthCare of Texas , Inc. (Texas)
(iii)Healthsource Arkansas Ventures, Inc. (Arkansas)
(a)Healthsource Arkansas, Inc. (Arkansas)
(b)Healthsource Arkansas Preferred, Inc. (Arkansas)
(iv) Healthsource Insurance Company (Tennessee)
(q) Physicians' Health Systems (South Carolina)
(i) Healthsource Insurance Services, Inc.(South Carolina)
(ii) Healthsource South Carolina, Inc. (South Carolina)
(r) Arizona Health Plan, Inc. (Arizona)
(s) CIGNA HealthCare Mid-Atlantic, Inc. (Maryland)
(t) CIGNA HealthCare of Arizona, Inc. (Arizona)
(i) CIGNA Community Choice, Inc. (Arizona)
(u) CIGNA HealthCare of California, Inc. (California)
(v) CIGNA HealthCare of Colorado, Inc. (Colorado)
(w) CIGNA HealthCare of Connecticut, Inc. (Connecticut)
(x) CIGNA HealthCare of Delaware, Inc. (Delaware)
(y) CIGNA HealthCare of Florida, Inc. (Florida)
(z) CIGNA HealthCare of Illinois, Inc. (Delaware)
(99.60% with balance owned by non-affiliate)
(aa) CIGNA Healthplan of Louisiana, Inc. (Louisiana)
(bb) CIGNA HealthCare of New Jersey, Inc. (New Jersey)
(cc) CIGNA HealthCare of New York, Inc. (New York)
(dd) CIGNA HealthCare of Ohio, Inc. (Ohio)
(ee) CIGNA HealthCare of Oklahoma, Inc. (Oklahoma)
(ff) CIGNA HealthCare of Pennsylvania, Inc. (Pennsylvania)
(gg) CIGNA HealthCare of St. Louis, Inc. (Missouri)
(hh) CIGNA HealthCare of Utah, Inc. (Utah)
(ii) CIGNA HealthCare of Virginia, Inc. (Virginia)
(jj) Lovelace Health Systems, Inc. (New Mexico)
(kk) Ross Loos Hospital, Inc. (California)
(ll) Temple Insurance Company Limited (Bermuda)
E. CIGNA Life Insurance Company of Canada (Canada)
F. CIGNA Life Insurance Company of New York (New York)
G. CIGNA RE Corporation (Delaware)
H. Connecticut General Life Insurance Company (Connecticut)
(1) All-Net Preferred Providers, Inc. (Delaware)
(2) CIGNA Life Insurance Company (Connecticut)
I. Global Portfolio Strategies, Inc. (Connecticut)
J. INA Himawari Life Insurance Co., Ltd. (Japan)
(61% with balance owned by non-affiliate)
K. International Rehabilitation Associates, Inc. (Delaware)
L. Life Insurance Company of North America (Pennsylvania)
(1) CIGNA Direct Marketing Company, Inc. (Delaware)
(2) LINATEX, Inc. (Delaware)
M. CIGNA Behavioral Health, Inc. (Minnesota)
<PAGE>
II. CIGNA Global Holdings, Inc. (Delaware)
A. Amico Assistencia Medica A Industria E Comercio Ltda. (Brazil)
(69% with balance owned by affiliate)
B. CIGNA Brazil Holdings, Inc. (Delaware)
(1) CIGNA Brasil Participacoes Ltda. (Brazil)
(a) CIGNA Servicos Ltda. (Brazil) (99.9% with balance owned by
affiliate)
(b) Excel CIGNA Seguardora S.A. (Brazil) (50% with balance owned
by non-affiliate)
C. CIGNA Global Reinsurance Company, Ltd. (Bermuda)
(1) CIGNA Holdings Overseas, Inc. (Delaware)
(a) CIGNA Argentina Compania de Seguros S.A. (Argentina)
(b) CIGNA European Services (UK) Limited (United Kingdom)
(c) CIGNA Life Insurance Company of Europe S.A.- N.V. (Belgium)
(d) CIGNA Life Insurance Company of New Zealand Limited (New
Zealand)
(e) Empresa Guatemalteca CIGNA de Seguros, Sociedad Anonima
(97.4% with balance owned by non-affiliates)
(f) INA Seguradora S.A. (Brazil) (99.7% with balance owned by
non-affiliates)
(g) Inversiones CIGNA Limitada (Chile)
(i) CIGNA Compania de Seguros de Vida (Chile) S.A. (Chile)
(98.6% with balance owned by non-affiliates)
(ii) CIGNA Saluda Isapre S.A. (Chile) (96.8% with balance
owned by non-affiliates)
(2) CIGNA Worldwide Insurance Company (Delaware)
(a) PCIB CIGNA Life Insurance Corporation (Philippines)
(50% with balance owned by non-affiliate)
(b) P.T. Asuransi Niaga CIGNA Life (Indonesia) (60% with balance
owned by non-affiliate)
D. CIGNA Healthcare Management Company (India) Private Limited (India)
E. CIGNA International Corporation (Delaware)
(1) CIGNA Eastern Europe Sp. z o.o. (Poland)
F. CIGNA International Services, Inc. (Delaware)
G. CIGNA Servicios Administrativos, S.A. de C.V. (Mexico)
H. CIGNA S.A. (Poland) (75.4% with balance owned by non-affiliate)
I. CIGNA Stu S.A. (Poland) (49% with balance owned by non-affiliate)
J. Philippine HealthCare Providers, Inc. (Philippines) (30% with balance
owned by non-affiliates)
K. Planes de Salud Integral, S.A. de C.V. (Mexico) (45% with balance
owned by non-affiliates)
L. Yasuda Kasai CIGNA Securities Company, Ltd. (Japan) (50% with balance
owned by non-affiliate)
III. CIGNA Investment Group, Inc. (Delaware)
A. CIGNA International Finance Inc. (Delaware)
(1) CIGNA International Investment Advisors, Ltd. (Delaware)
(a) CIGNA International Investment Advisors Australia Limited
(Australia)
(b) CIGNA International Investment Advisors K.K. (Japan)
B. CIGNA Investment Advisory Company, Inc. (Delaware)
C. CIGNA Investments, Inc. (Delaware)
(1) CIGNA Advisory Partners, Inc. (Delaware)
(2) CIGNA Financial Futures, Inc. (Delaware)
(3) CIGNA Leveraged Capital Fund, Inc. (Delaware)
(a) CIGNA Funding Limited Partnership (Delaware)
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-3 (No. 33-65396 and No. 333-41011) and Form S-8 (No.
2-76444, No. 33-44371, No. 33-51791, No. 33-60053, No. 333-22391, No. 333-31903,
No. 333-64207 and No. 333-90785) of CIGNA Corporation of our report dated
February 8, 2000 appearing on Page 48 of the 1999 Annual Report to Shareholders
of CIGNA Corporation, which is incorporated in this Annual Report on Form 10-K.
We also consent to the incorporation by reference in such Registration
Statements of our report on the Financial Statement Schedules, which appears on
page FS-2 of this Form 10-K.
/s/ PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
March 7, 2000
Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director of
CIGNA Corporation, a Delaware corporation ("CIGNA"), hereby makes, designates,
constitutes and appoints THOMAS J. WAGNER, CAROL J. WARD and ROBERT A. LUKENS,
and each of them (with full power to act without the other), as the
undersigned's true and lawful attorneys-in-fact and agents, with full power and
authority to act in any and all capacities for and in the name, place and stead
of the undersigned (A) in connection with the filing with the Securities and
Exchange Commission pursuant to the Securities Act of 1933 or the Securities
Exchange Act of 1934, both as amended, of:
(i) CIGNA's Annual Report on Form 10-K and all amendments thereto
(collectively, "CIGNA's Form 10-K");
(ii) any and all registration statements pertaining to employee
benefit or director compensation plans of CIGNA or its
subsidiaries, and all amendments thereto, including, without
limitation, amendments to CIGNA's registration statements on Form
S-8 (Registration Numbers 2-76444, 33-44371, 33-51791, 33-60053,
333-31903, 333-22391, 333-64207 and 333-90785);
(iii) all amendments to CIGNA's registration statements on Form S-3
(Registration Numbers 33-65396 and 333-41011 relating to $1
billion of debt securities, Preferred Stock and Common Stock; and
(B) in connection with the preparation, delivery and filing of any and all
registrations, amendments, qualifications or notifications under the applicable
securities laws of any and all states and other jurisdictions with respect to
securities of CIGNA, of whatever class or series, offered, sold, issued,
distributed, placed or resold by CIGNA, any of its subsidiaries, or any other
person or entity.
Such attorneys-in-fact and agents, or any of them, are also hereby
granted full power and authority, on behalf of and in the name, place and stead
of the undersigned, to execute and deliver all such registration statements,
registrations, amendments, qualifications and notifications, and CIGNA's Form
10-K, to execute and deliver any and all such other documents, and to take
further action as they, or any of them, deem appropriate. The powers and
authorities granted herein to such attorneys-in-fact and agents, and each of
them, also include the full right, power and authority to effect necessary or
appropriate substitutions or revocations. The undersigned hereby ratifies,
confirms, and adopts, as his own act and deed, all action lawfully taken by such
attorneys-in-fact and agents, or any of them, or by their respective
substitutes, pursuant to the powers and authorities herein granted. This Power
of Attorney expires by its terms and shall be of no further force and effect on
May 15, 2001.
IN WITNESS WHEREOF, the undersigned has executed this document as of
the 23rd of February, 2000.
/s/ Robert P. Bauman
-------------------------
Robert P. Bauman
<PAGE>
Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director of
CIGNA Corporation, a Delaware corporation ("CIGNA"), hereby makes, designates,
constitutes and appoints THOMAS J. WAGNER, CAROL J. WARD and ROBERT A. LUKENS,
and each of them (with full power to act without the other), as the
undersigned's true and lawful attorneys-in-fact and agents, with full power and
authority to act in any and all capacities for and in the name, place and stead
of the undersigned (A) in connection with the filing with the Securities and
Exchange Commission pursuant to the Securities Act of 1933 or the Securities
Exchange Act of 1934, both as amended, of:
(i) CIGNA's Annual Report on Form 10-K and all amendments thereto
(collectively, "CIGNA's Form 10-K");
(ii) any and all registration statements pertaining to employee
benefit or director compensation plans of CIGNA or its
subsidiaries, and all amendments thereto, including, without
limitation, amendments to CIGNA's registration statements on Form
S-8 (Registration Numbers 2-76444, 33-44371, 33-51791, 33-60053,
333-31903, 333-22391, 333-64207 and 333-90785);
(iii) all amendments to CIGNA's registration statements on Form S-3
(Registration Numbers 33-65396 and 333-41011 relating to $1
billion of debt securities, Preferred Stock and Common Stock; and
(B) in connection with the preparation, delivery and filing of any and all
registrations, amendments, qualifications or notifications under the applicable
securities laws of any and all states and other jurisdictions with respect to
securities of CIGNA, of whatever class or series, offered, sold, issued,
distributed, placed or resold by CIGNA, any of its subsidiaries, or any other
person or entity.
Such attorneys-in-fact and agents, or any of them, are also hereby
granted full power and authority, on behalf of and in the name, place and stead
of the undersigned, to execute and deliver all such registration statements,
registrations, amendments, qualifications and notifications, and CIGNA's Form
10-K, to execute and deliver any and all such other documents, and to take
further action as they, or any of them, deem appropriate. The powers and
authorities granted herein to such attorneys-in-fact and agents, and each of
them, also include the full right, power and authority to effect necessary or
appropriate substitutions or revocations. The undersigned hereby ratifies,
confirms, and adopts, as his own act and deed, all action lawfully taken by such
attorneys-in-fact and agents, or any of them, or by their respective
substitutes, pursuant to the powers and authorities herein granted. This Power
of Attorney expires by its terms and shall be of no further force and effect on
May 15, 2001.
IN WITNESS WHEREOF, the undersigned has executed this document as of
the 19th of February, 2000.
/s/ Robert H. Campbell
-------------------------
Robert H. Campbell
<PAGE>
Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director of
CIGNA Corporation, a Delaware corporation ("CIGNA"), hereby makes, designates,
constitutes and appoints THOMAS J. WAGNER, CAROL J. WARD and ROBERT A. LUKENS,
and each of them (with full power to act without the other), as the
undersigned's true and lawful attorneys-in-fact and agents, with full power and
authority to act in any and all capacities for and in the name, place and stead
of the undersigned (A) in connection with the filing with the Securities and
Exchange Commission pursuant to the Securities Act of 1933 or the Securities
Exchange Act of 1934, both as amended, of:
(i) CIGNA's Annual Report on Form 10-K and all amendments thereto
(collectively, "CIGNA's Form 10-K");
(ii) any and all registration statements pertaining to employee
benefit or director compensation plans of CIGNA or its
subsidiaries, and all amendments thereto, including, without
limitation, amendments to CIGNA's registration statements on Form
S-8 (Registration Numbers 2-76444, 33-44371, 33-51791, 33-60053,
333-31903, 333-22391, 333-64207 and 333-90785);
(iii) all amendments to CIGNA's registration statements on Form S-3
(Registration Numbers 33-65396 and 333-41011 relating to $1
billion of debt securities, Preferred Stock and Common Stock; and
(B) in connection with the preparation, delivery and filing of any and all
registrations, amendments, qualifications or notifications under the applicable
securities laws of any and all states and other jurisdictions with respect to
securities of CIGNA, of whatever class or series, offered, sold, issued,
distributed, placed or resold by CIGNA, any of its subsidiaries, or any other
person or entity.
Such attorneys-in-fact and agents, or any of them, are also hereby
granted full power and authority, on behalf of and in the name, place and stead
of the undersigned, to execute and deliver all such registration statements,
registrations, amendments, qualifications and notifications, and CIGNA's Form
10-K, to execute and deliver any and all such other documents, and to take
further action as they, or any of them, deem appropriate. The powers and
authorities granted herein to such attorneys-in-fact and agents, and each of
them, also include the full right, power and authority to effect necessary or
appropriate substitutions or revocations. The undersigned hereby ratifies,
confirms, and adopts, as his own act and deed, all action lawfully taken by such
attorneys-in-fact and agents, or any of them, or by their respective
substitutes, pursuant to the powers and authorities herein granted. This Power
of Attorney expires by its terms and shall be of no further force and effect on
May 15, 2001.
IN WITNESS WHEREOF, the undersigned has executed this document as of
the 22nd of February, 2000.
/s/ Alfred C. DeCrane, Jr.
--------------------------
Alfred C. DeCrane, Jr.
<PAGE>
Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director of
CIGNA Corporation, a Delaware corporation ("CIGNA"), hereby makes, designates,
constitutes and appoints THOMAS J. WAGNER, CAROL J. WARD and ROBERT A. LUKENS,
and each of them (with full power to act without the other), as the
undersigned's true and lawful attorneys-in-fact and agents, with full power and
authority to act in any and all capacities for and in the name, place and stead
of the undersigned (A) in connection with the filing with the Securities and
Exchange Commission pursuant to the Securities Act of 1933 or the Securities
Exchange Act of 1934, both as amended, of:
(i) CIGNA's Annual Report on Form 10-K and all amendments thereto
(collectively, "CIGNA's Form 10-K");
(ii) any and all registration statements pertaining to employee
benefit or director compensation plans of CIGNA or its
subsidiaries, and all amendments thereto, including, without
limitation, amendments to CIGNA's registration statements on Form
S-8 (Registration Numbers 2-76444, 33-44371, 33-51791, 33-60053,
333-31903, 333-22391, 333-64207 and 333-90785);
(iii) all amendments to CIGNA's registration statements on Form S-3
(Registration Numbers 33-65396 and 333-41011 relating to $1
billion of debt securities, Preferred Stock and Common Stock; and
(B) in connection with the preparation, delivery and filing of any and all
registrations, amendments, qualifications or notifications under the applicable
securities laws of any and all states and other jurisdictions with respect to
securities of CIGNA, of whatever class or series, offered, sold, issued,
distributed, placed or resold by CIGNA, any of its subsidiaries, or any other
person or entity.
Such attorneys-in-fact and agents, or any of them, are also hereby
granted full power and authority, on behalf of and in the name, place and stead
of the undersigned, to execute and deliver all such registration statements,
registrations, amendments, qualifications and notifications, and CIGNA's Form
10-K, to execute and deliver any and all such other documents, and to take
further action as they, or any of them, deem appropriate. The powers and
authorities granted herein to such attorneys-in-fact and agents, and each of
them, also include the full right, power and authority to effect necessary or
appropriate substitutions or revocations. The undersigned hereby ratifies,
confirms, and adopts, as his own act and deed, all action lawfully taken by such
attorneys-in-fact and agents, or any of them, or by their respective
substitutes, pursuant to the powers and authorities herein granted. This Power
of Attorney expires by its terms and shall be of no further force and effect on
May 15, 2001.
IN WITNESS WHEREOF, the undersigned has executed this document as of
the 18th of February, 2000.
/s/ Edward Hanway
-------------------------
H. Edward Hanway
<PAGE>
Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director of
CIGNA Corporation, a Delaware corporation ("CIGNA"), hereby makes, designates,
constitutes and appoints THOMAS J. WAGNER, CAROL J. WARD and ROBERT A. LUKENS,
and each of them (with full power to act without the other), as the
undersigned's true and lawful attorneys-in-fact and agents, with full power and
authority to act in any and all capacities for and in the name, place and stead
of the undersigned (A) in connection with the filing with the Securities and
Exchange Commission pursuant to the Securities Act of 1933 or the Securities
Exchange Act of 1934, both as amended, of:
(i) CIGNA's Annual Report on Form 10-K and all amendments thereto
(collectively, "CIGNA's Form 10-K");
(ii) any and all registration statements pertaining to employee
benefit or director compensation plans of CIGNA or its
subsidiaries, and all amendments thereto, including, without
limitation, amendments to CIGNA's registration statements on Form
S-8 (Registration Numbers 2-76444, 33-44371, 33-51791, 33-60053,
333-31903, 333-22391, 333-64207 and 333-90785);
(iii) all amendments to CIGNA's registration statements on Form S-3
(Registration Numbers 33-65396 and 333-41011 relating to $1
billion of debt securities, Preferred Stock and Common Stock; and
(B) in connection with the preparation, delivery and filing of any and all
registrations, amendments, qualifications or notifications under the applicable
securities laws of any and all states and other jurisdictions with respect to
securities of CIGNA, of whatever class or series, offered, sold, issued,
distributed, placed or resold by CIGNA, any of its subsidiaries, or any other
person or entity.
Such attorneys-in-fact and agents, or any of them, are also hereby
granted full power and authority, on behalf of and in the name, place and stead
of the undersigned, to execute and deliver all such registration statements,
registrations, amendments, qualifications and notifications, and CIGNA's Form
10-K, to execute and deliver any and all such other documents, and to take
further action as they, or any of them, deem appropriate. The powers and
authorities granted herein to such attorneys-in-fact and agents, and each of
them, also include the full right, power and authority to effect necessary or
appropriate substitutions or revocations. The undersigned hereby ratifies,
confirms, and adopts, as his own act and deed, all action lawfully taken by such
attorneys-in-fact and agents, or any of them, or by their respective
substitutes, pursuant to the powers and authorities herein granted. This Power
of Attorney expires by its terms and shall be of no further force and effect on
May 15, 2001.
IN WITNESS WHEREOF, the undersigned has executed this document as of
the 23rd of February, 2000.
/s/ Peter N. Larson
-------------------------
Peter N. Larson
<PAGE>
Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director of
CIGNA Corporation, a Delaware corporation ("CIGNA"), hereby makes, designates,
constitutes and appoints THOMAS J. WAGNER, CAROL J. WARD and ROBERT A. LUKENS,
and each of them (with full power to act without the other), as the
undersigned's true and lawful attorneys-in-fact and agents, with full power and
authority to act in any and all capacities for and in the name, place and stead
of the undersigned (A) in connection with the filing with the Securities and
Exchange Commission pursuant to the Securities Act of 1933 or the Securities
Exchange Act of 1934, both as amended, of:
(i) CIGNA's Annual Report on Form 10-K and all amendments thereto
(collectively, "CIGNA's Form 10-K");
(ii) any and all registration statements pertaining to employee
benefit or director compensation plans of CIGNA or its
subsidiaries, and all amendments thereto, including, without
limitation, amendments to CIGNA's registration statements on Form
S-8 (Registration Numbers 2-76444, 33-44371, 33-51791, 33-60053,
333-31903, 333-22391, 333-64207 and 333-90785);
(iii) all amendments to CIGNA's registration statements on Form S-3
(Registration Numbers 33-65396 and 333-41011 relating to $1
billion of debt securities, Preferred Stock and Common Stock; and
(B) in connection with the preparation, delivery and filing of any and all
registrations, amendments, qualifications or notifications under the applicable
securities laws of any and all states and other jurisdictions with respect to
securities of CIGNA, of whatever class or series, offered, sold, issued,
distributed, placed or resold by CIGNA, any of its subsidiaries, or any other
person or entity.
Such attorneys-in-fact and agents, or any of them, are also hereby
granted full power and authority, on behalf of and in the name, place and stead
of the undersigned, to execute and deliver all such registration statements,
registrations, amendments, qualifications and notifications, and CIGNA's Form
10-K, to execute and deliver any and all such other documents, and to take
further action as they, or any of them, deem appropriate. The powers and
authorities granted herein to such attorneys-in-fact and agents, and each of
them, also include the full right, power and authority to effect necessary or
appropriate substitutions or revocations. The undersigned hereby ratifies,
confirms, and adopts, as his own act and deed, all action lawfully taken by such
attorneys-in-fact and agents, or any of them, or by their respective
substitutes, pursuant to the powers and authorities herein granted. This Power
of Attorney expires by its terms and shall be of no further force and effect on
May 15, 2001.
IN WITNESS WHEREOF, the undersigned has executed this document as of
the 16th of February, 2000.
/s/ Joseph Neubauer
-------------------------
Joseph Neubauer
<PAGE>
Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director of
CIGNA Corporation, a Delaware corporation ("CIGNA"), hereby makes, designates,
constitutes and appoints THOMAS J. WAGNER, CAROL J. WARD and ROBERT A. LUKENS,
and each of them (with full power to act without the other), as the
undersigned's true and lawful attorneys-in-fact and agents, with full power and
authority to act in any and all capacities for and in the name, place and stead
of the undersigned (A) in connection with the filing with the Securities and
Exchange Commission pursuant to the Securities Act of 1933 or the Securities
Exchange Act of 1934, both as amended, of:
(i) CIGNA's Annual Report on Form 10-K and all amendments thereto
(collectively, "CIGNA's Form 10-K");
(ii) any and all registration statements pertaining to employee
benefit or director compensation plans of CIGNA or its
subsidiaries, and all amendments thereto, including, without
limitation, amendments to CIGNA's registration statements on Form
S-8 (Registration Numbers 2-76444, 33-44371, 33-51791, 33-60053,
333-31903, 333-22391, 333-64207 and 333-90785);
(iii) all amendments to CIGNA's registration statements on Form S-3
(Registration Numbers 33-65396 and 333-41011 relating to $1
billion of debt securities, Preferred Stock and Common Stock; and
(B) in connection with the preparation, delivery and filing of any and all
registrations, amendments, qualifications or notifications under the applicable
securities laws of any and all states and other jurisdictions with respect to
securities of CIGNA, of whatever class or series, offered, sold, issued,
distributed, placed or resold by CIGNA, any of its subsidiaries, or any other
person or entity.
Such attorneys-in-fact and agents, or any of them, are also hereby
granted full power and authority, on behalf of and in the name, place and stead
of the undersigned, to execute and deliver all such registration statements,
registrations, amendments, qualifications and notifications, and CIGNA's Form
10-K, to execute and deliver any and all such other documents, and to take
further action as they, or any of them, deem appropriate. The powers and
authorities granted herein to such attorneys-in-fact and agents, and each of
them, also include the full right, power and authority to effect necessary or
appropriate substitutions or revocations. The undersigned hereby ratifies,
confirms, and adopts, as his own act and deed, all action lawfully taken by such
attorneys-in-fact and agents, or any of them, or by their respective
substitutes, pursuant to the powers and authorities herein granted. This Power
of Attorney expires by its terms and shall be of no further force and effect on
May 15, 2001.
IN WITNESS WHEREOF, the undersigned has executed this document as of
the 17th of February, 2000.
/s/ Charles R. Shoemate
-------------------------
Charles R. Shoemate
<PAGE>
Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director of
CIGNA Corporation, a Delaware corporation ("CIGNA"), hereby makes, designates,
constitutes and appoints THOMAS J. WAGNER, CAROL J. WARD and ROBERT A. LUKENS,
and each of them (with full power to act without the other), as the
undersigned's true and lawful attorneys-in-fact and agents, with full power and
authority to act in any and all capacities for and in the name, place and stead
of the undersigned (A) in connection with the filing with the Securities and
Exchange Commission pursuant to the Securities Act of 1933 or the Securities
Exchange Act of 1934, both as amended, of:
(i) CIGNA's Annual Report on Form 10-K and all amendments thereto
(collectively, "CIGNA's Form 10-K");
(ii) any and all registration statements pertaining to employee
benefit or director compensation plans of CIGNA or its
subsidiaries, and all amendments thereto, including, without
limitation, amendments to CIGNA's registration statements on Form
S-8 (Registration Numbers 2-76444, 33-44371, 33-51791, 33-60053,
333-31903, 333-22391, 333-64207 and 333-90785);
(iii) all amendments to CIGNA's registration statements on Form S-3
(Registration Numbers 33-65396 and 333-41011 relating to $1
billion of debt securities, Preferred Stock and Common Stock; and
(B) in connection with the preparation, delivery and filing of any and all
registrations, amendments, qualifications or notifications under the applicable
securities laws of any and all states and other jurisdictions with respect to
securities of CIGNA, of whatever class or series, offered, sold, issued,
distributed, placed or resold by CIGNA, any of its subsidiaries, or any other
person or entity.
Such attorneys-in-fact and agents, or any of them, are also hereby
granted full power and authority, on behalf of and in the name, place and stead
of the undersigned, to execute and deliver all such registration statements,
registrations, amendments, qualifications and notifications, and CIGNA's Form
10-K, to execute and deliver any and all such other documents, and to take
further action as they, or any of them, deem appropriate. The powers and
authorities granted herein to such attorneys-in-fact and agents, and each of
them, also include the full right, power and authority to effect necessary or
appropriate substitutions or revocations. The undersigned hereby ratifies,
confirms, and adopts, as his own act and deed, all action lawfully taken by such
attorneys-in-fact and agents, or any of them, or by their respective
substitutes, pursuant to the powers and authorities herein granted. This Power
of Attorney expires by its terms and shall be of no further force and effect on
May 15, 2001.
IN WITNESS WHEREOF, the undersigned has executed this document as of
the 23rd of February, 2000.
/s/ Louis W. Sullivan, M.D.
---------------------------
Louis W. Sullivan, M.D.
<PAGE>
Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director of
CIGNA Corporation, a Delaware corporation ("CIGNA"), hereby makes, designates,
constitutes and appoints THOMAS J. WAGNER, CAROL J. WARD and ROBERT A. LUKENS,
and each of them (with full power to act without the other), as the
undersigned's true and lawful attorneys-in-fact and agents, with full power and
authority to act in any and all capacities for and in the name, place and stead
of the undersigned (A) in connection with the filing with the Securities and
Exchange Commission pursuant to the Securities Act of 1933 or the Securities
Exchange Act of 1934, both as amended, of:
(i) CIGNA's Annual Report on Form 10-K and all amendments thereto
(collectively, "CIGNA's Form 10-K");
(ii) any and all registration statements pertaining to employee
benefit or director compensation plans of CIGNA or its
subsidiaries, and all amendments thereto, including, without
limitation, amendments to CIGNA's registration statements on Form
S-8 (Registration Numbers 2-76444, 33-44371, 33-51791, 33-60053,
333-31903, 333-22391, 333-64207 and 333-90785);
(iii) all amendments to CIGNA's registration statements on Form S-3
(Registration Numbers 33-65396 and 333-41011 relating to $1
billion of debt securities, Preferred Stock and Common Stock; and
(B) in connection with the preparation, delivery and filing of any and all
registrations, amendments, qualifications or notifications under the applicable
securities laws of any and all states and other jurisdictions with respect to
securities of CIGNA, of whatever class or series, offered, sold, issued,
distributed, placed or resold by CIGNA, any of its subsidiaries, or any other
person or entity.
Such attorneys-in-fact and agents, or any of them, are also hereby
granted full power and authority, on behalf of and in the name, place and stead
of the undersigned, to execute and deliver all such registration statements,
registrations, amendments, qualifications and notifications, and CIGNA's Form
10-K, to execute and deliver any and all such other documents, and to take
further action as they, or any of them, deem appropriate. The powers and
authorities granted herein to such attorneys-in-fact and agents, and each of
them, also include the full right, power and authority to effect necessary or
appropriate substitutions or revocations. The undersigned hereby ratifies,
confirms, and adopts, as his own act and deed, all action lawfully taken by such
attorneys-in-fact and agents, or any of them, or by their respective
substitutes, pursuant to the powers and authorities herein granted. This Power
of Attorney expires by its terms and shall be of no further force and effect on
May 15, 2001.
IN WITNESS WHEREOF, the undersigned has executed this document as of
the 23rd of February, 2000.
/s/ Wilson H. Taylor
-------------------------
Wilson H. Taylor
<PAGE>
Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director of
CIGNA Corporation, a Delaware corporation ("CIGNA"), hereby makes, designates,
constitutes and appoints THOMAS J. WAGNER, CAROL J. WARD and ROBERT A. LUKENS,
and each of them (with full power to act without the other), as the
undersigned's true and lawful attorneys-in-fact and agents, with full power and
authority to act in any and all capacities for and in the name, place and stead
of the undersigned (A) in connection with the filing with the Securities and
Exchange Commission pursuant to the Securities Act of 1933 or the Securities
Exchange Act of 1934, both as amended, of:
(i) CIGNA's Annual Report on Form 10-K and all amendments thereto
(collectively, "CIGNA's Form 10-K");
(ii) any and all registration statements pertaining to employee
benefit or director compensation plans of CIGNA or its
subsidiaries, and all amendments thereto, including, without
limitation, amendments to CIGNA's registration statements on Form
S-8 (Registration Numbers 2-76444, 33-44371, 33-51791, 33-60053,
333-31903, 333-22391, 333-64207 and 333-90785);
(iii) all amendments to CIGNA's registration statements on Form S-3
(Registration Numbers 33-65396 and 333-41011 relating to $1
billion of debt securities, Preferred Stock and Common Stock; and
(B) in connection with the preparation, delivery and filing of any and all
registrations, amendments, qualifications or notifications under the applicable
securities laws of any and all states and other jurisdictions with respect to
securities of CIGNA, of whatever class or series, offered, sold, issued,
distributed, placed or resold by CIGNA, any of its subsidiaries, or any other
person or entity.
Such attorneys-in-fact and agents, or any of them, are also hereby
granted full power and authority, on behalf of and in the name, place and stead
of the undersigned, to execute and deliver all such registration statements,
registrations, amendments, qualifications and notifications, and CIGNA's Form
10-K, to execute and deliver any and all such other documents, and to take
further action as they, or any of them, deem appropriate. The powers and
authorities granted herein to such attorneys-in-fact and agents, and each of
them, also include the full right, power and authority to effect necessary or
appropriate substitutions or revocations. The undersigned hereby ratifies,
confirms, and adopts, as his own act and deed, all action lawfully taken by such
attorneys-in-fact and agents, or any of them, or by their respective
substitutes, pursuant to the powers and authorities herein granted. This Power
of Attorney expires by its terms and shall be of no further force and effect on
May 15, 2001.
IN WITNESS WHEREOF, the undersigned has executed this document as of
the 23rd of February, 2000.
/s/ Harold A. Wagner
-------------------------
Harold A. Wagner
<PAGE>
Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director of
CIGNA Corporation, a Delaware corporation ("CIGNA"), hereby makes, designates,
constitutes and appoints THOMAS J. WAGNER, CAROL J. WARD and ROBERT A. LUKENS,
and each of them (with full power to act without the other), as the
undersigned's true and lawful attorneys-in-fact and agents, with full power and
authority to act in any and all capacities for and in the name, place and stead
of the undersigned (A) in connection with the filing with the Securities and
Exchange Commission pursuant to the Securities Act of 1933 or the Securities
Exchange Act of 1934, both as amended, of:
(i) CIGNA's Annual Report on Form 10-K and all amendments thereto
(collectively, "CIGNA's Form 10-K");
(ii) any and all registration statements pertaining to employee
benefit or director compensation plans of CIGNA or its
subsidiaries, and all amendments thereto, including, without
limitation, amendments to CIGNA's registration statements on Form
S-8 (Registration Numbers 2-76444, 33-44371, 33-51791, 33-60053,
333-31903, 333-22391, 333-64207 and 333-90785);
(iii) all amendments to CIGNA's registration statements on Form S-3
(Registration Numbers 33-65396 and 333-41011 relating to $1
billion of debt securities, Preferred Stock and Common Stock; and
(B) in connection with the preparation, delivery and filing of any and all
registrations, amendments, qualifications or notifications under the applicable
securities laws of any and all states and other jurisdictions with respect to
securities of CIGNA, of whatever class or series, offered, sold, issued,
distributed, placed or resold by CIGNA, any of its subsidiaries, or any other
person or entity.
Such attorneys-in-fact and agents, or any of them, are also hereby
granted full power and authority, on behalf of and in the name, place and stead
of the undersigned, to execute and deliver all such registration statements,
registrations, amendments, qualifications and notifications, and CIGNA's Form
10-K, to execute and deliver any and all such other documents, and to take
further action as they, or any of them, deem appropriate. The powers and
authorities granted herein to such attorneys-in-fact and agents, and each of
them, also include the full right, power and authority to effect necessary or
appropriate substitutions or revocations. The undersigned hereby ratifies,
confirms, and adopts, as his own act and deed, all action lawfully taken by such
attorneys-in-fact and agents, or any of them, or by their respective
substitutes, pursuant to the powers and authorities herein granted. This Power
of Attorney expires by its terms and shall be of no further force and effect on
May 15, 2001.
IN WITNESS WHEREOF, the undersigned has executed this document as of
the 16th of February, 2000.
/s/ Carol Cox Wait
-------------------------
Carol Cox Wait
<PAGE>
Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director of
CIGNA Corporation, a Delaware corporation ("CIGNA"), hereby makes, designates,
constitutes and appoints THOMAS J. WAGNER, CAROL J. WARD and ROBERT A. LUKENS,
and each of them (with full power to act without the other), as the
undersigned's true and lawful attorneys-in-fact and agents, with full power and
authority to act in any and all capacities for and in the name, place and stead
of the undersigned (A) in connection with the filing with the Securities and
Exchange Commission pursuant to the Securities Act of 1933 or the Securities
Exchange Act of 1934, both as amended, of:
(i) CIGNA's Annual Report on Form 10-K and all amendments thereto
(collectively, "CIGNA's Form 10-K");
(ii) any and all registration statements pertaining to employee
benefit or director compensation plans of CIGNA or its
subsidiaries, and all amendments thereto, including, without
limitation, amendments to CIGNA's registration statements on Form
S-8 (Registration Numbers 2-76444, 33-44371, 33-51791, 33-60053,
333-31903, 333-22391, 333-64207 and 333-90785);
(iii) all amendments to CIGNA's registration statements on Form S-3
(Registration Numbers 33-65396 and 333-41011 relating to $1
billion of debt securities, Preferred Stock and Common Stock; and
(B) in connection with the preparation, delivery and filing of any and all
registrations, amendments, qualifications or notifications under the applicable
securities laws of any and all states and other jurisdictions with respect to
securities of CIGNA, of whatever class or series, offered, sold, issued,
distributed, placed or resold by CIGNA, any of its subsidiaries, or any other
person or entity.
Such attorneys-in-fact and agents, or any of them, are also hereby
granted full power and authority, on behalf of and in the name, place and stead
of the undersigned, to execute and deliver all such registration statements,
registrations, amendments, qualifications and notifications, and CIGNA's Form
10-K, to execute and deliver any and all such other documents, and to take
further action as they, or any of them, deem appropriate. The powers and
authorities granted herein to such attorneys-in-fact and agents, and each of
them, also include the full right, power and authority to effect necessary or
appropriate substitutions or revocations. The undersigned hereby ratifies,
confirms, and adopts, as his own act and deed, all action lawfully taken by such
attorneys-in-fact and agents, or any of them, or by their respective
substitutes, pursuant to the powers and authorities herein granted. This Power
of Attorney expires by its terms and shall be of no further force and effect on
May 15, 2001.
IN WITNESS WHEREOF, the undersigned has executed this document as of
the 18th of February, 2000.
/s/ Marilyn Ware
-------------------------
Marilyn Ware
Exhibit 24.2
Certified to be a true and correct copy of the resolutions adopted by the Board
of Directors of CIGNA Corporation at a meeting held on February 23, 2000, a
quorum being present, and such resolutions are still in full force and effect as
of this date of certification, not having been amended, modified or rescinded
since the date of their adoption.
RESOLVED, That the Officers of the Corporation, and each of
them, are hereby authorized to sign CIGNA Corporation's Annual Report
on Form 10-K for the year ended December 31, 1999, and any amendments
thereto, (the "Form 10-K") in the name and on behalf of and as
attorneys for the Corporation and each of its Directors and Officers.
RESOLVED, That each Officer and Director of the Corporation
who may be required to execute (whether on behalf of the Corporation or
as an Officer or Director thereof) the Form 10-K, is hereby authorized
to execute and deliver a power of attorney appointing such person or
persons named therein as true and lawful attorneys and agents to
execute in the name, place and stead (in any such capacity) of any such
Officer or Director said Form 10-K and to file any such power of
attorney together with the Form 10-K with the Securities and Exchange
Commission.
Date: February 23, 2000 /s/ Carol J. Ward
-----------------
Carol J. Ward
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS INCORPORATED BY REFERENCE IN ITEM 8 OF PART II TO CIGNA'S
REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<DEBT-HELD-FOR-SALE> 22,944
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 585
<MORTGAGE> 9,737
<REAL-ESTATE> 789
<TOTAL-INVEST> 38,295
<CASH> 2,232
<RECOVER-REINSURE> 6,768<F1>
<DEFERRED-ACQUISITION> 927
<TOTAL-ASSETS> 95,333
<POLICY-LOSSES> 12,625
<UNEARNED-PREMIUMS> 674
<POLICY-OTHER> 4,135
<POLICY-HOLDER-FUNDS> 26,599
<NOTES-PAYABLE> 1,416
0
0
<COMMON> 67
<OTHER-SE> 6,082
<TOTAL-LIABILITY-AND-EQUITY> 95,333
15,079
<INVESTMENT-INCOME> 2,959
<INVESTMENT-GAINS> 8
<OTHER-INCOME> 735
<BENEFITS> 12,522
<UNDERWRITING-AMORTIZATION> 251
<UNDERWRITING-OTHER> 4,789
<INCOME-PRETAX> 1,219
<INCOME-TAX> 520
<INCOME-CONTINUING> 699
<DISCONTINUED> 1,166
<EXTRAORDINARY> 0
<CHANGES> (91)
<NET-INCOME> 1,774
<EPS-BASIC> 9.12
<EPS-DILUTED> 8.99
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1> AMOUNT INCLUDES RECOVERABLES ON PAID AND UNPAID LOSSES.
</FN>
</TABLE>
