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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-8323
CIGNA CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 06-1059331
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE LIBERTY PLACE, PHILADELPHIA, PENNSYLVANIA 19192-1550
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (215) 761-1000
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 $1; New York Stock Exchange, Inc.
Preferred Stock Pacific Stock Exchange, Inc.
Purchase Rights; Philadelphia Stock Exchange, Inc.
and
8.20% Convertible Subordinated New York Stock Exchange, Inc.
Debentures due July 10, 2010
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. / /
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 14, 1994, was approximately $4.4 billion.
As of March 14, 1994, 72,359,080 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,
1993 (the "1993 Annual Report"). Part III of this Form 10-K incorporates by
reference information from the registrant's proxy statement dated March 21,
1994.
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TABLE OF CONTENTS
PAGE
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PART I
Item 1. Business.................................................................. 1
A. Description of Business............................................... 1
B. Financial Information about Industry Segments......................... 2
C. Employee Life and Health Benefits..................................... 3
D. Employee Retirement and Savings Benefits.............................. 6
E. Individual Financial Services......................................... 9
F. Property and Casualty................................................. 13
G. Investments and Investment Income..................................... 27
H. Regulation............................................................ 32
I. Miscellaneous........................................................ 34
Item 2. Properties................................................................ 34
Item 3. Legal Proceedings......................................................... 35
Item 4. Submission of Matters to a Vote of Security Holders....................... 35
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters................................................................... 36
Item 6. Selected Financial Data................................................... 36
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................ 36
Item 8. Financial Statements and Supplementary Data............................... 36
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure................................................................ 36
PART III
Item 10. Directors and Executive Officers of the Registrant........................ 36
A. Directors of the Registrant........................................... 36
B. Executive Officers of the Registrant.................................. 36
C. Compliance with Section 16(a) of the Securities Exchange Act.......... 37
Item 11. Executive Compensation.................................................... 37
Item 12. Security Ownership of Certain Beneficial Owners and Management............ 37
Item 13. Certain Relationships and Related Transactions............................ 37
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.......... 38
Signatures............................................................................ 39
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
With shareholders' equity of $6.6 billion, revenues of $18.4 billion and
assets of $85.0 billion as of December 31, 1993, CIGNA Corporation and its
subsidiaries constitute one of the largest investor-owned insurance
organizations in the United States and one of the principal United States
companies in the financial services industry. Unless the context otherwise
indicates, the terms "CIGNA" and the "Company," when used herein, refer to one
or more of CIGNA Corporation and its consolidated subsidiaries. Although CIGNA
Corporation is not an insurance company, its subsidiaries are major providers of
group life and health insurance, managed care products and services, retirement
products and services, individual financial services, and property and casualty
insurance. CIGNA is one of the largest international insurance organizations
based in the United States, measured by international revenues, and the largest
investor-owned health maintenance organization ("HMO") in the United States,
measured by number of enrollees. CIGNA's major insurance subsidiaries,
Connecticut General Life Insurance Company ("CG Life") and Insurance Company of
North America ("ICNA"), are among the oldest insurance companies in the United
States, with ICNA tracing its origins to 1792 and CG Life to 1865. CIGNA
Corporation was incorporated in the State of Delaware in 1981.
CIGNA's revenues are derived principally from premiums and fees and
investment income. CIGNA conducts its business through the following operating
divisions, the financial results of which are reported in the following
segments:
Employee Life and Health Benefits Segment (beginning on page 3)
CIGNA HealthCare
CIGNA Group Insurance - Life-Accident-Disability(1)
Employee Retirement and Savings Benefits Segment (beginning on page 6)
CIGNA Retirement & Investment Services
Individual Financial Services Segment (beginning on page 9)
CIGNA Individual Insurance
CIGNA Reinsurance - Life-Accident-Health
Property and Casualty Segment (beginning on page 13)
CIGNA Property & Casualty
CIGNA International
CIGNA Reinsurance - Property & Casualty
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(1) Portions of this division are reported in the Individual Financial Services
and Property and Casualty Segments.
Investment results produced by CIGNA Investment Management on behalf of
CIGNA's insurance operations are reported in each segment's results or in Other
Operations. The other businesses of CIGNA Investment Management are described on
page 32 and financial results for these businesses are reported in Other
Operations.
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CIGNA and its major insurance subsidiaries are rated by nationally
recognized rating agencies. Insurance company ratings represent the opinions of
the rating agencies of the financial strength of the Company and its capacity to
meet the obligations of insurance policies. Corporate credit ratings are
assessments of the likelihood that a borrower will make timely payments of
principal and interest. As of March 25, 1994, the principal ratings obtained
through a contractual relationship with the agencies were as follows:
RATING AGENCIES
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MOODY'S
A. M. DUFF & INVESTORS STANDARD
BEST PHELPS SERVICES & POOR'S
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Insurance Company Ratings
CG Life............................................ A+ AAA Aa3 AA+
Life Insurance Company of North America............ A+ * * *
Property & Casualty Domestic Pool Group(1)......... A- * A2 *
Corporate Credit Ratings
Senior Debt........................................ * * A2 A
Subordinated Debt.................................. * * A3 A
Commercial Paper................................... * * P-1 A-1
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* Not rated.
(1) A group of subsidiaries rated on a combined basis.
Rating agencies generally assign ratings to insurance companies along a
scale. While the significance of individual ratings varies from agency to
agency, companies assigned ratings at the top end of the scale 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 scale have the
weakest capacity.
Insurance company rating scales of the principal agencies that rate the
Company's insurance subsidiaries are characterized as follows: A.M. Best
Company, Inc. ("A.M. Best"), A++ to F ("Superior" to "In Liquidation"); Duff &
Phelps, AAA ("Highest") to Substantial Risk; Moody's Investor Services
("Moody's"), Aaa to C ("Exceptional" to "Lowest"); and Standard & Poor's
("S&P"), AAA to R ("Superior" to "Regulatory Action").
The scales of corporate credit ratings of the principal agencies that rate
CIGNA are characterized as follows: Moody's, Aaa to C ("Best" to "Lowest"); and
S&P, AAA to D ("Extremely Strong" to "Default"). Commercial paper ratings for
Moody's range from Prime 1 to Not Prime ("Superior" to "Speculative"). S&P's
commercial paper ratings run from A-1+ to D ("Highest" to "Default").
The ratings of CG Life are characterized as "superior", "highest" or
"excellent" and the property and casualty ratings as "excellent" or "good" by
the rating agencies. The corporate credit ratings are characterized as "upper
medium" or "strong" by the rating agencies, and allow CIGNA ready access to the
capital markets. The ratings are reviewed routinely by the rating agencies and
may be changed at their discretion. In February 1994, Moody's informed CIGNA
that it is reviewing for possible downgrade the credit ratings of CIGNA
Corporation and the insurance company ratings of CG Life and the Property &
Casualty Domestic Pool Group. The outcome of this review is not expected to have
a material adverse effect on CIGNA's financial condition.
B. Financial Information about Industry Segments
All financial information in the tables that follow is presented in
conformity with generally accepted accounting principles ("GAAP"), unless
otherwise indicated. Certain reclassifications have been made to 1992 and 1991
financial information to conform with the 1993 presentation. Industry rankings
and percentages set forth below are for the year ended December 31, 1992, unless
otherwise indicated. Unless otherwise noted, statements set forth in this
document concerning CIGNA's rank or position in an industry or particular line
of business have been developed internally based on publicly available
information.
Revenues; income (loss) before income taxes, extraordinary item and
cumulative effect of accounting changes; and identifiable assets attributable to
each of CIGNA's business segments, other operations and foreign operations are
set forth in Notes 12 and 13 to CIGNA's 1993 Financial Statements and are
incorporated by reference from pages 45 and 46 of CIGNA's 1993 Annual Report.
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C. Employee Life and Health Benefits
Principal Products and Markets
CIGNA's Employee Life and Health Benefits operations offer a wide range of
traditional indemnity insurance products and are a leading provider of managed
care and cost containment products and services. The following table sets forth
the principal products of this segment and their related net earned premiums and
fees.
YEAR ENDED DECEMBER 31,
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1993 1992 1991
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(IN MILLIONS)
Indemnity:
Medical................................................... $1,983 $1,946 $2,148
Life...................................................... 1,627 1,580 1,384
Long-term Disability...................................... 427 435 475
Dental.................................................... 324 329 375
Accidental Death and Dismemberment........................ 260 243 233
Short-term Disability..................................... 91 100 112
Other..................................................... 18 13 11
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Total................................................... 4,730 4,646 4,738
Prepaid Health and Dental Care.............................. 2,708 2,528 2,399
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Total Premiums and Fees..................................... $7,438 $7,174 $7,137
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Amounts in table do not include "premium equivalents," which are the
industry's measure of the additional premiums that would have been earned
under minimum premium and ASO contracts (described below under "Principal
Products and Markets") if they had been written as traditional indemnity or
health maintenance organization ("HMO") programs.
CIGNA's Employee Life and Health Benefits customers range in size from some
of the largest United States corporations to small enterprises, and include
employers, multiple employer groups, unions, professional and other
associations, and other groups. Products are marketed in all 50 states, the
District of Columbia and Puerto Rico.
Most of the indemnity products listed in the above table are sold on an
experience-rated basis and all are provided through traditional insurance
arrangements, in which CIGNA assumes the full insurance risk for a set premium.
Certain group indemnity coverages, primarily medical and dental, also are
provided through alternative funding programs under which the customer assumes
all or a portion of the responsibility for funding claims, with CIGNA providing
combinations of administrative and claim services and insurance for a fee or
premium charge. These alternative funding programs, primarily consisting of
"minimum premium" arrangements and administrative services only ("ASO") plans,
constituted 57% of business volume (premiums and fees plus premium equivalents)
in 1993. In minimum premium business, the policyholder funds claims up to a
predetermined aggregate amount and CIGNA funds claims exceeding that amount.
Under ASO plans, the policyholder is responsible for funding all claims and
CIGNA provides administrative services for a fee; CIGNA may also provide
stop-loss insurance for claims in excess of a predetermined amount. Alternative
funding programs and their effect on CIGNA's results are more fully described on
page 16 of the Management's Discussion and Analysis ("MD&A") section of CIGNA's
1993 Annual Report.
CIGNA markets various disability products, including long-term and
short-term disability, 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 earned income lost because of disability. Personal accident
coverages, which consist primarily of accidental death and dismemberment and
travel accident insurance, are provided to employers, associations and other
groups.
Disability management and medical cost containment services provided by
CIGNA help insurers and employers reduce the cost of their benefit programs.
CIGNA also provides managed mental health and
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substance abuse coverage and services to HMOs, insurers and employers through a
national network of mental health specialists, some of whom are employees of
CIGNA.
CIGNA had outstanding approximately 8,100 group life insurance policies
covering approximately 14 million lives as of December 31, 1993. The following
table shows group life insurance in force and termination data.
YEAR ENDED DECEMBER 31
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1993 1992 1991
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(DOLLARS IN ROUNDED MILLIONS)
In force, end of year.................................... $ 512,000 $ 490,000 $ 430,000
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Cancellations (lapses and expirations)................... $ 53,000 $ 37,000 $ 56,000
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To control their health care costs, many employers have changed and others
are changing their benefit plan design by introducing or expanding managed care
features. Managed care products promote effective, efficient use of health care
services by coordinating utilization of care and controlling unit costs through
provider contracts. While HMOs are generally the most cost-efficient form of
managed care, many employers offer their employees a choice of benefit and cost
options. CIGNA provides these options through HMOs, preferred provider
organizations ("PPOs") and traditional indemnity coverage as well as through
integrated products, which include all three. Integrated products are available
under alternative funding as well as traditional insurance arrangements. These
products may include contract provisions that provide that costs to the customer
will not exceed specified levels. In the aggregate, there was essentially no net
effect on CIGNA's 1993 results associated with these contract provisions.
CIGNA's prepaid health care operations provide medical services through
HMOs. CIGNA's HMOs include (1) staff models, in which physicians and other
providers are employees of the HMO, (2) individual practice association ("IPA")
models, in which independent physicians and hospitals are under contract with
CIGNA to provide services and (3) mixed models, in which attributes of IPA and
staff model HMOs are combined. Staff model HMOs offer a greater opportunity for
direct control of medical costs, quality and service, but require more capital
investment. IPAs may cover wider geographic areas with lower fixed costs, but
must rely on cost-effective contracts with providers and appropriate utilization
management to control medical costs. Staff models generally offer lower costs to
the consumer, whereas IPAs may offer broader provider choice and greater
accessibility.
CIGNA had 48 HMO networks serving approximately 2.7 million members as of
December 31, 1993, 48 serving approximately 2.3 million members as of December
31, 1992, and 44 serving approximately 2.2 million members as of December 31,
1991. As of December 31, 1993, 40 of CIGNA's HMO networks were IPA models (with
60% of total members); 3 were staff models (with 24% of total members); and 5
were mixed models (with 16% of total members).
CIGNA's indemnity business includes contracts with doctors, hospitals and
other independent providers to form PPOs in 71 networks as of December 31, 1993
and 53 as of December 31, 1992. Under a PPO arrangement, CIGNA reimburses PPO
participants for the costs of medical care obtained from contracted providers,
who charge on a discounted rate basis. CIGNA's PPOs served approximately 900,000
individuals as of December 31, 1993 and approximately 780,000 individuals as of
December 31, 1992.
CIGNA also offers prepaid dental coverage, using networks of independent
providers in most states, serving approximately 1.7 million, 1.3 million and 1.1
million participants as of December 31, 1993, 1992 and 1991, respectively.
Distribution
The products of this segment are distributed primarily by employed group
sales representatives through national and other insurance brokers and insurance
consultants and, to a lesser extent, by CIGNA's career agents. Sales of prepaid
health care products are made primarily to employers by CIGNA's sales
representatives and also through insurance brokers. During 1993, a new direct
sales force began marketing HMOs on a
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guaranteed-cost basis to smaller companies. Salaried marketing representatives
sell disability management, medical and disability cost containment, and managed
mental health and substance abuse services directly to insurance companies, HMOs
and employer groups. Salaried enrollment specialists enroll employees in group
life insurance, HMOs and related programs at the worksite. As of December 31,
1993, the field sales force for the products of this segment consisted of
approximately 540 sales representatives in 106 field locations.
Pricing and Reserves
Premiums and fees charged for group indemnity and prepaid products reflect
assumptions about future claims, expenses, credit risk, investment returns,
competitive considerations and target profit margins. Premiums and fees charged
for HMOs and PPOs also reflect assumptions about the impact of provider
contracts and utilization management. Most of the premium volume for the
indemnity business is established on an experience-rated basis, in which
premiums may be adjusted to reflect actual claims experience, administrative
expenses and income from investable funds attributable to a given policyholder.
All other premiums are based on a guaranteed-cost method, for which there is no
retrospective adjustment for actual experience. Both guaranteed-cost and
experience-rated contracts generally permit annual rate adjustments.
In addition to paying current benefits and expenses, CIGNA establishes
reserves in amounts estimated to be sufficient to discharge 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
experience-rated policies.
Interest on reserve and fund balances is credited to experience-rated
policyholders through rates that are either set at the Company's discretion or
based on actual investment performance. For rates set at the Company's
discretion, several interest-crediting rates are in effect on different types of
reserves; generally, higher rates are credited to long-term funds than to
short-term funds, reflecting the fact that higher yields are generally available
on investments of longer maturities. For 1993, the rates of interest credited
ranged from 2.9% to 8.5%.
Approximately one-third of the reserves comprise liabilities that will be
paid within one year, primarily for group life and medical and prepaid health
claims. The remainder primarily include liabilities for long-term disability
benefits and group life insurance benefits for disabled individuals.
The profitability of medical and dental indemnity and prepaid health care
products is largely dependent upon the accuracy of projections for health care
cost inflation and utilization, and the adequacy of fees charged for
administration and risk assumption. The profitability of other indemnity
products depends on the adequacy of premiums charged relative to claims and
expenses. Also, particularly in the case of prepaid health care products,
control of claim costs can significantly affect profitability.
CIGNA reduces its exposure to large individual and catastrophe losses under
group life, disability and accidental death contracts by purchasing reinsurance
from unaffiliated insurers.
Competition
Group indemnity insurance and prepaid health care are highly competitive,
and no one competitor or small number of competitors is dominant across the
country, although some regions are dominated by local HMOs. A large number of
insurance companies and other entities compete in offering similar products.
Competition exists both for employer-policyholders and for the employees in
those instances where the employer offers the products of more than one company.
Most group policies are subject to Company review and renewal on an annual
basis, and policyholders may seek competitive quotations from several sources
prior to renewal.
The principal competitive factors that affect this segment are: (i) price;
(ii) quality of service; (iii) scope, cost-effectiveness and quality of provider
networks; (iv) product responsiveness to customers' needs; (v) cost-containment
services; and (vi) effectiveness of marketing and sales.
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The principal competitors of group insurance and prepaid health care
businesses are the large life and health insurance companies that provide group
insurance, numerous Blue Cross and Blue Shield organizations, stand-alone HMOs,
and HMOs sponsored by major insurance companies and hospitals. Competition also
arises from smaller regional or specialty companies with strength in a
particular geographic area or product line, administrative service firms and
self-insurers. Addressing the needs of employee-consumers as well as of
employers is increasingly important for success in these markets.
CIGNA is one of the largest investor-owned insurance company providers of
group life and health indemnity insurance, based on premiums and premium
equivalents. It is the largest investor-owned HMO, based on the number of
members. CIGNA is the second largest provider of group long-term disability
coverages, based on premiums.
Health Care Reform
Reform of the United States health care system to address issues of cost,
access, universal coverage and quality is widely predicted for 1994. A number of
proposals are on the federal and state legislative agendas that would change the
way health care is financed and delivered. Many reform proposals contain
elements of managed competition. Some include global budgets or some form of
price controls as a short-term means to restrain health care costs. Managed
competition is a market-based approach to the delivery of health care and health
insurance. Other reform proposals include a national standard benefit package,
limits on the use of pre-existing conditions to exclude coverage, limits on the
tax deductibility of health insurance, and provisions for purchasing pools that
are intended to give employers and employees greater purchasing power for health
insurance and health care. Certain proposals, including the Clinton
Administration's, would create increased levels of regulation to accomplish the
goal of health care reform. Reform may provide flexibility for the states to
adopt their own programs, which would result in multiple layers of regulation.
The proposals are complex and will be actively debated by Congress and the
individual states. Health care reform could cause some companies to leave health
care-related markets and enter or increase their commitment to other markets,
such as for life, accident or disability insurance. Because the reform measures
that will ultimately be adopted are not known, CIGNA cannot predict the effect
that health care reform will have on its business operations.
AIDS
The impact of Acquired Immune Deficiency Syndrome ("AIDS") claims to date
has not been material for CIGNA. However, the U.S. Center for Disease Control
has projected substantial increases in the number of AIDS cases and related
deaths in the general population. If such projected increases occur, they will
result in higher life and health benefits claims. CIGNA anticipates that most
AIDS claims in its Employee Life and Health Benefits business should be
recoverable through the experience-rating process and appropriate rate increases
for guaranteed-cost and prepaid products.
D. Employee Retirement and Savings Benefits
General
CIGNA's Employee Retirement and Savings Benefits businesses provide
investment products and professional services primarily to sponsors of qualified
pension, profit-sharing and retirement savings plans. These products and
services are marketed through CG Life and certain other subsidiaries.
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Net earned premiums and fees for, and deposits to, general, separate and
investment advisory accounts for this segment for the year ended December 31,
were as follows:
1993 1992 1991
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(IN MILLIONS)
Premiums and Fees:
General Account:
Guaranteed................................................ $ 151 $ 110 $ 169
Experience-rated.......................................... 99 96 89
-------- -------- --------
250 206 258
Separate Accounts........................................... 46 42 42
-------- -------- --------
Total Premiums and Fees................................... $ 296 $ 248 $ 300
-------- -------- --------
-------- -------- --------
Deposits:
General Account:
Guaranteed................................................ $ 102 $ 411 $ 558
Experience-rated.......................................... 1,457 1,640 2,564
-------- -------- --------
1,559 2,051 3,122
Separate Accounts........................................... 1,177 512 482
Investment Advisory Accounts................................ 75 43 54
-------- -------- --------
Total Deposits............................................ $ 2,811 $ 2,606 $ 3,658
-------- -------- --------
-------- -------- --------
Assets under management for this segment as of December 31 were as follows:
1993 1992 1991
-------- -------- --------
(IN MILLIONS)
Assets under management:
General Account:
Guaranteed................................................ $ 4,369 $ 3,933 $ 3,460
Experience-rated.......................................... 17,171 16,937 16,882
-------- -------- --------
21,540(1) 20,870 20,342
Separate Accounts........................................... 12,301 11,223 10,847
Investment Advisory Accounts................................ 628 643 637
-------- -------- --------
Total................................................... $ 34,469(1) $ 32,736 $ 31,826
-------- -------- --------
-------- -------- --------
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(1) General Account assets under management increased $521 million as a result
of implementing SFAS No. 115.
Principal Products and Markets
CIGNA offers a broad range of products to both defined benefit and defined
contribution pension plans, profit-sharing plans and retirement savings plans.
CIGNA's primary marketing emphasis is on defined contribution plans, which
provide for participant accounts with benefits based upon the value of
contributions to, and investment returns on, the individual's account. This has
been the fastest growing portion of the pension marketplace in recent years.
Defined contribution plan assets amounted to approximately $15.9 billion or 46%
of assets under management for this segment as of December 31, 1993, compared
with $13.8 billion or 42% as of December 31, 1992. The balance of this segment's
assets under management relate primarily to defined benefit plans, under which
annual retirement benefits are fixed or defined by a benefit formula. CIGNA is
increasing its marketing efforts for defined benefit plans.
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. Traditionally, CIGNA's
marketing emphasis has been on sales of full-service products that include
investment management and pension services to middle market customers with plan
assets of $500,000 to $50 million. In recent years, however, this emphasis has
expanded to include sales to sponsors of larger plans that look to more than one
entity to provide actuarial, administrative or investment services and products,
or combinations
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thereof. For defined contribution plans, principally 401(k) plans, CIGNA markets
products that provide both investment management services and plan level and
participant recordkeeping, as well as employee communications, enrollment, plan
design and other consulting services. For defined benefit plans, CIGNA provides
investment, administrative and professional services, including recordkeeping,
plan documentation, and actuarial valuation and consulting. 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.
Pension products are supported by the general asset account ("General
Account") and segregated accounts ("Separate Accounts") of CG Life. The General
Account supports both guaranteed and experience-rated contracts. Guaranteed
contracts comprise single premium annuities and GICs. As of December 31, 1993,
guaranteed single premium annuities accounted for $2.9 billion, and GICs
accounted for $1.5 billion, of General Account assets under management for the
Employee Retirement and Savings Benefits segment.
For 1993, the interest rate on reserves for guaranteed single premium
annuities ranged from 3.25% to 12.75%, with a weighted average of 8.6%. The rate
of interest credited in 1993 on CIGNA's GICs ranged from 5% to 13%, with a
weighted average rate of 9.6%. CIGNA's GICs and single premium annuities
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 and capital resources.
Experience-rated contracts that are supported by the General Account
("policyholder contracts") 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 on policyholder contracts 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 on policyholder contracts for 1993 ranged from
6% to 10%, with a weighted average rate of 7.4%.
The termination provisions of $4.8 billion, or 100%, of the Company's
defined benefit policyholder contract liabilities that are subject to
withdrawal, and the termination provisions of $3.8 billion, or 38%, of the
Company's liability for defined contribution policyholder contracts, 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 method, the Company approximates 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 method, 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 derived to pass
investment gains and losses (reflecting non-accruals and impairments) through to
policyholders. Withdrawals under the installment method have been insignificant
to the Company.
The termination provisions of $6.2 billion, or 62%, of the Company's
liability for defined contribution policyholder contracts contain a book value
mechanism for withdrawals at policyholder termination. Under certain
circumstances, payout of book value is subject to deferral and the rate of
interest credited may be reduced for the recovery of investment losses
(including non-accruals and impairments).
The Separate Accounts allow customers the flexibility to invest in specific
portfolios and participate directly in the investment results. Investment
options include publicly traded bonds, private placement bonds, equities, real
estate, mutual funds and short-term securities. Approximately $7.4 billion, or
60%, of the assets in the Separate Accounts support experience-rated contracts
under which the risks and benefits of investment performance are borne entirely
by the customers.
The remaining assets in the Separate Accounts are held under
experience-rated contracts that guarantee a minimum level of benefits. As of
December 31, 1993 and 1992, the amount of minimum benefit guarantees under these
contracts was $4.9 billion and $4.5 billion, respectively. Reserves in addition
to the
8
11
Separate Account liabilities are established when CIGNA believes a payment will
be required under one of these guarantees. As of December 31, 1993, reserves of
$6 million had been established to provide for the cost of interest guarantees.
For additional information, see Note 17 to CIGNA's 1993 Financial Statements.
CIGNA monitors contract termination experience on an ongoing basis. Of
those assets subject to withdrawal, persistency for 1993 was 94%, compared with
93% and 85% in 1992 and 1991, respectively. The lower persistency rate in 1991
primarily reflected the termination of a large defined benefit plan by a single
customer.
Distribution
CIGNA's retirement products and services are distributed primarily through
CG Life salaried group pension representatives both directly and through career
agents, independent insurance agents and brokers, pension plan consultants,
investment advisors, and other service providers. As of December 31, 1993, CG
Life had a field organization consisting of 51 pension sales representatives and
155 service consultants and administrative personnel located in 25 sales and
service offices throughout the United States.
Pricing and Reserves
CIGNA establishes reserves for experience-rated contracts in an amount
equivalent to the contractholder funds on deposit with it, including liability
for estimated experience refunds based upon the results of each contract.
Profitability on these contracts is based primarily on margins included in
charges for investment and administrative services and risk assumption. Premiums
and fees for annuity products are based on assumptions as to mortality
experience, investment returns, expenses and target profit margins. For
guaranteed-cost contracts, the reserve established is the present value of
expected future obligations based on these assumptions, with a margin for
adverse deviation. Profitability on guaranteed-cost contracts is affected by the
degree to which future experience deviates from these assumptions.
Competition
The pension marketplace is highly competitive. CIGNA's competitors include
other insurance companies, banks, investment advisors, certain service and
professional organizations, and increasingly, mutual funds. No one competitor or
small number of competitors is dominant. Competition focuses on service,
technology, cost, variety of investment options, investment performance and,
more recently, vendor financial condition as indicated by ratings issued by
nationally recognized rating agencies. Business growth may be constrained by
withdrawals and lower deposits resulting from decisions by pension plan sponsors
to diversify assets and fund management.
The largest single pension manager holds less than a 5% market share, as
measured by assets under management. According to a survey published in
"Pensions & Investments," CIGNA ranked 5th among insurers, and 15th among
pension managers overall, in terms of pension and employee retirement savings
plan assets under management.
E. Individual Financial Services
General
CIGNA's Individual Financial Services businesses market a broad range of
insurance and investment products and services to individuals and corporations.
CIGNA also assumes reinsurance of certain risks under policies written by other
insurance companies.
9
12
The following table sets forth the net earned premiums and fees, and
deposits, for this segment.
YEAR ENDED DECEMBER 31,
------------------------------------
1993 1992 1991
-------- -------- --------
(IN MILLIONS)
Premiums and Fees:
Life........................................... $ 513 $ 392 $ 378
Health......................................... 55 57 74
Reinsurance.................................... 246 261 247
-------- -------- --------
Total premiums and fees...................... $ 814 $ 710 $ 699
-------- -------- --------
-------- -------- --------
Deposits, primarily for universal life
products....................................... $ 2,506 $ 1,040 $ 928
-------- -------- --------
-------- -------- --------
The following table provides data on sales and additions, terminations and
life insurance in force for this segment, including assumed reinsurance, and
reinsurance ceded to other companies.
YEAR ENDED DECEMBER 31,
------------------------------------
1993 1992 1991
-------- -------- --------
(DOLLAR AMOUNTS IN MILLIONS EXCEPT
AVERAGE SIZE POLICY IN FORCE)
In force, beginning of the year.................. $ 60,749 $ 56,510 $ 48,208
-------- -------- --------
Sales and Additions(1):
Permanent.................................... 23,551 7,055 11,042
Term......................................... 3,857 4,279 3,211
-------- -------- --------
Total.......................................... 27,408 11,334 14,253
-------- -------- --------
Less Terminations:
Surrenders and conversions................... 1,813 2,139 1,199
Lapses....................................... 2,549 2,921 2,707
Other........................................ 2,522 2,035 2,045
-------- -------- --------
Total.......................................... 6,884 7,095 5,951
-------- -------- --------
In force, end of the year:
Permanent...................................... 61,210 40,623 36,557
Term........................................... 20,063 20,126 19,953
-------- -------- --------
Total........................................ $ 81,273 $ 60,749 $ 56,510
-------- -------- --------
-------- -------- --------
Reinsurance ceded included above................. $ 10,700 $ 9,971 $ 9,457
-------- -------- --------
-------- -------- --------
Number of policies in force:
Participating.................................. 79,042 29,813 31,647
Non-participating.............................. 410,633 414,389 422,913
-------- -------- --------
Total........................................ 489,675 444,202 454,560
-------- -------- --------
-------- -------- --------
Average size policy in force:
By type:
Participating.................................. $243,239 $ 77,797 $ 74,005
-------- -------- --------
-------- -------- --------
Non-participating.............................. $151,101 $141,003 $128,083
-------- -------- --------
-------- -------- --------
By division:
CIGNA Individual Insurance..................... $178,639 $141,987 $126,538
-------- -------- --------
-------- -------- --------
CIGNA Reinsurance - Life-Accident-Health....... $132,748 $124,213 $116,747
-------- -------- --------
-------- -------- --------
Total.......................................... $165,974 $136,879 $124,318
-------- -------- --------
-------- -------- --------
- ---------------
(1) For 1993, $17 billion of sales and additions were participating, with the
remainder non-participating. For 1992 and 1991, substantially all sales and
additions were non-participating.
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13
As of December 31, 1993, total life insurance in force for this segment
included assumed reinsurance of approximately $16.6 billion, compared with $16.4
billion as of December 31, 1992 and $15.9 billion as of December 31, 1991. In
1993, assumed reinsurance (included in sales and additions) totaled $3.6 billion
compared with $3.9 billion and $2.7 billion in 1992 and 1991, respectively.
Individual Products
CIGNA's individual insurance products include term and permanent life
insurance, disability insurance, and annuities. Term life insurance provides
coverage for a stated period and pays a death benefit only if the insured dies
within the period. Permanent life insurance, offered on a participating or
non-participating basis, provides coverage that does not expire after a term of
years and builds a cash value that equals the full policy amount if the insured
is alive on the policy maturity date. In participating insurance, policyholders
directly participate in policy earnings through dividends. Non-participating
insurance does not pay dividends, but deviations from assumed experience may be
reflected in the policyholder's future premium payments.
Products that provide permanent coverages include whole life, universal
life and variable universal life. Whole life provides fixed benefits and level
premium payments. Universal life provides benefits that fluctuate with the
amount of variable premiums paid, and interest credits, mortality and expense
charges made, to the policy. Premiums and benefits in universal life products
vary with the design of the benefits being funded. Variable universal life
provides benefits that also fluctuate, but with the performance of one or more
investment accounts.
CIGNA offers both fixed and variable annuity products. Fixed annuities
accumulate value at a fixed rate of interest on the invested premium (less
applicable expenses and contract charges). Variable annuities accumulate value
at levels determined by the contractholder's allocation of premium among a
portfolio of mutual funds and fixed rate accounts, and the underlying investment
performance of the selected funds (less applicable expenses and contract
charges). CIGNA also markets a number of individual investment products and
services, including mutual funds, and fee-based financial planning.
Principal markets for products and services sold to individuals are
affluent executives, professionals and small business owners (typically with
incomes above $100,000 and net worths of $1.5 million or more).
Individual insurance products are also sold to corporations to provide
coverage on the lives of certain of their employees. Principal markets for
corporate-owned life insurance ("COLI") are Fortune 1000 companies. The COLI
market, and sales volume for COLI products, tend to be volatile. During 1993 the
face amount of new sales (as shown in the preceding tables) of COLI universal
life business issued on a participating basis was approximately $17 billion,
accounting for the increases in deposits, permanent sales and in force, and the
number and average size of participating policies.
As of December 31, 1993 and 1992, approximately 64% and 85%, respectively,
of CIGNA's individual life insurance in force was non-participating permanent,
which includes interest-sensitive products such as universal life. The
year-over-year decline was due to the large COLI sales mentioned above.
Interest credited on whole life products is at a minimum guaranteed rate.
For interest-sensitive products, credited interest rates vary with the
characteristics of each product and the anticipated investment results of the
assets backing these products. Where credited interest exceeds the guaranteed
rate, the excess is used to purchase additional insurance or increase cash
values. Credited interest rates on interest-sensitive products for 1993 ranged
from 4% to 9.5%.
Interest rates for policy loans on individual life insurance products are
defined in the contract and are either variable or fixed. Variable interest
rates are tied to an external index specified in the contract and are subject to
a specified minimum rate. The interest rates charged to the policyholder on
borrowed funds ("loan rates") are generally greater than the interest rates
credited to the policyholder on those funds, and such loan rates and the related
credited interest rates tend to move in tandem as interest rates fluctuate. A
large portion of the contracts that provide for fixed rates also provide for a
relatively constant spread between the policy loan rate and the related credited
interest rate.
11
14
Most individual life insurance products have surrender charges to recover
policy acquisition costs and to encourage persistency. Persistency for these
products was approximately 95% in 1993, 1992 and 1991.
Reinsurance Products
Reinsurance products sold through this segment include coverages for part
or all of the risks under policies written by other insurance companies for
group life and health, individual life and health, and special risks, such as
travel accident and workers' compensation catastrophe coverages. The principal
markets for these products are individual and group life and health insurers and
special risk and workers' compensation units of property-casualty insurers.
Reinsurance coverages generally extend for the same duration as the
underlying direct policies: from one year or less for group, special risk and
individual life term policies, to time of lapse or expiration at death for
permanent individual life and individual health policies. Most permanent
reinsurance coverages have recapture charges to recover policy acquisition costs
and to encourage persistency.
Distribution
As of December 31, 1993, CG Life sold individual insurance products
primarily through approximately 875 full-time career agents and through brokers
specializing in COLI products. Investment products are sold through the career
agents, who are also registered representatives of a CIGNA broker-dealer.
Annuities are distributed through stockbrokers and banks as well as through
career agents.
The COLI marketplace is dominated by a limited number of brokers. The
volume of business from each of the brokers with whom CIGNA has a relationship
tends to fluctuate over time. The participating COLI sales in 1993 were placed
through one broker, the loss of which would have a significant adverse effect on
new sales of corporate-owned participating universal life insurance.
Reinsurance products are sold in the United States, Canada and Europe
through a small sales force and through domestic and foreign brokers.
Pricing, Reserves and Reinsurance
Premiums for life and disability insurance, annuities and assumed
reinsurance are based on assumptions about mortality, morbidity, persistency,
expenses and target profit margins as well as interest rates and competitive
considerations. The long-term profitability of individual products is affected
by the degree to which future experience deviates from these assumptions. Fees
for universal life insurance products consist of mortality, administration and
surrender charges assessed against the policyholder's fund balance. Interest
credits and mortality charges for universal life, and mortality charges on
variable premium products, may be adjusted prospectively to reflect expected
interest and mortality experience. Dividends on participating insurance products
may be adjusted to reflect prior experience.
For individual disability, annuity, traditional and variable premium life
insurance and individual life and health reinsurance in force, CIGNA establishes
policy reserves that reflect the present value of expected future obligations
less the present value of expected future premiums. For universal life
insurance, CIGNA establishes reserves for deposits received and investment
income credited to the policyholder, less mortality, administration and
surrender charges assessed against the policyholder's fund balance. In addition,
for all individual and reinsurance products, CIGNA establishes claim reserves
for claims received but not yet paid, based on the amount of the claim received,
and for claims incurred but not reported, based on prior claim experience.
CIGNA maintains a variety of reinsurance agreements with non-affiliated
insurers to limit its exposure to large life and health losses and to multiple
losses arising out of a single occurrence. Although such reinsurance does not
discharge CIGNA from its obligations on insured risks, CIGNA's exposure to
losses is reduced by the amount of reinsurance ceded, provided that reinsurers
meet their obligations.
12
15
Competition
The individual insurance, annuity and investment business is highly
competitive. No one competitor or small number of competitors dominates. More
than 1,000 domestic life insurance companies may offer one or more individual
insurance and annuity products, and approximately 40 companies may offer one or
more reinsurance products, similar to those offered by CIGNA. In addition, some
of CIGNA's individual financial businesses compete with non-insurance
organizations, including commercial and savings banks, investment advisory
services, investment companies and securities brokers. Competition focuses on
product, service, price, distribution method and, more recently, the financial
strength of the vendor as indicated by ratings issued by nationally recognized
rating agencies. CIGNA has benefited competitively from CG Life's financial
strength and stability, and from the quality of its distribution systems.
The COLI marketplace is also highly competitive. The Company principally
competes with approximately half of the 25 largest domestic life insurance
companies that may offer one or more COLI products. Competition in this market
focuses primarily on product design, underwriting, price and administrative
servicing capabilities, as well as vendor financial strength.
Based on information published by A.M. Best, CG Life was the 32nd largest
individual life insurer in terms of aggregate individual life insurance in
force, and the 7th largest in terms of direct premiums, in the United States.
Other Matters
CIGNA does not expect AIDS claims, discussed on page 6, to have a
significant effect on the results of operations of this segment. Where
appropriate, CIGNA tests for AIDS antibodies and considers AIDS information in
underwriting coverages and setting rates.
Legislation may be proposed that could change the policyholder tax
treatment of certain of the Company's interest-sensitive products and, thus,
adversely affect future sales and persistency of such products.
F. Property and Casualty
Principal Products and Markets
CIGNA provides property and casualty insurance and reinsurance for
customers in the United States and international markets, primarily Europe,
Canada, the Pacific region and Latin America. During 1993, United States and
international markets constituted approximately 56% and 44%, respectively, of
the total earned premiums and fees for this segment. CIGNA provides insurance
coverage under standard risk transfer arrangements and provides coverages and
services for customers who wish to increase their levels of risk retention or to
self-insure. Principal product lines include workers' compensation, commercial
packages, casualty (including commercial automobile and general liability),
property, and marine and aviation. CIGNA also markets life, accident and health
insurance coverages in a number of international markets.
CIGNA also reinsures risks written by other insurance companies. It offers
treaty reinsurance on both a full risk and finite risk basis. Treaty reinsurance
is the reinsurance of a specified type, category or class of risks defined in a
reinsurance agreement (a "treaty") between a primary insurer or other reinsured
and a reinsurer. CIGNA also writes facultative reinsurance, which is the
reinsurance of all or a portion of the insurance provided by a single policy.
During 1993, approximately 90% of reinsurance premiums in the Property and
Casualty segment were written on a treaty basis and 10% on a facultative basis.
Approximately 77% of CIGNA's treaty reinsurance premium and all of its
facultative reinsurance premium currently written is for property coverage.
In recent years and increasingly during 1993, CIGNA has implemented
strategies to change the business mix of its domestic operations. In the
specialty insurance market, CIGNA has discontinued writing domestic-based
airlines and most professional liability coverages and has divested its contract
surety bond
13
16
business. In this market, CIGNA is focusing on excess casualty and homeowners
business. In the medium-sized risk market, CIGNA intends to reduce the number of
individual risks written, and increase production of group business, such as
through affinity groups, associations and national broker blocks of business. In
addition, CIGNA is focusing on writings of workers' compensation business that
involves standard risk transfer in states with regulatory climates in which the
Company believes it can operate profitably. Since 1990, CIGNA has implemented
more restrictive risk selection and raised prices for its international property
coverages. Also, CIGNA has withdrawn substantially from the domestic voluntary
personal automobile insurance market and the London property and casualty
assumed reinsurance market. The Company routinely re-evaluates the regulatory
and reserving environment associated with these automobile and London
reinsurance lines of business, and future changes in related reserves could
occur.
CIGNA generally attempts to protect itself from economic loss arising from
foreign exchange exposure in its international operations by maintaining
invested assets abroad that are currency specific in support of its foreign
obligations. For information on the effect of foreign exchange exposure on
CIGNA, see Notes 1(N) and 13 to CIGNA's 1993 Financial Statements.
Until recently, CIGNA wrote financial guarantees on municipal bonds and
certain corporate debt obligations (which are reported in the Property and
Casualty segment) and on industrial revenue bonds (which are reported in other
segments). For additional information, see Note 17 to CIGNA's 1993 Financial
Statements.
CIGNA's domestic subsidiaries are members of, or participate in, various
voluntary associations and syndicates that facilitate the underwriting of large
or highly concentrated risks. The associations distribute the risks assumed
among the members, provide specialized inspection and engineering services and
may use special forms of coverage to control overall exposures.
In addition, regulatory authorities require the participation of CIGNA's
domestic subsidiaries in various joint underwriting associations and pools,
including workers' compensation pools that are unprofitable and represent a cost
of conducting business in certain jurisdictions. Underwriting losses in these
pools are the result of inadequate rate levels, the failure of states to
institute workers' compensation reforms and reduced levels of voluntary writings
by the industry.
14
17
The following table sets forth geographic distribution of GAAP net earned
premiums and fees for the products of this segment.
YEAR ENDED DECEMBER 31,
--------------------------------------
1993 1992
---------------- ----------------
(DOLLAR AMOUNTS IN MILLIONS)
Domestic:
California...................................................... $ 408 8% $ 439 8%
New York........................................................ 287 6 383 7
New Jersey...................................................... 252 5 259 4
Texas........................................................... 233 5 292 5
Pennsylvania.................................................... 205 4 214 4
Florida......................................................... 154 3 184 3
Massachusetts................................................... 122 2 160 3
Illinois........................................................ 115 2 145 2
All other....................................................... 1,088 21 1,336 23
------ ---- ------ ----
Total Domestic................................................ 2,864 56 3,412 59
------ ---- ------ ----
Foreign:
Japan........................................................... 810 16 650 11
United Kingdom.................................................. 412 8 482 8
Belgium......................................................... 169 3 196 4
France.......................................................... 101 2 142 3
All other....................................................... 780 15 878 15
------ ---- ------ ----
Total Foreign................................................. 2,272 44 2,348 41
------ ---- ------ ----
Total......................................................... $5,136 100% $5,760 100%
------ ---- ------ ----
------ ---- ------ ----
- ---------------
For 1993 and 1992, earned premiums and fees were substantially the same as
written premiums.
CIGNA's property and casualty insurance subsidiaries provide loss
protection to insureds in exchange for premiums. If earned premiums exceed the
sum of losses, commissions to agents or brokers, other operating expenses and
policyholders' dividends, underwriting profits are realized. The "combined
ratio" is a frequently used measure of property and casualty underwriting
performance. On a GAAP basis, this ratio is the sum of (i) the ratio of incurred
losses and associated loss expenses to earned premiums (the "loss and loss
expense ratio"), (ii) the ratio of expenses incurred for sales commissions,
premium taxes, administrative and other operating expenses to earned premiums
(the "expense ratio") and (iii) the ratio of policyholders' dividends to earned
premiums (the "policyholder dividend ratio"), each of these three ratios being
expressed as a percentage. The statutory combined ratio differs from the GAAP
ratio primarily in that the expense ratio and the policyholder dividend ratio
are calculated as a percent of written premiums, rather than earned premiums.
When the combined ratio is over 100%, underwriting results are not profitable.
The combined ratios for CIGNA's property and casualty product lines and total
property and casualty operations are shown in the table on page 16.
Because time normally elapses between the receipt of premiums and the
payment of claims and certain related expenses, funds become available for
investment by CIGNA. The combined ratio does not reflect investment income from
these funds, investment gains and losses, results of non-insurance business, or
federal income tax expenses or benefits. Such investment income, when added to
underwriting profits or losses, other items (including federal income tax
expenses or benefits), investment income from accumulated earnings and capital,
and realized investment gains and losses, produces net income or loss. For
information concerning investment income, see "Investments and Investment
Income -- Property and Casualty Investments" on pages 31 and 32.
15
18
The following tables set forth GAAP net earned premiums and fees,
underwriting results, combined ratios and net investment income for the products
of this segment.
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1993 1992 1991
---------------- ---------------- ---------------
(DOLLAR AMOUNTS IN MILLIONS)
Premiums and Fees/Percent of Total Premiums and Fees:
Domestic Lines:
Workers' compensation............................. $ 710 14% $ 1,045 18% $1,230 20%
Commercial packages............................... 611 12 737 13 819 14
Casualty.......................................... 457 9 669 12 676 11
Property.......................................... 243 5 223 4 278 5
Marine and aviation............................... 181 3 146 3 134 2
Personal automobile............................... 129 2 126 2 191 3
Homeowners........................................ 102 2 110 2 127 2
Other............................................. 95 2 72 1 78 1
------- ----- ------- ----- ------ -----
Total........................................... 2,528 49 3,128 55 3,533 58
International (excluding international
reinsurance)...................................... 1,293 25 1,403 24 1,470 24
Reinsurance (including international reinsurance)... 537 11 601 10 616 10
International life and health....................... 778 15 628 11 495 8
------- ----- ------- ----- ------ -----
Total Premiums and Fees...................... $ 5,136 100% $ 5,760 100% $6,114 100%
------- ----- ------- ----- ------ -----
------- ----- ------- ----- ------ -----
Underwriting Loss/Combined Ratios:
Domestic Lines:
Workers' compensation............................. $ (130) 118.4% $ (197) 118.8% $ (299) 124.4%
Commercial packages............................... (334) 154.6 (254) 134.5 (117) 114.2
Casualty.......................................... (684) 249.5 (196) 129.4 (144) 121.3
Property.......................................... (101) 141.7 (127) 156.7 (29) 110.4
Marine and aviation............................... (30) 116.9 (50) 134.2 (5) 103.4
Personal automobile............................... (64) 149.9 (76) 159.9 (38) 119.8
Homeowners........................................ (14) 113.9 (15) 113.6 (20) 115.7
Other............................................. (5) 105.0 (7) 109.2 (9) 112.4
------- ------- ------
Total........................................... (1,362) 153.9 (922) 129.4 (661) 118.8
International (excluding international
reinsurance)...................................... (69) 105.4 (183) 113.0 (209) 114.2
Reinsurance (including international reinsurance)... (200) 137.1 (499) 183.1 (103) 116.7
------- ------- ------
Underwriting Loss/Combined Ratio:
After Policyholders' Dividends........... $(1,631) 137.4 $(1,604) 131.3 $ (973) 117.3
------- ------- ------
------- ------- ------
Before Policyholders' Dividends.......... $(1,501) 134.4 $(1,615) 131.5 $ (966) 117.2
------- ------- ------
------- ------- ------
Net investment income, pre-tax:
Domestic lines...................................... $ 486 $ 556 $ 593
International....................................... 186 185 195
Reinsurance......................................... 81 101 110
------- ------- ------
Total........................................... $ 753 $ 842 $ 898
------- ------- ------
------- ------- ------
The above table is presented on a GAAP basis. Industry results are more
readily available on a statutory basis. CIGNA's statutory combined ratio after
policyholders' dividends was 126.5 for 1993. CIGNA's 1993 statutory ratio was
favorably affected by 9 points due to changes in the discounting of certain
workers' compensation reserves.
CIGNA's results have been adversely affected in recent years by a highly
competitive pricing environment, which has resulted in general deterioration in
its combined ratio. (The significance of the combined ratio is explained on page
15.) CIGNA's statutory combined ratio for 1993 was adversely affected by 9.0
points for environmental pollution losses and 3.9 points for asbestos-related
losses, with the remainder primarily attributable to price deterioration and
unfavorable underwriting.
16
19
It is not known to what extent the types of losses reflected in CIGNA's
combined ratio are also reflected in the combined ratios of other companies. The
average statutory combined ratio for the nine months ended September 30, 1993
for companies that write at least 70% commercial coverage and file data with the
Insurance Services Office was 112.5%. However, caution should be exercised in
using this data because it is not possible to compare meaningfully an individual
company's combined ratio with an industry average due to numerous variables,
including product mix and amounts of fee for service business, which differ
between companies.
Competition
The principal competitive factors that affect the property and casualty
products of this segment are (i) pricing; (ii) underwriting; (iii) quality of
claims and policyholder services; (iv) operating efficiencies; and (v) product
differentiation and availability. In the highly competitive environment of the
past several years, CIGNA has reduced its premium volume rather than maintain
business at inadequate prices, and its share of domestic and international
markets has declined. Competition has intensified due to increased capacity in
the direct insurance market resulting from growing capital supporting the
industry. In international markets, particularly western Europe, price
competition is intense as companies compete for market share.
Perception of financial strength, as reflected in the ratings assigned to
an insurance company, especially by A.M. Best, is also a factor in the Company's
competitive position. Continued pressure on ratings of the domestic Pool Group
is expected because of continued losses. If the A.M. Best rating of the Pool
Group drops from its current A- level, the Company's ability to write the
domestic lines at present levels would be adversely affected, although the
effects cannot be reasonably estimated.
In its international life insurance operations, CIGNA focuses on those
market segments where it can compete effectively based on service levels and
product design, and achieve an adequate level of profitability in the long term.
It generally does not attempt to compete with large, entrenched local companies.
Property and casualty insurance can be obtained through national and
regional companies that use an agency distribution system, direct writers (who
may have an employed agency force) or brokers, or through self-insurance,
including the use by corporations of subsidiary captive insurers. Approximately
3,900 companies compete for this business in the United States and no single
company or group of affiliated companies is dominant. In 1993 and 1992, CIGNA's
domestic property and casualty statutory net written premiums amounted to
approximately 1.1% and 1.2%, respectively, of the total market. Internationally,
CIGNA competes directly with foreign insurance companies as well as with other
U.S.-based companies. CIGNA's reinsurance operations compete with over 100
reinsurers around the world.
Based on information published by A.M. Best, CIGNA's domestic property and
casualty insurance subsidiaries rank 16th in annual net premiums written, CIGNA
is the 3rd largest U.S. writer of commercial multi-peril coverages, 13th largest
of workers' compensation coverages and 12th largest of commercial auto
coverages.
Based on revenues, CIGNA's international operations are the second largest
U.S.-based provider of insurance products and services. CIGNA's reinsurance
operations rank 14th domestically and 24th worldwide in annual net premiums
written.
Distribution
In the United States, CIGNA markets its insurance products principally
through independent agents and brokers. CIGNA is reducing the number of
producers through which it markets its products to focus on those producers who
historically have provided more profitable business, to better manage the change
in business mix described on pages 13 and 14 and to reduce expenses associated
with writing the business. The current producer force of approximately 3,000 is
expected to be reduced to about 2,500 during 1994. In addition, CIGNA is
increasing the use of brokers in the medium-sized risk market in an effort to
increase the amount of group business that is written.
17
20
Property and casualty direct coverage is sold in the international
marketplace primarily through brokers. A network of offices in about 50
jurisdictions provides claims and account services to international customers
and brokers. Life, accident and health insurance products are sold in the
international marketplace through approximately 7,000 brokers and agents.
Reinsurance products are sold worldwide, with approximately 52% of 1993 business
volume sold directly to client companies and the remainder through reinsurance
brokers. About 56% of the brokered reinsurance business was sold through 30
broker organizations.
Ceded Reinsurance
To protect against losses greater than the amount that it is willing to
retain on any one risk or event, CIGNA purchases reinsurance from unaffiliated
insurance companies. The Company is not substantially dependent upon any single
reinsurer. The Company's largest aggregation of reinsurance recoverables as of
December 31, 1993 and 1992, at approximately 9% and 6%, respectively, was with
syndicates affiliated with Lloyd's of London, with such recoverables spread over
in excess of 100 syndicates. Although reinsurance does not discharge CIGNA from
its obligations on insured risks, CIGNA's exposure to losses is reduced by the
amount ceded, and thus will be limited to the amount of risk retained, provided
that reinsurers meet their obligations. In recent years, in order to improve the
long-term cost effectiveness of its reinsurance program, CIGNA has generally
purchased less reinsurance and retained more risk. Changes in CIGNA's property
catastrophe reinsurance program for domestic and international business are
described on page 19 of the MD&A section of its 1993 Annual Report.
The collectibility of reinsurance is largely a function of the solvency of
reinsurers. CIGNA cedes risk to reinsurers who meet certain financial security
standards and monitors their quality and financial condition. In its selection
and monitoring process, CIGNA examines its reinsurers' financial performance and
reserve adequacy; considers factors such as the quality of their management; and
considers ratings and reviews of them by independent sources. When deemed
appropriate, CIGNA seeks collateral from reinsurers; reassumes, in return for a
settlement, risks for which it had previously purchased reinsurance; and
establishes allowances for potentially unrecoverable reinsurance. Reinsurance
disputes can delay recovery of reinsurance and, in some cases, affect its
collectibility. Disputes resulting in such delays have increased in recent
years, particularly on larger and more complex claims, such as those related to
professional liability, asbestos and London reinsurance market exposures. Losses
for unrecoverable reinsurance were $28 million, $89 million and $28 million for
1993, 1992 and 1991, respectively. Of the loss for 1992, $62 million related to
CIGNA's London reinsurance market exposures. Additional losses from
unrecoverable reinsurance are likely to affect CIGNA's future results adversely,
although the amounts and timing cannot be reasonably estimated.
Reserves
General
Significant periods of time may elapse between the occurrence of an insured
loss, the reporting of the loss to the insurer and the insurer's payment of that
loss. To recognize liabilities for unpaid losses, insurers establish "reserves,"
which are liabilities representing estimates of future amounts needed to pay
claims and related expenses with respect to insured events that have occurred,
including events that have not been reported to the insurer.
After a claim is reported, except for a class of very small claims that
typically are settled quickly, a "case reserve" is established by claims
personnel for the estimated amount of the ultimate payment. The estimate
reflects the informed judgment of such personnel, based on their experience and
knowledge regarding the nature and value of the specific claim. Claims personnel
review and update their estimates as additional information becomes available
and claims proceed toward resolution.
"Bulk reserves" are established on an aggregate basis (i) to provide for
losses incurred but not yet reported to and recorded by the insurer; (ii) to
provide for the estimated expenses of settling claims, including legal and other
fees and general expenses of administering the claims adjustment process; and
18
21
(iii) to adjust for the fact that, in the aggregate, case reserves may not
accurately estimate the ultimate liability for reported claims. As part of the
bulk reserving process, CIGNA's historical claims data and other information are
reviewed and consideration is given to the anticipated impact of various factors
such as legal developments, economic conditions and changes in social attitudes.
Insurance industry experience is also considered.
With respect to asbestos-related, environmental pollution and certain other
long-term exposure claims, CIGNA does not establish bulk reserves, except for
the estimated expenses of settling reported claims and except for claims related
to certain major asbestos manufacturers' policies. See below for a more detailed
discussion of reserving for these claims.
The reserving process relies on the basic assumption that past experience
is an appropriate basis for predicting future events. The probable effects of
current developments, trends and other relevant matters are also considered.
Because the eventual deficiency or redundancy of reserves is affected by many
factors, some of which are interdependent, there is no precise method for
evaluating the adequacy of the consideration given to inflation or to any other
specific factor affecting claims payments. However, the reserving process
provides implicit recognition of the impact of inflation and other factors by
taking into account changes in historic claims reporting and payment patterns. A
number of analytical reserving techniques are used, which often yield differing
results. Accordingly, estimating future claims costs is a complex and uncertain
process. Because available claims data and other information are rarely
definitive, the evaluation of such data's implications with respect to future
losses requires the use of informed estimates and judgments.
As additional experience and other data become available and are reviewed,
the Company's estimates and judgments are revised and appropriate action is
taken, which may include increases or decreases in CIGNA's estimate of ultimate
liabilities for insured events of prior years. These increases or decreases, net
of reinsurance, are reflected in results for the period in which the estimates
are changed.
CIGNA continually attempts to improve its loss estimation process by
refining its ability to analyze loss development patterns, claims payments and
other information, but there remain many reasons for adverse development of
estimated ultimate liabilities. For example, the uncertainties inherent in the
loss estimation process have grown in the last decade as loss estimates have
become increasingly subject to changes in social and legal trends that expand
the liability of insureds, establish new liabilities, and reinterpret insurance
contracts to provide unanticipated coverage long after the related policies were
written. As noted in the discussion below of asbestos-related, environmental
pollution, and other long-term exposure claims, such changes from past
experience significantly affect the ability of insurers to estimate liabilities
for unpaid losses and related expenses.
In management's judgment, information currently available has been
appropriately considered in estimating CIGNA's loss reserves. However, future
changes in estimates of claims costs will adversely affect results in future
periods, although such effects cannot be reasonably estimated.
Prior Year Development
The adverse pre-tax effects during 1993, 1992 and 1991 on CIGNA's results
of operations from insured events of prior years (prior year development) were
$789 million, $656 million and $341 million, respectively.
Of the prior year loss development during 1993, 82% was attributable to
asbestos-related, environmental pollution and other long-term exposure claims,
which are discussed below. The remaining development is discussed on pages 20
and 21 of the MD&A section of CIGNA's 1993 Annual Report.
Asbestos-related, Environmental Pollution and Other Long-term Exposure Claims
CIGNA continues to receive claims related to asbestos, environmental
pollution and other long-term exposure claims asserting a right to recovery
under insurance policies issued by the Company.
19
22
Liabilities for these claims cannot be estimated using standard actuarial
methods because developed case law and adequate claim history do not exist for
such claims. In addition, these claims differ from almost all others in that it
is generally not clear that an insured loss has occurred and which, if any, of
multiple policy years and insurers may be liable. These uncertainties prevent
identification of applicable policies and policy limits until after a claim is
reported to the Company and substantial time is spent (many years in some
cases), resolving contract issues and determining facts necessary to evaluate
the claim.
Estimating liabilities and recoveries for claims that will be asserted
under assumed and ceded reinsurance policies is also subject to uncertainties
similar to those affecting claims under direct policies. CIGNA expects
recoveries from ceded reinsurance to reduce its future losses, although the
amount of recoveries cannot be reasonably estimated.
Under current law, CIGNA expects these types of claims will continue to be
reported for the foreseeable future. The claims to be paid, if any, and timing
of any such payments depend on resolution of the uncertainties associated with
them, which are expected to extend over several decades.
For the reasons discussed above, and further elaborated on below, CIGNA
expects that its future results will continue to be adversely affected by losses
and legal expenses for these types of claims. Because of the significant
uncertainties involved, and the likelihood that they will not be resolved in the
near future, CIGNA is unable to reasonably estimate the additional losses and
expenses and therefore is unable to determine whether such amounts will be
material to its future results of operations, liquidity or financial condition.
Asbestos-related Claims
Since 1985, CIGNA has carried reserves related to certain insurance
policies issued for certain major asbestos manufacturers ("targets"), under
which CIGNA expects to pay the limits of liability. These reserves (which
include amounts for unreported claims and associated legal expenses) are equal
to the policy limits of liability, minus payments made to date, plus an estimate
of the associated future legal expenses.
More recent asbestos bodily injury litigation has been filed against
manufacturers and suppliers of diverse products that either contain asbestos or
used it in the manufacturing process, as well as against contractors and
building owners. There is inadequate history from which the Company can predict
the number or types of policyholders that will receive asbestos-related claims,
how many claims they will receive, the amounts of those future claims, the
insurance coverages that might be called upon for defense and indemnification or
the likelihood of those coverages having to respond to claims. Because the date
of event for which insurance coverage might be determined is unclear, numerous
policies with varying terms over many years may be involved.
In addition to bodily injury cases, damage suits have been brought seeking
reimbursement for the diminution in value of buildings containing asbestos
materials and for the expense of removing and replacing asbestos insulation
material and other building components made of asbestos. The Company and the
insurance industry generally dispute that coverage applies to these
asbestos-in-building claims.
Within the various state and federal court systems, there have been
conflicting decisions regarding the extent, if any, of the obligation of
insurers to provide coverage and the method of allocation of costs among
involved insurers. Additional uncertainties are created by efforts to create
novel dispute resolution procedures in response to the burden of asbestos
litigation on the courts, such as the proposed global settlement of future
asbestos bodily injury claims brought against certain asbestos producers, which
is being contested in the courts.
The majority of CIGNA's losses and legal expenses for asbestos-related
claims arise from its domestic property and casualty operations. As of December
31, 1993, 1992 and 1991, respectively, approximately 1,200, 950 and 900
policyholders had asbestos-related claims outstanding with the domestic
operations. The 1993 amount includes 140 policyholders for which data had not
previously been available. The number of policyholders with claims pending
increased during 1993, 1992 and 1991 reflecting policyholders filing claims for
the first time. During those years, there were no policyholders for which all
pending claims
20
23
were either dismissed or settled. CIGNA continues to litigate certain
asbestos-related coverage issues, with 39 lawsuits involving 27 policyholders
pending as of December 31, 1993.
It is not possible to determine the Company's potential liability for
asbestos-related claims based on the number of policyholders with claims
outstanding. Additional information (which is not known for unreported claims)
would be needed for such determination, including the extent of coverage, the
policyholder's liability for claims tendered to it, the injuries allegedly
sustained by the policyholder's claimants, and the number of claims pending
against a policyholder. As discussed above, the lack of information on these and
other matters prevents the estimation of liabilities for unreported
asbestos-related claims.
CIGNA establishes case reserves for reported asbestos-related claims as
information permits and, during 1993, also established reserves for future legal
and associated expenses for such reported claims. However, except for claims
under the target manufacturers' policies discussed above, CIGNA does not
establish reserves for unreported claims or for legal and associated expenses
related to unreported claims because of the uncertainties described above.
Reserve changes for asbestos-related claims before ("Gross") and after
("Net") the effects of reinsurance for the periods indicated are as follows:
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1993 1992 1991
-------------- -------------- --------------
GROSS NET GROSS NET GROSS NET
----- ---- ----- ---- ----- ----
(IN MILLIONS)
Asbestos Bodily Injury Claims
Beginning reserves................................... $ 486 $166 $ 442 $168 $ 453 $155
Plus incurred claims and claim adjustment expenses... 186 111 125 61 61 16
Less payments for claims and claim adjustment
expenses........................................... (108) (61) (81) (63) (72) (3)
----- ---- ----- ---- ----- ----
Ending reserves...................................... $ 564 $216 $ 486 $166 $ 442 $168
----- ---- ----- ---- ----- ----
----- ---- ----- ---- ----- ----
Asbestos-in-Building Claims
Beginning reserves................................... $ 70 $ 47 $ 65 $ 40 $ 76 $ 31
Plus incurred claims and claim adjustment expenses... 117 60 17 8 11 29
Less payments for claims and claim adjustment
expenses........................................... (19) (10) (12) (1) (22) (20)
----- ---- ----- ---- ----- ----
Ending reserves...................................... $ 168 $ 97 $ 70 $ 47 $ 65 $ 40
----- ---- ----- ---- ----- ----
----- ---- ----- ---- ----- ----
During 1993 CIGNA was able to segregate and separately report
asbestos-related reserves for certain of its excess and surplus and reinsurance
contracts that were previously included in prior year development for lines of
business such as casualty, commercial packages and reinsurance. The above table
reflects this change for all periods presented. Excess and surplus business is
generally subject to a significant amount of reinsurance; as a result, the
effect on net reserves of losses for this business was not significant. The
incurred claims and claim adjustment expenses for 1993 reflect the establishment
in the third quarter of reserves of $72 million, net of reinsurance ($106
million gross), for future legal and associated expenses for reported claims.
Environmental Pollution Claims
The principal federal statute that requires cleanup of environmental damage
is the Comprehensive Environmental Response, Compensation and Liability Act
("Superfund"), passed in 1980. It imposes liability on "Potentially Responsible
Parties" ("PRPs"), subjecting them to liability for clean-up costs regardless of
fault, time period and relative contribution of pollutants. Superfund is subject
to reauthorization by Congress in 1994; any changes in Superfund's system of
allocating responsibility or funding clean-up costs could affect the liabilities
of policyholders and insurers. The proposals being considered by Congress to
reform Superfund are in the early stages of development, therefore, CIGNA is not
able to determine what effect, if any, such enacted reform would have on its
future results.
21
24
In addition to Superfund, other federal environmental statutes exist, and
state environmental statutes are, in some cases, stricter than the federal
statutes. In addition to clean-up costs, environmental pollution may give rise
to claims for bodily injury and property damage.
Those identified as potentially responsible for environmental pollution
typically assert that their liability is insured. As a result, CIGNA's
environmental pollution claims have escalated rapidly since 1985, and a
substantial and growing number of legal actions that involve insurers, including
CIGNA, have been brought to determine insurance coverage issues.
CIGNA and other insurers dispute coverage for the environmental liabilities
of policyholders. Fundamental legal questions that will ultimately determine
whether or not insurers have an obligation to provide coverage are being
vigorously litigated and there is no consistency among the court decisions
nationwide on these questions. Additional uncertainty arises because of the
varying types and terms of policies, which may or may not provide for the costs
of defense or contain pollution exclusions. Pollution exclusions may be absolute
or may allow coverage for certain sudden and accidental events.
The estimation of reserves for reported environmental pollution claims is
difficult and likely to change as additional information emerges. Even if
coverage issues on a particular claim are ultimately resolved in favor of the
policyholder, that result may not be useful in setting reserves on other claims
because of complex factual variations between sites, policyholders and policies.
For example, at any given Superfund site, the allocation of liability varies
greatly, depending on such factors as the amount and relative toxicity of the
material contributed, extent of impairment to the environment and ability to
pay. A PRP may have no liability, may share responsibility with others or may
bear the cost alone. According to the Environmental Protection Agency, the
average time period between issuance of initial notice of PRP status and
determination of the method and cost of a site clean-up now averages about ten
years. The issues have been resolved for relatively few waste sites.
The majority of CIGNA's losses and expenses for environmental pollution
claims arise from its domestic property and casualty operations. As of December
31, 1993, 1992 and 1991, respectively, the domestic operations had approximately
13,300, 9,200 and 7,000 environmental pollution files outstanding. During 1993,
1992 and 1991, new claim files opened were approximately 4,500 (including
approximately 1,300 files for which data had not previously been available),
2,500 and 2,100, respectively, and pending claim files dismissed, settled or
otherwise resolved were approximately 400, 300 and 200, respectively.
A file represents each policyholder involved at a site, regardless of the
number or type of claims asserted against the policyholder or the number or type
of insurance policies (primary or excess) under which coverage is asserted.
CIGNA disputes coverage for essentially all environmental pollution claims, and
is involved in 493 coverage lawsuits as of December 31, 1993, compared with 449
as of December 31, 1992. Accordingly, and because of the many unresolved legal
and factual issues described above, liabilities cannot be estimated from the
number of environmental pollution files outstanding.
CIGNA establishes case reserves for reported environmental pollution claims
as information permits and, during 1993, also established reserves for future
legal and associated expenses for such reported claims. However, CIGNA does not
establish reserves for unreported claims or for legal and associated expenses
related to unreported claims because of the uncertainties described above.
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25
Reserve changes for environmental pollution claims before ("Gross") and
after ("Net") the effects of reinsurance for the periods indicated are as
follows:
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1993 1992 1991
--------------- -------------- --------------
GROSS NET GROSS NET GROSS NET
----- ----- ----- ---- ----- ----
(IN MILLIONS)
ENVIRONMENTAL POLLUTION CLAIMS
Beginning reserves................................. $ 252 $ 148 $ 192 $ 98 $ 181 $ 97
Plus incurred claims and claim adjustment
expenses......................................... 482 394 197 127 103 83
Less payments for claims and claim adjustment
expenses......................................... (141) (112) (137) (77) (92) (82)
----- ----- ----- ---- ----- ----
Ending reserves.................................... $ 593 $ 430 $ 252 $148 $ 192 $ 98
----- ----- ----- ---- ----- ----
----- ----- ----- ---- ----- ----
During 1993, CIGNA was able to segregate and separately report
environmental pollution reserves for certain of its excess and surplus contracts
that were previously included in prior year development for lines of business
such as casualty and commercial packages. The above table reflects this change
for all periods presented. Excess and surplus contracts are generally subject to
a significant amount of reinsurance; as a result, the effect on net reserves of
losses for this business was not significant. The incurred claims and claim
adjustment expenses for 1993 reflect the establishment in the third quarter of
reserves of $268 million net of reinsurance ($335 million gross) for future
legal and associated expenses for reported claims.
Other Long-term Exposure Claims
Other long-term exposure claims typically assert injuries from a substance,
such as DES, lead or breast implants, which are manifested over an extended
period of time. These claims may involve multiple policies, policyholders and
insurers, with uncertainties similar to those affecting asbestos-related claims,
in resolving whether, and which, insurers may be liable. In addition, there are
questions as to which, if any, injuries or damages are caused by the particular
product or substance.
CIGNA's losses and legal expenses for other long-term exposure claims
primarily arise from its domestic property and casualty operations. As of
December 31, 1993 and 1992, respectively, approximately 1,000 and 700
policyholders had other long-term exposure claims outstanding with the domestic
operations. The 1993 amount includes approximately 250 policyholders for which
data had not previously been available. CIGNA continues to litigate other
long-term exposure coverage disputes, with 49 lawsuits involving 48
policyholders pending as of December 31, 1993.
CIGNA establishes case reserves for reported long-term exposure claims and,
during 1993, also established reserves for future legal and associated expenses
for such reported claims. However, CIGNA does not establish reserves for certain
classes of unreported claims or for legal and associated expenses related to
certain classes of unreported claims because of the uncertainties described
above.
The incurred claims and claim adjustment expenses, net of reinsurance, for
other long-term exposures were $76 million, $16 million and $21 million for
1993, 1992 and 1991, respectively. The incurred claims and claim adjustment
expenses in 1993 for other long-term exposure claims reflect the establishment
in the third quarter of reserves of $35 million, net of reinsurance, for future
legal and associated expenses for reported claims.
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26
Reserve Analysis
The following table presents a reconciliation of total beginning and ending
reserve balances of the Property and Casualty segment for unpaid claims and
claim adjustment expenses for the periods indicated.
YEAR ENDED DECEMBER 31,
-----------------------------
1993 1992 1991
------- ------- -------
(IN MILLIONS)
Gross Reserve for Unpaid Claims and Claim Adjustment
Expenses--January 1.................................................... $17,478 $16,750 $16,660
Less Reinsurance Recoverable......................................... 7,011 6,562 6,534
------- ------- -------
Net Reserve for Unpaid Claims and Claim Adjustment Expenses--January 1... 10,467 10,188 10,126
------- ------- -------
Plus incurred claims and claim adjustment expenses:
Provision for insured events of the current year..................... 3,464 4,448 4,587
Increase in provision for insured events of prior years.............. 789 656 341
------- ------- -------
Total incurred claims and claim adjustment expenses................ 4,253 5,104 4,928
------- ------- -------
Less payments for claims and claim adjustment expenses:
Attributable to insured events of the current year................... 1,153 1,371 1,454
Attributable to insured events of prior years........................ 3,017 3,454 3,412
------- ------- -------
Total payments for claims and claim adjustment expenses............ 4,170 4,825 4,866
------- ------- -------
Net Reserve for Unpaid Claims and Claim Adjustment
Expenses--December 31.................................................. 10,550 10,467 10,188
Plus Reinsurance Recoverable......................................... 7,104 7,011 6,562
------- ------- -------
Gross Reserve for Unpaid Claims and Claim Adjustment
Expenses--December 31.................................................. $17,654 $17,478 $16,750
------- ------- -------
------- ------- -------
The table on page 25 presents the subsequent development of the estimated
year-end property and casualty reserve, net of reinsurance ("net reserve") for
the ten years prior to 1993. The first section of the table shows the estimated
net reserve that was recorded at the end of each of the indicated years for all
current and prior year unpaid claims and claim adjustment expenses. The second
section shows the cumulative percentages of such previously recorded net reserve
paid in succeeding years. The third section shows, as a percentage of such net
reserve, the re-estimates of the net reserve made in each succeeding year.
The indicated deficiency as shown in the table represents the aggregate
change in the reserve estimates from the original balance sheet dates through
1993. The amounts noted are cumulative; that is, an increase in a loss estimate
that related to a prior year occurrence generates a deficiency in each
intermediate year. For example, a deficiency recognized in 1993 relating to
losses incurred in 1987 would be included in the indicated deficiency amount for
the years 1987 through 1992. Yet, the deficiency would be reflected in operating
results in 1993 only. The effects on income in the past three years due to
changes in estimates of net reserve are shown as "Increase in provision for
insured events of prior years" in the above table.
Conditions and trends that have affected the reserve development reflected
in the table may continue to change, and care should be exercised in
extrapolating future reserve redundancies or deficiencies from such development.
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27
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------------------
1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993
------ ------ ------ ------ ------ ------ ------ ------- ------- ------- -------
(DOLLAR AMOUNTS IN MILLIONS)
Net reserve for unpaid claims and
claim adjustment expenses.......... $4,584 $5,715 $7,299 $8,027 $8,784 $9,366 $9,731 $10,126 $10,188 $10,467 $10,550
------ ------ ------ ------ ------ ------ ------ ------- ------- ------- -------
------ ------ ------ ------ ------ ------ ------ ------- ------- ------- -------
Cumulative percentage of net reserve
paid through:
One year later................... 39.5% 38.3% 30.5% 31.0% 30.3% 31.1% 34.3% 33.7% 33.9% 28.8%
Two years later.................. 62.6 60.0 51.2 50.2 49.6 52.7 54.2 53.8 53.4
Three years later................ 76.6 79.3 66.8 65.4 65.7 67.6 69.3 68.5
Four years later................. 91.5 92.7 79.5 78.9 77.0 78.9 80.7
Five years later................. 101.1 104.2 90.4 88.4 84.7 87.9
Six years later.................. 110.5 114.0 99.1 95.2 92.8
Seven years later................ 118.0 122.9 105.4 102.9
Eight years later................ 126.2 129.4 112.9
Nine years later................. 130.5 137.8
Ten years later.................. 139.7
Net reserve (percentage)
re-estimated as of:
One year later................... 105.1% 125.0% 101.7% 103.3% 102.7% 103.0% 103.1% 103.4% 106.4% 107.5%
Two years later.................. 128.3 127.3 108.8 106.2 105.0 105.9 106.9 107.4 115.5
Three years later................ 130.2 133.3 111.8 110.0 108.0 109.8 109.7 117.0
Four years later................. 134.7 136.5 116.2 114.9 111.4 112.4 119.7
Five years later................. 139.2 140.5 122.4 118.9 114.1 122.0
Six years later.................. 142.3 147.7 126.7 122.2 124.0
Seven years later................ 148.8 151.5 130.9 132.7
Eight years later................ 153.4 157.5 142.1
Nine years later................. 159.8 170.7
Ten years later.................. 172.7
Net Indicated deficiency: $3,331 $4,039 $3,073 $2,623 $2,109 $2,059 $1,913 $ 1,722 $ 1,578 $ 789
Gross reserve--December 31.......... $17,478 $17,654
Less: Reinsurance recoverable....... 7,011 7,104
------- -------
Net reserve--December 31............ $10,467 $10,550
------- -------
------- -------
Gross re-estimated reserve.......... $18,850
Less: Re-estimated reinsurance
recoverable........................ 7,594
-------
Net re-estimated reserve............ $11,256
-------
-------
Gross cumulative deficiency......... $ 1,372
-------
-------
- ---------------
The liability for foreign subsidiaries was excluded for 1983 because claims and
claim adjustment expenses by accident year for foreign subsidiaries were not
available that year.
On a GAAP basis, which is before the effects of reinsurance, CIGNA's 1993
year-end reserves totaled $17.7 billion. For GAAP purposes, CIGNA's reserves are
generally carried at the full value of the estimated liabilities, except for
certain workers' compensation liabilities assumed in pre-1984 reinsurance
agreements. The discount for these liabilities, based on an assumed interest
rate of 9%, was approximately $22 million as of December 31, 1993, and
approximately $2 million was amortized in 1993. For state regulatory purposes,
reserves are reported in accordance with statutory accounting procedures
("SAP"), which is net of the effects of reinsurance, and, on that basis, totaled
$9.6 billion.
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The following table reconciles, as of year end, liabilities for unpaid
claims and claim adjustment expenses determined for state regulatory purposes in
accordance with SAP to those determined in accordance with GAAP:
1993 1992 1991
-------- -------- --------
(IN MILLIONS)
Statutory reserve for unpaid claims and claim adjustment expenses,
net of reinsurance................................................ $ 9,590 $ 9,864 $ 9,791
Adjustments:
Statutory Reinsurance Recoverable................................. 6,584 6,807 6,448
Discounting of Gross Reserves(1).................................. 1,479 806 636
Salvage and Subrogation(2)........................................ -- -- (132)
Other............................................................. 1 1 7
-------- -------- --------
GAAP reserve for unpaid claims and claim adjustment expenses........ 17,654 17,478 16,750
Less GAAP Reinsurance Recoverable................................... 7,104 7,011 6,562
-------- -------- --------
GAAP reserve for unpaid claims and claim adjustment expenses,
net of reinsurance................................................ $ 10,550 $ 10,467 $ 10,188
-------- -------- --------
-------- -------- --------
- ---------------
(1) Primarily for workers' compensation reserves. For SAP purposes workers'
compensation reserves are discounted at rates ranging from 3.5% to 6%.
During 1993, CIGNA expanded the use of discounting for certain statutory
loss reserves and modified the assumptions used to discount other reserves,
in accordance with state insurance regulations, which decreased statutory
reserves by $388 million.
(2) Prior to 1992, SAP did not generally allow for the recognition of estimated
recoverable salvage and subrogation. Beginning in 1992, both SAP and GAAP
included an adjustment for salvage and subrogation recoverables.
NAIC and Other Property and Casualty Regulatory Matters
The National Association of Insurance Commissioners ("NAIC") has adopted
risk-based capital rules effective for property and casualty companies as of
December 31, 1994. Additional information about the rules and their effect on
CIGNA's property and casualty subsidiaries is contained on page 33 below and on
page 15 of the MD&A section of CIGNA's 1993 Annual Report.
The NAIC calculates annually 12 financial ratios to assist state insurance
regulators in monitoring the financial condition of insurance companies.
Departure from the benchmark "usual range" on four or more of the ratios could
lead to inquiries from individual state insurance commissioners as to certain
aspects of a company's business. For 1993, CIGNA's consolidated domestic
property and casualty insurance subsidiaries fell outside the usual ranges for
four of the ratios, as discussed below. Management believes that this departure
from the usual ranges reflects the unfavorable insurance environment and will
not result in any regulatory actions that would have a material adverse effect
on the results of operations or financial condition of CIGNA.
The consolidated subsidiaries fell outside the usual ranges for the two
year overall operating ratio (118%), the one and two year reserve development to
surplus ratios (38% and 49%, respectively) and the liabilities to liquid assets
ratio (109%).
The two year operating ratio measures a company's overall profitability by
relating cumulative underwriting losses net of investment income for the current
and prior year to premium for that period. A ratio in excess of 100% falls
outside the usual range. Significant factors contributing to this result include
losses from catastrophes and asbestos and environmental pollution claims as well
as a highly competitive pricing environment. Underwriting losses and steps taken
to improve results are discussed on page 19 of the MD&A section of the Company's
1993 Annual Report.
The one and two year reserve development to surplus ratios relate a
company's loss reserve development for insured events of prior years for the
most recent calendar year to 1992 surplus (for the one
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29
year ratio) and for the two most recent calendar years to 1991 surplus (for the
two year ratio). A company falls outside the usual ranges if such development
exceeds 20% of such surplus. The reasons for the Company's adverse loss
development are discussed beginning on page 19 above and on pages 20 and 21 of
the MD&A section of the Company's 1993 Annual Report.
The liabilities to liquid assets ratio measures a company's ability to pay
its liabilities with cash, investment assets or receivables. A ratio in excess
of 105% falls outside the usual range. As stated above on page 13, CIGNA
provides coverages and services for customers who wish to increase their levels
of risk retention or to self-insure. The receivables associated with certain of
these products (with respect to which the Company typically obtains collateral)
are separately classified in the financial statements and are not included in
the NAIC definition of liquid assets. The inclusion of the liabilities
associated with such products without the related receivables results in the
Company falling outside the usual range.
As a result of property and casualty underwriting losses, CIGNA contributed
$150 million of capital in 1993 to enhance the capital base of the domestic
property and casualty operations. Also during 1993, CIGNA expanded the use of
discounting for certain statutory loss reserves and modified the assumptions
used to discount other reserves, in accordance with state insurance regulations,
which increased statutory surplus by approximately $290 million. Additional
capital contributions may be needed as a result of continued property and
casualty losses; however, such amounts are not reasonably estimable at this
time.
CIGNA's property and casualty insurance subsidiaries are members of
regulated advisory organizations that provide certain statistical, rate-making,
policy audit and similar services on a fee basis. In most states, these
subsidiaries may use rate filings developed by advisory organizations. They also
use filings developed by themselves, or combinations of both, thus enabling them
to pursue an independent course in certain areas while using advisory
organization services in others. The continued operation of advisory
organizations and their authority to set advisory rates is the subject of a
variety of proposed regulatory restraints and legal challenges.
G. Investments and Investment Income
CIGNA's investment operations primarily provide investment management and
related services in the United States and certain other countries for CIGNA's
corporate and insurance-related assets.
Assets under management at year-end 1993 totaled $67.4 billion, comprising
CIGNA corporate and insurance-related investment assets ("investment assets") of
$50.7 billion and advisory portfolios of $16.7 billion. Advisory portfolios
included $13.7 billion in Separate Accounts of CIGNA's life insurance
subsidiaries. For information about Separate Accounts, see "Employee Retirement
and Savings Benefits-- Principal Products and Markets" on page 7.
As of December 31, 1993, CIGNA implemented Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." Accordingly, certain fixed maturities were
classified as available for sale and are now carried at fair value, rather than
amortized cost. The effect of implementing SFAS No. 115 was to increase
investment assets by $1.6 billion.
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. In 1993, CIGNA ceased active management of the bulk
of its domestic equity holdings in favor of an index approach primarily based on
the Standard & Poor's 500 Index.
The major portfolios under management consist of the combined assets of the
Employee Life and Health Benefits, Employee Retirement and Savings Benefits, and
Individual Financial Services segments (collectively, "Employee Benefits and
Individual Financial portfolios") and the assets of the Property and Casualty
segment. CIGNA's investment assets are generally managed 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, 1993
comprised the following: property and casualty 37%; fully guaranteed 13%,
experience-rated 27%, interest-sensitive 10%, and other life and health 13%.
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Property and casualty claim demands are somewhat unpredictable in nature
and require liquidity from the underlying investment assets, which are
structured to emphasize current investment income to the extent consistent with
maintaining appropriate portfolio quality and diversity. The liquidity
requirements for shorter-term liabilities are met primarily through cash flows
and shorter-term investments (less than two years) and, to a lesser extent,
through publicly traded fixed maturities. For longer-term liabilities, liquidity
requirements are met primarily through private fixed maturity investments.
During 1993, equity holdings were sold from the Property and Casualty portfolios
and replaced with fixed maturity holdings with the objective of reducing future
volatility of investments supporting CIGNA's property and casualty reserves.
Fully guaranteed products primarily include GICs, settlement annuities and
single premium annuity products. 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, 1993, the duration of assets and liabilities for GICs,
single premium annuities and settlement annuities was 3 years, 8 years and 12
years, respectively.
Experience-rated products include defined benefit and defined contribution
pension products. The principal and liquidity requirements of experience-rated
liabilities are met by investments that emphasize current yield, primarily fixed
income investments.
Investment assets for interest-sensitive products, which include universal
life insurance, primarily include fixed income investments, which emphasize
investment yield while meeting the liquidity requirements of the related
liabilities.
Other life and health products consist of various group and individual life
and health products. The supporting investment assets are structured to
emphasize investment income, and the necessary liquidity is provided through
cash flow, short-term investments and common stocks.
Investment strategy and results are affected by the amount and timing of
cash available for investment, economic conditions and interest rates. For
example, cash flows have increased in the past two years due to higher principal
repayments, primarily from prepayments of mortgage-backed securities.
Reinvestment of this cash in high quality fixed maturities at prevailing
interest rates has reduced investment income. Increased competition for quality
investments could reduce the availability of such investments and adversely
affect future investment results.
CIGNA routinely monitors and evaluates the status of its investments in
light of current economic conditions, trends in capital markets and other
factors. Such factors include industry segment considerations for fixed maturity
investments, and geographic and property-type considerations for mortgage loan
investments.
CIGNA's fixed maturity investments as of December 31, 1993 constituted
approximately 54% of the Employee Benefits and Individual Financial portfolios
and approximately 87% of the Property and Casualty portfolios, respectively. As
of that date, approximately 33% of fixed maturity investments was attributable
to experience-rated contracts.
CIGNA reduces credit risk for the portfolios as a whole by investing
primarily in investment grade securities rated by rating agencies (for public
investments), by CIGNA (for private investments) or by the Securities Valuation
Office of the NAIC (for both public and private investments). For information
about below investment grade holdings and NAIC and agency ratings, see page 24
of the MD&A section of CIGNA's 1993 Annual Report.
Adverse economic conditions in particular industry sectors have impaired
certain borrowers' abilities to pay debt service on fixed maturities. This
resulted in additional write-downs, delinquencies and restructured bonds in
1993. Despite signs of overall economic growth, continuing adverse conditions in
various industry segments are expected to result in additional problem fixed
maturities and write-downs and valuation reserves.
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31
CIGNA's mortgage loan investments constituted approximately 26% of the
Employee Benefits and Individual Financial portfolios and approximately 4% of
the Property and Casualty portfolios as of December 31, 1993. As of that date,
approximately 59% of mortgage loan investments was attributable to
experience-rated contracts. Mortgage loan investments are subject to
underwriting criteria addressing loan-to-value ratio, debt service coverage,
cash flow, tenant quality, leasing, market, location and financial strength of
the borrower. Such investments consist primarily of first mortgage loans on
commercial properties and are diversified relative to property type, location,
borrower and loan size. The Company invests in fully completed and substantially
leased commercial properties. Virtually all of the Company's mortgage loans are
bullet or balloon loans, under which all or a substantial portion of the loan
principal is due at the end of the loan term.
Conditions in certain economic sectors and the real estate markets
generally, have impaired certain borrowers' abilities to pay debt service on
mortgage loans. As a result, CIGNA experienced additional delinquencies,
restructurings and, in particular, foreclosures in 1993, as well as an increase
in valuation reserves. Continuing adverse conditions, in particular in
California and the office building sector, are expected to result in additional
problem mortgage loans, foreclosures and valuation reserves.
In addition, in 1993 the Company refinanced approximately $900 million of
mortgage loans in good standing that related to borrowers unable to obtain
alternative financing and extended the maturities of certain mortgage loans.
CIGNA manages properties obtained through foreclosure of mortgage loans
("foreclosure properties") until such properties are sold. The Company's general
policy is to sell foreclosure properties after rehabilitating the properties,
re-leasing them, and managing them for two to four years, although CIGNA may
hold certain foreclosure properties for immediate sale if circumstances indicate
that to do so is in the best financial interests of the Company or
policyholders.
The amounts and timing of future write-downs and changes in valuation
reserves for bonds, mortgage loans and foreclosure properties cannot be
reasonably estimated. However, CIGNA currently does not expect a significant
decline in the aggregate carrying value of its assets or a material adverse
effect on its financial condition.
See pages 23 through 29 of the MD&A section of CIGNA's 1993 Annual Report
and Notes 1, 3 and 4 to CIGNA's 1993 Financial Statements for additional
information about CIGNA's investments.
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32
Employee Benefits and Individual Financial Investments
The following tables summarize the distribution of investments attributable
to CIGNA's Employee Benefits and Individual Financial portfolios and the related
net investment income from such investments. Approximately 53% of the
investments in the Employee Benefits and Individual Financial portfolios is
attributable to experience-rated contracts with policyholders.
AS OF DECEMBER 31,
-----------------------------
INVESTMENTS 1993 1992 1991
- ------------------------------------------------------------------------- ------- ------- -------
(IN MILLIONS)
Fixed maturities
Bonds:
Finance.............................................................. $ 9,021 $ 7,245 $ 6,107
Manufacturing........................................................ 2,511 2,425 2,475
Consumer products.................................................... 2,274 2,478 2,593
States, municipalities and political subdivisions.................... 2,198 1,554 1,178
Energy............................................................... 1,867 1,731 1,510
Public utilities..................................................... 647 835 999
Transportation....................................................... 568 632 553
U.S. government and government agencies and authorities.............. 318 287 184
Foreign governments(1)............................................... 278 182 203
------- ------- -------
Total bonds..................................................... 19,682 17,369 15,802
Redeemable preferred stocks............................................ 26 24 27
------- ------- -------
Total fixed maturities.......................................... 19,708(2) 17,393 15,829
------- ------- -------
Equity securities
Common stocks:
Industrial and miscellaneous......................................... 1,110 886 833
Public utilities..................................................... 162 232 269
Banks, trust and insurance companies................................. 121 76 39
------- ------- -------
Total common stocks............................................. 1,393 1,194 1,141
Non-redeemable preferred stocks........................................ 84 54 31
------- ------- -------
Total equity securities......................................... 1,477 1,248 1,172
------- ------- -------
Mortgage loans
Commercial:
Office buildings..................................................... 3,652 4,245 4,780
Retail facilities.................................................... 3,483 3,486 3,161
Apartments........................................................... 923 905 896
Hotels............................................................... 711 875 965
Industrial........................................................... 379 380 434
Other................................................................ 109 114 120
------- ------- -------
Total commercial................................................ 9,257 10,005 10,356
Agricultural........................................................... 118 171 245
------- ------- -------
Total mortgages................................................. 9,375 10,176 10,601
------- ------- -------
Policy loans............................................................. 3,623 2,062 1,627
Real estate.............................................................. 1,539 1,173 718
Other long-term investments.............................................. 108 99 93
Short-term investments................................................... 401 497 528
------- ------- -------
Total investments............................................... $36,231 $32,648 $30,568
------- ------- -------
------- ------- -------
- ---------------
See Note 1 of Notes to Financial Statements on page 34 of CIGNA's 1993 Annual
Report for a discussion of the method of valuation of investments. The above
amounts do not include Separate Account assets.
(1) Comprises fixed maturities of sovereign foreign governments.
(2) Amount reflects an increase of $732 million related to the adoption of SFAS
No. 115. See Note 1 of Notes to Financial Statements on page 33 of CIGNA's
1993 Annual Report.
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33
YEAR ENDED DECEMBER 31,
-----------------------------
NET INVESTMENT INCOME 1993 1992 1991
- ------------------------------------------------------------------------- ------- ------- -------
(DOLLAR AMOUNTS IN MILLIONS)
Fixed maturities......................................................... $1,610 $1,594 $1,460
Equity securities........................................................ 56 42 40
Mortgage loans........................................................... 948 998 1,047
Real estate.............................................................. 244 162 102
Policy loans............................................................. 253 164 126
Other investments........................................................ 69 70 92
------- ------- -------
Total........................................................... 3,180 3,030 2,867
Less investment expenses................................................. 248 176 120
------- ------- -------
Net investment income, pre-tax........................................... $2,932 $2,854 $2,747
------- ------- -------
------- ------- -------
NAIC earned interest rate(1)............................................. 8.80 % 9.14 % 9.43 %
------- ------- -------
------- ------- -------
- ---------------
(1) In accordance with rules prescribed by the NAIC, the earned interest rate
for any given year is equal to (a) net investment income multiplied by two,
divided by (b) the sum, at the beginning and end of the year (excluding the
effects of SFAS No. 115), of cash, invested assets and investment income due
and accrued, less borrowed money, less net investment income.
Property and Casualty Investments
The following tables summarize the distribution of investments attributable
to CIGNA's Property and Casualty segment and the related net investment income
from such investments.
AS OF DECEMBER 31,
-----------------------------
INVESTMENTS 1993 1992 1991
- ------------------------------------------------------------------------- ------- ------- -------
(IN MILLIONS)
Fixed maturities
Bonds:
States, municipalities and political subdivisions.................... $ 2,545 $ 2,088 $ 2,065
Foreign governments(1)............................................... 1,472 218 355
Finance.............................................................. 1,404 1,455 1,380
U.S. government and government agencies and authorities.............. 1,083 599 656
Energy............................................................... 810 163 151
Public utilities..................................................... 635 200 116
Consumer products.................................................... 548 559 543
Manufacturing........................................................ 487 458 439
Transportation....................................................... 76 198 192
Other................................................................ 924 411 333
------- ------- -------
Total bonds........................................................ 9,984 6,349 6,230
Redeemable preferred stocks............................................ 24 23 41
------- ------- -------
Total fixed maturities............................................. 10,008(2) 6,372 6,271
------- ------- -------
Equity securities
Common stocks:
Industrial and miscellaneous......................................... 293 877 858
Banks, trust and insurance companies................................. 57 45 20
Public utilities..................................................... 9 125 58
------- ------- -------
Total common stocks................................................ 359 1,047 936
Non-redeemable preferred stocks........................................ 7 11 8
------- ------- -------
Total equity securities............................................ 366 1,058 944
------- ------- -------
Other long-term investments, principally mortgages....................... 643 722 799
Short-term investments(3)................................................ 461 2,473 2,271
------- ------- -------
Total investments.................................................. $11,478 $10,625 $10,285
------- ------- -------
------- ------- -------
- ------------
See Note 1 of Notes to Financial Statements on page 34 of CIGNA's 1993 Annual
Report for a discussion of the method of valuation of investments. The above
table does not reflect purchase accounting adjustments relating to the 1982
business combination of Connecticut General Corporation ("CGC") and INA
Corporation ("INA"), which are made in consolidation. In addition, the above
amounts do not include Separate Account assets.
(1) Comprises fixed maturities of sovereign foreign governments.
(2) Amount reflects an increase of $548 million related to the adoption of SFAS
No. 115. See Note 1 of Notes to Financial Statements on page 33 of CIGNA's
1993 Annual Report. Fixed maturities carried at fair value prior to adoption
of SFAS No. 115 approximated $2.3 billion as of December 31, 1993 and are
reflected in the appropriate bond categories presented above.
(3) Includes fixed maturities that are carried at market value of approximately
$2.1 billion and $1.9 billion, respectively, as of December 31, 1992 and
1991.
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YEAR ENDED DECEMBER 31,
---------------------------
NET INVESTMENT INCOME(1) 1993 1992 1991
- ------------------------------------------------------------------------- ----- ----- -----
(IN MILLIONS)
Interest:
Taxable.............................................................. $ 643 $ 712 $ 740
Tax-exempt........................................................... 101 105 108
----- ----- -----
Total........................................................... 744 817 848
Dividends from stocks.................................................... 25 30 31
Other.................................................................... 34 42 56
----- ----- -----
Total investment income.................................................. 803 889 935
Less investment expenses................................................. 50 47 37
----- ----- -----
Net investment income, pre-tax........................................... $ 753 $ 842 $ 898
----- ----- -----
----- ----- -----
- ---------------
(1) The above table does not reflect purchase accounting adjustments relating to
the 1982 business combination of CGC and INA, which are made in
consolidation.
Portfolio Management and Advisory Services
CIGNA's investment operations primarily focus on providing investment
services to CIGNA and its insurance subsidiaries. In addition, the investment
operations provide fee-based investment management and advisory services to
advisory clients, including large group pension sponsors, institutions and
international investors. CIGNA acquires or originates, directly or through
intermediaries, various investments including private placements, public
securities, mortgage loans, real estate and leveraged capital funds.
Other Investments and Operations
Assets for CIGNA's Other Operations include fixed maturities, mortgage
loans and investments maturing in less than two years. These assets support the
settlement annuity and non-insurance businesses, and also supported, until
January 1994 when they were sold, the California personal automobile and
homeowners insurance businesses that CIGNA retained from the 1989 sale of the
Horace Mann insurance companies. Net investment income for these investments was
$217 million for 1993, $218 million for 1992 and $215 million for 1991.
In addition, CIGNA has non-strategic equity investments in operating
businesses, including oil and gas, drilling rig and real estate operations.
H. Regulation
CIGNA's insurance subsidiaries are licensed to do business in, and are
subject to regulation and supervision by, the states of the United States, the
District of Columbia, certain U.S. territories and various foreign
jurisdictions. Although the extent of regulation varies, most jurisdictions have
laws and regulations governing rates, solvency, standards of business conduct,
and various insurance and investment products. Licensing of insurers and their
agents and the approval of policy forms are usually required. The form and
content of statutory financial statements and the type and concentration of
investments are also regulated. Each insurance subsidiary is required to file
annual financial reports with supervisory agencies in most of the jurisdictions
in which it does business, and its operations and accounts are subject to
examination by such agencies at regular intervals.
Most states and the District of Columbia require licensed insurance
companies to support guaranty associations, which are organized to pay claims on
behalf of insolvent insurance companies. These associations levy assessments on
member insurers in a particular state to pay such claims on the basis of their
proportionate shares of the lines of business of the insolvent insurer. Maximum
assessments permitted by law in any one year generally range from 1% to 2% of
annual premiums written by each member in a particular state with respect to the
categories of business involved, and in some cases may be offset against premium
taxes payable to the state. The assessments against CIGNA's subsidiaries were
$28 million,
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$23 million and $32 million for 1993, 1992 and 1991, respectively, before giving
effect to premium tax offsets. The amounts of future assessments are not
expected to have a material adverse effect on CIGNA's financial condition.
The increase in the number of insurance companies that are impaired or
insolvent has prompted state and federal initiatives to enhance solvency
regulation. For example, the NAIC has developed model solvency-related laws that
it is encouraging states to adopt. In addition, effective for life insurance
companies in 1993 and property and casualty companies in 1994, risk-based
capital rules have been adopted that recommend a specified level of capital
depending on the types and quality of investments held, the types of business
written and the types of liabilities maintained. Depending on the ratio of the
insurer's surplus to its risk-based capital, the insurer could be subject to
various regulatory actions ranging from increased scrutiny to conservatorship.
See page 15 of the MD&A section of CIGNA's 1993 Annual Report for additional
information.
Also, the NAIC is addressing risk-based capital guidelines for HMOs and a
proposal that would limit the types and amounts of investment assets that an
insurance company can hold.
In the past, federal oversight of insurer solvency has also been proposed.
Among proposals that have been discussed are optional federal chartering, which
would preempt most state insurance regulations; minimum federal solvency
standards, which would be supervised by the states; federal licensing of all
reinsurers; and establishment of a national guaranty fund.
Recent state and federal regulatory scrutiny of life insurers' sales and
advertising tactics, including the adequacy of disclosure regarding products and
their future performance, may result in increased regulations in this area.
In December 1993, the U.S. Supreme Court issued the John Hancock Mutual
Life Insurance Company v. Harris Trust decision, which held that certain funds
held under a general account group annuity contract were subject to ERISA
fiduciary standards. The Department of Labor is addressing compliance issues
raised by the decision and, depending on the outcome, CIGNA may make future
changes to its group annuity contracts or the operation of its general account.
CIGNA's insurance subsidiaries are subject to state laws regulating
insurers that are subsidiaries of insurance holding companies. Under such laws,
which are generally becoming more stringent, certain dividends, distributions
and other transactions between an insurance subsidiary and the holding company
or its other subsidiaries may require notification to, or be subject to the
approval of, one or more state insurance commissioners.
Proposals to reform the United States health care system could change the
way health care is financed and delivered. Such proposals are discussed on page
6.
CIGNA's HMOs and mental health and substance abuse clinics 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
may also include standards for quality assurance, minimum levels of benefits
that must be offered and requirements for availability and continuity of care. A
few states require HMOs to participate in guaranty funds, and several state
legislatures have recently considered insolvency and guaranty fund legislation,
a trend that is expected to continue.
Regulatory concerns with insurance risk selection have increased
significantly in recent years. For example, there is continuous legislative,
regulatory and judicial activity regarding the use of gender in determining
insurance benefits and rates. Also, some states have imposed restrictions on the
use of underwriting criteria related to AIDS.
Property and casualty insurers are required to participate in assigned risk
plans, joint underwriting associations and other residual market mechanisms to
write coverages on risks not acceptable under normal underwriting standards. In
addition, states have responded to concerns about the availability and
affordability of commercial casualty insurance by proposing or adopting
legislation, regulations or positions to, among
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other things, limit rate increases, require rate reductions or refunds, restrict
nonrenewal and cancellation with respect to commercial lines coverages or
require the refunding of "excess" profits, and by expanding regulatory
examination of the appropriateness of rates, non-renewals and cancellations.
The extent of insurance regulation varies significantly among the countries
in which CIGNA conducts its international operations. As a foreign insurer,
CIGNA is, in many countries, faced with greater restrictions than domestic
competitors. Trade barriers include discriminatory licensing procedures,
compulsory cessions of reinsurance, required localization of records and funds,
higher premium and income taxes, and requirements for local participation in an
insurer's ownership. Where appropriate, CIGNA has incorporated insurance
subsidiaries locally to improve its position.
Depending upon their nature, CIGNA's investment management activities and
products with United States contacts are subject to the federal securities laws,
ERISA and other federal and state laws governing investment management
activities and products. Investments made by United States insurance companies
are subject to state insurance laws. Investment management activities and
products outside the United States, and investments made by non-United States
insurance companies outside the United States, are subject to local regulation.
Often, the investments of individual insurance companies are subject to
regulation by multiple jurisdictions.
Federal initiatives can have an impact on the insurance business in a
variety of ways. In addition to proposals discussed above related to Superfund,
health care reform and federal oversight of insurer solvency, current and
proposed federal measures that may significantly affect the insurance business
include: (a) pension and other employee benefit regulation; (b) Social Security
legislation; (c) financial services regulation; (d) amendment to the antitrust
exemption provided for the business of insurance by the McCarran-Ferguson Act;
and (e) tax legislation.
The economic and competitive effects of the legislative and regulatory
proposals discussed above would depend upon the final form such legislation or
regulation might take.
I. Miscellaneous
Portions of CIGNA's insurance business are seasonal in nature. Reported
claims under group health and certain property and casualty products are
generally higher in the first quarter. Sales, particularly of individual life
products, are generally lowest in the first quarter and highest in the fourth
quarter.
CIGNA and its principal subsidiaries are not dependent on business from one
or a few customers. No customer accounted for 10% or more of CIGNA's
consolidated revenues in 1993. CIGNA and its principal subsidiaries are not
dependent on business from one or a few brokers or agents, except as noted on
page 12 in connection with sales of certain corporate-owned life insurance. 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 50,600, 52,300 and 56,000 employees as of December
31, 1993, 1992 and 1991, respectively.
Item 2. PROPERTIES
CIGNA's headquarters are located in approximately 90,240 total square feet
of leased office space at One Liberty Place, Philadelphia, Pennsylvania. CIGNA
Property & Casualty, CIGNA Reinsurance -- Property & Casualty, CIGNA Group
Insurance -- Life - Accident - Disability, and CIGNA International are located
in a leased building of approximately 1.25 million total square feet at Two
Liberty Place, Philadelphia. CIGNA HealthCare, CIGNA Individual Insurance, CIGNA
Reinsurance -- Life - Accident - Health and CIGNA Investment Management are
located in a complex of buildings owned by CIGNA, aggregating approximately 1.15
million total square feet of office space, located at 900-950 Cottage Grove
Road, Bloomfield, Connecticut. CIGNA's Retirement & Investment Services
operations are located in approximately 230,000 total square feet of leased
office space at Metro Center One, Hartford, Connecticut. In addition, CIGNA owns
or leases office buildings, or parts thereof, throughout the United States and
in other
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37
countries. For additional information concerning leases and property, see Notes
1(H) and 15 to CIGNA's 1993 Consolidated Financial Statements, which are
incorporated herein by reference from pages 35 and 46, respectively, of CIGNA's
1993 Annual Report. This paragraph does not include information on investment
properties.
CIGNA's information processing resources include large mainframe computers
in major data centers, a multitude of personal computers connected through local
area networks and a nationwide backbone network that provides desktop computing
and office automation to CIGNA employees. CIGNA's policies regarding the
safeguarding of critical corporate data are disseminated to all employees. The
policies require data security through the use of appropriate identification and
password practices and data backup through appropriate offsite storage
techniques. Protection of CIGNA's major data centers, which house large amounts
of critical corporate data, involves access controls, fire detection and
suppression systems, and other hazard elimination processes. In addition, CIGNA
maintains a formal disaster contingency plan, which includes recovery services
in the event of a disaster in a CIGNA data center. Critical files are stored
offsite, to be available for recovery in the event of a disaster.
Item 3. LEGAL PROCEEDINGS
CIGNA is continuously involved in numerous lawsuits arising, for the most
part, in the ordinary course of its business either as a liability insurer
defending third-party claims brought against its insureds or as an insurer
defending coverage claims brought against it by its policyholders or other
insurers.
During 1988, a number of state attorneys general and private plaintiffs
filed lawsuits against a number of insurance companies and others, including
CIGNA, alleging violations of federal and state antitrust laws. One of the
lawsuits, filed in Texas, was settled in March 1991 for an insignificant amount.
All of the remaining lawsuits were dismissed by the trial court in 1989. The
United States Court of Appeals reversed the trial court and the United States
Supreme Court reversed in part and modified in part the ruling of the Court of
Appeals and remanded the cases to the Court of Appeals for further proceedings
in accordance with its opinion. The Supreme Court ruled that the insurance
companies did not forfeit their McCarran-Ferguson protection when they acted
with reinsurers to produce acceptable policy terms and defined the boycott
exception to the McCarran-Ferguson exemption in a manner favorable to the
insurance industry. The cases are now in the trial court for further
proceedings, having been remanded by the Court of Appeals.
While the outcome of litigation involving CIGNA cannot be determined, such
litigation (other than that related to asbestos, environmental pollution and
other long-term exposure claims, which is discussed below), net of reserves and
giving effect to reinsurance, is not expected to have a material effect on
CIGNA.
CIGNA is involved in lawsuits regarding policy coverage and judicial
interpretation of legal liability for asbestos-related, environmental pollution
and other long-term exposure claims. As discussed beginning on page 19,
reserving for these claims is subject to significant uncertainties, such as lack
of developed case law or adequate claim history. Future results of the Company
are expected to continue to be affected adversely by losses and expenses for
asbestos-related, environmental pollution and other long-term exposure claims.
Because of the significant uncertainties involved and the likelihood that these
uncertainties will not be resolved in the near future, CIGNA is unable to
reasonably estimate the additional losses and expenses and therefore is unable
to determine whether such amounts will be material to its future results of
operations, liquidity or financial condition.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The information under the caption "Quarterly Financial Data--Stock and
Dividend Data" on page 51 and under the caption "Stock Listing" on the inside
back cover of CIGNA's 1993 Annual Report is incorporated by reference, as is the
information from Note 7 to CIGNA's Consolidated Financial Statements on page 41
and the number of shareholders of record as of December 31, 1993 under the
caption "Highlights" on page 1 of CIGNA's 1993 Annual Report.
Item 6. SELECTED FINANCIAL DATA
The five-year financial information under the caption "Highlights" on page
1 of CIGNA's 1993 Annual Report is incorporated by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information on pages 14 through 29 of CIGNA's 1993 Annual Report is
incorporated by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CIGNA's Consolidated Financial Statements on pages 30 through 49 and the
report of its independent accountants on page 50 of CIGNA's 1993 Annual Report
are incorporated by reference, as is the unaudited information set forth under
the caption "Quarterly Financial Data--Consolidated Results" on page 51.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
A. Directors of the Registrant
The information under the captions "Nominees for Election" and "Incumbent
Directors to Continue in Office" on pages 5 through 7, and the information in
the final paragraph under the caption "Certain Transactions" on page 9 of
CIGNA's proxy statement dated March 21, 1994 are incorporated by reference.
B. Executive Officers of the Registrant
Reference is made below to CG Life and ICNA, which are indirect
subsidiaries 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.
LAWRENCE P. ENGLISH, 53, President of CIGNA HealthCare since March 1992;
President of CIGNA's Individual Financial Services Division from April 1986
until March 1992; and President of CG Life from January 1991 until February
1992.
H. EDWARD HANWAY, 42, President of CIGNA International beginning March 7, 1994;
President of CIGNA International -- Property & Casualty from February 1989 until
March 7, 1994; Senior Vice President of ICNA since February 1989; and Vice
President of CIGNA with responsibility for Operational Planning and Business
Control from December 1986 until February 1989.
36
39
GERALD A. ISOM, 55, President of CIGNA Property and Casualty beginning March
1993. Group Vice President of Transamerica Corporation from 1990 until March
1993; and Chief Executive Officer and President of Transamerica Insurance Group
from January 1985 until March 1993. Transamerica Insurance Group is a major
provider of property and casualty insurance products.
JOHN K. LEONARD, 45, President of CIGNA Group Insurance -
Life-Accident-Disability since March 1992; and Senior Vice President of CIGNA
from March 1989 until March 1992 (Vice President from December 1986 until March
1989) with responsibility for Corporate Marketing and Strategy.
DONALD M. LEVINSON, 48, Executive Vice President of CIGNA since March 1988, with
responsibility for Human Resources and Services.
BYRON D. OLIVER, 51, President of CIGNA Retirement & Investment Services since
February 1988.
ARTHUR C. REEDS, III, 49, President of CIGNA Investment Management since March
1992; and Managing Director and Head of Portfolio Management, CIGNA's Investment
Division, from May 1986 until March 1992.
JAMES G. STEWART, 51, Executive Vice President and Chief Financial Officer of
CIGNA since 1983.
WILSON H. TAYLOR, 50, Chairman of CIGNA since November 1989; and Chief Executive
Officer of CIGNA since November 1988 and President of CIGNA since May 1988.
GEORGE R. TRUMBULL, 49, President of CIGNA Individual Insurance since March
1992; Executive Vice President of CIGNA from January 1988 until April 1992;
President of CG Life since February 1992; and President of CIGNA's Investment
Division from July 1988 until March 1992.
THOMAS J. WAGNER, 54, Executive Vice President and General Counsel of CIGNA
since January 1992; Corporate Secretary of CIGNA from January 1988 until April
1992; and Senior Vice President of CIGNA from January 1988 until January 1992.
C. Compliance with Section 16(a) of the Securities Exchange Act
The information under the caption "Compliance with Section 16(a) of the
Securities Exchange Act" on page 18 of CIGNA's proxy statement dated March 21,
1994 is incorporated by reference.
Item 11. EXECUTIVE COMPENSATION
The information under the captions "Executive Compensation" on pages 11
through 14 and "Compensation of Directors" on pages 8 and 9 of CIGNA's proxy
statement dated March 21, 1994 is incorporated by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information under the captions "Ownership of CIGNA Corporation Common
Stock by Directors and Executive Officers" on pages 2 and 3 and "Ownership of
CIGNA Corporation Common Stock by Certain Beneficial Owners" on page 4 of
CIGNA's proxy statement dated March 21, 1994, relating to security ownership of
certain beneficial owners and management, is incorporated by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the caption "Certain Transactions" on page 9 of
CIGNA's proxy statement dated March 21, 1994 is incorporated by reference.
37
40
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 1993 Annual
Report:
Consolidated Statements of Income and Retained Earnings for the
years ended December 31, 1993, 1992 and 1991--page 30.
Consolidated Balance Sheets as of December 31, 1993 and 1992--page
31.
Consolidated Statements of Cash Flows for the years ended December
31, 1993, 1992 and 1991--page 32.
Notes to Financial Statements--pages 33 through 49.
Report of Independent Accountants, Price Waterhouse--page 50.
(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, 1993, the
registrant filed (1) a Report on Form 8-K dated December 21, 1993 regarding
legal proceedings; (2) a Report on Form 8-K dated December 14, 1993 restating
the registrant's 1992 Form 10-K financial information to reflect the effects of
implementing SFAS 113; (3) a Report on Form 8-K dated November 19, 1993
regarding a revised rating by Standard & Poor's; and (4) a Report on Form 8-K
dated November 1, 1993 containing a copy of a press release reporting its third
quarter 1993 results.
38
41
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 25, 1994
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 25, 1994.
PRINCIPAL EXECUTIVE OFFICER: DIRECTORS:*
Robert P. Bauman
Evelyn Berezin
Wilson H. Taylor* Robert H. Campbell
Chairman, Chief Executive Officer Alfred C. DeCrane, Jr.
and a Director James F. English, Jr.
Frank S. Jones
Robert D. Kilpatrick
Gerald D. Laubach
Marilyn W. Lewis
Paul F. Oreffice
Charles R. Shoemate
PRINCIPAL ACCOUNTING OFFICER: Louis W. Sullivan, M.D.
Hicks B. Waldron
Ezra K. Zilkha
/s/ Gary A. Swords
Gary A. Swords
Vice President and Chief Accounting Officer
*By:/s/ Thomas J. Wagner
Thomas J. Wagner
Attorney-in-Fact
39
42
[THIS PAGE INTENTIONALLY LEFT BLANK]
43
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, 1993.......................... FS-3
III Condensed Financial Information of CIGNA Corporation
(Registrant)............................................. FS-4
V Supplementary Insurance Information........................ FS-8
VI Reinsurance................................................ FS-10
VIII Valuation and Qualifying Accounts and Reserves............. FS-11
IX Short-term borrowings...................................... FS-12
X Supplemental Information Concerning Property-Casualty
Insurance Operations..................................... 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 1993 Annual Report.
FS-1
44
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULES
To the Board of Directors
of CIGNA Corporation
Our audits of the consolidated financial statements referred to in our
report dated February 14, 1994 appearing on page 50 of the 1993 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.
The Company implemented certain new accounting pronouncements as discussed
in Note 1 to the consolidated financial statements.
/S/ PRICE WATERHOUSE
Philadelphia, Pennsylvania
February 14, 1994
FS-2
45
CIGNA CORPORATION AND SUBSIDIARIES
SCHEDULE I
SUMMARY OF INVESTMENTS-- OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 1993
(IN MILLIONS)
AMOUNT AT WHICH
SHOWN IN THE
FAIR CONSOLIDATED
TYPE OF INVESTMENT COST VALUE BALANCE SHEET
- --------------------------------------------------------- ------- ------- ---------------
Fixed maturities
Bonds:
United States government and government agencies and
authorities....................................... $ 1,480 $ 1,688 $ 1,688
States, municipalities and political subdivisions... 4,296 4,787 4,772
Foreign governments................................. 1,665 1,767 1,766
Public utilities.................................... 1,378 1,478 1,451
Convertibles and bonds with warrants attached....... 31 35 33
All other corporate bonds........................... 21,100 23,381 21,994
Redeemable preferred stocks............................ 43 51 51
------- ------- ---------------
Total fixed maturities............................ 29,993 33,187 31,755(1)
------- ------- ---------------
Equity securities
Common stocks:
Industrial, miscellaneous and all other............. 1,200 1,406 1,406
Banks, trust and insurance companies................ 168 178 178
Public utilities.................................... 160 171 171
Non-redeemable preferred stocks........................ 98 94 94
------- ------- ---------------
Total equity securities........................... 1,626 1,849 1,849
------- ------- ---------------
Total fixed maturities and equity securities...... 31,619 $35,036 33,604
-------
-------
Mortgage loans on real estate............................ 10,021 10,021
Policy loans............................................. 3,663 3,663
Real estate investments (including $929 million of real
estate acquired in satisfaction of debt)............... 1,780 1,780
Other long-term investments.............................. 303 303
Short-term investments................................... 1,357 1,357
------- ---------------
Total investments................................. $48,743 $50,728
------- ---------------
------- ---------------
- ---------------
(1) Amount reflects an increase of approximately $1.6 billion related to the
adoption of SFAS No. 115. See Note 1 of Notes to Financial Statements on
page 33 of CIGNA's 1993 Annual Report.
FS-3
46
CIGNA CORPORATION AND SUBSIDIARIES
SCHEDULE III
CONDENSED FINANCIAL INFORMATION OF CIGNA CORPORATION
(REGISTRANT)
STATEMENTS OF INCOME
(IN MILLIONS)
FOR THE YEAR ENDED DECEMBER
31,
-----------------------------
1993 1992 1991
----- ----- -----
Intercompany income...................................... $ 3 $ 2 $ 3
Other revenue............................................ -- 4 --
----- ----- -----
Total revenues......................................... 3 6 3
----- ----- -----
Operating expenses:
Interest............................................... 105 90 88
Intercompany interest.................................. 14 18 23
Other.................................................. 1 3 5
----- ----- -----
Total operating expenses............................ 120 111 116
----- ----- -----
Loss before income taxes................................. (117) (105) (113)
Income tax benefit....................................... (33) (17) (15)
----- ----- -----
Loss of parent company................................... (84) (88) (98)
Equity in income of subsidiaries before extraordinary
item and cumulative effect of accounting changes....... 318 425 551
----- ----- -----
Income before extraordinary item and cumulative effect of
accounting changes..................................... 234 337 453
Loss from early extinguishment of subsidiary debt, net of
taxes.................................................. -- -- (4)
Cumulative effect of accounting changes for
postemployment and postretirement benefits other than
pensions, net of taxes................................. -- (530) --
Cumulative effect of accounting change for income
taxes.................................................. -- 504 --
----- ----- -----
Net income............................................... $ 234 $ 311 $ 449
----- ----- -----
----- ----- -----
See Notes to Condensed Financial Statements on FS-7.
FS-4
47
CIGNA CORPORATION AND SUBSIDIARIES
SCHEDULE III
CONDENSED FINANCIAL INFORMATION OF CIGNA CORPORATION
(REGISTRANT)
BALANCE SHEETS
(IN MILLIONS)
AS OF DECEMBER 31,
-------------------
1993 1992
------ ------
Assets:
Cash and cash equivalents........................................... $ 1 $ 7
Investments in subsidiaries......................................... 8,964 7,581
Goodwill............................................................ 124 207
Other assets........................................................ 115 88
------ ------
Total............................................................ $9,204 $7,883
------ ------
------ ------
Liabilities:
Intercompany........................................................ $ 486 $ 449
Short-term debt..................................................... 348 389
Long-term debt...................................................... 1,100 816
Other liabilities................................................... 695 485
------ ------
Total liabilities................................................ 2,629 2,139
------ ------
Shareholders' Equity:
Common stock (shares issued, 83 and 82)............................. 83 82
Additional paid-in capital.......................................... 2,222 2,206
Net unrealized appreciation -- fixed maturities..................... 961 12
Net unrealized appreciation -- equity securities.................... 211 325
Net translation of foreign currencies............................... (74) (46)
Retained earnings................................................... 3,717 3,702
Less treasury stock, at cost........................................ (545) (537)
------ ------
Total shareholders' equity....................................... 6,575 5,744
------ ------
Total............................................................ $9,204 $7,883
------ ------
------ ------
See Notes to Condensed Financial Statements on FS-7.
FS-5
48
CIGNA CORPORATION AND SUBSIDIARIES
SCHEDULE III
CONDENSED FINANCIAL INFORMATION OF CIGNA CORPORATION
(REGISTRANT)
STATEMENT OF CASH FLOWS
(IN MILLIONS)
FOR THE YEAR ENDED
DECEMBER 31,
-----------------------
1993 1992 1991
----- ----- -----
Cash Flows from Operating Activities:
Income from continuing operations.................................. $ 234 $ 337 $ 453
Adjustments to reconcile income from continuing operations to net
cash provided by (used in) operating activities:
Equity in income of subsidiaries.............................. (318) (425) (551)
Dividends received from subsidiaries.......................... 308 322 293
Accounts payable, accrued expenses, other liabilities and
income taxes................................................. 210 38 19
Other, net.................................................... (22) 10 7
----- ----- -----
Net cash provided by operating activities................... 412 282 221
----- ----- -----
Cash Flows from Investing Activities:
Capital contributions to subsidiaries.............................. (480) (79) (145)
Proceeds from sale of subsidiaries................................. -- 4 88
Other, net......................................................... 1 -- (6)
----- ----- -----
Net cash used in investing activities....................... (479) (75) (63)
----- ----- -----
Cash Flows from Financing Activities:
Change in intercompany debt........................................ 37 (61) 159
Net change in commercial paper..................................... (48) 92 (281)
Issuance of long-term debt......................................... 327 111 219
Repayment of debt.................................................. (36) (124) (38)
Dividends paid..................................................... (219) (218) (217)
----- ----- -----
Net cash provided by (used in) financing activities......... 61 (200) (158)
----- ----- -----
Net (decrease) increase in cash and cash equivalents............... (6) 7 --
Cash and cash equivalents, beginning of year....................... 7 -- --
----- ----- -----
Cash and cash equivalents, end of year............................. $ 1 $ 7 $ --
----- ----- -----
----- ----- -----
See Notes to Condensed Financial Statements on FS-7.
FS-6
49
CIGNA CORPORATION AND SUBSIDIARIES
SCHEDULE III
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-- As of December 31, 1993, CIGNA implemented Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." The effect of implementing
SFAS No. 115 resulted in an increase in net assets and shareholders'
equity of approximately $900 million resulting from the classification
of certain fixed maturities previously classified as held to maturity
(carried at amortized cost) to available for sale (carried at fair
value).
In the fourth quarter of 1992, CIGNA implemented SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than
Pensions"; No. 109, "Accounting for Income Taxes"; and SFAS No. 112,
"Employers' Accounting for Postemployment Benefits." These accounting
changes were implemented as of January 1, 1992 through cumulative
effect adjustments. Prior year financial statements were not restated.
The cumulative effect of implementing these accounting standards as of
January 1, 1992 resulted in a non-cash after-tax charge to net income
of $26 million. In addition, the implementation of these accounting
standards decreased 1992 net income by $5 million.
Note 2-- Long-term debt, net of current maturities, consists of CIGNA's 7.4%
Notes, due 2003; 7.65% Notes, due 2023; 8% Notes, due 1996; 8.2%
Convertible Subordinated Debentures, due 2010; 8 1/4% Notes, due 2007;
8.3% Notes due 2023; 8 3/4% Notes, due 2001; and Medium-term Notes
with interest rates ranging from 5 3/4% to 10%, and original maturity
dates from approximately two to ten years.
Maturities of long-term debt for each of the next five years are as
follows: 1994--$43 million; 1995--$2 million; 1996--$157 million;
1997--$39 million; 1998--$82 million.
In 1993, CIGNA issued $100 million of unsecured 7.4% Notes due in
2003; $100 million of unsecured 7.65% Notes due in 2023; $100 million
of unsecured 8.3% Notes due in 2023 and $27 million of medium-term
notes. In 1992, CIGNA issued $100 million of unsecured 8 1/4% Notes
due in 2007 and $11 million of medium-term notes.
As of December 31, 1993, CIGNA had approximately $950 million
remaining under effective shelf registration statements filed with the
Securities and Exchange Commission that may be issued as debt and
equity securities, depending upon market conditions and CIGNA's
capital requirements. In January 1994, CIGNA issued $100 million of
unsecured 6 3/8% Notes due in 2006 under one of the shelf registration
statements.
Interest paid on short-and long-term debt amounted to $95 million, $88
million and $84 million, for 1993, 1992 and 1991, 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 $75 million, $287 million and
$122 million during 1993, 1992 and 1991, respectively.
FS-7
50
CIGNA CORPORATION AND SUBSIDIARIES
SCHEDULE V
SUPPLEMENTARY INSURANCE INFORMATION
(IN MILLIONS)
DEFERRED FUTURE POLICY UNPAID
POLICY BENEFITS AND CLAIMS
ACQUISITION CONTRACTHOLDER AND CLAIM
SEGMENT COSTS DEPOSIT FUNDS EXPENSES
- -------------------------------------------------- ----------- -------------- ---------
Year Ended December 31, 1993:
Property and Casualty:
Domestic..................................... $ 269 $ -- $13,107
International................................ 167 1,242 2,270
Other, primarily Reinsurance................. 10 129 2,370
----------- -------------- ---------
Total Property and Casualty................ 446 1,371 17,747
Employee Life and Health Benefits............... 28 3,833 2,168
Employee Retirement and Savings Benefits........ 62 20,404 --
Individual Financial Services................... 549 7,699 200
All Other....................................... -- 1,956 29
----------- -------------- ---------
Total...................................... $ 1,085 $ 35,263 $20,144
----------- -------------- ---------
----------- -------------- ---------
Year Ended December 31, 1992:
Property and Casualty:
Domestic..................................... $ 283 $ -- $12,559
International................................ 178 809 2,309
Other, primarily Reinsurance................. 21 120 2,684
----------- -------------- ---------
Total Property and Casualty................ 482 929 17,552
Employee Life and Health Benefits............... 27 3,583 1,668
Employee Retirement and Savings Benefits........ 53 19,936 --
Individual Financial Services................... 499 5,607 157
All Other....................................... -- 1,923 35
----------- -------------- ---------
Total...................................... $ 1,061 $ 31,978 $19,412
----------- -------------- ---------
----------- -------------- ---------
Year Ended December 31, 1991:
Property and Casualty:
Domestic..................................... $ 339 $ -- $12,329
International................................ 174 463 2,573
Other, primarily Reinsurance................. 21 85 1,910
----------- -------------- ---------
Total Property and Casualty................ 534 548 16,812
Employee Life and Health Benefits............... 20 3,446 1,699
Employee Retirement and Savings Benefits........ 47 19,561 --
Individual Financial Services................... 455 4,696 161
All Other....................................... -- 1,881 52
----------- -------------- ---------
Total...................................... $ 1,056 $ 30,132 $18,724
----------- -------------- ---------
----------- -------------- ---------
- ------------
(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.
FS-8
51
CIGNA CORPORATION AND SUBSIDIARIES
SCHEDULE V
SUPPLEMENTARY INSURANCE INFORMATION
(IN MILLIONS)
BENEFITS,
PREMIUMS NET LOSSES AND
UNEARNED AND INVESTMENT SETTLEMENT
SEGMENT PREMIUMS FEES(1) INCOME(2) EXPENSES(1)
- -------------------------------------------------- -------- -------- ----------- -----------
Year Ended December 31, 1993:
Property and Casualty:
Domestic..................................... $1,403 $ 2,528 $ 486 $ 3,017
International................................ 965 2,071 186 1,446
Other, primarily Reinsurance................. 112 537 81 570
-------- -------- ----------- -----------
Total Property and Casualty................ 2,480 5,136 753 5,033
Employee Life and Health Benefits............... 188 7,438 503 5,543
Employee Retirement and Savings Benefits........ -- 296 1,846 1,721
Individual Financial Services................... 35 814 583 921
All Other....................................... 8 28 217 201
-------- -------- ----------- -----------
Total...................................... $2,711 $13,712 $ 3,902 $13,419
-------- -------- ----------- -----------
-------- -------- ----------- -----------
Year Ended December 31, 1992:
Property and Casualty:
Domestic..................................... $1,562 $ 3,128 $ 556 $ 3,188
International................................ 747 2,031 185 1,474
Other, primarily Reinsurance................. 161 601 101 920
-------- -------- ----------- -----------
Total Property and Casualty................ 2,470 5,760 842 5,582
Employee Life and Health Benefits............... 64 7,174 504 5,553
Employee Retirement and Savings Benefits........ -- 248 1,893 1,738
Individual Financial Services................... 51 710 457 775
All Other....................................... 9 32 218 209
-------- -------- ----------- -----------
Total...................................... $2,594 $13,924 $ 3,914 $13,857
-------- -------- ----------- -----------
-------- -------- ----------- -----------
Year Ended December 31, 1991:
Property and Casualty:
Domestic..................................... $1,898 $ 3,533 $ 593 $ 3,309
International................................ 722 1,965 195 1,450
Other, primarily Reinsurance................. 180 616 110 528
-------- -------- ----------- -----------
Total Property and Casualty................ 2,800 6,114 898 5,287
Employee Life and Health Benefits............... 63 7,137 488 5,724
Employee Retirement and Savings Benefits........ -- 300 1,879 1,783
Individual Financial Services................... 38 699 380 699
All Other....................................... 9 45 215 219
-------- -------- ----------- -----------
Total...................................... $2,910 $14,295 $ 3,860 $13,712
-------- -------- ----------- -----------
-------- -------- ----------- -----------
POLICY OTHER
ACQUISITION OPERATING PREMIUMS
SEGMENT EXPENSES EXPENSES WRITTEN
- -------------------------------------------------- ----------- --------- --------
Year Ended December 31, 1993:
Property and Casualty:
Domestic..................................... $ 524 $ 619 $2,388
International................................ 465 448 1,334
Other, primarily Reinsurance................. 124 77 507
----------- --------- --------
Total Property and Casualty................ 1,113 1,144 4,229
Employee Life and Health Benefits............... 13 1,985 --
Employee Retirement and Savings Benefits........ 14 153 --
Individual Financial Services................... 68 294 --
All Other....................................... 2 32 28
----------- --------- --------
Total...................................... $ 1,210 $ 3,608 $4,257
----------- --------- --------
----------- --------- --------
Year Ended December 31, 1992:
Property and Casualty:
Domestic..................................... $ 567 $ 517 $2,858
International................................ 491 391 1,377
Other, primarily Reinsurance................. 131 (75) 582
----------- --------- --------
Total Property and Casualty................ 1,189 833 4,817
Employee Life and Health Benefits............... 15 1,938 --
Employee Retirement and Savings Benefits........ 12 142 --
Individual Financial Services................... 61 306 --
All Other....................................... 3 47 32
----------- --------- --------
Total...................................... $ 1,280 $ 3,266 $4,849
----------- --------- --------
----------- --------- --------
Year Ended December 31, 1991:
Property and Casualty:
Domestic..................................... $ 538 $ 540 $3,384
International................................ 488 339 1,456
Other, primarily Reinsurance................. 146 74 622
----------- --------- --------
Total Property and Casualty................ 1,172 953 5,462
Employee Life and Health Benefits............... 18 1,759 --
Employee Retirement and Savings Benefits........ 10 144 --
Individual Financial Services................... 65 259 --
All Other....................................... 3 71 34
----------- --------- --------
Total...................................... $ 1,268 $ 3,186 $5,496
----------- --------- --------
----------- --------- --------
- ------------
(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.
FS-9
52
CIGNA CORPORATION AND SUBSIDIARIES
SCHEDULE VI
REINSURANCE
(IN MILLIONS)
PERCENTAGE
CEDED TO ASSUMED OF AMOUNT
GROSS OTHER FROM OTHER NET ASSUMED
AMOUNT COMPANIES COMPANIES AMOUNT TO NET
-------- --------- ---------- -------- ----------
Year Ended December 31, 1993:
Life insurance in force............... $395,042 $26,268 $234,892 $603,666 38.9%
-------- --------- ---------- -------- -----
-------- --------- ---------- -------- -----
Premiums and fees:
Life insurance and annuities....... $ 2,378 $ 167 $ 893 $ 3,104 28.8%
Accident and health insurance...... 5,970 228 835 6,577 12.7
Property and casualty insurance.... 4,780 1,801 1,052 4,031 26.1
-------- --------- ---------- --------
Total......................... $ 13,128 $ 2,196 $ 2,780 $ 13,712 20.3%
-------- --------- ---------- -------- -----
-------- --------- ---------- -------- -----
Year Ended December 31, 1992:
Life insurance in force............... $310,592 $25,933 $263,726 $548,385 48.1%
-------- --------- ---------- -------- -----
-------- --------- ---------- -------- -----
Premiums and fees:
Life insurance and annuities....... $ 1,697 $ 81 $ 926 $ 2,542 36.4%
Accident and health insurance...... 5,920 236 901 6,585 13.7
Property and casualty insurance.... 5,878 2,258 1,177 4,797 24.5
-------- --------- ---------- --------
Total......................... $ 13,495 $ 2,575 $ 3,004 $ 13,924 21.6%
-------- --------- ---------- -------- -----
-------- --------- ---------- -------- -----
Year Ended December 31, 1991:
Life insurance in force............... $251,183 $20,035 $257,573 $488,721 52.7%
-------- --------- ---------- -------- -----
-------- --------- ---------- -------- -----
Premiums and fees:
Life insurance and annuities....... $ 1,604 $ 134 $ 1,014 $ 2,484 40.8%
Accident and health insurance...... 6,233 250 552 6,535 8.5
Property and casualty insurance.... 6,109 2,315 1,482 5,276 28.1
-------- --------- ---------- --------
Total......................... $ 13,946 $ 2,699 $ 3,048 $ 14,295 21.3%
-------- --------- ---------- -------- -----
-------- --------- ---------- -------- -----
FS-10
53
CIGNA CORPORATION
SCHEDULE VIII
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
- -------------------------------------- ---------- --------- ------------- ------------- ---------
1993:
INVESTMENT ASSET VALUATION RESERVES:
Fixed maturities.................... $ 29 $ (10) $ (8) $ -- $ 11
Mortgage loans...................... 184 62 48 (78) 216
Real estate......................... 79 8 21 (10) 98
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Premiums, accounts and notes
receivable........................ 90 49 -- (19) 120
Reinsurance recoverables............ 381 28 -- (4) 405
DEFERRED TAX ASSET VALUATION
ALLOWANCE........................... 82 (29) -- -- 53
1992:
INVESTMENT ASSET VALUATION RESERVES:
Fixed maturities.................... $ 28 $ 1 $ -- $ -- $ 29
Mortgage loans...................... 170 32 51 (69) 184
Real estate......................... 45 8 29 (3) 79
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Premiums, accounts and notes
receivable........................ 104 17 -- (31) 90
Reinsurance recoverables............ 311 89 -- (19) 381
DEFERRED TAX ASSET VALUATION
ALLOWANCE(3)........................ 38 44 -- -- 82
1991:
INVESTMENT ASSET VALUATION RESERVES:
Fixed maturities.................... $ -- $ 15 $ 13 $ -- $ 28
Mortgage loans...................... 85 46 97 (58) 170
Real estate......................... 20 18 7 -- 45
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Premiums, accounts and notes
receivable........................ 86 50 -- (32) 104
Reinsurance recoverables............ 311 28 -- (28) 311
- ---------------
(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.
(3) The Company adopted SFAS No. 109 effective January 1, 1992.
FS-11
54
CIGNA CORPORATION
SCHEDULE IX
SHORT-TERM BORROWINGS
(IN MILLIONS)
MAXIMUM AVERAGE WEIGHTED
AMOUNT AMOUNT AVERAGE
WEIGHTED OUTSTANDING OUTSTANDING INTEREST RATE
CATEGORY OF AGGREGATE BALANCE AT AVERAGE DURING DURING DURING THE
SHORT-TERM BORROWINGS END OF PERIOD INTEREST RATE THE PERIOD THE PERIOD(1) PERIOD(2)
- ------------------------ ------------- ------------- ----------- ------------- -------------
1993:
Commercial paper........ $ 304 3.3% $ 419 $ 340 3.1%
Medium-term notes....... 44 9.1% 57 46 8.3%
Other................... 3 8.0% 50 33 12.0%
1992:
Commercial paper........ $ 352 3.4% $ 459 $ 350 3.6%
Medium-term notes....... 37 8.7% 98 75 8.8%
Other................... 86 11.4% 93 22 11.2%
1991:
Commercial paper........ $ 260 4.6% $ 489 $ 350 5.9%
Medium-term notes....... 124 8.3% 142 97 7.7%
Other................... 1 10.0% 17 6 10.0%
- ---------------
(1) Method of computation -- the sum of the daily amount outstanding for each
day divided by the number of days in the year.
(2) Method of computation -- the sum of the weighted average rate for each month
times the sum of the daily amount outstanding during the month, divided by
the sum of the daily amount outstanding during the year.
FS-12
55
CIGNA CORPORATION AND SUBSIDIARIES
SCHEDULE X
SUPPLEMENTAL INFORMATION CONCERNING
PROPERTY-CASUALTY INSURANCE OPERATIONS
(IN MILLIONS)
- ------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ------------------------------------------------------------------------------------------------------------
RESERVES FOR
DEFERRED UNPAID CLAIMS DISCOUNT,
AFFILIATION POLICY AND CLAIM IF ANY,
WITH ACQUISITION ADJUSTMENT DEDUCTED IN UNEARNED
REGISTRANT COSTS EXPENSES COLUMN C(1) PREMIUMS
- ------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1993:
Consolidated property-casualty
entities............................. $ 420 $17,654 $22 $1,980
Year Ended December 31, 1992:
Consolidated property-casualty
entities............................. $ 442 $17,478 $20 $2,139
Year Ended December 31, 1991:
Consolidated property-casualty
entities............................. $ 493 $16,750 $21 $2,535
- ---------------
(1) Discounts were computed using an annual interest rate of 9%.
(2) Amounts presented are shown net of the effects of reinsurance.
FS-13
56
CIGNA CORPORATION AND SUBSIDIARIES
SCHEDULE X
SUPPLEMENTAL INFORMATION CONCERNING
PROPERTY-CASUALTY INSURANCE OPERATIONS
(IN MILLIONS)
- ----------------------------------------------------------------------------------------------
COLUMN A COLUMN F COLUMN G COLUMN H
- ----------------------------------------------------------------------------------------------
CLAIMS AND CLAIM
ADJUSTMENT EXPENSES
AFFILIATION NET INCURRED RELATED TO:
WITH EARNED INVESTMENT CURRENT PRIOR
REGISTRANT PREMIUMS(2) INCOME YEAR(2) YEAR(2)
- ----------------------------------------------------------------------------------------------
Year Ended December 31, 1993:
Consolidated property-casualty
entities............................. $ 4,358 $667 $3,464 $789
Year Ended December 31, 1992:
Consolidated property-casualty
entities............................. $ 5,132 $780 $4,448 $656
Year Ended December 31, 1991:
Consolidated property-casualty
entities............................. $ 5,619 $845 $4,587 $341
- ----------------------------------------------------------------------------------------
COLUMN A COLUMN I COLUMN J COLUMN K
- ----------------------------------------------------------------------------------------
AMORTIZATION
OF DEFERRED PAID CLAIMS
AFFILIATION POLICY AND CLAIM
WITH ACQUI- ADJUSTMENT PREMIUMS
REGISTRANT SITION COSTS EXPENSES(2) WRITTEN
- ----------------------------------------------------------------------------------------
Year Ended December 31, 1993:
Consolidated property-casualty
entities............................. $1,020 $ 4,170 $4,229
Year Ended December 31, 1992:
Consolidated property-casualty
entities............................. $1,103 $ 4,825 $4,817
Year Ended December 31, 1991:
Consolidated property-casualty
entities............................. $1,080 $ 4,866 $5,462
- ---------------
(1) Discounts were computed using an annual interest rate of 9%.
(2) Amounts presented are shown net of the effects of reinsurance.
FS-14
57
INDEX TO EXHIBITS
NUMBER DESCRIPTION METHOD OF FILING
- ------ --------------------------------------- ---------------------------------------
3.1 Restated Certificate of Incorporation Filed herewith.*
of the registrant as last amended
October 2, 1990
3.2 By-Laws of the registrant as last Filed as Exhibit 4.2 to the
amended and restated December 9, 1991 registrant's Post-Effective Amendment
No. 1 dated December 19, 1991 to Form
S-8 Registration Statement No. 33-44371
and incorporated herein by reference.
4.1 Description of Preferred Stock Purchase Filed as Item 1 and Exhibit 1 to the
Rights, including the Rights Agreement registrant's Form 8-A Registration
dated as of July 23, 1987 between CIGNA Statement dated July 28, 1987, such
Corporation and Morgan Shareholder Exhibit 1 amended by the registrant's
Services Trust Company Amendment No. 1 on Form 8 dated August
11, 1987, and incorporated herein by
reference.
4.2 Amended description of Preferred Stock Filed as Item 1 and Exhibit 2 to the
Purchase Rights, including the First registrant's Amendment No. 2 on Form 8
Amendment to Rights Agreement dated as dated March 27, 1989 and incorporated
of March 22, 1989 between CIGNA herein by reference.
Corporation and Morgan Shareholder
Services Trust Company
Exhibits 10.1 through 10.17 are filed as exhibits pursuant to Item 14(c) of Form 10-K.
10.1 CIGNA Corporation Stock Plan effective Filed herewith.*
as of May 1, 1991
10.2 Amendment No. 1 dated as of July 28, Filed herewith.*
1993 to the CIGNA Corporation Stock
Plan
10.3 Amendment No. 2 dated as of February Filed herewith.
24, 1994 to the CIGNA Corporation Stock
Plan
10.4 CIGNA Corporation Executive Stock Filed herewith.*
Incentive Plan, as Amended and Restated
as of March 23, 1988
10.5 Amendment No. 1 dated as of September Filed herewith.*
28, 1988 to the CIGNA Corporation
Executive Stock Incentive Plan
10.6 Amendment No. 2 dated as of March 27, Filed herewith.*
1991 to the CIGNA Corporation Executive
Stock Incentive Plan
- ---------------
* Refiled in electronic format.
E-1
58
INDEX TO EXHIBITS
NUMBER DESCRIPTION METHOD OF FILING
- ------ --------------------------------------- ---------------------------------------
10.7 Description of the CIGNA Corporation Filed herewith.*
Key Management Annual Incentive Bonus
Plan
10.8 CIGNA Corporation Strategic Performance Filed herewith.*
Plan, as amended and restated March 25,
1992
10.9 Description of CIGNA Corporation Filed herewith.*
Financial Services Program
10.10 Deferred Compensation Plan of CIGNA Filed herewith.*
Corporation and Participating
Subsidiaries, as amended and restated
as of January 1, 1990
10.11 Deferred Compensation Plan for Filed herewith.*
Directors of CIGNA Corporation, as
amended and restated as of May 1, 1991
10.12 Retirement and Consulting Plan for Filed herewith.*
Directors of CIGNA Corporation, as
amended and restated as of May 29, 1991
10.13 CIGNA Corporation Supplemental Filed herewith.*
Executive Retirement Plan Agreement
dated as of March 23, 1989 between R.
D. Kilpatrick and the registrant
10.14 Agreement dated February 9, 1993 Filed herewith.
between Gerald A. Isom and the
registrant
10.15 Restricted Stock Plan for Non-Employee Filed herewith.*
Directors for CIGNA Corporation
effective as of September 30, 1989
10.16 Description of First Amendment to the Filed herewith.*
Restricted Stock Plan for Non-Employee
Directors of CIGNA Corporation
10.17 Description of Stock Compensation Plan Filed herewith.
for Non-Employee Directors of CIGNA
Corporation, as amended
- ---------------
* Refiled in electronic format.
E-2
59
INDEX TO EXHIBITS
NUMBER DESCRIPTION METHOD OF FILING
- ------ --------------------------------------- ---------------------------------------
11 Computation of Primary and Fully Filed herewith.
Diluted Earnings Per Share
12 Computation of Ratios of Earnings to Filed herewith.
Fixed Charges and to Combined Fixed
Charges and Preferred Stock Dividends
13 Portions of registrant's 1993 Annual Filed herewith.
Report to Shareholders
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.
28.1 Reconciliation of Schedule P to Total Filed herewith.
Statutory Reserves
28.2 (P) Schedule P to the Annual Statement Filed herewith in paper format under
for the Year 1993 of ICNA and its cover of Form SE.
Affiliates
The registrant will furnish to the Commission upon request a copy of any of
the registrant's agreements with respect to its long-term debt.
Shareholders may obtain copies of exhibits by writing to CIGNA Corporation,
Shareholder Services Department, Two Liberty Place, 1601 Chestnut Street, P.O.
Box 7716, Philadelphia, Pennsylvania 19192-2378.
- ---------------
* Refiled in electronic format.
E-3