-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DT2RlvVUq/TlVvzAuDA3kePAwSm8jXD2S0AJOH0EkjAg4aZnx/4aZz3zunH1qrAU iwXyHnAvFJsMmcDeBaWxqQ== 0000893220-96-000505.txt : 19960401 0000893220-96-000505.hdr.sgml : 19960401 ACCESSION NUMBER: 0000893220-96-000505 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960329 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CIGNA CORP CENTRAL INDEX KEY: 0000701221 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 061059331 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-08323 FILM NUMBER: 96541480 BUSINESS ADDRESS: STREET 1: ONE LIBERTY PL 1650 MARKET ST STREET 2: P O BOX 7716 CITY: PHILADELPHIA STATE: PA ZIP: 19192-1550 BUSINESS PHONE: 2157611000 10-K 1 CIGNA FORM 10-K FOR THE PERIOD ENDED 12/31/95 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ 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, 1995 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 - ------------------------------- ---------------------------------- Common Stock, Par Value $1; New York Stock Exchange, Inc. Preferred Stock Pacific Stock Exchange, Inc. Purchase Rights Philadelphia Stock Exchange, Inc.
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . ---- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / / The aggregate market value of the voting stock held by non-affiliates of the registrant as of March 1, 1996, was approximately $9.0 billion. As of March 1, 1996, 76,458,246 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, 1995 (the "1995 Annual Report"). Part III of this Form 10-K incorporates by reference information from the registrant's proxy statement dated March 19, 1996. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 TABLE OF CONTENTS
PAGE ----- PART I Item 1. Business.................................................................. 1 A. Description of Business............................................... 1 B. Financial Information about Industry Segments......................... 1 C. Employee Life and Health Benefits..................................... 2 D. Employee Retirement and Savings Benefits.............................. 6 E. Individual Financial Services......................................... 9 F. Property and Casualty................................................. 13 G. Investments and Investment Income..................................... 24 H. Regulation............................................................ 28 I. Ratings.............................................................. 30 J. Miscellaneous........................................................ 32 Item 2. Properties................................................................ 32 Item 3. Legal Proceedings......................................................... 32 Item 4. Submission of Matters to a Vote of Security Holders....................... 33 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters..... 34 Item 6. Selected Financial Data................................................... 34 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................................................ 34 Item 8. Financial Statements and Supplementary Data............................... 34 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure................................................................ 34 PART III Item 10. Directors and Executive Officers of the Registrant........................ 34 A. Directors of the Registrant........................................... 34 B. Executive Officers of the Registrant.................................. 34 C. Compliance with Section 16(a) of the Securities Exchange Act.......... 34 Item 11. Executive Compensation.................................................... 34 Item 12. Security Ownership of Certain Beneficial Owners and Management............ 35 Item 13. Certain Relationships and Related Transactions............................ 35 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.......... 35 Signatures............................................................................ 36 Index to Financial Statement Schedules................................................ FS-1 Index to Exhibits..................................................................... E-1
i 3 PART I Item 1. BUSINESS A. Description of Business With shareholders' equity of $7.2 billion, revenues of $19.0 billion and assets of $95.9 billion as of December 31, 1995, 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 one of the largest investor-owned health maintenance organizations ("HMO") in the United States, based on the number of members. CIGNA's major insurance subsidiaries, Connecticut General Life Insurance Company ("CG Life") and Insurance Company of North America ("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 two) CIGNA HealthCare CIGNA Group Insurance: Life, Accident, Disability Employee Retirement and Savings Benefits Segment (beginning on page six) CIGNA Retirement & Investment Services Individual Financial Services Segment (beginning on page nine) CIGNA Individual Insurance CIGNA Reinsurance: Life, Accident, Health Property and Casualty Segment (beginning on page 13) CIGNA Property & Casualty CIGNA International Investment results produced by CIGNA Investment Management on behalf of CIGNA's insurance operations are reported in each segment's results or in Other Operations. The other businesses of CIGNA Investment Management are described on page 28, and financial results for these businesses are reported in Other Operations. 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 1994 and 1993 financial information to conform with the 1995 presentation. Industry rankings and percentages set forth below are for the year ended December 31, 1994, unless otherwise indicated. Unless otherwise noted, statements set forth in this document concerning CIGNA's rank or position in an industry or particular line of business have been developed internally, based on publicly available information. Revenues, income (loss) before income taxes, and identifiable assets attributable to each of CIGNA's business segments and Other Operations are set forth in Note 13 and those attributable solely to foreign operations are set forth in Note 14 to CIGNA's 1995 Financial Statements. 1 4 C. Employee Life and Health Benefits Principal Products and Markets CIGNA's Employee Life and Health Benefits operations offer a wide range of traditional indemnity products and services and are a leading provider of managed care and cost containment products and services. The following table sets forth the principal products of this segment and their related net earned premiums and fees.
YEAR ENDED DECEMBER 31, ---------------------------------- 1995 1994 1993 ------ ------ ------ (IN MILLIONS) Indemnity: Medical................................................... $1,973 $1,854 $1,875 Life...................................................... 1,754 1,813 1,627 Long-term Disability...................................... 388 422 427 Dental.................................................... 384 374 324 Accidental Death and Dismemberment........................ 249 253 260 Short-term Disability..................................... 86 93 91 Other..................................................... 20 17 18 ------ ------ ------ Total................................................... 4,854 4,826 4,622 Prepaid Health and Dental Care.............................. 3,281 3,018 2,816 ------ ------ ------ Total Premiums and Fees..................................... $8,135 $7,844 $7,438 ======= ======= =======
------------------- Amounts in table do not include "premium equivalents," which are described below. CIGNA's Employee Life and Health Benefits customers range in size from some of the largest United States corporations to small enterprises, and include employers, multiple employer groups, unions, professional and other associations, government-sponsored Medicare and Medicaid programs, and other groups. Products are marketed in all 50 states, the District of Columbia and Puerto Rico. The indemnity products named in the above table are available on an experience-rated basis as well as 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 available 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. Alternative funding programs, primarily consisting of "minimum premium" arrangements and administrative services only ("ASO") plans, constituted 54% of business volume (premiums and fees plus premium equivalents) in 1995. Premium equivalents generally represent paid claims and are additional premiums that would have been earned under minimum premium and ASO contracts if they had been written as traditional indemnity or health maintenance organization ("HMO") programs. 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 also may 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 11 of the Management's Discussion and Analysis ("MD&A") section of CIGNA's 1995 Annual Report. 2 5 CIGNA offers both group term life and group universal life insurance products. Approximately 8,000 group life insurance policies covering approximately 13.3 million lives were outstanding as of December 31, 1995. The following table shows group life insurance in force and termination data.
YEAR ENDED DECEMBER 31 ----------------------------------- 1995 1994 1993 --------- --------- --------- (DOLLARS IN ROUNDED MILLIONS) In force, end of year.................................... $ 522,000 $ 523,000 $ 512,000 ======== ======== ======== Cancellations (lapses and expirations)................... $ 51,000 $ 44,000 $ 53,000 ======== ======== ========
CIGNA markets long-term and short-term disability products in all states and statutorily required disability plans in certain states. These products generally provide a fixed level of income to replace a portion of 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 provides managed mental health and substance abuse coverage and services to HMOs, insurers and employers through a national network of mental health specialists, some of whom are employees of CIGNA. CIGNA also offers managed pharmacy benefit programs through CIGNA's HMOs. 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") both with and without primary care gatekeepers and traditional indemnity coverage as well as through integrated products, which may include all four. Integrated products are available under alternative funding as well as traditional insurance arrangements. These products may include contract provisions under which CIGNA assumes the risk for costs exceeding specified levels. CIGNA's prepaid health care operations provide medical services through HMOs. CIGNA's HMOs include staff models, in which physicians and other providers are employees of the HMO, individual practice association ("IPA") models, in which independent physicians and hospitals are under contract with CIGNA to provide services, and mixed models, in which attributes of IPA and staff model HMOs are combined. Staff model HMOs offer a greater opportunity for direct influence over 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 influence medical costs. Staff models generally offer lower costs to the consumer, whereas IPAs may offer broader provider choice. CIGNA's indemnity business includes arrangements with doctors, hospitals and other independent providers to form PPOs. Under a typical PPO arrangement, CIGNA reimburses PPO participants at a higher percentage for the costs of medical care obtained from contracted providers (who charge on a discounted rate basis) than it does for care obtained from non-contracted providers. When a PPO has a gatekeeper, the higher reimbursement level is available if a participant first consults a contracted primary care physician before consulting a contracted specialist. As of December 31, 1995, CIGNA's HMOs and PPOs served all or part of 42 states, the District of Columbia and Puerto Rico. The table below shows the number of HMO networks and members in total and 3 6 for each HMO model as well as the number of gatekeeper PPO networks and members for the periods presented. Members include participants under traditional and alternative funding programs.
AS OF DECEMBER 31, ------------------------------------------------------------------ 1995 1994 1993 -------------------- -------------------- -------------------- APPROX. APPROX. APPROX. NO. OF NO. OF NO. OF NO. OF NO. OF NO. OF NETWORKS MEMBERS NETWORKS MEMBERS NETWORKS MEMBERS -------- --------- -------- --------- -------- --------- HMOs: Staff Models............... 4 633,000 4 668,000 3 634,000 IPA Models................. 37 2,488,000 37 2,138,000 40 1,630,000 Mixed Models............... 5 522,000 5 505,000 5 424,000 -- -- -- --------- --------- --------- Subtotal HMOs................ 46 3,643,000 46 3,311,000 48 2,688,000 == == == Gatekeeper PPOs.............. 29 237,000 25 190,000 15 107,000 == == == --------- --------- --------- Total Members................ 3,880,000 3,501,000 2,795,000 ========= ========= =========
To maintain and enhance the quality of health care delivered in its HMOs, CIGNA has initiated the development of standard performance measurements for affiliated physicians, hospitals and other providers. CIGNA is in the process of seeking accreditation of all of its HMOs by external accrediting agencies as validation of its quality programs. To date, 27 of CIGNA's 46 HMOs have been accredited. The table below shows the number of PPO networks and participants for the periods presented.
AS OF DECEMBER 31, ------------------------------------------------------------------------------- 1995 1994 1993 ----------------------- ----------------------- ----------------------- APPROX. APPROX. APPROX. NO. OF NO. OF NO. OF NO. OF NO. OF NO. OF NETWORKS PARTICIPANTS NETWORKS PARTICIPANTS NETWORKS PARTICIPANTS -------- ------------ -------- ------------ -------- ------------ PPOs (excluding Gatekeeper PPOs)................... 79 1,027,000 74 914,000 67 742,000 ======== ========== ======== ========== ======== ==========
CIGNA also offers prepaid dental coverage, using networks of independent providers in most states, serving approximately 2.3 million, 2.0 million and 1.7 million participants as of December 31, 1995, 1994 and 1993, respectively. Distribution The indemnity products of this segment are distributed primarily by employed group sales representatives through national and other insurance brokers and insurance consultants. Sales of prepaid health care products are made to employers by CIGNA's sales representatives and through insurance brokers. In 1995, a dedicated sales force for the Medicare risk product began operating in five markets. Salaried representatives sell disability management, medical and disability cost containment, and managed mental health and substance abuse services directly to insurance companies, HMOs and employer groups. Salaried enrollment specialists enroll employees in group life insurance, HMOs and related programs at the worksite. As of December 31, 1995, the field sales force for the products of this segment consisted of approximately 530 sales representatives in 112 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 prepaid health and dental products 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 4 7 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 settle reported claims not yet paid, as well as claims incurred but not yet reported. Also, reserves are established for estimated experience refunds based on the results of 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. Generally, for interest-crediting rates set at the Company's discretion, higher rates are credited to long-term funds than to short-term funds, reflecting the fact that higher yields are generally available on investments of longer maturities. For 1995, the rates of interest credited ranged from 4.2% to 8.5%. Approximately one-third of the reserves comprise liabilities that will be paid within one year, primarily for group life, medical and prepaid health claims. The remainder primarily includes 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, the adequacy of fees charged for administration and risk assumption and, in the case of prepaid health care products, effective medical cost management. The profitability of other indemnity products depends on the adequacy of premiums charged relative to claims and expenses. 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 businesses are highly competitive. No one competitor or small number of competitors is dominant across the country, although in certain locations some HMOs dominate the sales of traditional prepaid products. A large number of insurance companies and other entities compete in offering similar products. Competition exists both for employer-policyholders and for the employees in those instances where the employer offers 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 price; quality of service; scope, cost-effectiveness and quality of provider networks; product responsiveness to customers' needs; cost-containment services; and effectiveness of marketing and sales. Being responsive to the needs of employee- consumers as well as of employers is important. For certain products with longer-term liabilities, financial strength of the insurer as indicated by ratings issued by nationally recognized rating agencies is also a competitive factor. For more information concerning insurance ratings, see "Ratings" on page 30. The principal competitors of CIGNA's 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. CIGNA is one of the largest investor-owned insurance company providers of group life and health indemnity insurance, based on premiums and premium equivalents, and one of the largest investor-owned HMOs, based on the number of members. It is the leading provider of group accident insurance, and the second largest provider of group long-term disability coverages, based on premiums. 5 8 Health Care Reform Federal and state proposals have been made (and, in some states, adopted) to achieve some insurance reforms and to require managed care networks to admit any willing providers and place other limitations on the ability of managed care companies to form and operate efficient networks of doctors, hospitals and pharmacies. Multiple layers of regulation would result if the states enacted legislation different from federal standards. Because reform measures that may 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. 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:
1995 1994 1993 ------ ------ ------ (IN MILLIONS) Premiums and Fees: General Account: Guaranteed................................................... $ 113 $ 63 $ 151 Experience-rated............................................. 96 91 99 ------ ------ ------ 209 154 250 Separate Accounts.............................................. 49 47 46 ------ ------ ------ Total Premiums and Fees...................................... $ 258 $ 201 $ 296 ======= ======= ======= Deposits: General Account: Guaranteed................................................... $ 359 $ 166 $ 102 Experience-rated............................................. 1,492 1,104 1,271 ------ ------ ------ 1,851 1,270 1,373 Separate Accounts.............................................. 1,576 1,638 1,164 Investment Advisory Accounts................................... 85 61 75 ------ ------ ------ Total Deposits............................................... $3,512 $2,969 $2,612 ======= ======= =======
6 9 Assets under management for this segment as of December 31 were as follows:
1995 1994 1993 -------- -------- -------- (IN MILLIONS) General Account(1): Guaranteed................................................ $ 4,345 $ 3,934 $ 4,259 Experience-rated.......................................... 16,815 16,380 17,281 -------- -------- -------- 21,160 20,314 21,540 Separate Accounts........................................... 16,200 12,917 12,301 Investment Advisory Accounts................................ 823 651 628 -------- -------- -------- Total(1)................................................ $ 38,183 $ 33,882 $ 34,469 ======== ======== ========
- --------------- Assets under management include assets managed by third-party managers. (1) General Account assets under management reflect unrealized appreciation (depreciation) of $1.0 billion, ($233) million and $521 million as of December 31, 1995, 1994 and 1993, respectively, as a result of 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 $19.3 billion, or 51% of assets under management, for this segment as of December 31, 1995, compared with $16.6 billion, or 49%, as of December 31, 1994. The balance of this segment's assets under management relate to defined benefit plans, under which annual retirement benefits are fixed or defined by a benefit formula. CIGNA sells investment products and investment management services, either separately or as full-service packages with administrative and other professional services, to pension plan sponsors. Traditionally, CIGNA's marketing emphasis has been on sales of full-service products that include investment management and pension services to small and middle market customers with plan assets of up to $50 million. In recent years, however, this emphasis has expanded to include sales to sponsors of larger plans that look to CIGNA to provide a full-service package or look to more than one entity to provide actuarial, administrative or investment services and products, or combinations thereof. For defined contribution plans, principally 401(k) plans, CIGNA markets products that offer investment management services and plan level and participant recordkeeping, as well as employee communications, enrollment, plan design, technological support and other consulting services. For defined benefit plans, CIGNA offers investment, administrative and professional services, including recordkeeping, plan documentation, and actuarial valuation and consulting. Investment management services for CIGNA's defined contribution and defined benefit products are provided by CIGNA and by third-party managers. 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, 1995, guaranteed single premium annuities accounted for $3.0 billion and GICs accounted for $1.4 billion of General Account assets under management for the Employee Retirement and Savings Benefits segment, compared with $2.6 billion and $1.3 billion as of December 31, 1994. For 1995, the interest rate on reserves for guaranteed single premium annuities ranged from 3.25% to 12.75%, with a weighted average of 8.71%. The rate of interest credited in 1995 on CIGNA's GICs ranged from 5.58% to 9.89%, with a weighted average rate of 8.31%. CIGNA's single premium annuities and GICs generally do not permit withdrawal by the plan sponsor prior to maturity, except that GICs permit 7 10 withdrawal at market value in the event of plan termination. None of the GICs include renewal clauses. Payouts associated with GICs have not been material to the Company's liquidity or capital resources. Experience-rated contracts that are supported by the General Account have no fixed maturity dates and provide for transfer of net investment experience (including impairments and non-accruals) to policyholders through credited interest and termination provisions. Effective January 1, 1996, credited interest rates for pooled experience-rated defined contribution contracts are declared in advance for six months and may be changed at the expiration of the six month period. Credited interest rates on other experience-rated contracts supported by the General Account are generally declared annually in advance and may be changed prospectively by the Company from time to time. Credited interest rates reflect investment income and realized gains and losses. Credited interest rates for 1995 ranged from 6.00% to 9.50%, with a weighted average rate of 7.09%. The termination provisions of $4.6 billion, or 100%, of the Company's liability for experience-rated defined benefit contracts supported by the General Account that are subject to withdrawal, and the termination provisions of $4.1 billion, or 40%, of the Company's liability for experience-rated defined contribution contracts supported by the General Account, provide the policyholder with essentially two options for withdrawal of assets upon election to terminate: (a) a lump sum at market value; or (b) annual installments. Under the market value method, the Company determines the market value of the underlying investments by discounting expected future investment cash flows from investment income (including the effect of non-accruals) and repayment of principal, including the effect of impaired assets. The discount rate assumed is based on current market interest rates. Under the installment 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 not been material to the Company. The termination provisions of $6.3 billion, or 60%, of the Company's liability for experience-rated defined contribution contracts (all of which are pooled) supported by the General Account contain a book value mechanism for withdrawal at policyholder termination. Under certain circumstances, payout of book value is subject to deferral and the rate of interest credited 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. As of December 31, 1995, approximately $11.5 billion, or 71%, of the assets in the Separate Accounts support experience-rated contracts under which the risks and benefits of investment performance generally accrue to the customers, compared to approximately $8.4 billion, or 65% of assets as of December 31, 1994. The remaining assets in the Separate Accounts are held under experience-rated contracts that guarantee a minimum level of benefits. As of December 31, 1995 and 1994, the amount of minimum benefit guarantees under these contracts was $4.7 billion and $4.5 billion, respectively. Reserves in addition to the Separate Account liabilities are established when CIGNA believes a payment will be required under one of these guarantees. For additional information, see Note 19 to CIGNA's 1995 Financial Statements. CIGNA monitors contract termination experience on an ongoing basis. Of those assets subject to withdrawal, persistency for 1995 and 1994 was 93%, compared with 94% in 1993. Distribution CIGNA's retirement products and services are distributed primarily through CG Life salaried retirement plan specialists, both directly and through career agents, independent insurance agents and brokers, pension plan consultants, investment advisors and other service providers. As of December 31, 1995, CG Life had a 8 11 field organization consisting of 59 retirement plan specialists and sales associates and 91 client service representatives and administrative personnel located in offices across 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 retirement plan marketplace is highly competitive. CIGNA's competitors include mutual funds, other insurance companies, banks, investment advisors, and certain service and professional organizations. No one competitor or small number of competitors is dominant. Competition focuses on service, technology, cost, variety of investment options, investment performance and insurer financial strength as indicated by ratings issued by nationally recognized agencies. For more information concerning insurance ratings, see "Ratings" on page 30. Business growth, as measured by assets under management, is expected to continue to be constrained, resulting from decisions by retirement plan sponsors to diversify assets and fund management. The largest single retirement plan manager holds less than a 5% market share, as measured by assets under management. According to a survey published in "Pensions & Investments," CIGNA ranked 4th among insurers, and 15th among retirement plan 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. They also assume reinsurance of certain risks under policies written by other insurance companies. The following table sets forth the net earned premiums and fees and deposits for this segment.
YEAR ENDED DECEMBER 31, ------------------------------ 1995 1994 1993 ------ ------ ------ (IN MILLIONS) Premiums and Fees: Life................................................. $ 584 $ 568 $ 513 Health............................................... 56 55 55 Reinsurance.......................................... 241 201 246 ------ ------ ------ Total premiums and fees............................ $ 881 $ 824 $ 814 ======= ======= ======= Deposits, primarily for universal life products and annuities............................................ $3,200 $3,008 $2,506 ======= ======= =======
9 12 The following table provides data on sales of new policies and additions to existing policies, terminations and life insurance in force for this segment, including assumed reinsurance, and reinsurance ceded to other companies.
YEAR ENDED DECEMBER 31, ------------------------------------ 1995 1994 1993 -------- -------- -------- (DOLLAR AMOUNTS IN MILLIONS EXCEPT AVERAGE SIZE POLICY IN FORCE) In force, beginning of the year.................. $ 93,327 $ 81,273 $ 60,749 -------- -------- -------- Sales and Additions(1): Permanent.................................... 18,186 15,248 23,542 Term......................................... 3,896 4,291 3,744 -------- -------- -------- Total.......................................... 22,082 19,539 27,286 -------- -------- -------- Less Terminations: Surrenders and conversions................... 1,625 2,068 1,813 Lapses....................................... 2,961 3,352 2,433 Other........................................ 2,287 2,065 2,516 -------- -------- -------- Total.......................................... 6,873 7,485 6,762 -------- -------- -------- In force, end of the year: Permanent...................................... 88,656 73,028 61,210 Term........................................... 19,880 20,299 20,063 -------- -------- -------- Total(2)..................................... $108,536 $ 93,327 $ 81,273 ========= ========= ========= Reinsurance ceded included above................. $ 24,754 $ 15,664 $ 9,721 ========= ========= ========= Number of policies in force: Participating.................................. 149,639 113,382 79,042 Non-participating.............................. 392,507 393,818 403,335 -------- -------- -------- Total........................................ 542,146 507,200 482,377 ========= ========= ========= Average size policy in force: By type: Participating.................................. $269,450 $256,491 $243,239 ========= ========= ========= Non-participating.............................. $173,799 $163,136 $153,835 ========= ========= ========= By division: CIGNA Individual Insurance..................... $215,717 $195,636 $177,056 ========= ========= ========= CIGNA Reinsurance: Life, Accident, Health...... $140,254 $142,978 $141,258 ========= ========= ========= By segment: Individual Financial Services.................. $200,200 $184,005 $168,485 ========= ========= =========
- --------------- (1) For 1995, 1994 and 1993, $11 billion, $10 billion and $17 billion of sales and additions, respectively, were participating, with the remainder non-participating. For 1995, 1994 and 1993, sales and additions included assumed reinsurance of $2.4 billion, $3.3 billion and $3.6 billion, respectively. (2) For 1995, 1994 and 1993, total life insurance in force for this segment included assumed reinsurance of approximately $16.4 billion, $16.6 billion and $16.6 billion, respectively. Individual Products CIGNA's individual insurance products include term and permanent life insurance, annuities and disability insurance. 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 10 13 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. For universal life and variable universal life, premiums and benefits fluctuate with the design of the benefits being funded. Universal life provides benefits that fluctuate with the amount of variable premiums paid, mortality and expense charges made, and interest credited to the policy. Variable universal life provides benefits that also fluctuate with the amount of variable premiums paid and mortality and expense charges made and, in addition, with the performance of underlying investments. CIGNA offers both fixed and variable annuity products. Fixed annuities accumulate value at a fixed rate of interest on the invested payments. Variable annuities accumulate value at levels determined by the contractholder's allocation of payments among a portfolio of mutual funds and fixed rate accounts and the underlying investment performance of the selected funds (less applicable expense and contract charges). Annuity sales totaled approximately $850 million in 1995 and $660 million in 1994. CIGNA also markets a number of individual investment products (including mutual funds) and fee-based financial planning services. Principal markets for life insurance products and services sold to individuals are affluent executives, professionals and small business owners (typically with income above $100,000 and net worth of $1.5 million or more). Annuities are generally marketed to upper-middle to affluent customers of banks and stock brokerage firms and clients of financial advisors. 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 market and sales volume for COLI products tend to be volatile. In addition, future premium and earnings growth of COLI business on which policy loans are outstanding, including participating COLI universal life business, will be affected by tax proposals now pending in Congress that, if enacted, would eliminate the interest deduction for corporate-owned life insurance policy loans. Because eventual passage of tax legislation, including the COLI provision, is likely, the demand for this product essentially ceased in 1995. While this could have a material adverse effect on the results of operations of the Individual Financial Services segment, it is not expected to be material to CIGNA's consolidated results of operations, liquidity or financial condition. During 1995, 1994 and 1993, the face amount of new sales (as shown in the preceding table) includes COLI universal life business issued on a participating basis of approximately $11 billion, $10 billion and $17 billion, respectively. Changes in permanent sales and in force, reinsurance ceded, and the number and average size of participating policies are primarily attributable to COLI. As of December 31, 1995 and 1994, approximately 57% and 63%, respectively, of CIGNA's individual life insurance in force was non-participating permanent, which includes interest-sensitive products such as universal life. This change in business mix resulted from the sale of participating COLI mentioned above. Interest credited on whole life products is equal to or above a minimum guaranteed rate. For interest-sensitive products, credited interest rates vary with the characteristics of each product and the anticipated investment results of the assets backing these products. Where 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 1995 ranged from 5.0% to 8.3%. 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 and may be subject to a specified minimum rate. The interest rates charged to the policyholder on borrowed funds ("loan rates") are generally greater than the interest rates credited to the policyholder on those funds, and such loan rates and the related credited interest rates tend to move in tandem as interest rates fluctuate. A large portion of the contracts that provide for fixed rates also provide for a relatively constant spread between the policy loan rate and the related credited interest rate. 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 1995, 1994 and 1993. 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 personal accident and workers' compensation catastrophe coverages. The principal markets for these products are individual and group life, accident and health insurers; special risk and workers' compensation units of property-casualty insurers; companies that offer immediate and deferred annuities; health care providers; managing general underwriters of healthcare; and self-insured employers. Reinsurance coverages generally extend for the same duration as the underlying direct policies: from one year or less for group, special risk and individual life term policies, to time of lapse or expiration at death for permanent individual life and individual health policies. Most permanent reinsurance coverages have recapture charges to recover policy acquisition costs and to encourage persistency. Distribution As of December 31, 1995, CG Life sold individual insurance products primarily through approximately 650 full-time career agents and through independent agents and brokers. COLI products are sold primarily through a limited number of brokers. The volume of COLI business from each of the brokers with whom CIGNA has a relationship tends to fluctuate over time. 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. Reinsurance products are sold in the United States, Canada, Europe and Latin America through a small sales force and through domestic and foreign intermediaries. Pricing, Reserves and Reinsurance Premiums for life and disability insurance, annuities and assumed reinsurance are based on assumptions about mortality, morbidity, persistency, expenses and target profit margins as well as interest rates and competitive considerations. The long-term profitability of individual products is affected by the degree to which future experience deviates from these assumptions. Fees for universal life insurance products consist of mortality, administrative and surrender charges assessed against the policyholder's fund balance. Interest credited and mortality charges for universal life, and mortality charges on variable premium products, may be adjusted prospectively to reflect expected interest and mortality experience. Dividends on participating insurance products may be adjusted to reflect prior experience. 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 interest credited to the policyholder, less mortality and administrative charges assessed against the policyholder's fund balance. In addition, for all individual and reinsurance products, CIGNA establishes 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 ceded 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 businesses are 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 the financial strength of the insurer as indicated by ratings issued by nationally recognized agencies. For more information concerning insurance ratings, see "Ratings" on page 30. 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, administrative servicing capabilities and insurer financial strength, as indicated by ratings issued by nationally recognized agencies. Based on information published by A.M. Best, CG Life was the 21st largest U.S. individual life insurer in terms of aggregate individual life insurance in force and the 6th largest in terms of direct premiums. Other Matters CIGNA does not expect AIDS claims, discussed on page six, to have a significant effect on the results of operations of this segment. Where appropriate, and to the extent permissible under applicable law, CIGNA tests for AIDS antibodies and considers AIDS information in underwriting coverages and setting rates. F. Property and Casualty Principal Products and Markets CIGNA's property and casualty operations provide insurance in the United States and international markets. 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. In the domestic market, which produced approximately 40% of the total earned premiums and fees for this segment during 1995, principal product lines include workers' compensation, commercial packages, casualty (including commercial automobile and general liability), property, and marine and aviation. See page 14 for the geographic distribution of premiums and fees for the products of this segment. In 1995, CIGNA restructured its domestic property and casualty businesses into two separate operations. One operation manages ongoing business and the other run-off policies and related claims, including those for asbestos-related and environmental pollution exposures. The restructuring is designed to create business structures that enhance management's focus on its specialist strategy, positioning the ongoing business for future profitable growth, while at the same time providing dedicated, specialized resources to manage each operation separately and effectively. In connection with the restructuring, CIGNA contributed $375 million of additional capital to the run-off operations and the ongoing operations will contribute an additional $50 million by December 31, 2001. In addition, the ongoing operations assumed $125 million of liabilities of the run-off operations, and will reinsure up to $800 million of claims of the run-off operations in the unlikely event that the statutory capital and surplus of the run-off operations falls below $25 million. By making these financial commitments and placing substantially all exposures associated with the run-off businesses in a legal entity separate from the ongoing operations, CIGNA enhanced the claims paying rating for its ongoing operations. In the ongoing domestic operations, CIGNA continued to implement its specialist strategy, which has contributed to improved operating results. In the specialty market, CIGNA is focusing on aviation, 13 16 recreational and ocean marine, property coverage placed through mortgage lenders, homeowners and other programs in which specialist agents and brokers share underwriting and processing expertise with CIGNA. In the medium-sized risk market, CIGNA is targeting individual risks, and increasing production of group business, such as through affinity groups, associations and national broker blocks of business. In addition, CIGNA is focusing on writings of inland marine and workers' compensation business that involves standard risk transfer in states with regulatory climates in which the Company believes it can operate profitably. In the large-risk market, CIGNA continues to emphasize sales of complex, loss-sensitive casualty coverages to customers choosing to increase their risk retention; petroleum, technical and general property coverages to large insureds; and claims, loss control and other risk management services. 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. Regulatory authorities also require the participation of CIGNA's domestic subsidiaries in various joint underwriting authorities, pools and other arrangements created to provide insurance coverage to the residual market, including workers' compensation pools. International markets, which produced 60% of the total earned premiums and fees for this segment during 1995, include Japan, the United Kingdom, Continental Europe, the Americas and other Pacific. Principal international product lines include commercial property and casualty, accident and health, life and employee benefits, auto, marine and other specialty lines. 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 matched in support of its foreign obligations. For information on the effect of foreign exchange exposure on CIGNA, see Notes 2(Q) and 14 to CIGNA's 1995 Financial Statements. The following table sets forth geographic distribution of GAAP net earned premiums and fees for the products of this segment. Premiums and fees for businesses in run-off are included in the table.
YEAR ENDED DECEMBER 31, ------------------------------------------------------------ 1995 1994 1993 ---------------- ---------------- ---------------- (DOLLAR AMOUNTS IN MILLIONS) Domestic: California.................................... $ 280 6% $ 372 7% $ 408 8% New York...................................... 168 4 207 4 287 6 New Jersey.................................... 161 3 219 4 252 5 Texas......................................... 157 3 208 4 233 5 Pennsylvania.................................. 97 2 122 3 205 4 Florida....................................... 95 2 128 3 154 3 Illinois...................................... 76 2 100 2 115 2 Massachusetts................................. 75 2 99 2 122 2 All other..................................... 744 16 982 19 1,088 21 ------ ---- ------ ---- ------ ---- Total Domestic.............................. $1,853 40% $2,437 48% $2,864 56% ------ ---- ------ ---- ------ ---- International: Japan......................................... 1,146 25 989 20 810 16 United Kingdom................................ 504 11 468 9 412 8 Continental Europe............................ 395 8 417 8 463 9 Americas...................................... 329 7 288 6 254 5 Other Pacific................................. 306 7 276 6 229 4 All other..................................... 107 2 168 3 104 2 ------ ---- ------ ---- ------ ---- Total International......................... $2,787 60% $2,606 52% $2,272 44% ------ ---- ------ ---- ------ ---- Total....................................... $4,640 100% $5,043 100% $5,136 100% ======= ==== ======= ==== ======= ====
- --------------- For 1995, 1994 and 1993, earned premiums and fees were substantially the same as written premiums. 14 17 Pricing and Underwriting Results CIGNA's property and casualty insurance subsidiaries provide loss protection to insureds in exchange for premiums. If earned premiums exceed the sum of losses, commissions to agents or brokers, 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 GAAP 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 taxes. Such items, when added to underwriting profits or losses, produce net income or loss. For information concerning investment income, see "Investments and Investment Income -- Property and Casualty Investments" on pages 27 and 28. 15 18 The following tables set forth GAAP net earned premiums and fees, underwriting results, combined ratios and net investment income for the domestic and international products of this segment (including those in run-off).
YEAR ENDED DECEMBER 31, -------------------------------------------------------- 1995 1994 1993 ---------------- ---------------- ---------------- (DOLLAR AMOUNTS IN MILLIONS) Premiums and Fees/Percent of Total Premiums and Fees: Domestic Lines: Workers' compensation............................ $ 473 10 % $ 578 11 % $ 710 14 % Commercial packages.............................. 292 6 456 9 611 12 Casualty......................................... 275 6 455 9 457 9 Property......................................... 334 7 338 7 338 7 Marine and aviation.............................. 238 5 195 4 181 3 Homeowners....................................... 78 2 86 2 102 2 Other(1)......................................... 123 3 206 4 223 4 ------- ----- ------- ----- ------- ----- Total.......................................... 1,813 39 2,314 46 2,622 51 International Lines (excluding international reinsurance): Accident and health.............................. 626 14 528 10 461 9 Property......................................... 515 11 441 9 372 7 Casualty......................................... 252 5 231 4 203 4 Auto............................................. 244 6 233 5 203 4 Marine........................................... 151 3 152 3 152 3 Other............................................ 9 -- 5 -- 8 -- ------- ----- ------- ----- ------- ----- Total.......................................... 1,797 39 1,590 31 1,399 27 Reinsurance (including international reinsurance)..................................... 119 2 343 7 443 9 International life and employee benefits........... 911 20 796 16 672 13 ------- ----- ------- ----- ------- ----- Total Premiums and Fees..................... $ 4,640 100 % $ 5,043 100 % $ 5,136 100 % ======== ====== ======== ====== ======== ====== Underwriting Gain (Loss)/Combined Ratios: Domestic Lines: Workers' compensation............................ $ (179) 137.8% $ (139) 123.9% $ (180) 125.3% Commercial packages.............................. (82) 128.3 (196) 143.1 (255) 141.8 Casualty......................................... (107) 139.0 (120) 126.5 (265) 157.9 Property......................................... (16) 104.7 (51) 115.0 (108) 132.0 Marine and aviation.............................. -- 100.1 (16) 108.2 (30) 116.9 Homeowners....................................... (17) 121.3 (30) 135.2 (14) 113.9 Other(1)......................................... (22) 117.8 (92) 144.9 (69) 131.0 ------- ------- ------- Total.......................................... (423) 123.3 (644) 127.8 (921) 135.1 International Lines (excluding international reinsurance): Accident and health.............................. 41 93.4 40 92.4 23 95.1 Property......................................... 73 85.8 1 99.9 (54) 114.5 Casualty......................................... 16 93.8 -- 99.9 (2) 101.0 Auto............................................. (6) 102.4 (12) 105.2 (26) 113.0 Marine........................................... -- 99.7 3 98.3 (8) 105.1 Other............................................ (17) 311.1 -- 94.8 1 85.5 ------- ------- ------- Total.......................................... 107 94.0 32 98.0 (66) 104.8 Reinsurance (including international reinsurance)..................................... (133) 211.1 (128) 137.2 (126) 128.2 ------- ------- ------- Underwriting loss after policyholders' dividends-operations............................. (449) 112.0 (740) 117.4 (1,113) 124.9 Asbestos and environmental losses(2)............... (1,210) 32.5 (275) 6.5 (565) 12.7 ------- ------- ------- Underwriting Loss/Combined Ratio: After Policyholders' Dividends.......... $(1,659) 144.5 $(1,015) 123.9 $(1,678) 137.6 ======== ======== ======== Before Policyholders' Dividends......... $(1,603) 143.0 $ (925) 121.8 $(1,548) 134.7 ======== ======== ======== Net investment income, pre-tax: Domestic........................................... $ 478 $ 483 $ 496 International...................................... 251 207 186 Reinsurance........................................ 65 66 71 ------- ------- ------- Total.......................................... $ 794 $ 756 $ 753 ======== ======== ========
- --------------- (1) Includes premiums and fees of $78 million, $125 million and $129 million for the domestic personal automobile line that is being run off. Underwriting results for this line were breakeven in 1995, compared with losses of ($62) million and ($64) million for 1994 and 1993, respectively. The combined ratio for 1995, 1994 and 1993 was 100.0%, 149.7% and 149.9%, respectively. (2) Combined ratio amount represents the effect on GAAP combined ratio. Asbestos-related and environmental pollution losses for 1995 include a third quarter net reserve strengthening of $1.1 billion. 16 19 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 in some lines rather than maintain business at inadequate prices, and its share of domestic markets has declined. Internationally, growth in profitable lines has offset reductions in unprofitable lines. Competition has intensified due to increased capacity in the insurance market resulting from growing capital supporting the industry. 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. In early 1996, A.M. Best affirmed the ratings of A- for the domestic ongoing operations and B+ for the domestic run-off operations. These ratings reflect the restructuring of the domestic businesses into two separate operations and the related financial commitments described on page 13 as well as the reserve strengthening for asbestos-related and environmental pollution claims and reinsurance exposures described on pages 15 and 16 of the MD&A section of CIGNA's 1995 Annual Report. For more information concerning insurance ratings, see "Ratings" on page 30. In the United States, 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 3,300 companies compete for this business in the United States and no single company or group of affiliated companies is dominant. In 1995 and 1994, CIGNA's domestic property and casualty statutory net written premiums amounted to approximately 0.7% and 0.9%, respectively, of the total market. CIGNA pursues a specialist strategy in both its domestic and international property and casualty businesses and focuses on those market segments where it can compete effectively based on service levels and product design, and achieve an adequate level of profitability. Internationally, CIGNA competes directly with foreign insurance companies as well as with other U.S.-based companies. Based on information published by A.M. Best, CIGNA's domestic property and casualty insurance subsidiaries rank 24th in annual net premiums written. CIGNA is the eighth largest U.S. writer of commercial multi-peril coverages, 12th largest of workers' compensation coverages and 19th largest of commercial auto coverages. Based on revenues, CIGNA's international operations are the second largest U.S.-based provider of international insurance products and services. Distribution In the United States, CIGNA markets its insurance products principally through independent agents and brokers. In the medium-sized risk market, CIGNA has reduced the number of agents through which it markets its products to focus on those producers who historically have provided more profitable business, to better pursue its specialist strategy and to reduce expenses associated with writing the business. In addition, CIGNA has increased the use of brokers in an effort to generate more business from medium-sized risks. In the large risk market, CIGNA distributes its products primarily through national and regional brokers. In the international marketplace, property and casualty coverage is sold primarily through brokers. A network of offices in about 45 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. 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, 1995 and 1994, at approximately 8% and 9%, respectively, was with more than 100 syndicates affiliated with Lloyd's of London. Approximately 29% of CIGNA's reinsurance recoverables as of December 31, 1995 relate to pools and captives, under which CIGNA's assets are generally protected 17 20 through future industry assessments or by some form of collateral. In addition, 18% relate to international direct and reinsurance operations (excluding recoverables with Lloyd's that relate to international operations). Of the remaining recoverables, which relate primarily to domestic operations, 86% relate to individual reinsurers that carry a very good or higher financial rating from an independent rating agency. A significant portion of the international and remaining domestic recoverables are due from reinsurers that meet CIGNA's internal security standards and selection criteria, as described in the following paragraph. Although reinsurance does not discharge CIGNA from its obligations on insured risks, CIGNA's exposure to losses is reduced by the amount ceded, and thus will be limited to the amount of risk retained, provided that reinsurers meet their obligations. The 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. Reinsurance disputes have increased in recent years, particularly on larger and more complex claims such as those related to professional liability, asbestos and London reinsurance exposures. Reinsurance disputes may increase in the future, and are likely to include disputes related to environmental pollution. As of December 31, 1995, approximately 88% of CIGNA's reinsurance recoverable balance relates to unpaid reported claims and incurred but not reported claims, and the remaining 12% relates to paid losses. The timing and collectibility of reinsurance recoverables have not had, and are not expected to have, a material adverse effect on CIGNA's liquidity. CIGNA's allowance for unrecoverable reinsurance was $700 million and $435 million at December 31, 1995 and 1994, respectively. Losses from unrecoverable reinsurance were $273 million, $42 million and $28 million for 1995, 1994 and 1993, respectively, including losses from unrecoverable reinsurance related to asbestos and environmental pollution losses of $94 million and $13 million for 1995 and 1994, respectively. In addition, losses from unrecoverable reinsurance in 1995 included, for other than amounts related to asbestos and environmental pollution, $135 million resulting from the reserve review and strengthening recorded in the third quarter. Additional losses from unrecoverable reinsurance may materially affect CIGNA's future results, although the amounts and timing cannot be reasonably estimated. For additional information on reinsurance, including on CIGNA's property catastrophe reinsurance program, see pages 14 through 17 of the MD&A section and Notes 16 and 17 of CIGNA's 1995 Annual Report. 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. 18 21 "Bulk reserves" are established on an aggregate basis (i) to provide for losses incurred but not yet reported to and recorded by the insurer; (ii) to provide for the estimated expenses of settling claims, including legal and other fees and general expenses of administering the claims adjustment process; and (iii) to adjust for the fact that, in the aggregate, case reserves may not accurately estimate the ultimate liability for reported claims. As part of the bulk reserving process, CIGNA's historical claims data and other information are reviewed and consideration is given to the anticipated impact of various factors such as legal developments, economic conditions and changes in social attitudes. Insurance industry experience is also considered. 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. 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 because of changes in social and legal trends that expand the liability of insureds, establish new liabilities and reinterpret insurance contracts long after the policies were written to provide coverage unanticipated by CIGNA. Such changes from past experience significantly affect the ability of insurers to estimate liabilities for unpaid losses and related expenses. CIGNA changed its methodology for estimating asbestos-related and environmental pollution reserves in the third quarter of 1995, as discussed on pages 15 and 16 of the MD&A section of CIGNA's 1995 Annual Report. CIGNA's reserves for asbestos-related and environmental pollution claims are a reasonable estimate of its ultimate liability for these claims, based on currently known facts, reasonable assumptions where the facts are not known, current law and methodologies currently available. Reserving for all property and casualty claims continues to be a complex and uncertain process, requiring the use of informed estimates and judgments. As additional experience and other data become available and are reviewed or, in the case of asbestos-related and environmental pollution reserves, as new or improved methodologies are developed or as current law changes, CIGNA's estimates and judgments may be revised. Any such revisions could result in future changes in estimates of losses and would be reflected in CIGNA's results of operations for the period in which the estimates are changed. While the effect of any such changes in estimates of losses could be material to future results of operations, CIGNA does not expect such changes to have a material effect on its liquidity or financial condition. In management's judgment, information currently available has been appropriately considered in estimating CIGNA's loss reserves. 19 22 Prior Year Development The adverse pre-tax effects, net of reinsurance, during 1995, 1994 and 1993 on CIGNA's results of operations from insured events of prior years (prior year development) were $1.5 billion, $538 million and $789 million, respectively. Of the prior year loss development during 1995, 81% was attributable to asbestos-related and environmental pollution claims. Prior year development is discussed on pages 15 and 16 of the MD&A section of CIGNA's 1995 Annual Report. Reserve changes for asbestos-related claims before ("Gross") and after ("Net") the effects of reinsurance for the periods indicated were as follows:
YEAR ENDED DECEMBER 31, ----------------------------------------------- 1995 1994 1993 --------------- ------------- ------------- GROSS NET GROSS NET GROSS NET ------ ------ ----- ----- ----- ----- (IN MILLIONS) Asbestos Bodily Injury Claims: Beginning reserves............................ $ 500 $ 213 $ 564 $ 216 $ 486 $ 166 Plus incurred claims and claim adjustment expenses.................................... 226 194 49 48 186 111 Less payments for claims and claim adjustment expenses.................................... (135) (73) (113) (51) (108) (61) ---- ---- ---- ---- ---- ---- Ending reserves............................... $ 591 $ 334 $ 500 $ 213 $ 564 $ 216 ==== ==== ==== ==== ==== ==== Asbestos-in-Building Claims: Beginning reserves............................ $ 94 $ 68 $ 168 $ 97 $ 70 $ 47 Plus incurred claims and claim adjustment expenses.................................... 72 61 15 12 117 60 Less payments for claims and claim adjustment expenses.................................... (8) (6) (89) (41) (19) (10) ---- ---- ---- ---- ---- ---- Ending reserves............................... $ 158 $ 123 $ 94 $ 68 $ 168 $ 97 ==== ==== ==== ==== ==== ====
Total asbestos incurred claims and claim adjustment expenses for 1995 include the establishment of reserves of $255 million ($194 million, net of reinsurance) related to CIGNA's comprehensive reserve review completed in the third quarter of 1995. Incurred claims and claim adjustment expenses for 1993 include the establishment of reserves of $106 million ($72 million, net of reinsurance) for future legal and associated expenses for reported claims. Reserve changes for environmental pollution claims before ("Gross") and after ("Net") the effects of reinsurance for the periods indicated were as follows:
YEAR ENDED DECEMBER 31, ----------------------------------------------- 1995 1994 1993 --------------- ------------- ------------- GROSS NET GROSS NET GROSS NET ------ ------ ----- ----- ----- ----- (IN MILLIONS) Environmental Pollution Claims: Beginning reserves............................ $ 707 $ 542 $ 593 $ 430 $ 252 $ 148 Plus incurred claims and claim adjustment expenses.................................... 1,265 955 280 215 482 394 Less payments for claims and claim adjustment expenses.................................... (307) (229) (166) (103) (141) (112) ---- ---- ---- ---- ---- ---- Ending reserves............................... $1,665 $1,268 $ 707 $ 542 $ 593 $ 430 ==== ==== ==== ==== ==== ====
Incurred claims and claim adjustment expenses for 1995 include the establishment of reserves of $1.2 billion ($861 million, net of reinsurance) related to CIGNA's comprehensive reserve review completed in the third quarter of 1995. Incurred claims and claim adjustment expenses for 1993 include the establishment of reserves of $335 million ($268 million, net of reinsurance) for future legal and associated expenses for reported claims. 20 23 Reserves for environmental pollution claims and related incurred expense and payment activity include internal costs to manage such claims and disputes with policyholders over insurance coverage issues as well as external litigation-related costs for such disputes. Payments associated with disputed coverage issues will decline in the future, and eventually end, as the disputes or related issues are resolved. To present CIGNA's environmental pollution reserves and related activity that more directly relates to indemnity costs and costs to defend policyholders against environmental pollution claims, the following table excludes internal costs and external litigation-related costs for insurance coverage disputes.
YEAR ENDED DECEMBER 31, --------------------------------------------- 1995 1994 1993 --------------- ------------ ------------ GROSS NET GROSS NET GROSS NET ------ ------ ----- ---- ----- ---- (IN MILLIONS) Beginning reserves............................... $ 558 $ 397 $ 444 $285 $ 252 $148 Plus incurred claims and claim adjustment expenses....................................... 1,144 836 207 142 295 211 Less payments for claims and claim adjustment expenses....................................... (234) (158) (93) (30) (103) (74) ---- ---- ---- ---- ---- ---- Ending reserves.................................. $1,468 $1,075 $ 558 $397 $ 444 $285 ==== ==== ==== ==== ==== ====
Since the mid-1980s, when CIGNA established a separate unit to handle its asbestos-related and environmental pollution claims, it has followed an aggressive resolution strategy for these claims. When appropriate, CIGNA has settled claims with its policyholders, often obtaining full policy releases. While CIGNA believes that its ultimate asbestos-related and environmental pollution exposure has been reduced by this strategy, it also has resulted in accelerating the recognition of incurred and paid claims and claim adjustment expenses. A significant portion of the payments shown in the above table for 1995 are due to substantial settlements made pursuant to CIGNA's aggressive resolution strategy. Paid asbestos-related and environmental pollution claims are expected to continue to be significant for the foreseeable future, but will vary depending on the level of settlement activity. The principal federal statute that requires cleanup of environmental damage is the Comprehensive Environmental Response, Compensation and Liability Act ("Superfund"), passed in 1980. It imposes liability on "Potentially Responsible Parties" ("PRPs"), subjecting them to liability for cleanup costs regardless of fault, time period and relative contribution of pollutants. The tax authority of Superfund expired in 1995, and proposals to change the law's method of allocating responsibility for, or funding, cleanup are pending before Congress. Any such changes could affect the liabilities of policyholders and insurers. Due to uncertainties associated with the timing and content of any future Superfund legislation, CIGNA is not able to determine what effect, if any, such legislation would have on its results of operations, liquidity or financial condition. A reconciliation of total beginning and ending reserve balances of the Property and Casualty segment for unpaid claims and claim adjustment expenses for the years ended December 31, 1995, 1994 and 1993 is provided in Note 17 to CIGNA's 1995 Annual Report. The table on page 22 presents the subsequent development of the estimated year-end property and casualty reserve, net of reinsurance ("net reserve") for the 10 years prior to 1995. The first section of the table shows the estimated net reserve that was recorded at the end of each of the indicated years for all current and prior year unpaid claims and claim adjustment expenses. The second section shows the cumulative percentages of such previously recorded net reserve paid in succeeding years. The third section shows, as a percentage of such net reserve, the re-estimates of the net reserve made in each succeeding year. The cumulative deficiency as shown in the table represents the aggregate change in the reserve estimates from the original balance sheet dates through 1995; an increase in a loss estimate that related to a prior year occurrence generates a deficiency in each intervening year. For example, a deficiency recognized in 1994 relating to losses incurred in 1987 would be included in the cumulative deficiency amount for the years 1987 through 1993. Yet, the deficiency would be reflected in operating results in 1994 only. 21 24 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. Historically, asbestos-related and environmental pollution losses have had a significant effect on the net cumulative deficiency.
YEAR ENDED DECEMBER 31, ---------------------------------------------------------------------------------------------- 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 ------ ------ ------ ------ ------ ------- ------- ------- ------- ------- ------- (DOLLAR AMOUNTS IN MILLIONS) Net reserve for unpaid claims and claim adjustment expenses........ $7,299 $8,074 $8,832 $9,414 $9,789 $10,196 $10,272 $10,562 $10,660 $10,635 $11,159 ====== ====== ====== ====== ====== ======= ======= ======= ======= ======= ======= Cumulative percentage of net reserve paid through: One year later................. 30.5% 30.9% 30.2% 31.1% 34.3% 33.8% 34.0% 28.9% 24.7% 22.5% Two years later................ 51.2 50.0 49.5 52.7 54.3 53.9 53.6 45.9 40.4 Three years later.............. 66.8 65.2 65.7 67.7 69.4 68.6 66.8 58.7 Four years later............... 79.5 78.8 77.0 78.9 80.8 78.9 77.3 Five years later............... 90.4 88.4 84.7 88.0 88.6 86.8 Six years later................ 99.1 95.1 92.8 94.4 95.4 Seven years later.............. 105.4 102.9 98.5 100.4 Eight years later.............. 112.9 108.3 104.4 Nine years later............... 118.2 114.5 Ten years later................ 124.8 Net reserve (percentage) re-estimated as of: One year later................. 101.7% 103.3% 102.6% 103.0% 103.1% 103.4% 106.4% 107.5% 105.0% 114.1% Two years later................ 108.8 106.2 105.0 105.8 106.9 107.4 115.4 113.5 119.7 Three years later.............. 111.8 110.0 107.9 109.7 109.6 116.9 122.5 128.2 Four years later............... 116.2 114.8 111.3 112.3 119.5 123.5 138.9 Five years later............... 122.4 118.8 114.0 121.9 125.7 140.1 Six years later................ 126.7 122.1 123.9 127.9 142.9 Seven years later.............. 130.9 132.5 129.6 144.5 Eight years later.............. 142.1 138.1 146.6 Nine years later............... 148.1 156.7 Ten years later................ 167.8 Net cumulative deficiency: $4,946 $4,575 $4,115 $4,192 $4,199 $ 4,092 $ 4,000 $ 2,982 $ 2,095 $ 1,498 Gross reserve--December 31........ $17,926 $17,764 $16,825 $17,023 Less: Reinsurance recoverable..... 7,364 7,104 6,190 5,864 ------- ------- ------- ------- Net reserve--December 31.......... $10,562 $10,660 $10,635 $11,159 ======= ======= ======= ======= Gross re-estimated reserve........ $21,484 $19,979 $18,468 Less: Re-estimated reinsurance recoverable...................... 7,940 7,224 6,335 ------- ------- ------- Net re-estimated reserve.......... $13,544 $12,755 $12,133 ======= ======= ======= Gross cumulative deficiency....... $ 3,558 $ 2,215 $ 1,643 ======= ======= =======
For additional information about gross loss development, amounts ceded to reinsurers and net loss development, see pages 14 through 17 of the MD&A section of CIGNA's 1995 Annual Report. On a GAAP basis, which is before the effects of reinsurance, CIGNA's 1995 year-end reserves totaled $17.0 billion. For GAAP purposes, CIGNA's reserves are generally carried at the full value of the estimated liabilities. For state regulatory purposes, reserves are reported in accordance with statutory accounting procedures ("SAP"), which is net of the effects of reinsurance, and, on that basis, totaled $9.7 billion. 22 25 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:
YEAR ENDED DECEMBER 31, ------------------------------------ 1995 1994 1993 -------- -------- -------- (IN MILLIONS) Statutory reserve for unpaid claims and claim adjustment expenses, net of reinsurance................................................ $ 9,704 $ 9,643 $ 9,700 Adjustments: Statutory Reinsurance Recoverable................................. 5,384 5,764 6,584 Discounting of Gross Reserves(1).................................. 1,935 1,418 1,480 -------- -------- -------- GAAP reserve for unpaid claims and claim adjustment expenses........ 17,023 16,825 17,764 Less GAAP Reinsurance Recoverable................................... 5,864 6,190 7,104 -------- -------- -------- GAAP reserve for unpaid claims and claim adjustment expenses, net of reinsurance................................................ $ 11,159 $ 10,635 $ 10,660 ======== ======== ========
- --------------- (1) Primarily for workers' compensation reserves and, beginning in 1995, certain asbestos-related and environmental pollution reserves. For SAP purposes, these reserves are discounted at 6%. NAIC and Other Property and Casualty Regulatory Matters The National Association of Insurance Commissioners ("NAIC") has adopted risk-based capital rules for domestic property and casualty companies. CIGNA's ongoing domestic property and casualty subsidiaries were adequately capitalized under the rules as of December 31, 1995. The risk-based capital ratios of the subsidiaries in the run-off operation are at the mandatory control level, as described on page 29. However, because the Insurance Commissioner of Pennsylvania determined that these subsidiaries have sufficient assets to meet their obligations, they are being allowed to run off their liabilities consistent with the terms of an Order by the Commissioner, which include periodic reporting obligations to the Pennsylvania Insurance Department. Additional information is contained on page 29. 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 or loss costs, which are estimated future losses to which an insurer must add a profit and expense load to arrive at a rate, 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. 23 26 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 1995 totaled $79.9 billion, comprising CIGNA corporate and insurance-related investment assets ("investment assets") of $57.7 billion and advisory portfolios of $22.2 billion. Advisory portfolios included $18.2 billion in Separate Accounts of CIGNA's life insurance subsidiaries. For additional information about the General Account and the Separate Accounts, see "Employee Retirement and Savings Benefits--Principal Products and Markets" beginning on page seven. CIGNA invests in a broad range of asset classes, including domestic and international fixed maturities and common stocks, mortgage loans, real estate and short-term investments. Fixed maturity investments include publicly traded and private placement corporate bonds, government bonds, publicly traded and private placement asset-backed securities and redeemable preferred stocks. Asset-backed securities are primarily mortgage-backed securities and secondarily other asset-backed securities. Mortgage-backed securities include collateralized mortgage obligations ("CMOs"). CMO holdings are concentrated in securities with limited prepayment, extension and default risk, such as planned amortization class bonds. The major portfolios under management in CIGNA's General Account consist of the combined assets of the Employee Life and Health Benefits, Employee Retirement and Savings Benefits, and Individual Financial Services segments (collectively, "Employee Benefits and Individual Financial portfolios") and the assets of the Property and Casualty segment. CIGNA generally manages the characteristics of its investment assets to reflect the underlying characteristics of related insurance and contractholder liabilities, as well as regulatory and tax considerations pertaining to those liabilities. CIGNA's insurance and contractholder liabilities as of December 31, 1995 comprised the following: property and casualty 33%, fully guaranteed 12%, experience-rated 25%, interest-sensitive 16%, and other life and health 14%. 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 and public fixed maturity investments. Fully guaranteed products primarily include GICs, single premium annuity products and settlement annuities. Because these products generally do not permit withdrawal by policyholders prior to maturity, the amount and timing of future benefit cash flows can be reasonably estimated. Funds supporting these products are invested in fixed income investments that generally match the aggregate duration of the investment portfolio with that of the related benefit cash flows. As of December 31, 1995, the duration of assets and liabilities for GICs, single premium annuities and settlement annuities was approximately 2 years, 9 years and 11 years, respectively. CIGNA's experience-rated products primarily consist of defined benefit and defined contribution pension products. Investments for these products are selected to support the yield and liquidity needs of the products and are principally fixed income investments. Interest-sensitive products primarily include universal life insurance and COLI. Investment assets supporting these products are primarily fixed income investments and policy loans. Fixed income investments emphasize investment yield while meeting the liquidity requirements of the related liabilities. Other life and health products consist of various group and individual life 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, competition for investments (especially in private asset classes), economic conditions, interest rates and asset allocation decisions. For example, cash available from turnover of existing assets was reinvested at 24 27 lower interest rates in 1995, resulting in reduced investment income, whereas proceeds from common stock sales in 1995 generated realized capital gains, and reinvestment of these proceeds in fixed income assets increased investment income. As noted above, CIGNA generally manages the characteristics of its investment assets, such as liquidity, currency, yield and duration, to reflect the underlying characteristics of related insurance and contractholder liabilities, which vary among CIGNA's principal product lines. In connection with its investment strategy, CIGNA uses derivative instruments through hedging applications to manage market risk. Derivative instruments are not used for speculative purposes. For additional information concerning CIGNA's use of derivatives, see Note 4(F) to the 1995 Financial Statements that are included in its 1995 Annual Report. 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, including policyholder share, as of December 31, 1995 constituted approximately 53% of the Employee Benefits and Individual Financial portfolios and approximately 93% of the Property and Casualty portfolios, respectively. As of that date, approximately 30% of fixed maturity investments was attributable to experience-rated contracts. CIGNA reduces credit risk for the portfolios as a whole by investing primarily in investment grade fixed maturities rated by rating agencies (for public investments), by CIGNA (for private investments) or by the Securities Valuation Office of the NAIC (for both public and private investments). For information about below investment grade holdings, see page 19 of the MD&A section of CIGNA's 1995 Annual Report. CIGNA's mortgage loan investments, including policyholder share, constituted approximately 25% of the Employee Benefits and Individual Financial portfolios and less than 1% of the Property and Casualty portfolios as of December 31, 1995. As of that date, approximately 58% of mortgage loan investments was attributable to experience-rated contracts. Mortgage loan investments are subject to underwriting criteria addressing loan-to-value ratio, debt service coverage, cash flow, tenant quality, leasing, market, location and financial strength of the borrower. Such investments consist primarily of first mortgage loans on commercial properties and are diversified relative to property type, location and borrower. The Company invests in fully completed and substantially leased commercial properties. Virtually all of the Company's mortgage loans are bullet or balloon loans, under which all or a substantial portion of the loan principal is due at the end of the loan term. CIGNA manages properties obtained through foreclosure of mortgage loans ("foreclosure properties") until such properties are sold. The Company's general policy is to rehabilitate the foreclosed properties, re-lease them and sell them, which generally takes two to four years. 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. See pages 18 through 23 of the MD&A section of CIGNA's 1995 Annual Report and Notes 2, 4, 5 and 20 to CIGNA's 1995 Financial Statements for additional information about CIGNA's investments. 25 28 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 1995 1994 1993 - ------------------------------------------------------------------------- ------- ------- ------- (IN MILLIONS) Fixed maturities Bonds: Finance.............................................................. $ 3,726 $ 3,171 $ 3,627 Consumer products.................................................... 3,102 2,996 2,995 Manufacturing........................................................ 2,747 2,302 2,313 Energy............................................................... 2,470 2,041 1,853 Public utilities..................................................... 1,941 1,654 1,742 Transportation....................................................... 1,046 1,011 1,005 U.S. government and government agencies and authorities.............. 407 284 268 States, municipalities and political subdivisions.................... 404 327 368 Foreign governments(1)............................................... 164 208 183 Other................................................................ 401 334 397 ------- ------- ------- Total bonds..................................................... 16,408 14,328 14,751 Asset-backed securities................................................ 5,925 4,827 4,931 Redeemable preferred stocks............................................ 15 33 26 ------- ------- ------- Total fixed maturities.......................................... 22,348 19,188 19,708 ------- ------- ------- Equity securities Common stocks: Industrial and miscellaneous......................................... 238 1,118 1,113 Public utilities..................................................... 23 122 162 Banks, trust and insurance companies................................. 21 115 121 ------- ------- ------- Total common stocks............................................. 282 1,355 1,396 Non-redeemable preferred stocks........................................ 11 55 81 ------- ------- ------- Total equity securities......................................... 293 1,410 1,477 ------- ------- ------- Mortgage loans Commercial: Retail facilities.................................................... 4,423 3,744 3,483 Office buildings..................................................... 3,685 3,387 3,652 Apartments........................................................... 1,281 1,022 923 Hotels............................................................... 692 662 711 Industrial........................................................... 399 403 379 Other................................................................ 98 109 109 ------- ------- ------- Total commercial................................................ 10,578 9,327 9,257 Agricultural........................................................... 69 88 118 ------- ------- ------- Total mortgages................................................. 10,647 9,415 9,375 ------- ------- ------- Policy loans............................................................. 6,925 5,237 3,623 Real estate.............................................................. 1,138 1,481 1,539 Other long-term investments.............................................. 202 137 108 Short-term investments................................................... 380 306 401 ------- ------- ------- Total investments............................................... $41,933 $37,174 $36,231 ======== ======== ========
- --------------- See Note 2(D) of Notes to Financial Statements of CIGNA's 1995 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. 26 29
YEAR ENDED DECEMBER 31, ----------------------------- NET INVESTMENT INCOME 1995 1994 1993 - ------------------------------------------------------------------------- ------- ------- ------- (DOLLAR AMOUNTS IN MILLIONS) Fixed maturities......................................................... $1,700 $1,649 $1,610 Equity securities........................................................ 34 55 56 Mortgage loans........................................................... 894 839 948 Policy loans............................................................. 499 365 253 Real estate.............................................................. 272 284 244 Other investments........................................................ 123 63 69 ------- ------- ------- Total........................................................... 3,522 3,255 3,180 Less investment expenses................................................. 258 277 248 ------- ------- ------- Net investment income, pre-tax........................................... $3,264 $2,978 $2,932 ======== ======== ======== Net investment yield(1).................................................. 8.66 % 8.44 % 8.80 % ======== ======== ========
- --------------- (1) The net investment yield is equal to (a) net investment income multiplied by two, divided by (b) the sum, at the beginning and end of the year, of cash, invested assets (at cost or amortized cost less impairments) and investment income due and accrued, less borrowed money, less net investment income. 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 1995 1994 1993 - ------------------------------------------------------------------------- ------- ------- ------- (IN MILLIONS) Fixed maturities Bonds: Foreign governments(1)............................................... $ 2,343 $ 1,757 $ 1,472 Finance.............................................................. 1,655 1,700 1,588 States, municipalities and political subdivisions.................... 1,373 1,266 1,525 Public utilities..................................................... 906 682 586 Energy............................................................... 835 547 806 U.S. government and government agencies and authorities.............. 687 802 1,025 Consumer products.................................................... 679 381 360 Manufacturing........................................................ 627 353 363 Transportation....................................................... 310 139 61 Other................................................................ 240 644 618 ------- ------- ------- Total bonds........................................................ 9,655 8,271 8,404 Asset-backed securities................................................ 1,921 1,716 1,580 Redeemable preferred stocks............................................ 4 11 24 ------- ------- ------- Total fixed maturities............................................. 11,580 9,998 10,008 ------- ------- ------- Equity securities Common stocks: Industrial and miscellaneous......................................... 271 333 293 Banks, trust and insurance companies................................. 53 45 57 Public utilities..................................................... 13 3 9 ------- ------- ------- Total common stocks................................................ 337 381 359 Non-redeemable preferred stocks........................................ 16 8 7 ------- ------- ------- Total equity securities............................................ 353 389 366 ------- ------- ------- Other long-term investments, principally mortgages....................... 320 693 643 Short-term investments................................................... 209 342 461 ------- ------- ------- Total investments.................................................. $12,462 $11,422 $11,478 ======== ======== ========
- ------------ See Note 2(D) of Notes to Financial Statements of CIGNA's 1995 Annual Report for a discussion of the method of valuation of investments. (1) Comprises fixed maturities of sovereign foreign governments. 27 30
YEAR ENDED DECEMBER 31, --------------------------- NET INVESTMENT INCOME 1995 1994 1993 - ------------------------------------------------------------------------- ----- ----- ----- (DOLLAR AMOUNTS IN MILLIONS) Interest: Taxable.............................................................. $ 750 $ 680 $ 643 Tax-exempt........................................................... 70 77 101 ----- ----- ----- Total........................................................... 820 757 744 Dividends from stocks.................................................... 11 12 25 Other.................................................................... 32 46 34 ----- ----- ----- Total investment income.................................................. 863 815 803 Less investment expenses................................................. 69 59 50 ----- ----- ----- Net investment income, pre-tax........................................... $ 794 $ 756 $ 753 ===== ===== ===== Net investment yield(1).................................................. 6.93% 6.92% 7.24% ===== ===== =====
- --------------- (1) The net investment yield is equal to (a) net investment income multiplied by two, divided by (b) the sum, at the beginning and end of the year, of cash, invested assets (at cost or amortized cost less impairments) and investment income due and accrued, less borrowed money, less net investment income. 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 Investment assets for CIGNA's Other Operations include fixed maturities, mortgage loans, real estate 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, CIGNA's 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 $238 million for 1995, $212 million for 1994 and $217 million for 1993. In addition, CIGNA has non-strategic equity investments in operating businesses, primarily 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 periodic financial reports with supervisory agencies in most of the jurisdictions in which it does business, and its operations and accounts are subject to examination by such agencies at regular intervals. Most states and the District of Columbia require licensed insurance companies to support guaranty associations, which are organized to pay claims on behalf of insolvent insurance companies. These associations levy assessments on member insurers in a particular state to pay such claims on the basis of their proportionate shares of the lines of business of the insolvent insurer. Maximum assessments permitted by law in any one year generally range from 1% to 2% of annual premiums written by each member in a 28 31 particular state with respect to the categories of business involved, and may be offset against premium taxes payable in some states. See Note 19 to CIGNA's 1995 Financial Statements. 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 many states have adopted. In addition, risk-based capital rules have been adopted for life insurance and property and casualty insurance companies 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 adjusted surplus to its risk-based capital, the insurer could be subject to various regulatory actions ranging from increased scrutiny to conservatorship. Four levels of regulatory attention may be triggered if the ratio of adjusted surplus to risk-based capital (the "RBC ratio") is insufficient. If a property and casualty ("P&C") insurance company's RBC ratio is between 67.5% and 90% (75% and 100% for life insurance ("Life") companies), the "company action level," the company must submit a plan to the regulator detailing corrective action it proposes to undertake. If a P&C company's RBC ratio is between 45% and 67.5% (50% and 75% for Life companies), the "regulatory action level," the company must also submit a plan, but a regulator may also issue a corrective order requiring the insurer to comply within a specified period. If a P&C company's RBC ratio is between 31.5% and 45% (35% and 50% for Life companies), the "authorized control level," the regulatory response is the same as at the "regulatory action level," but in addition, the regulator may take action to rehabilitate or liquidate the insurer. If the RBC ratio for a P&C company is less than 31.5% (35% for Life companies), the "mandatory control level," the regulator must rehabilitate or liquidate the insurer. An insurance commissioner may allow a property and casualty company at the mandatory control level that is writing no business and is running off its existing business to continue its run-off. As of December 31, 1995, CIGNA's life insurance and ongoing domestic property and casualty insurance subsidiaries were adequately capitalized under such rules, and the run-off subsidiaries are being allowed to run off their liabilities as described on page 23. Also, the NAIC is addressing risk-based capital guidelines for HMOs. CIGNA does not expect such guidelines to have a material adverse effect on its future results of operations, liquidity or financial condition. 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 practices, including the adequacy of disclosure regarding products and their future performance, may result in increased regulations in this area. In 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. Federal and state proposals to reform health care are expected to continue in 1996. Such proposals are discussed on page six. CIGNA's HMOs are subject to regulation and supervision by various government agencies in the states in which they do business. The extent of regulation varies, but most jurisdictions regulate licensing, solvency, 29 32 contracts and rates. Regulation of these entities also may include standards for quality assurance, minimum levels of benefits that must be offered and requirements for availability and continuity of care. 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. Many of CIGNA's HMOs are also federally qualified and subject to regulation as to benefits, solvency and rates under the federal HMO Act. CIGNA's mental health and substance abuse clinics are licensed by the states in which they operate for quality of treatment. Regulatory concerns with insurance risk selection have increased significantly in recent years. For example, some states have imposed restrictions on the use of underwriting criteria related to AIDS. Also, various interpretations under the Americans with Disabilities Act may affect the provision of insurance benefits under certain types of policies. Domestic property and casualty insurers are required to participate in assigned risk plans, joint underwriting authorities, pools and other residual market mechanisms to write coverages on risks not acceptable under normal underwriting standards. In addition, states have responded to concerns about the availability and affordability of commercial casualty insurance by proposing or adopting legislation, regulations or positions to, among 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, COLI, health care reform and federal oversight of insurer solvency, current and proposed federal measures that may significantly affect the insurance business include: pension and other employee benefit regulation; tax legislation; Social Security legislation; financial services regulation; amendment to the antitrust exemption provided for the business of insurance by the McCarran-Ferguson Act; and repeal of the Glass-Steagall Act. 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. Ratings CIGNA and certain of its domestic insurance subsidiaries are rated by nationally recognized rating agencies. While the significance of individual ratings varies from agency to agency, companies assigned ratings at the top end of the range have, in the opinion of the rating agency, the strongest capacity for repayment of debt or payment of claims, while companies at the bottom end of the range have the weakest capacity. Insurance ratings represent the opinions of the rating agencies on the financial strength of the company and its capacity to meet the obligations of insurance policies. Insurance rating scales of the principal agencies 30 33 that rate the Company's insurance subsidiaries are characterized as follows: A.M. Best, A++ to F ("Superior" to "In Liquidation"); Moody's, Aaa to C ("Exceptional" to "Lowest"); Standard & Poor's ("S&P"), AAA to R ("Superior" to "Regulatory Action"); and Duff & Phelps, AAA to DD ("Highest" to "Order of Liquidation"). As of March 18, 1996, the insurance rating for CG Life obtained from S&P was AA ("Excellent," 3rd of 18) and from Duff & Phelps was AAA ("Highest," 1st of 18), and the insurance ratings obtained from A.M. Best and Moody's were as follows:
INSURANCE RATINGS(1) ------------------------------------------------------------------------ LIFE ----------------------------------- LIFE INSURANCE PROPERTY & CASUALTY COMPANY --------------------------------- OF NORTH ONGOING RUN-OFF CG LIFE AMERICA OPERATIONS(2) OPERATIONS(3) ---------------- --------------- -------------- -------------- A.M. Best.................. A+ A+ A- B+ ("Superior," ("Superior," ("Excellent," ("Very Good," 2nd of 15) 2nd of 15) 4th of 15) 6th of 15)(4) Moody's.................... A1 not Baa1 Ba1 ("Good," rated ("Adequate," ("Questionable," 5th of 19) 8th of 19)(5) 11th of 19)(5)
- --------------- (1) Includes the rating assigned, the agency's characterization of the rating and the position of the rating in the applicable agency's rating scale (e.g., CG Life's rating by A.M. Best Company, Inc. ("A.M. Best") is the 2nd highest rating awarded in its scale of 15). (2) The rated Ongoing Operations consist of CIGNA's domestic ongoing property and casualty insurance subsidiaries. For further information, see "Property and Casualty" on page 13. (3) The rated Run-off Operations consist of domestic insurance subsidiaries that manage run-off policies and related claims, including those for asbestos-related and environmental pollution exposures. For further information, see "Property and Casualty" on page 13. (4) Although this is the sixth highest rating in the A.M. Best rating scale, it is the second highest rating available for run-off operations. (5) Moody's rates the principal insurance companies within the Ongoing Operations and the Run-off Operations, whereas A.M. Best rates each such operation collectively. Debt ratings are assessments of the likelihood that the Company will make timely payments of principal and interest. The rating scales of the principal agencies that rate CIGNA's senior debt are characterized as follows: Moody's, Aaa to C ("Best" to "Lowest"); S&P, AAA to D ("Extremely Strong" to "Default"); and Duff & Phelps, AAA to DD ("Highest" to "Default"). The commercial paper rating scales for Moody's, S&P and Duff & Phelps are as follows: Moody's, Prime-1 to Not Prime ("Superior" to "Not Prime"); S&P, A-1+ to D ("Extremely Strong" to "Default"); and Duff & Phelps, D-1+ to D-5 ("Highest" to "Default"). As of March 18, 1996, the debt ratings obtained from the following agencies were as follows:
DEBT RATINGS(1) CIGNA CORPORATION --------------------------------------- COMMERCIAL SENIOR DEBT PAPER ---------------- ------------------- Moody's............................................ Baa1 Prime-2 ("Medium- ("Strong," grade," 2nd of 4) 8th of 19) Standard & Poor's.................................. BBB+ A-2 ("Adequate," ("Satisfactory," 8th of 22) 3rd of 7) Duff & Phelps...................................... A D-1 ("Adequate," ("Very high," 6th of 18) 2nd of 7)
- --------------- (1) Includes the rating assigned, the agency's characterization of the rating and the position of the rating in the applicable agency's rating scale. The ratings are reviewed routinely by the rating agencies and may be changed at their discretion. 31 34 J. Miscellaneous Portions of CIGNA's insurance business are seasonal in nature. Reported claims under group health and certain property and casualty products are generally higher in the first quarter. 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 1995. CIGNA and its principal subsidiaries are not dependent on business from one or a few brokers or agents. In addition, CIGNA's insurance businesses are generally not committed to accept a fixed portion of the business submitted by independent brokers and agents, and generally all such business is subject to its approval and acceptance. CIGNA had approximately 44,700, 48,600 and 50,600 employees as of December 31, 1995, 1994 and 1993, respectively. Item 2. PROPERTIES CIGNA's headquarters are located in approximately 90,240 total square feet of leased office space at One Liberty Place, Philadelphia, Pennsylvania. CIGNA Property & Casualty, CIGNA Group Insurance: Life, Accident, Disability, and CIGNA International are located in a leased building of approximately 1.25 million total square feet at Two Liberty Place, Philadelphia. CIGNA HealthCare, CIGNA 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 countries. For additional information concerning leases and property, see Notes 2(H) and 15 to CIGNA's 1995 Consolidated Financial Statements of CIGNA's 1995 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 business, either as a liability insurer defending third-party claims brought against its insureds or an insurer defending coverage claims brought against it by its policyholders or other insurers. One such area of litigation involves policy coverage and judicial interpretation of legal liability for asbestos-related and environmental pollution claims. While the outcome of all litigation involving CIGNA, including insurance-related litigation, cannot be determined, litigation (including that related to asbestos and environmental pollution claims) is not expected to result in losses that differ from recorded reserves by amounts that would be material to results of operations, liquidity or financial condition. Also, reinsurance recoveries related to claims in litigation, net of allowance for uncollectible reinsurance, are not expected to result in recoveries that differ from recorded recoverables by amounts that would be material to results of operations, liquidity or financial condition. 32 35 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. EXECUTIVE OFFICERS OF THE REGISTRANT Reference is made below to CG Life, which is an indirect subsidiary of CIGNA. All officers are elected to serve for a one-year term or until their successors are elected. Principal occupations and employment during the past five years are listed. H. EDWARD HANWAY, 44, President of CIGNA HealthCare beginning February 1996; President of CIGNA International from March 1994 until February 1996; and President of CIGNA International: Property & Casualty from February 1989 until March 1994. GERALD A. ISOM, 57, President of CIGNA Property and Casualty since March 1993; Group Vice President of Transamerica Corporation from 1990 until March 1993; and Chief Executive Officer and President of Transamerica Insurance Group from January 1985 until March 1993. Transamerica Insurance Group is a major provider of property and casualty insurance products. THOMAS C. JONES, 49, President of CIGNA Individual Insurance since February 1995; President of CG Life since March 1995; President of CIGNA Reinsurance Property & Casualty from March 1994 until February 1995; Executive Vice President, Chief Administrative Officer and member of the Boards of Directors of NAC Re Corporation and NAC Reinsurance Corporation from November 1985 until January 1994; and Chief Operating Officer of NAC Re Corporation and NAC Reinsurance Corporation from June 1993 and September 1990, respectively, until January 1994. NAC Re Corporation is the parent corporation of NAC Reinsurance Corporation, a major provider of property and casualty reinsurance products. JOHN K. LEONARD, 47, President of CIGNA Group Insurance: Life, Accident, Disability since March 1992; and Senior Vice President of CIGNA from March 1989 until March 1992, with responsibility for Corporate Marketing and Strategy. DONALD M. LEVINSON, 50, Executive Vice President of CIGNA since March 1988, with responsibility for Human Resources and Services. FRANCINE M. NEWMAN, 51, President of CIGNA Reinsurance: Life, Accident, Health since July 1984. BYRON D. OLIVER, 53, President of CIGNA Retirement & Investment Services since February 1988. ARTHUR C. REEDS, III, 51, 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. B. KINGSLEY SCHUBERT, 50, President of CIGNA International beginning February 1996; Senior Vice President of CIGNA International (Asia-Pacific) from March 1995 until February 1996; President of CIGNA Insurance Company in Japan from June 1992 until February 1996; Senior Vice President of American International Underwriters Corporation from September 1991 until April 1992; and Chief Operating Officer of AIU Insurance Company, American Home Assurance Company and ALICO from March 1986 until September 1991. American International Underwriters Corporation, AIU Insurance Company, American Home Assurance Company and ALICO are subsidiaries of American International Group, Inc., a major provider of insurance products. JAMES G. STEWART, 53, Executive Vice President and Chief Financial Officer of CIGNA since 1983. WILSON H. TAYLOR, 52, Chairman of CIGNA since November 1989; and Chief Executive Officer of CIGNA since November 1988 and President of CIGNA since May 1988. THOMAS J. WAGNER, 56, 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. 33 36 PART II Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information under the caption "Quarterly Financial Data--Stock and Dividend Data" on page 47 and under the caption "Stock Listing" on the inside back cover of CIGNA's 1995 Annual Report is incorporated by reference, as is the information from Note 8 to CIGNA's Consolidated Financial Statements and the number of shareholders of record as of December 31, 1995 under the caption "Highlights" on page one of CIGNA's 1995 Annual Report. Item 6. SELECTED FINANCIAL DATA The five-year financial information under the caption "Highlights" on page one of CIGNA's 1995 Annual Report is incorporated by reference. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information on pages eight through 23 of CIGNA's 1995 Annual Report is incorporated by reference. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA CIGNA's Consolidated Financial Statements on pages 24 through 45 and the report of its independent accountants on page 46 of CIGNA's 1995 Annual Report are incorporated by reference, as is the unaudited information set forth under the caption "Quarterly Financial Data--Consolidated Results" on page 47. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT A. Directors of the Registrant The information under the captions "Nominees for Election" and "Incumbent Directors to Continue in Office" on pages five and six of CIGNA's proxy statement dated March 19, 1996 are incorporated by reference. B. Executive Officers of the Registrant See PART I above. 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 19 of CIGNA's proxy statement dated March 19, 1996 is incorporated by reference. Item 11. EXECUTIVE COMPENSATION The information under the captions "Executive Compensation" on pages 11 through 15 and "Compensation of Directors" on pages eight and nine of CIGNA's proxy statement dated March 19, 1996 is incorporated by reference. 34 37 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 two and three and "Ownership of CIGNA Corporation Common Stock by Certain Beneficial Owners" on page four of CIGNA's proxy statement dated March 19, 1996, 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 nine of CIGNA's proxy statement dated March 19, 1996 is incorporated by reference. PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K A. (1) The following financial statements have been incorporated by reference from the pages indicated below of CIGNA's 1995 Annual Report: Consolidated Statements of Income and Retained Earnings for the years ended December 31, 1995, 1994 and 1993--page 24. Consolidated Balance Sheets as of December 31, 1995 and 1994--page 25. Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993--page 26. Notes to Financial Statements--pages 27 through 45. Report of Independent Accountants, Price Waterhouse LLP--page 46. (2) The financial statement schedules are listed in the Index to Financial Statement Schedules on page FS-1. (3) The exhibits are listed in the Index to Exhibits beginning on page E-1. B. During the last quarter of the fiscal year ended December 31, 1995, the registrant filed (1) a Report on Form 8-K dated October 2, 1995, regarding an increase in net reserves for asbestos-related and environmental pollution claims and other exposures and the restructuring of the domestic property and casualty companies, and (2) a Report on Form 8-K dated October 31, 1995 containing a copy of a news release reporting its third quarter 1995 results. 35 38 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 28, 1996 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 28, 1996. PRINCIPAL EXECUTIVE OFFICER: DIRECTORS:* Robert P. Bauman Robert H. Campbell Wilson H. Taylor* Alfred C. DeCrane, Jr. Chairman, Chief Executive Officer James F. English, Jr. and a Director Bernard M. Fox Frank S. Jones Gerald D. Laubach Marilyn W. Lewis Paul F. Oreffice Charles R. Shoemate Louis W. Sullivan, M.D. PRINCIPAL ACCOUNTING OFFICER: Carol Cox Wait 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
36 39 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, 1995.......................... FS-3 II Condensed Financial Information of CIGNA Corporation (Registrant)............................................. FS-4 III Supplementary Insurance Information........................ FS-8 IV Reinsurance................................................ FS-10 V Valuation and Qualifying Accounts and Reserves............. FS-11 VI Supplemental Information Concerning Property-Casualty Insurance Operations..................................... FS-12
Schedules other than those listed above are omitted because they are not required or are not applicable, or the required information is shown in the financial statements or notes thereto, which are incorporated by reference from CIGNA's 1995 Annual Report. FS-1 40 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 13, 1996 appearing on page 46 of the 1995 Annual Report to Shareholders of CIGNA Corporation (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedules listed in the index on page FS-1 of this Form 10-K. In our opinion, these Financial Statement Schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. /S/ PRICE WATERHOUSE LLP Philadelphia, Pennsylvania February 13, 1996 FS-2 41 CIGNA CORPORATION AND SUBSIDIARIES SCHEDULE I SUMMARY OF INVESTMENTS-- OTHER THAN INVESTMENTS IN RELATED PARTIES DECEMBER 31, 1995 (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....................................... $ 1,307 $ 1,650 $ 1,650 States, municipalities and political subdivisions... 1,594 1,816 1,816 Foreign governments................................. 2,354 2,508 2,508 Public utilities.................................... 2,829 3,097 3,097 Convertibles and bonds with warrants attached....... 39 41 41 All other corporate bonds........................... 17,310 18,855 18,855 Asset-backed securities................................ 7,813 8,254 8,254 Redeemable preferred stocks............................ 29 20 20 ------- ------- --------------- Total fixed maturities............................ 33,275 36,241 36,241 ------- ------- --------------- Equity securities Common stocks: Industrial, miscellaneous and all other............. 445 521 521 Banks, trust and insurance companies................ 64 74 74 Public utilities.................................... 34 36 36 Non-redeemable preferred stocks........................ 22 30 30 ------- ------- --------------- Total equity securities........................... 565 661 661 Mortgage loans on real estate............................ 11,010 11,010 Policy loans............................................. 7,107 7,107 Real estate investments (including $685 million of real estate acquired in satisfaction of debt)............... 1,283 1,283 Other long-term investments.............................. 295 295 Short-term investments................................... 1,113 1,113 ------- --------------- Total investments................................. $54,648 $57,710 ======= ==============
FS-3 42 CIGNA CORPORATION AND SUBSIDIARIES SCHEDULE II CONDENSED FINANCIAL INFORMATION OF CIGNA CORPORATION (REGISTRANT) STATEMENTS OF INCOME (IN MILLIONS)
FOR THE YEAR ENDED DECEMBER 31, ----------------------------- 1995 1994 1993 ----- ----- ----- Intercompany income...................................... $ 2 $ 2 $ 3 ----- ----- ----- Total revenues......................................... 2 2 3 ----- ----- ----- Operating expenses: Interest............................................... 109 111 105 Intercompany interest.................................. 29 18 14 Other.................................................. 5 3 1 ----- ----- ----- Total operating expenses............................ 143 132 120 ----- ----- ----- Loss before income taxes................................. (141) (130) (117) Income tax benefit....................................... (34) (34) (33) ----- ----- ----- Loss of parent company................................... (107) (96) (84) Equity in income of subsidiaries......................... 318 650 318 ----- ----- ----- Net income............................................... $ 211 $ 554 $ 234 ====== ====== ======
See Notes to Condensed Financial Statements on FS-7. FS-4 43 CIGNA CORPORATION AND SUBSIDIARIES SCHEDULE II CONDENSED FINANCIAL INFORMATION OF CIGNA CORPORATION (REGISTRANT) BALANCE SHEETS (IN MILLIONS)
AS OF DECEMBER 31, ------------------- 1995 1994 ------ ------ Assets: Cash and cash equivalents........................................... $ 4 $ 1 Investments in subsidiaries......................................... 9,069 8,187 Other assets........................................................ 184 202 Goodwill............................................................ 70 82 ------ ------ Total............................................................ $9,327 $8,472 ====== ====== Liabilities: Intercompany........................................................ $ 179 $ 650 Short-term debt..................................................... 410 267 Long-term debt...................................................... 892 1,211 Other liabilities................................................... 689 533 ------ ------ Total liabilities................................................ 2,170 2,661 ------ ------ Shareholders' Equity: Common stock (shares issued, 87 and 83)............................. 87 83 Additional paid-in capital.......................................... 2,536 2,248 Net unrealized appreciation (depreciation) -- fixed maturities...... 1,025 (122) Net unrealized appreciation -- equity securities.................... 73 141 Net translation of foreign currencies............................... (27) (27) Retained earnings................................................... 4,041 4,052 Less treasury stock, at cost........................................ (578) (564) ------ ------ Total shareholders' equity....................................... 7,157 5,811 ------ ------ Total............................................................ $9,327 $8,472 ====== ======
See Notes to Condensed Financial Statements on FS-7. FS-5 44 CIGNA CORPORATION AND SUBSIDIARIES SCHEDULE II CONDENSED FINANCIAL INFORMATION OF CIGNA CORPORATION (REGISTRANT) STATEMENTS OF CASH FLOWS (IN MILLIONS)
FOR THE YEAR ENDED DECEMBER 31, ----------------------- 1995 1994 1993 ----- ----- ----- Cash Flows from Operating Activities: Net Income......................................................... $ 211 $ 554 $ 234 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Equity in income of subsidiaries.............................. (318) (650) (318) Dividends received from subsidiaries.......................... 545 523 308 Other liabilities............................................. 159 (162) 210 Other, net.................................................... 27 (87) (28) ----- ----- ----- Net cash provided by operating activities................... 624 178 406 ----- ----- ----- Cash Flows from Investing Activities: Capital contributions to subsidiaries.............................. (16) (158) (480) Other, net......................................................... (6) -- 1 ----- ----- ----- Net cash used in investing activities....................... (22) (158) (479) ----- ----- ----- Cash Flows from Financing Activities: Change in intercompany debt........................................ (471) 164 37 Net change in commercial paper..................................... (13) (38) (48) Issuance of long-term debt......................................... 86 112 327 Repayment of debt.................................................. -- (44) (36) Issuance of common stock........................................... 21 5 6 Dividends paid..................................................... (222) (219) (219) ----- ----- ----- Net cash provided by (used in) financing activities......... (599) (20) 67 ----- ----- ----- Net (decrease) increase in cash and cash equivalents............... 3 -- (6) Cash and cash equivalents, beginning of year....................... 1 1 7 ----- ----- ----- Cash and cash equivalents, end of year............................. $ 4 $ 1 $ 1 ====== ====== ======
See Notes to Condensed Financial Statements on FS-7. FS-6 45 CIGNA CORPORATION AND SUBSIDIARIES SCHEDULE II CONDENSED FINANCIAL INFORMATION OF CIGNA CORPORATION (REGISTRANT) NOTES TO CONDENSED FINANCIAL STATEMENTS The accompanying condensed financial statements should be read in conjunction with the Consolidated Financial Statements and the accompanying notes thereto in the Annual Report. Note 1-- In 1993, CIGNA implemented Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities." SFAS No. 115 required that debt and equity securities be classified into different categories and carried at fair value if they are not classified as held-to-maturity. During the fourth quarter of 1995, the Financial Accounting Standards Board issued a guide to implementation of SFAS No. 115, which permits a one-time opportunity to reclassify securities subject to SFAS No. 115. Consequently, CIGNA reclassified all held-to-maturity securities of its subsidiaries to available-for-sale as of December 31, 1995. The non-cash reclassification of these securities resulted in an increase of approximately $300 million, net of policyholder-related amounts and deferred income taxes, in net unrealized appreciation included in Shareholders' Equity as of December 31, 1995. Note 2-- Long-term debt, net of current maturities, consists of CIGNA's 8.16% Notes due 2000; 8 3/4% Notes due 2001; 7.17% Notes due 2002; 7.4% Notes due 2003; 6 3/8% Notes due 2006; 8 1/4% Notes due 2007; 7.65% Notes due 2023; 8.3% Notes due 2023; and Medium-term Notes with interest rates ranging from 5 3/4% to 9 3/4%, and original maturity dates from approximately five to ten years. As of December 31, 1995 and 1994, the weighted average interest rate on Medium-term Notes was 8.5% and 8.6%, respectively. Maturities of long-term debt for each of the next five years are as follows: 1996--$157 million; 1997--$39 million; 1998--$82 million; 1999--$10 million; 2000--$53 million. During 1995, CIGNA's 8.2% Convertible Subordinated Debentures due in 2010 were converted through non-cash transactions into approximately 3.6 million shares of CIGNA common stock. In 1995, CIGNA issued $25 million of unsecured 8.16% Notes due in 2000; $25 million of unsecured 7.17% Notes due in 2002; and $36 million of Medium-term Notes. In 1994, CIGNA issued $100 million of unsecured 6 3/8% Notes due in 2006 and $12 million of Medium-term notes. As of December 31, 1995, CIGNA had approximately $800 million remaining under an effective shelf registration statement filed with the Securities and Exchange Commission that may be issued as debt, equity securities or both, depending upon market conditions and CIGNA's capital requirements. Interest paid on short and long-term debt amounted to $113 million, $109 million and $95 million, for 1995, 1994 and 1993, 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 $163 million, $477 million and $75 million during 1995, 1994 and 1993, respectively. FS-7 46 CIGNA CORPORATION AND SUBSIDIARIES SCHEDULE III SUPPLEMENTARY INSURANCE INFORMATION (IN MILLIONS)
DEFERRED FUTURE POLICY UNPAID POLICY BENEFITS AND CLAIMS ACQUISITION CONTRACTHOLDER AND CLAIM SEGMENT COSTS DEPOSIT FUNDS EXPENSES - -------------------------------------------------- ----------- -------------- --------- Year Ended December 31, 1995: Property and Casualty: Domestic..................................... $ 187 $ 172 $12,481 International................................ 204 2,027 2,566 Other, primarily Reinsurance................. -- -- 2,076 ----------- -------------- --------- Total Property and Casualty................ 391 2,199 17,123 Employee Life and Health Benefits............... 29 4,410 1,914 Employee Retirement and Savings Benefits........ 76 20,233 -- Individual Financial Services................... 613 12,565 266 All Other....................................... -- 2,655 -- ----------- -------------- --------- Total...................................... $ 1,109 $ 42,062 $19,303 =========== =============== ========== Year Ended December 31, 1994: Property and Casualty: Domestic..................................... $ 218 $ 179 $12,373 International................................ 185 1,654 2,401 Other, primarily Reinsurance................. 10 -- 2,134 ----------- -------------- --------- Total Property and Casualty................ 413 1,833 16,908 Employee Life and Health Benefits............... 28 3,909 2,125 Employee Retirement and Savings Benefits........ 71 19,493 -- Individual Financial Services................... 616 10,080 213 All Other....................................... -- 2,138 -- ----------- -------------- --------- Total...................................... $ 1,128 $ 37,453 $19,246 =========== =============== ========== Year Ended December 31, 1993: Property and Casualty: Domestic..................................... $ 269 $ 129 $13,107 International................................ 167 1,162 2,350 Other, primarily Reinsurance................. 10 -- 2,370 ----------- -------------- --------- Total Property and Casualty................ 446 1,291 17,827 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 $ 35,183 $20,224 =========== =============== ==========
- ------------ (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 47
BENEFITS, PREMIUMS NET LOSSES AND POLICY OTHER UNEARNED AND INVESTMENT SETTLEMENT ACQUISITION OPERATING PREMIUMS PREMIUMS FEES(1) INCOME(2) EXPENSES(1) EXPENSES EXPENSES WRITTEN -------- -------- ----------- ----------- ----------- --------- -------- $ 993 $ 1,813 $ 478 $ 2,679 $ 461 $ 525 $1,720 939 2,708 251 1,835 560 420 1,803 64 119 65 248 26 41 64 -------- -------- ----------- ----------- ----------- --------- -------- 1,996 4,640 794 4,762 1,047 986 3,587 150 8,135 574 6,105 9 2,193 -- -- 258 1,722 1,522 18 159 -- 30 881 968 1,268 107 314 -- -- -- 238 198 -- 16 -- -------- -------- ----------- ----------- ----------- --------- -------- $2,176 $13,914 $ 4,296 $13,855 $ 1,181 $ 3,668 $3,587 ========== ========== ============ =========== =========== ========= ========== $1,179 $ 2,314 $ 483 $ 2,441 $ 469 $ 484 $2,103 1,023 2,386 207 1,613 500 421 1,618 122 343 66 360 98 61 351 -------- -------- ----------- ----------- ----------- --------- -------- 2,324 5,043 756 4,414 1,067 966 4,072 218 7,844 515 5,766 11 2,044 -- -- 201 1,722 1,469 17 162 -- 33 824 741 1,065 70 292 -- -- -- 212 212 1 31 -- -------- -------- ----------- ----------- ----------- --------- -------- $2,575 $13,912 $ 3,946 $12,926 $ 1,166 $ 3,495 $4,072 ========== ========== ============ =========== =========== ========= ========== $1,403 $ 2,622 $ 496 $ 3,110 $ 531 $ 632 $2,482 965 2,071 186 1,446 465 448 1,444 112 443 71 477 117 64 412 -------- -------- ----------- ----------- ----------- --------- -------- 2,480 5,136 753 5,033 1,113 1,144 4,338 188 7,438 503 5,543 13 1,985 -- -- 296 1,846 1,721 14 153 -- 35 814 583 921 68 294 -- 8 28 217 201 2 32 28 -------- -------- ----------- ----------- ----------- --------- -------- $2,711 $13,712 $ 3,902 $13,419 $ 1,210 $ 3,608 $4,366 ========== ========== ============ =========== =========== ========= ==========
FS-9 48 CIGNA CORPORATION AND SUBSIDIARIES SCHEDULE IV REINSURANCE (DOLLAR AMOUNTS IN MILLIONS)
PERCENTAGE CEDED TO ASSUMED OF AMOUNT GROSS OTHER FROM OTHER NET ASSUMED AMOUNT COMPANIES COMPANIES AMOUNT TO NET -------- --------- ---------- -------- ---------- Year Ended December 31, 1995: Life insurance in force............... $506,313 $44,683 $158,414 $620,044 25.5% ======== ======== ========= ======== ========= Premiums and fees: Life insurance and annuities....... $ 2,978 $ 171 $ 591 $ 3,398 17.4% Accident and health insurance...... 7,030 336 719 7,413 9.7 Property and casualty insurance.... 4,115 1,745 733 3,103 23.6 -------- --------- ---------- -------- Total......................... $ 14,123 $ 2,252 $ 2,043 $ 13,914 14.7% ======== ======== ========= ======== ========= Year Ended December 31, 1994: Life insurance in force............... $496,373 $33,891 $152,334 $614,816 24.8% ======== ======== ========= ======== ========= Premiums and fees: Life insurance and annuities....... $ 3,107 $ 341 $ 526 $ 3,292 16.0% Accident and health insurance...... 6,566 310 646 6,902 9.3 Property and casualty insurance.... 4,591 1,894 1,021 3,718 27.5 -------- --------- ---------- -------- Total......................... $ 14,264 $ 2,545 $ 2,193 $ 13,912 15.8% ======== ======== ========= ======== ========= 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% ======== ======== ========= ======== =========
FS-10 49 CIGNA CORPORATION SCHEDULE V VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (IN MILLIONS)
CHARGED CHARGED (CREDITED) (CREDITED) BALANCE AT TO TO OTHER OTHER BALANCE BEGINNING COSTS AND ACCOUNTS DEDUCTIONS AT END DESCRIPTION OF PERIOD EXPENSES --DESCRIBE(1) --DESCRIBE(2) OF PERIOD - -------------------------------------- ---------- --------- ------------- ------------- --------- 1995: INVESTMENT ASSET VALUATION RESERVES: Mortgage loans...................... $179 $ 3 $10 $(104) $ 88 Real estate......................... 104 5 10 (10) 109 ALLOWANCE FOR DOUBTFUL ACCOUNTS: Premiums, accounts and notes receivable........................ 139 36 -- (46) 129 Reinsurance recoverables............ 435 273 -- (8) 700 DEFERRED TAX ASSET VALUATION ALLOWANCE........................... 47 1 -- -- 48 1994: INVESTMENT ASSET VALUATION RESERVES: Fixed maturities.................... $ 11 $ -- $-- $ (11) $ -- Mortgage loans...................... 216 8 24 (69) 179 Real estate......................... 98 6 6 (6) 104 ALLOWANCE FOR DOUBTFUL ACCOUNTS: Premiums, accounts and notes receivable........................ 120 62 -- (43) 139 Reinsurance recoverables............ 405 42 -- (12) 435 DEFERRED TAX ASSET VALUATION ALLOWANCE........................... 53 (6) -- -- 47 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
- --------------- (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. FS-11 50 CIGNA CORPORATION AND SUBSIDIARIES SCHEDULE VI SUPPLEMENTAL INFORMATION CONCERNING PROPERTY-CASUALTY INSURANCE OPERATIONS (IN MILLIONS) [CAPTION]
- ------------------------------------------------------------------------------------------------------------ COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E - ------------------------------------------------------------------------------------------------------------ RESERVES FOR DEFERRED UNPAID CLAIMS DISCOUNT, AFFILIATION POLICY AND CLAIM IF ANY, WITH ACQUISITION ADJUSTMENT DEDUCTED IN UNEARNED REGISTRANT COSTS EXPENSES COLUMN C(1) PREMIUMS - ------------------------------------------------------------------------------------------------------------ Year Ended December 31, 1995: Consolidated property-casualty entities............................. $ 386 $17,023 $19 $1,632 Year Ended December 31, 1994: Consolidated property-casualty entities............................. $ 406 $16,825 $20 $1,869 Year Ended December 31, 1993: Consolidated property-casualty entities............................. $ 437 $17,764 $22 $1,994
- --------------- (1) Discounts were computed using an annual interest rate of 9%. (2) Amounts presented are shown net of the effects of reinsurance. FS-12 51 [CAPTION]
- ------------------------------------------------------------------------------------------------- COLUMN F COLUMN G COLUMN H COLUMN I COLUMN J COLUMN K - ------------------------------------------------------------------------------------------------- CLAIMS AND CLAIM AMORTIZATION ADJUSTMENT EXPENSES OF DEFERRED PAID CLAIMS NET INCURRED RELATED TO: POLICY AND CLAIM EARNED INVESTMENT CURRENT PRIOR ACQUI- ADJUSTMENT PREMIUMS PREMIUMS(2) INCOME YEAR(2) YEAR(2) SITION COSTS EXPENSES(2) WRITTEN - ------------------------------------------------------------------------------------------------- $ 3,729 $674 $2,386 $1,498 $ 950 $ 3,360 $3,587 $ 4,247 $657 $3,093 $ 538 $1,054 $ 3,656 $4,072 $ 4,464 $674 $3,526 $ 789 $1,115 $ 4,217 $4,338
FS-13 52 CIGNA CORPORATION One Liberty Place Philadelphia, PA 19192-1550 53 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------- CIGNA CORPORATION ------------------------- EXHIBITS TO THE ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 ------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 54 INDEX TO EXHIBITS
NUMBER DESCRIPTION METHOD OF FILING - ------ --------------------------------------- --------------------------------------- 3.1 Restated Certificate of Incorporation Filed as Exhibit 3.1 to the of the registrant as last amended registrant's Form 10-K for the year October 2, 1990 ended December 31, 1993 and incorporated herein by reference. 3.2 By-Laws of the registrant as last Filed herewith. amended and restated January 24, 1996 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 10.27 are filed as exhibits pursuant to Item 14(c) of Form 10-K. 10.1 Deferred Compensation Plan for Filed herewith. Directors of CIGNA Corporation, as amended and restated as of January 1, 1996 10.2 Retirement and Consulting Plan for Filed as Exhibit 10.12 to the Directors of CIGNA Corporation, as registrant's Form 10-K for the year amended and restated as of May 29, 1991 ended December 31, 1993 and incorporated herein by reference. 10.3 Restricted Stock Plan for Non-Employee Filed as Exhibit 10.15 to the Directors of CIGNA Corporation registrant's Form 10-K for the year effective as of September 30, 1989 ended December 31, 1993 and incorporated herein by reference. 10.4 Description of First Amendment to the Filed as Exhibit 10.16 to the Restricted Stock Plan for Non-Employee registrant's Form 10-K for the year Directors of CIGNA Corporation ended December 31, 1993 and incorporated herein by reference. 10.5 Description of Stock Compensation Plan Filed as Exhibit 10.3 to the for Non-Employee Directors of CIGNA registrant's Form 10-K for the quarter Corporation, as amended and restated ended September 30, 1995 and effective July 1, 1995 incorporated herein by reference.
E-1 55 INDEX TO EXHIBITS
NUMBER DESCRIPTION METHOD OF FILING - ------ --------------------------------------- --------------------------------------- 10.6 CIGNA Corporation Stock Plan effective Filed as Exhibit 10.1 to the as of May 1, 1991 registrant's Form 10-K for the year ended December 31, 1993 and incorporated herein by reference. 10.7 Amendment No. 1 dated as of July 28, Filed as Exhibit 10.2 to the 1993 to the CIGNA Corporation Stock registrant's Form 10-K for the year Plan ended December 31, 1993 and incorporated herein by reference. 10.8 Amendment No. 2 dated as of February Filed as Exhibit 10.3 to the 24, 1994 to the CIGNA Corporation Stock registrant's Form 10-K for the year Plan ended December 31, 1993 and incorporated herein by reference. 10.9 CIGNA Corporation Executive Stock Filed as Exhibit 10.4 to the Incentive Plan, as Amended and Restated registrant's Form 10-K for the year as of March 23, 1988 ended December 31, 1993 and incorporated herein by reference. 10.10 Amendment No. 1 dated as of September Filed as Exhibit 10.5 to the 28, 1988 to the CIGNA Corporation registrant's Form 10-K for the year Executive Stock Incentive Plan ended December 31, 1993 and incorporated herein by reference. 10.11 Amendment No. 2 dated as of March 27, Filed as Exhibit 10.6 to the 1991 to the CIGNA Corporation Executive registrant's Form 10-K for the year Stock Incentive Plan ended December 31, 1993 and incorporated herein by reference. 10.12 CIGNA Long-Term Incentive Plan Filed as Appendix A to the registrant's definitive proxy statement on Schedule 14A dated March 20, 1995 and incorporated herein by reference. 10.13 CIGNA Corporation Strategic Performance Filed as Exhibit 10.8 to the Plan, as amended and restated March 25, registrant's Form 10-K for the year 1992 ended December 31, 1993 and incorporated herein by reference. 10.14 Description of January 25, 1995 Filed as Exhibit 10.1 to the Amendment to the CIGNA Corporation registrant's Form 10-Q for the quarter Strategic Performance Plan ended March 31, 1995 and incorporated herein by reference. 10.15 Deferred Compensation Plan of CIGNA Filed herewith. Corporation and Participating Subsidiaries, as amended and restated as of January 1, 1996 10.16 CIGNA Supplemental Pension Plan, as Filed as Exhibit 10.1 to the amended and restated as of July 28, registrant's Form 10-Q for the quarter 1993 ended June 30, 1994 and incorporated herein by reference.
E-2 56 INDEX TO EXHIBITS
NUMBER DESCRIPTION METHOD OF FILING - ------ --------------------------------------- ---------------------------------------
10.17 Description of July 26, 1995 Amendment Filed as Exhibit 10.1 to the to CIGNA Supplemental Pension Plan registrant's Form 10-Q for the quarter ended September 30, 1995 and incorporated herein by reference. 10.18 CIGNA Corporation Severance Benefits Filed as Exhibit 10.2 to the Plan for Members of the Executive registrant's Form 10-Q for the quarter Group, as amended and restated as of ended June 30, 1994 and incorporated July 27, 1994 herein by reference. 10.19 Description of January 25, 1995 Filed as Exhibit 10.2 to the Amendment to the CIGNA Corporation registrant's Form 10-Q for the quarter Severance Benefits Plan for Members of ended March 31, 1995 and incorporated the Executive Group herein by reference. 10.20 Description of July 26, 1995 Amendment Filed as Exhibit 10.2 to the to the CIGNA Corporation Severance registrant's Form 10-Q for the quarter Benefits Plan for Members of the ended September 30, 1995 and Executive Group incorporated herein by reference. 10.21 Description of CIGNA Corporation Filed as Exhibit 10.9 to the Financial Services Program registrant's Form 10-K for the year ended December 31, 1993 and incorporated herein by reference. 10.22 Description of the CIGNA Corporation Filed as Exhibit 10.7 to the Key Management Annual Incentive Bonus registrant's Form 10-K for the year Plan ended December 31, 1993 and incorporated herein by reference. 10.23 Agreement dated February 9, 1993 Filed as Exhibit 10.14 to the between Mr. Isom and the registrant registrant's Form 10-K for the year ended December 31, 1993 and incorporated herein by reference. 10.24 Agreement dated May 24, 1995, between Exhibit omitted and filed separately Mr. Isom and the registrant with the Securities and Exchange Commission. Confidential treatment requested. 10.25 Form of Special Retention Agreement Filed as Exhibit 10.3 to the with Messrs. Taylor and Stewart registrant's Form 10-Q for the quarter ended March 31, 1995 and incorporated herein by reference. 10.26 Special Retention Agreement with Mr. Filed herewith. Levinson 10.27 Form of Special Deferral Agreement with Filed as Exhibit 10.4 to the certain executive officers registrant's Form 10-Q for the quarter ended March 31, 1995 and incorporated herein by reference. 11 Computation of Primary and Fully Filed herewith. Diluted Earnings Per Share
E-3 57 INDEX TO EXHIBITS
NUMBER DESCRIPTION METHOD OF FILING - ------ --------------------------------------- ---------------------------------------
12 Computation of Ratios of Earnings to Filed herewith. Fixed Charges 13 Portions of registrant's 1995 Annual Filed herewith. Report to Shareholders (Entire Annual Report bound in printed versions of Form 10-K.) 21 Subsidiaries of the Registrant Filed herewith. 23 Consent of Independent Accountants Filed herewith. 24.1 Powers of Attorney Filed herewith. 24.2 Certified Resolutions Filed herewith. 27 Financial Data Schedule (Included only Filed herewith. in the electronic format of Form 10-K.) 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 1995 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. E-4 EX-3.2 2 BY-LAWS AS AMENDED AND RESTATED JANUARY 24, 1996 1 EXHIBIT 3.2 BY-LAWS CIGNA CORPORATION A Delaware Corporation Incorporated November 3, 1981 As Amended and Restated January 24, 1996 2 INDEX TO BY-LAWS
ARTICLE I OFFICES Page ---- Section 1. Registered Office 1 Section 2. Other Offices 1 ARTICLE II MEETINGS OF SHAREHOLDERS Section 1. Place of Meetings 1 Section 2. Annual Meeting 1 Section 3. Special Meetings 2 Section 4. Notice of Meetings 2 Section 5. List of Shareholders 3 Section 6. Quorum, Adjournments 4 Section 7. Organization 4 Section 8. Order of and Rules for Conducting Business 5 Section 9. Voting 5 Section 10. Inspectors of Election 7 Section 11. Nomination of Directors 9 Section 12. Notice of Shareholder Business 10 ARTICLE III BOARD OF DIRECTORS Section 1. General Powers 12 Section 2. Number, Qualifications, Election and Term of Office 13 Section 3. Place of Meetings 14 Section 4. Annual Meeting 14 Section 5. Regular Meetings 14 Section 6. Special Meetings 15 Section 7. Notice of Meetings 15 Section 8. Quorum and Manner of Acting 16 Section 9. Organization 16 Section 10. Resignations 17 Section 11. Vacancies 17 Section 12. Removal of Directors 17 Section 13. Compensation 18 Section 14. Committees 18 Section 15. Action by Consent 20 Section 16. Telephonic Meeting 21
-i- 3
ARTICLE IV OFFICERS Page ---- Section 1. Number and Qualifications 21 Section 2. Resignations 22 Section 3. Removal 22 Section 4. Chairman of the Board 22 Section 5. President 23 Section 6. Vice Presidents 23 Section 7. Treasurer 23 Section 8. Corporate Secretary 24 Section 9. Assistant Treasurer 25 Section 10. Assistant Corporate Secretary 26 Section 11. Designation 26 Section 12. Agents and Employees 26 Section 13. Officers' Bonds or Other Security 27 Section 14. Compensation 27 Section 15. Terms 27 ARTICLE V STOCK CERTIFICATES AND THEIR TRANSFER Section 1. Stock Certificates 27 Section 2. Facsimile Signatures 28 Section 3. Lost Certificates 29 Section 4. Transfers of Stock 29 Section 5. Transfer Agents and Registrars 30 Section 6. Regulations 30 Section 7. Fixing the Record Date 30 Section 8. Registered Shareholders 31 ARTICLE VI INDEMNIFICATION Section 1. General 31 Section 2. Derivative Actions 32 Section 3. Indemnification in Certain Cases 33 Section 4. Procedure 33 Section 5. Advances for Expenses 34 Section 6. Exclusion of Mandatory Indemnification and Advances in Certain Cases 34 Section 7. Rights Not Exclusive 35 Section 8. Insurance 35 Section 9. Definition of Corporation 36 Section 10. Definition of Other Terms 36 Section 11. Right of Indemnitee to Bring Suit in Certain Circumstances 37
-ii- 4
ARTICLE VII GENERAL PROVISIONS Page ---- Section 1. Dividends 40 Section 2. Reserves 40 Section 3. Seal 41 Section 4. Fiscal Year 41 Section 5. Contributions 41 Section 6. Borrowing, etc. 41 Section 7. Deposits 41 Section 8. Execution of Contracts, Deeds, etc. 42 Section 9. Voting of Stock in Other Corporations 42 Section 10. Form of Records 42 Section 11. Repurchase of Stock 43 ARTICLE VIII AMENDMENTS 43 ARTICLE IX DEFINITIONS 44
-iii- 5 BY-LAWS OF CIGNA CORPORATION (A Delaware Corporation) ARTICLE I Offices SECTION 1. Registered Office. The registered office of the Corporation within the State of Delaware shall be in the City of Wilmington, County of New Castle. SECTION 2. Other Offices. The Corporation may also have offices at such other places, both within and without the State of Delaware, as the Board of Directors shall from time to time determine or the business of the Corporation may require. ARTICLE II Meetings of Shareholders SECTION 1. Place of Meetings. All meetings of the shareholders for the election of directors or for any other purpose shall be held at any such place, either within or without the State of Delaware, as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting. SECTION 2. Annual Meeting. The annual meeting of shareholders, commencing with the year 1984, shall be held at 9:30 A.M. on the fourth Wednesday in April of each year, if not a legal holiday, and if a legal holiday, then on the next succeeding day -1- 6 not a legal holiday, at 9:30 A.M., or on such other date and time as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting. At such annual meeting, the shareholders shall elect, by a plurality vote, a Board of Directors and transact such other business as may properly be brought before the meeting. SECTION 3. Special Meetings. Special meetings of shareholders, unless otherwise prescribed by statute, may be called at any time by the Board of Directors or the Chairman of the Board. SECTION 4. Notice of Meetings. Except as otherwise expressly required by statute, written notice of each annual and special meeting of shareholders stating the place, date and time of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be given to each shareholder of record entitled to vote thereat not less than ten nor more than sixty days before the date of the meeting. Business transacted at any special meeting of shareholders shall be limited to the purposes stated in the notice. Notice shall be given personally or by mail and, if by mail, shall be sent in a postage prepaid envelope, addressed to the shareholder at his address as it appears on the records of the Corporation. Such notice by mail shall be deemed given at the time when the same shall be deposited in the United States mail, postage prepaid. Notice of any meeting shall not be required to be given to any person who attends such -2- 7 meeting, except when such person attends the meeting in person or by proxy for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened, or who, either before or after the meeting, shall submit a signed written waiver of notice, in person or by proxy. Neither the business to be transacted at, nor the purpose of, an annual or special meeting of shareholders need be specified in any written waiver of notice. SECTION 5. List of Shareholders. The Corporate Secretary of the Corporation, or such other person who has charge of the stock ledger of the Corporation shall prepare and make, at least ten days before each meeting of shareholders, a complete list of the shareholders entitled to vote at the meeting, arranged in alphabetical order, showing the address of and the number of shares registered in the name of each shareholder. Such list shall be open to the examination of any shareholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city, town or village where the meeting is to be held, which place shall be specified in the notice of meeting, or, if not specified, at the place where the meeting is to be held. The list shall be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any shareholder who is present. -3- 8 SECTION 6. Quorum, Adjournments. The holders of at least two-fifths of the issued and outstanding stock of the Corporation entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum for the transaction of business at all meetings of shareholders, except as otherwise provided by statute or by the Certificate of Incorporation. If, however, such quorum shall not be present or represented by proxy at any meeting of shareholders, the shareholders entitled to vote thereat, present in person or represented by proxy, shall have the power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented by proxy. At such adjourned meeting at which a quorum shall be present or represented by proxy, any business may be transacted which might have been transacted at the meeting as originally called. If the adjournment is for more than thirty days, or, if after adjournment a new record date is set, a notice of the adjourned meeting shall be given to each shareholder of record entitled to vote at the meeting. SECTION 7. Organization. At each meeting of shareholders, the Chairman of the Board, or, in his absence, a chairman designated by the Board of Directors, or in the absence of such designation a chairman chosen at the meeting, shall act as chairman of the meeting. The Corporate Secretary or, in his absence or inability to act, the person whom the chairman of the meeting shall appoint secretary of the meeting shall act as -4- 9 secretary of the meeting and keep the minutes thereof. SECTION 8. Order of and Rules for Conducting Business. The order of and the rules for conducting business at all meetings of the shareholders shall be as determined by the chairman of the meeting. SECTION 9. Voting. Except as otherwise provided by statute, the Certificate of Incorporation, or any resolution or resolutions adopted by the Board of Directors pursuant to the authority vested in it by the Certificate of Incorporation, each shareholder of the Corporation shall be entitled at each meeting of shareholders to one vote for each share of capital stock of the Corporation standing in his name on the record of shareholders of the Corporation: (a) on the date fixed pursuant to the provisions of Section 7 of Article V of these By-Laws as the record date for the determination of the shareholders who shall be entitled to notice of and to vote at such meeting; or (b) if no such record date shall have been fixed, then at the close of business on the day next preceding the day on which notice thereof shall be given, or, if notice is waived by all shareholders, at the close of business on the day next preceding the day on which the meeting is held. Each shareholder entitled to vote at any meeting of shareholders may vote in person or may authorize another person or -5- 10 persons to act for him by a proxy authorized by an instrument in writing or by a transmission permitted by law delivered to the Inspectors of Election, but no such proxy shall be voted after three years from its date, unless the proxy provides for a longer period. Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission created pursuant to this paragraph may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission. A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A shareholder may revoke any proxy which is not irrevocable by attending the meeting and voting in person or by delivering an instrument in writing or a transmission permitted by law revoking the proxy or constituting another valid proxy bearing a later date to the Inspectors. Any such proxy shall be delivered to the Inspectors, or such other person so designated to receive proxies, at or prior to the time designated in the order of business for so delivering such proxies. When a quorum is present at any meeting, the vote of the shareholders who are present in person or represented by proxy and who hold a majority of the voting power of the issued and outstanding stock of the -6- 11 Corporation represented at such meeting and entitled to vote thereon, shall decide any question brought before such meeting, unless the question is one upon which by express provision of statute or of the Certificate of Incorporation or of these By-Laws, a different vote is required, in which case such express provision shall govern and control the decision of such question. Unless required by statute, or determined by the chairman of the meeting to be advisable, the vote on any question need not be by ballot. On a vote by ballot, each ballot shall be signed by the shareholder voting, or by his proxy, if there be such proxy, and shall state the number of shares voted. SECTION 10. Inspectors of Election. The Board of Directors or the Chairman of the Board of the Corporation shall, in advance of any meeting of shareholders, appoint one or more Inspectors of Election to act at the meeting or at any adjournment and make a written report thereof, and may designate one or more persons as alternate Inspectors to replace any Inspectors who fail to act. If no Inspector or alternate is able to act at a meeting of shareholders, the chairman of the meeting shall appoint one or more Inspectors to act at the meeting. Each Inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of Inspector at such meeting with strict impartiality and according to his best ability. The Inspectors shall determine the number of shares outstanding and the voting power of each, the number of shares represented at the -7- 12 meeting and the validity of proxies and ballots, receive and count all votes and ballots, determine all challenges and questions arising in connection with the right to vote, retain for a reasonable period a record of the disposition of any challenges made to any determination by the Inspectors, and certify their determination of the number of shares represented at the meeting, and their count of all votes and ballots and report the same to the chairman of the meeting, and do such acts as are proper to conduct the election or vote with fairness to all shareholders. The Inspectors may appoint or retain other persons or entities to assist the Inspectors in the performance of the duties of the Inspectors. The date and time of the opening and the closing of the polls for each matter upon which the shareholders will vote at a meeting shall be announced at the meeting. No ballot, proxies or votes, nor any revocations thereof or changes thereto, shall be accepted by the Inspectors after the closing of the polls unless the Court of Chancery upon application by a shareholder shall determine otherwise. On request of the chairman of the meeting, the Inspectors shall make a report in writing of any challenge, request or matter determined by them and shall execute a certificate of any fact found by them. No director or candidate for the office of director shall act as an Inspector of an election of directors. Inspectors need not be shareholders. -8- 13 Section 11. Nomination of Directors. Nominations of persons for election to the Board of Directors of the Corporation may be made at a meeting of shareholders (a) by or at the direction of the Board of Directors or (b) by any shareholder of the Corporation who is a shareholder of record at the time of giving of notice provided for in this Section, who shall be entitled to vote for the election of directors at the meeting and who complies with the notice procedures set forth in this Section. Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Corporate Secretary of the Corporation. To be timely, a shareholder's notice shall be delivered to or mailed and received at the principal executive offices of the Corporation not less than 60 days nor more than 90 days prior to the meeting; provided, however, that in the event that less than 70 days' notice or prior public disclosure of the date of the meeting is given or made to shareholders, notice by the shareholder to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the meeting or such public disclosure was made. Such shareholder's notice shall set forth (a) as to each person whom the shareholder proposes to nominate for election or reelection as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of -9- 14 1934, as amended (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); and (b) as to the shareholder giving notice (i) the name and address, as they appear on the Corporation's stock ledger, of such shareholder and (ii) the class and number of shares of the Corporation which are beneficially owned by such shareholder. At the request of the Board of Directors, any person nominated by the Board of Directors for election as a director shall furnish to the Corporate Secretary of the Corporation that information required to be set forth in a shareholder's notice of nomination which pertains to the nominee. No person shall be eligible for election at any meeting of shareholders as a director of the Corporation unless nominated in accordance with the procedures set forth in this Section. The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by the By-Laws, and if he should so determine, he shall so declare to the meeting and the defective nominations shall be disregarded. Notwithstanding the foregoing provisions of this Section, a shareholder shall also comply with all applicable requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder with respect to the matters set forth in this Section 11. SECTION 12. Notice of Shareholder Business. At the annual meeting of shareholders, only such business shall be conducted as -10- 15 shall have been properly brought before the meeting. To be properly brought before an annual meeting business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (c) otherwise properly brought before the meeting by a shareholder of the Corporation who is a shareholder of record at the time of giving of notice provided for in this Section and who shall be entitled to vote at the meeting. For business to be properly brought before an annual meeting by a shareholder, the shareholder must have given timely notice thereof in writing to the Corporate Secretary of the Corporation. To be timely, a shareholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation, not less than 60 days nor more than 90 days prior to the meeting; provided, however, that in the event that less than 70 days' notice or prior public disclosure of the date of the meeting is given or made to shareholders, notice by the shareholder to be timely must be so received not later than the close of business on the 10th day following the date on which such notice of the date of the annual meeting was mailed or such public disclosure was made. A shareholder's notice to the Corporate Secretary shall set forth as to each matter the shareholder proposes to bring before the annual meeting (a) a brief description of the business desired to be brought before the annual -11- 16 meeting, (b) as to the shareholder giving such notice (i) the name and address, as they appear on the Corporation's stock ledger, of such shareholder and (ii) the class and number of shares of the Corporation which are beneficially owned by such shareholder, and (c) any material interest of the shareholder in such business. Notwithstanding anything in the By-Laws to the contrary, no business shall be conducted at an annual meeting except in accordance with the procedures set forth in this Section 12. The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting and in accordance with the provisions of this Section 12, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. At any special meeting of shareholders, only such business shall be conducted as shall have been brought before the meeting by or at the direction of the Board of Directors. ARTICLE III Board of Directors SECTION 1. General Powers. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. The Board of Directors may exercise all such authority and powers of the Corporation and do all such lawful acts and things as are not by statute or the Certificate of Incorporation directed or required to be exercised or done by the -12- 17 shareholders. SECTION 2. Number, Qualifications, Election and Term of Office. The Board of Directors shall consist of not less than 12 nor more than 25 directors. The number of directors may be fixed, from time to time, by the affirmative vote of a majority of the entire Board of Directors. Any decrease in the number of directors shall be effective at the time of the next succeeding annual meeting of shareholders unless there shall be vacancies in the Board of Directors, in which case such decrease may become effective at any time prior to the next succeeding annual meeting to the extent of the number of such vacancies. Directors need not be shareholders. The directors (other than members of the initial Board of Directors) shall be divided into three classes which shall be divided as evenly as practicable with respect to the number of members of each class; the term of office of those of the first class to expire at the annual meeting commencing in April, 1983; of the second class one year thereafter; of the third class two years thereafter; and at each annual election held after such classification and election, directors shall be chosen by class for a term of three years, or for such shorter term as the shareholders may specify to complete the unexpired term of a predecessor, or to preserve the division of the directors into classes as provided herein. Each director shall hold office until his successor shall have been elected and qualified, or until his death, or until he shall have resigned, or have been removed, as hereinafter provided -13- 18 in these By-Laws. SECTION 3. Place of Meetings. Meetings of the Board of Directors shall be held at such place or places, within or without the State of Delaware, as the Board of Directors may from time to time determine or as shall be specified in the notice of any such meeting. SECTION 4. Annual Meeting. The Board of Directors shall meet for the purpose of organization, the election of officers and the transaction of other business, as soon as practicable after each annual meeting of shareholders. Notice of such meeting need not be given provided it is held on the same day and at the same place where such annual meeting shall be held. In the event such annual meeting is not so held, the annual meeting of the Board of Directors may be held at such other time or place (within or without the State of Delaware) as shall be specified in a notice thereof given as hereinafter provided in Section 7 of this Article III. SECTION 5. Regular Meetings. Regular meetings of the Board of Directors shall be held at such time and place as the Board of Directors may fix. If any day fixed for a regular meeting shall be a legal holiday at the place where the meeting is to be held, then the meeting which would otherwise be held on that day shall be held at the same hour on the next succeeding business day. Notice of -14- 19 regular meetings of the Board of Directors need not be given except as otherwise required by statute or these By-Laws. SECTION 6. Special Meetings. Special meetings of the Board of Directors may be called by the Chairman of the Board, or by one-third of the members of the Board of Directors of the Corporation. SECTION 7. Notice of Meetings. Notice of each special meeting of the Board of Directors (and of each regular meeting for which notice shall be required) shall be given by the Corporate Secretary as hereinafter provided in this Section 7. Any such notice shall state the place, date and time of the meeting. Except as otherwise required by these By-Laws, such notice need not state the purposes of such meeting. Notice of each such meeting shall be mailed, postage prepaid, to each director, addressed to him at his residence or usual place of business, by first-class mail, at least two days before the day on which such meeting is to be held, or shall be sent addressed to him at such place by telegraph, cable, telex, telecopier or other similar means, or be delivered to him personally or be given to him by telephone or other similar means, at least twelve hours before the time at which such meeting is to be held. Notice of any such meeting need not be given to any director who shall, either before or after the meeting, submit a signed waiver of notice or who shall attend such meeting, except when he shall attend for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business -15- 20 because the meeting is not lawfully called or convened. SECTION 8. Quorum and Manner of Acting. A majority of the entire Board of Directors shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, and, except as otherwise expressly required by statute or the Certificate of Incorporation or these By-Laws, the act of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board of Directors. In the absence of a quorum at any meeting of the Board of Directors, a majority of the directors present thereat may adjourn such meeting to another time and place. Notice of the time and place of any such adjourned meeting shall be given to all of the directors unless such time and place were announced at the meeting at which the adjournment was taken, in which case such notice shall only be given to the directors who were not present thereat. At any adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally called. The directors shall act only as a Board and the individual directors shall have no power as such. SECTION 9. Organization. At each meeting of the Board of Directors, the Chairman of the Board, or, in the absence of the Chairman of the Board, another director chosen by a majority of the directors present shall act as chairman of the meeting and preside thereat. The Corporate Secretary or, in his absence, any person appointed by the chairman of the meeting shall act as secretary of -16- 21 the meeting and keep the minutes thereof. SECTION 10. Resignations. Any director of the Corporation may resign at any time by giving written notice of his resignation to the Corporation. Any such resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon its receipt. Unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. SECTION 11. Vacancies. Any vacancy in the Board of Directors, whether arising from death, disqualification, resignation, removal for cause, an increase in the number of directors or any other cause, may be filled by the vote of a majority of the directors then in office, though less than a quorum, or by the sole remaining director. Each director so elected shall hold office until his successor shall have been elected and qualified. SECTION 12. Removal of Directors. Any director may be removed, only for cause, at any time, by the holders of a majority -17- 22 of the voting power of the issued and outstanding capital stock of the Corporation entitled to vote at an election of directors. SECTION 13. Compensation. The Board of Directors shall have authority to fix the compensation, including fees and reimbursement of expenses, of directors, including the Chairman of the Board, for services to the Corporation in any capacity. SECTION 14. Committees. (a) The Board shall create an Executive Committee, which shall consist of no less than two nor more than seven members of the Board and shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be fixed to all papers which may require it, including, without limitation, the power and authority to declare a dividend or to authorize the issuance of stock except the Executive Committee shall not have the power or authority to amend the Certificate of Incorporation (except that the Executive Committee, or such other committee created pursuant to Section 14 of this Article, may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the Board of Directors as provided in Section 151 (a) of the General Corporation Law of the State of Delaware, fix any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the Corporation or the conversion into, or exchange of such shares for, -18- 23 shares of any other class or classes or any other series of the same or any other class or classes of stock of the Corporation), adopt an agreement of merger or consolidation, recommend to the shareholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommend to the shareholders a dissolution, amend the By-Laws of the Corporation, or designate one or more additional Committees of the Board. (b) The Board shall create an Audit Committee and a People Resources Committee, each of which shall consist of three (3) or more members of the Board of Directors of the Corporation, none of whom shall be employees of the Corporation or its subsidiaries. (c) The Board may also, by resolution passed by a majority of the entire Board of Directors, create such other committees, with such authority and duties, as the Board may from time to time deem advisable. (d) The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In addition, in the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not the member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. -19- 24 Each such committee, to the extent provided in the resolution creating it, shall have and may exercise all the powers and authority of the Board of Directors and may authorize the seal of the Corporation to be affixed to all papers which require it but shall have no greater powers than those given the Executive Committee by these By-Laws and as restricted by statute or the Certificate of Incorporation. Each such committee shall serve at the pleasure of the Board of Directors and have such name as may be determined from time to time by resolution adopted by the Board of Directors. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors. SECTION 15. Action by Consent. Unless restricted by the Certificate of Incorporation, any action required or permitted to be taken by the Board of Directors or any committee thereof may be taken without a meeting if all members of the Board of Directors or such committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of the proceedings of the Board of Directors or such committee, as the case may be. -20- 25 SECTION 16. Telephonic Meeting. Unless restricted by the Certificate of Incorporation, any one or more members of the Board of Directors or any committee thereof may participate in a meeting of the Board of Directors or such committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Participation by such means shall constitute presence in person at a meeting. ARTICLE IV Officers SECTION 1. Number and Qualifications. The officers of the Corporation shall be elected by the Board of Directors and shall include the Chairman of the Board, the President, and one or more Vice Presidents. If the Board of Directors wishes, it may also elect other officers as may be necessary or desirable for the business of the Corporation; or the Board may authorize the Chairman of the Board to appoint one or more classes of officers with such titles (including the titles of Vice President, Corporate Secretary and Treasurer), powers, duties and compensation as may be approved by the appointing officer. Any two or more offices may be held by the same person, and no officer except the Chairman of the Board need be a director. Each officer shall hold office until his successor shall have been duly elected or appointed and shall have qualified, or until his death, or until he shall have resigned or have been removed, as hereinafter provided in these By-Laws. -21- 26 SECTION 2. Resignations. Any officer of the Corporation may resign at any time by giving written notice of such resignation to the Corporation. Any such resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon receipt. Unless otherwise specified therein, the acceptance of any such resignation shall not be necessary to make it effective. SECTION 3. Removal. Any officer of the Corporation may be removed, either with or without cause, at any time, by the Board of Directors at any meeting thereof. Any appointed officer of the Corporation may also be removed, either with or without cause, at any time, by the Chairman of the Board. SECTION 4. Chairman of the Board. The Chairman of the Board shall be a member of the Board of Directors, and shall preside at all meetings of the shareholders, of the Board of Directors, and of the Executive Committee at which he shall be present. He shall be the Chief Executive Officer of the Corporation and shall have general supervision over the business and operations of the Corporation, subject, however, to the control of the Board of Directors. He may serve as a member of any committee of the Board except as may otherwise be determined by the Board or provided in these By-Laws, provided, however, that in his capacity as Chief Executive Officer he shall have the right to attend all meetings of any committee and to participate in its discussions. He shall perform all duties incident to the Offices of Chairman of the Board -22- 27 and Chief Executive Officer, and such other duties as may from time to time be assigned to him by the Board of Directors. SECTION 5. President. The President shall perform all duties incident to the Office of President, and such other duties as may from time to time be assigned to him by the Chairman of the Board or the Board of Directors. In the absence or disability of the Chairman of the Board, the President shall perform all other duties of the Chairman of the Board, except presiding at meetings of shareholders and Board of Directors, subject to the control of the Board of Directors; and when so acting, shall have all the powers of, and be subject to all the restrictions upon the Chairman of the Board. SECTION 6. Vice Presidents. Each Vice President shall perform such duties as from time to time may be assigned to him by the Board of Directors, the Chairman of the Board, the President, or such other officer as may be designated by one of the foregoing. In the absence or disability of the Chairman of the Board, and the President, one of the Vice Presidents, in the order determined by the Board of Directors, shall perform all duties of the Chairman of the Board except presiding at meetings of shareholders and Board of Directors, and, when so acting, shall have the powers of and be subject to the restrictions placed upon the Chairman of the Board in respect of the performance of such duties. SECTION 7. Treasurer. The Treasurer shall: (a) have charge and custody of, and be responsible for, -23- 28 all the funds and securities of the Corporation; (b) keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation; (c) deposit all moneys and other valuables to the credit of the Corporation in such depositories as may be designated by the Board of Directors or pursuant to its direction; (d) receive, and give receipts for, moneys due and payable to the Corporation from any source whatsoever; (e) disburse the funds of the Corporation and supervise the investments of its funds, taking proper vouchers therefor; (f) render to the Board of Directors, whenever the Board of Directors may require, an account of the financial condition of the Corporation; and (g) in general, perform all duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him by the Board of Directors, or the Chairman of the Board, the President, or such other officer as may be designated by one of the foregoing. SECTION 8. Corporate Secretary. The Corporate Secretary shall: (a) keep or cause to be kept in one or more books provided for the purpose, the minutes of all meetings of the Board of Directors, the committees of the Board of Directors and the shareholders; (b) see that all notices are duly given in accordance -24- 29 with the provisions of these By-Laws and as required by law; (c) be custodian of the records and the seal of the Corporation and affix and attest the seal to all certificates for shares of the Corporation (unless the seal of the Corporation on such certificates shall be a facsimile, as hereinafter provided) and affix and attest the seal to all other documents to be executed on behalf of the Corporation under its seal; (d) see that the books, reports, statements, certificates and other documents and records required by law to be kept and filed are properly kept and filed; and (e) in general, perform all duties incident to the office of Corporate Secretary and such other duties as from time to time may be assigned to him by the Board of Directors, the Chairman of the Board, the President, or such other officer as may be designated by one of the foregoing. SECTION 9. The Assistant Treasurer. The Assistant Treasurer, or if there shall be more than one, the Assistant Treasurers in the order determined by the Board of Directors (or if there be no such determination, then in the order of their seniority), shall, in the absence of the Treasurer or in the event of the inability or refusal of the Treasurer to act, perform the duties and exercise the powers of the Treasurer and shall perform such other duties as from time to time may be assigned by the Board of Directors, the Chairman of the Board, the President, the Treasurer, or such other -25- 30 officer as may be designated by one of the foregoing. SECTION 10. The Assistant Corporate Secretary. The Assistant Corporate Secretary, or if there be more than one, the Assistant Corporate Secretaries in the order determined by the Board of Directors (or if there be no such determination, then in the order of their seniority), shall, in the absence of the Corporate Secretary or in the event of the inability or refusal of the Corporate Secretary to act, perform the duties and exercise the powers of the Corporate Secretary and shall perform such other duties as from time to time may be assigned by the Board of Directors, the Chairman of the Board, the President, the Corporate Secretary, or such other officer as may be designated by one of the foregoing. SECTION 11. Designation. The Board of Directors may, by resolution, designate one or more officers to be any of the following: Chief Operating Officer, Chief Financial Officer, General Counsel, or Chief Accounting Officer. SECTION 12. Agents and Employees. If authorized by the Board of Directors, the Chairman of the Board, the President, or any officer or employee of the Corporation may appoint or employ such agents and employees as shall be requisite for the proper conduct of the business of the Corporation, and may fix their compensation and the conditions of their employment, subject to removal by the appointing or employing person. -26- 31 SECTION 13. Officers' Bonds or Other Security. If required by the Board of Directors, any officer of the Corporation shall give a bond or other security for the faithful performance of his duties, in such amount and with such surety as the Board of Directors may require. SECTION 14. Compensation. The compensation of all officers of the Corporation for their services as such officers shall be fixed from time to time by the Board of Directors unless by resolution of the Board that authority is delegated to a committee of the Board, Chairman of the Board, the President, or any other officer of the Corporation. An officer of the Corporation shall not be prevented from receiving compensation by reason of the fact that he is also a director of the Corporation. SECTION 15. Terms. Unless otherwise specified by the Board of Directors in any particular election or appointment, each officer shall hold office, and be removable, at the pleasure of the Board. ARTICLE V Stock Certificates and Their Transfer SECTION 1. Stock Certificates. Every holder of stock in the Corporation shall be entitled to have a certificate, signed by, or in the name of the Corporation by, Chairman of the Board or the President or a Vice President and by the Treasurer or an Assistant Treasurer or the Corporate Secretary or an Assistant Corporate Secretary of the Corporation, certifying the number of shares owned -27- 32 by him in the Corporation. If the Corporation shall be authorized to issue more than one class of stock or more than one series of any class, the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restriction of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, provided that, except as otherwise provided in Section 202 of the General Corporation Law of the State of Delaware, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, a statement that the Corporation will furnish without charge to each shareholder who so requests the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. SECTION 2. Facsimile Signatures. Any or all of the signatures on a certificate may be a facsimile except in the case of the signature of the registrar which shall be manually affixed to all certificates. In case any officer or transfer agent who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer or transfer agent before such certificate is issued, it may be issued by the -28- 33 Corporation with the same effect as if such person was such officer or transfer agent at the date of issue. SECTION 3. Lost Certificates. The Corporation may issue a new certificate or certificates in the place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen, or destroyed. When authorizing such issue of a new certificate or certificates, the Corporation may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen, or destroyed certificate or certificates, or his legal representative, to give the Corporation a bond in such sum as it may direct sufficient to indemnify it against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. SECTION 4. Transfers of Stock. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority or transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its records; provided, however, that the Corporation shall be entitled to recognize and enforce any lawful restriction on transfer. Whenever any transfer of stock shall be made for collateral security, and not absolutely, it shall be so expressed in the entry of transfer if, when the certificates are -29- 34 presented to the Corporation for transfer, both the transferor and the transferee request the Corporation to do so. SECTION 5. Transfer Agents and Registrars. The Board of Directors may appoint, or authorize any officer or officers to appoint, one or more transfer agents and one or more registrars. SECTION 6. Regulations. The Board of Directors may make such additional rules and regulations, not inconsistent with these By-Laws, as it may deem expedient concerning the issue, transfer and registration of certificates for shares of stock of the Corporation. SECTION 7. Fixing the Record Date. In order that the Corporation may determine the shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. -30- 35 SECTION 8. Registered Shareholders. The Corporation shall be entitled to recognize the exclusive right of a person registered on its records as the owner of shares of stock to receive dividends and to vote as such owner, shall be entitled to hold liable for calls and assessments a person registered on its records as the owner of shares of stock, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares of stock on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. ARTICLE VI Indemnification SECTION 1. General. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that such person (i) is or was a director, officer, or employee of the Corporation, (ii) or is or was a director, officer or employee of the Corporation or any of its subsidiaries serving at the request of the Corporation as a director, officer, employee, agent, trustee or partner of another corporation, partnership, joint venture, trust or other enterprise, against expenses -31- 36 (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe the conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that the conduct was unlawful. SECTION 2. Derivative Actions. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that such person is or was a director, officer, or employee of the Corporation, or is or was a director, officer or employee of the Corporation or any of its subsidiaries serving at the request of the Corporation as a director, officer, employee, agent, trustee or partner of another corporation, partnership, joint venture, trust or other enterprise against -32- 37 expenses (including attorneys' fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery of the State of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. SECTION 3. Indemnification in Certain Cases. To the extent that a director, officer, employee or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Sections 1 and 2 of this Article VI, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection therewith. SECTION 4. Procedure. Any indemnification under Sections 1 and 2 of this Article VI (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a -33- 38 determination that indemnification of the director, officer or employee is proper in the circumstances because such person has met the applicable standard of conduct set forth in such Sections 1 and 2. Such determination shall be made (a) by a majority vote of the directors who are not parties to such action, suit or proceeding, even though less than a quorum, or (b) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion, or (c) by the shareholders. SECTION 5. Advances for Expenses. Expenses (including attorneys' fees) incurred in defending any civil, criminal, administrative or investigative action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director, officer or employee to repay such amount if it shall be ultimately determined that such person is not entitled to be indemnified by the Corporation as authorized in this Article VI. SECTION 6. Exclusion of Mandatory Indemnification and Advances in Certain Cases. Notwithstanding any other provision of this Article VI, the Corporation shall not be obligated to indemnify any person under Sections 1, 2 or 3 of Article VI or to advance expenses under Section 5 thereof to any person who has initiated any proceeding or part thereof, unless the initiation of such proceeding or part thereof was authorized or ratified by the Board of Directors. -34- 39 SECTION 7. Rights Not Exclusive. The indemnification and advancement of expenses provided by this Article VI shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any law, by-law, agreement, vote of shareholders or disinterested directors or otherwise, both as to action in the official capacity of such person and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee and shall inure to the benefit of the heirs, executors and administrators of such a person. Any repeal, modification or amendment of this Article VI shall not adversely affect any rights or obligations then existing between the Corporation and any then incumbent or former director, officer, or employee with respect to any facts then or theretofore existing or any action, suit, or proceeding theretofore or thereafter brought based in whole or in part upon such facts. SECTION 8. Insurance. The Corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee, agent, trustee or partner of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of the status of such person as such, whether or not the Corporation would have the -35- 40 power to indemnify such person against such liability under the provisions of this Article VI. SECTION 9. Definition of Corporation. For the purposes of this Article VI, references to "the Corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees and agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Article VI with respect to the resulting or surviving corporation as such person would if such person had served with respect to such constituent corporation if its separate existence had continued. "The Corporation" shall also include Connecticut General Corporation and INA Corporation for the period ending at the time that such corporations became subsidiaries of CIGNA Corporation. SECTION 10. Definition of Other Terms. For purposes of this Article VI, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes or penalties assessed on a person with respect to any -36- 41 employee benefit plan; and references to "serving at the request of the Corporation" shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in this Article VI. SECTION 11. Right of Indemnitee to Bring Suit in Certain Circumstances. Any person entitled to indemnification under this Article VI is referred to in this section as an "indemnitee." If after the occurrence of a Change of Control (as defined in this section) a claim under Sections 1, 2, 3 or 5 of this Article VI is not paid in full by the Corporation within sixty days after a written claim has been received by the Corporation, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be twenty days, the indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. If successful in whole or in part in any suit, or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the indemnitee shall be entitled to be paid also the expense of prosecuting or defending such suit. In (i) any suit brought by the -37- 42 indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the indemnitee to enforce a right to an advancement of expenses) it shall be a defense that, and (ii) in any suit by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking the Corporation shall be entitled to recover such expenses upon a final adjudication that, the indemnitee has not met any applicable standard for indemnification set forth in the Delaware General Corporation Law. Neither the failure of the Corporation (including its board of directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such suit that indemnification of the indemnitee is proper in the circumstances because the indemnitee has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the Corporation (including its board of directors, independent legal counsel, or its stockholders) that the indemnitee has not met such applicable standard of conduct, shall create a presumption that the indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the indemnitee, be a defense to such suit. In any suit brought by the indemnitee to enforce a right to indemnification or to an advancement of expenses hereunder, or by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the indemnitee is not entitled to be indemnified, or to such advancement of expenses, under this Section -38- 43 or otherwise shall be on the Corporation. "Change of Control" shall mean that: (a) A corporation, person or group acting in concert as described in Section 14(d)(2) of the Securities Exchange Act of 1934 as amended (the "Exchange Act"), holds or acquires beneficial ownership, within the meaning of Rule 13d-3 promulgated under the Exchange Act, of a number of preferred or common shares of the Corporation having voting power which is either: (1) more than 50 percent of the voting power of the shares which voted in the election of directors of the Corporation at the shareholders' meeting immediately preceding such determination; or, (2) more than 25 percent of the voting power of common shares outstanding of the Corporation; or, (b) As a result of a merger or consolidation to which the Corporation is a party, either: (1) the Corporation is not the surviving corporation; or, (2) Directors of the Corporation immediately prior to the merger or consolidation constitute less than a majority of the board of directors of the surviving corporation; or, (c) A change occurs in the composition of the Board at any time during any consecutive 24-month period such that the "Continuity Directors" cease for any reason to constitute a -39- 44 majority of the Board. For purposes of the preceding sentence, "Continuity Directors" shall mean those members of the Board who either: (1) were directors at the beginning of such consecutive 24-month period, or, (2) were elected by, or upon nomination or recommendation of, at least a majority (consisting of at least nine directors) of the Board. ARTICLE VII General Provisions SECTION 1. Dividends. Subject to the provisions of statute and the Certificate of Incorporation, dividends upon the shares of capital stock of the Corporation may be declared by the Board of Directors at any regular or special meeting. Dividends may be paid in cash, in property or in shares of stock of the Corporation, unless otherwise provided by statute or the Certificate of Incorporation. SECTION 2. Reserves. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors may, from time to time, in its absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation or for such other purpose as the Board of Directors may think conducive to the interests of the Corporation. The Board of Directors may modify or abolish any such reserves in the manner in which it was -40- 45 created. SECTION 3. Seal. The seal of the Corporation shall be in such form as shall be approved by the Board of Directors. SECTION 4. Fiscal Year. The fiscal year of the Corporation shall be fixed, and once fixed, may thereafter be changed, by resolution of the Board of Directors. SECTION 5. Contributions. The Board of Directors shall have the authority from time to time to make such contributions as the Board in its discretion shall determine, for public and charitable purposes. SECTION 6. Borrowing, etc. No officer, agent or employee of the Corporation shall have any power or authority to borrow money on its behalf, to pledge its credit, or to mortgage or pledge its real or personal property, except within the scope and to the extent of the authority delegated by resolution of the Board of Directors. Authority may be given by the Board for any of the above purposes and may be general or limited to specific instances. SECTION 7. Deposits. All funds of the Corporation shall be deposited from time to time to the credit of the Corporation in such banks, trust companies, or other depositories as the Board of Directors may approve or designate, and all such funds shall be withdrawn only upon checks, drafts, notes or other orders for payment signed by such one or more officers, employees or other persons as the Board shall from time to time determine. -41- 46 SECTION 8. Execution of Contracts, Deeds, etc. The Board of Directors may authorize any officer or officers, agent or agents, in the name and on behalf of the Corporation to enter into or execute and deliver any and all deeds, bonds, mortgages, contracts and other obligations or instruments, and such authority may be general or confined to specific instances. SECTION 9. Voting of Stock in Other Corporations. If authorized by the Board of Directors, any officer of the Corporation may appoint an attorney or attorneys (who may be or include such officer), in the name and on behalf of the Corporation, to cast the votes which the Corporation may be entitled to cast as a shareholder or otherwise in any other corporation any of whose shares or other securities are held by or for the Corporation, at meetings of the holders of the shares or other securities of such other corporation, or in connection with the ownership of such shares or other securities, to consent in writing to any action by such other corporation, and may instruct the person or persons so appointed as to the manner of casting such votes or giving such consent, and may execute or cause to be executed in the name and on behalf of the Corporation and under its seal such written proxies or other instruments as such proxy may deem necessary or proper in the circumstances. SECTION 10. Form of Records. Any records maintained by the Corporation in the regular course of its business, including its stock ledger, books of account, and minute books, may be kept on, -42- 47 or be in the form of punch cards, magnetic tape, photographs, microphotographs, or any other information storage device, provided that the records so kept can be converted into clearly legible form within a reasonable time. The Corporation shall so convert any records so kept upon the request of any person entitled to inspect the same. SECTION 11. Repurchase of Stock. Without the approval of the holders of a majority of the issued and outstanding stock of the Corporation entitled to vote at any meeting of shareholders, the Corporation shall not knowingly purchase, either directly or indirectly, any of the Corporation's Common Stock at a price materially in excess of its market price from any person, unless (i) such purchase is pursuant to the same offer and terms as made on a pro-rata basis to all holders of such shares, (ii) such purchase is made by the Corporation from an employee benefit or similar plan now or hereafter maintained by the Corporation or its subsidiaries or affiliates, or (iii) such purchase is made from a holder of less than one hundred shares. ARTICLE VIII Amendments These By-Laws may be amended or repealed or new By-Laws may be adopted (a) by action of the holders of at least eighty percent (80%) of the voting power of all outstanding voting stock of the Corporation entitled to vote generally at any annual or special -43- 48 meeting of shareholders or (b) by action of the Board of Directors at a regular or special meeting thereof. Any By-Law or By-Laws made by the Board of Directors may be amended or repealed by action of the shareholders by the vote required by (a) above at any annual or special meeting of shareholders. ARTICLE IX Definitions The term "Certificate of Incorporation," as used herein, includes not only the original Certificate of Incorporation filed to create the Corporation but also all other certificates, agreements of merger or consolidation, plans of reorganization, or other instruments, howsoever designated, which are filed pursuant to the Delaware General Corporation Law, and which have the effect of amending or supplementing in some respect this Corporation's original Certificate of Incorporation. -44- EX-10.1 3 DEFERRED COMPENSATION PLAN FOR DIRECTORS 1 EXHIBIT 10.1 DEFERRED COMPENSATION PLAN FOR DIRECTORS OF CIGNA CORPORATION (Amended Effective January 1, 1996) ARTICLE I. DEFINITIONS The following are defined terms wherever they appear in the Plan. 1.1 Administrator" shall mean the person, or committee, appointed by the Chief Executive Officer of CIGNA Corporation, and charged with responsibility for administration of the Plan. 1.2 "Committee" shall mean the Committee on Directors of the Board of Directors of CIGNA Corporation, or the successor to such committee. 1.3 "Board of Directors" or "Board" shall mean the Board of Directors of CIGNA Corporation. 1.4 "Change of Control" shall mean that: (a) A corporation, person or group acting in concert as described in Section 14(d)(2) of the Securities Exchange Act of 1934 as amended ("Exchange Act"), holds or acquires beneficial ownership, within the meaning of Rule 13d-3 promulgated under the Exchange Act, of a number of preferred or common shares of CIGNA Corporation having voting power which is either: (l) more than 50 percent of the voting power of the shares which voted in the election of directors of CIGNA Corporation at the shareholders' meeting immediately preceding such determination; or, (2) more than 25 percent of the voting power of common shares outstanding of CIGNA Corporation; or, (b) As a result of a merger or consolidation to which CIGNA Corporation is a party, either: (l) CIGNA Corporation is not the surviving corporation; or, (2) Directors of CIGNA Corporation immediately prior to the merger or consolidation constitute less than a majority of the Board of Directors of the surviving corporation; or, (c) A change occurs in the composition of the Board at any time during any consecutive 24-month period such that the "Continuity Directors" cease for any reason to constitute a majority of the Board. For purposes of the preceding sentence, "Continuity Directors" shall mean those members of the Board who either: (1) were directors at the beginning of such consecutive 24-month period, or, (2) were elected by, or upon nomination or recommendation of, at least a majority (consisting of at least nine directors) of the Board. 1.5 "CIGNA Common Stock" or "Common Stock" or "Stock" shall mean the common stock of CIGNA Corporation, par value of one dollar ($1.00) per share. 1.6 "Deferral Election" shall mean the instrument executed by a Participant which specifies amounts and items of compensation to be deferred. 1.7 "Deferred Compensation Account" or "Account" shall mean the separate account 2 established under the Plan for each Participant, as described in Section 3.1. l.8 "Participant" shall mean each individual who as a director of CIGNA Corporation elects to participate in the Plan in accordance with the terms and conditions of the Plan. 1.9 "Payment Election" shall mean the instrument executed by a Participant which specifies the method of payment of compensation deferred. 1.10 "Plan" shall mean the Deferred Compensation Plan for Directors of CIGNA Corporation, as it may be amended or restated from time to time by the Board of Directors. 1.11 "Restatement Date" shall mean January 1, 1996, the effective date of the Plan, as amended and restated. 1.12 "Termination of Service" shall mean termination of services as a director of CIGNA Corporation. 1.12 "Valuation Date" shall mean the close of business on the last business day of each month. ARTICLE II. PARTICIPATION 2.1 Eligibility to Participate in the Plan. The individuals who are eligible to participate in the Plan are those persons who serve as directors of CIGNA Corporation. 2.2 Participation in the Plan. (a) A Participant may elect to defer receipt of all or a portion of those items of compensation for services as a director as are specified by the Administrator. (b) The election to defer is made by delivering a properly executed Deferral Election to the Administrator. The Deferral Election shall specify the item or items of compensation to be deferred, and the amount of such compensation to be deferred. The election for payment of compensation deferred is made by delivering a properly executed Payment Election to the Administrator. The Payment Election shall specify the method by which such deferred compensation is to be paid, and the date or dates for payment of such deferred compensation. With respect to payment of deferred compensation invested in hypothetical Common Stock, as provided in Section 3.3(b), a Participant must elect payment upon a fixed date or dates occurring at least six months following the date upon which the compensation deferred would otherwise have been paid, or upon death or Termination of Service. -2- 3 (c) An election to defer compensation must be filed by the Participant prior to the commencement of a calendar year during which such compensation will be paid. (d) Notwithstanding Section 2.2(c), an election to defer compensation made by an individual who subsequently begins active service as a director of CIGNA Corporation, is filed prior to the date upon which such active service begins, shall be effective according to Section 2.2(e)(2), below. (e) An election to defer compensation is effective: (l) for the year beginning after the election, and for subsequent years, unless modified or revoked; or, (2) if Section 2.2(d) applies, for the remainder of the first year of active service, as of the first day of active service, and for subsequent years, unless modified or revoked. 2.3 Elections Pertaining to Payments. In executing a Payment Election, the Participant shall elect among the methods of payment as are specified by the Committee. (a) If a method of payment provides for periodic payments, the payments shall be made at least annually, over a period not to exceed 15 (fifteen) years. (b) If the payments are to commence after Termination of Service, no payments may be made before the first day of January following the calendar year during which the Participant terminates service. (c) The balance of a Participant's Account shall be paid, in all events, no later than January of the fifteenth year following Termination of Service. (d) If there is not in effect as of Participant's Termination of Service a valid Payment Election, the Participant's Account shall be paid annually over a period of 15 (fifteen) years. 2.4 Modification of Elections Pertaining to Payments. With respect to payment of deferred compensation following Termination of Service, a Participant may request modification of his existing Payment Election, for payment under another method among those specified by the Committee. Any request for modification of such Payment Election shall be made before the Participant terminates service. The Committee shall consider any such modification request. In determining whether the request should be allowed, the Committee shall consider the Participant's financial needs, including any changed circumstances, as well as the projected financial needs of CIGNA Corporation. If the Committee determines that the request should be allowed, the requested modifications shall be made. The Participant shall effect the modifications through execution of a new Payment Election, which -3- 4 shall constitute the only Payment Election which is outstanding and effective. Notwithstanding the foregoing, a Participant may not request modification of a fixed date elected for payment of deferred compensation invested in hypothetical Common Stock. 2.5 Reduction or Termination of Future Deferral. (a) A Participant may elect to reduce or to revoke his deferral of compensation, but such election shall have effect only prospectively. A Participant shall effect an election to reduce his deferral of compensation by execution of a new Deferral Election, which shall constitute the only Deferral Election which is outstanding and effective. A Participant shall effect an election to revoke his deferral of compensation by informing the Administrator in writing. Only one election to reduce and one election to revoke may be made under this Section 2.5 by each Participant in a calendar year. (b) An election to reduce or to revoke deferral of compensation shall become effective in the second calendar month following receipt of such election by the Administrator. ARTICLE III. COMPENSATION DEFERRED 3.1 Deferred Compensation Account. A Deferred Compensation Account shall be established for each director when the director becomes a Participant. Compensation deferred by a Participant under the Plan shall be credited to the Account on the date such compensation would have been paid to the Participant. Hypothetical income on deferred compensation shall be credited to the Account as provided in Section 3.3, below. 3.2 Balance of Deferred Compensation Account. The balance of each Participant's Deferred Compensation Account shall include compensation deferred by the Participant, plus income and gains credited with respect to hypothetical investment. Losses from hypothetical investment shall reduce the Participant's Account balance. The balance of each Participant's Account shall be determined as of each Valuation Date. 3.3 Hypothetical Investment. (a) Compensation deferred under the Plan which would have been paid in cash shall be assumed to be invested, without charge, in one or more hypothetical investment vehicles as are specified from time to time by the Committee. With respect to such hypothetical investment: -4- 5 (1) Cash compensation deferred shall be deemed to earn income under the hypothetical investment vehicle. The Administrator shall credit such income to the Participant's Account, pursuant to Section 3.4 below. (2) The Committee, in its sole discretion, may provide that cash compensation deferred after the Restatement date is deemed invested in a different hypothetical investment vehicle or vehicles than the investment vehicle in which cash compensation deferred before the Restatement Date is deemed invested. (3) The Committee, in its sole discretion, may provide Plan Participants with options for one or more additional hypothetical investment vehicles for investment of cash compensation deferred under the Plan, with respect to which: (A) a Participant may modify his election of hypothetical investment, through a written request to the Administrator; provided that, (B) only one such modification shall be allowed during any calendar quarter. (C) any such modification shall be effective in the second calendar month following receipt of the request by the Plan Administrator. (D) such modifications will be in accordance with rules and procedures adopted by the Plan Administrator. (b) Compensation deferred under the Plan as an alternative to receipt of Common Stock shall be assumed to be invested, hypothetically and without charge, in whole shares of hypothetical Common Stock. Amounts equal to cash dividends which would have been paid on shares of Common Stock shall be deemed paid on whole shares of hypothetical Common Stock and credited and hypothetically invested pursuant to Section 3.3(a), above. Shares of hypothetical Common Stock shall be subject to adjustment in order to reflect Common Stock dividends, splits, and reclassification. Notwithstanding any other provision of the Plan, deferred compensation invested in hypothetical Common Stock must remain so invested for a period of not less than six months or until Termination or death, whichever is earlier. Deferred compensation invested in hypothetical Common Stock must remain deemed invested in hypothetical Common Stock, and no other investment vehicle available hereunder may be substituted therefor. (c) In the event of a Change of Control, the Committee shall provide Participants with the option for investment in at least one hypothetical investment vehicle, the annual income earned on which must be not less than 50 basis points over the Ten-Year Constant Treasury Maturity Yield as reported by the Federal Reserve Board, based upon the November averages for the preceding year. -5- 6 3.4 Time of Hypothetical Investment. (a) The balance of each Participant's Deferred Compensation Account shall be deemed hypothetically invested on each Valuation Date, and income shall accrue on such balance upon such date, from the previous Valuation Date. (b) Compensation which would have been paid in cash shall be deemed invested on the Valuation Date next following such hypothetical investment or credit. (c) Compensation hypothetically invested in Common Stock shall be deemed invested in whole shares of Common Stock as of the date such compensation otherwise would have been payable to the Participant. The number of whole shares of Common Stock in which compensation is deemed hypothetically invested shall be determined with respect to the last trade date in the month in which such compensation otherwise would have been payable, by reference to the last quoted transaction in such month as reported on the Composite tape (or successor means of publishing stock prices), provided, that in absence of such information, the Stock value shall be determined by the Committee. 3.5 Statement of Account. The Administrator shall provide each Participant a statement of his Deferred Compensation Account at least annually. ARTICLE IV. PAYMENT OF DEFERRED COMPENSATION 4.1 Payment of Deferred Compensation. (a) The Administrator shall pay amounts from the Participant's Account, according to the Participant's Payment Election. (b) Compensation deferred under the Plan shall be paid to the Participant in cash pursuant to Section 4.1(a). 4.2 Financial Necessity Payment. Notwithstanding any other provision of the Plan, if the Committee, after consideration of a Participant's application, determines that the Participant has a financial necessity beyond the Participant's control, and of such a substantial nature that immediate payment of compensation deferred under the Plan is warranted, the Committee in its sole and absolute discretion may direct that all or a portion of the balance of the Participant's Deferred Compensation Account (except that portion which has been invested in hypothetical Common Stock) be paid to the Participant in cash. The amount of any such distribution shall be limited to the amount deemed necessary by the Committee to alleviate or remedy the hardship. The payment shall be made in a manner and at the time specified by the Committee. A Participant receiving a Financial Necessity Payment is deemed to have revoked his election for deferral of -6- 7 compensation under the Plan, as of the time of the Financial Necessity Payment. Any subsequent deferral of compensation under the Plan shall require that the Participant execute a new Deferral Election, subject to terms of Section 2.2(e)(1) hereof. The limitation specifically imposed by this paragraph on payment of that portion of a Participant's Deferred Compensation account invested in hypothetical Common Stock shall not apply to hypothetical Common Stock acquired prior to May 1, 1991, if rules adopted by the Securities and Exchange Commission (the "SEC") and/or pronouncement of the staff of the SEC's Division of Corporation Finance establish that the absence of such limitation on hypothetical Common Stock acquired prior to May 1, 1991, will not cause hypothetical Common Stock to fall within the definitions of "equity security" or "derivative security" set forth in rules promulgated under Section 16 of the Securities Exchange Act of 1934. 4.3 Certain Accelerated Payments. (a) If a Participant terminates service under circumstances which are such that the Committee deems it in the best interest of the Participant and of CIGNA Corporation that payment of the Participant's Deferred Compensation Account be accelerated, then the Committee, upon its own motion and in its sole discretion, may direct that the Participant's Account balance be paid to him immediately. (b) If, as a result of substantial and unforeseen changes affecting (1) the business of CIGNA Corporation, (2) the personal or professional circumstances of a Participant, or (3) operation or administration of the Plan, the Committee determines that the interests of the Participant and of CIGNA Corporation are best served through accelerated payment of the Participant's Deferred Compensation Account, the Committee on its own motion and in its sole discretion may direct that the Participant's account balance be paid to him immediately (except that portion which has been invested in hypothetical Common Stock). The limitation specifically imposed by this paragraph on payment of that portion of a Participant's Deferred Compensation account invested in hypothetical Common Stock shall not apply to hypothetical Common Stock acquired prior to May 1, 1991, if rules adopted by the Securities and Exchange Commission (the "SEC") and/or pronouncement of the staff of the SEC's Division of Corporation Finance establish that the absence of such limitation on hypothetical Common Stock acquired prior to May 1, 1991, will not cause hypothetical Common Stock to fall within the definitions of "equity security" or "derivative security" set forth in rules promulgated under Section 16 of the Securities Exchange Act of 1934. (c) A Participant who is not entitled to payment of his Deferred Compensation Account under any other provision of Article IV may make a written request to the Administrator for an accelerated payment of his entire Deferred Compensation Account balance -- except that portion invested in hypothetical Common Stock. If the Administrator receives such a request, he shall make a final valuation of the unrestricted portion of the Participant's Deferred Compensation Account and pay ninety per cent (90%) of the Deferred Compensation Account balance to the Participant. The participant shall forfeit the remaining ten per cent (10%) of his Deferred Compensation Account balance to the Corporation. Payments under this Section 4.3(c) apply only to that portion of a Participant's Account, including hypothetical investment results, attributable to compensation deferred after 1995. -7- 8 4.4 Payments of a Deceased Participant's Account (a) If a Participant dies before his entire Account has been paid to him, the Administrator shall pay the Account balance in a single lump sum payment to the person(s) or trust(s) designated in writing by the Participant as his beneficiary(ies) under the Plan. The Administrator is authorized to establish rules and procedures for designations of beneficiaries and shall have the sole discretion to make determinations regarding the existence and identity of beneficiaries and the validity of beneficiary designations. (b) Notwithstanding Section 4.4(a), the Administrator shall pay the Account balance, as soon as administratively feasible, in a single lump sum payment to the Participant's estate if: (1) The Participant dies without having a valid beneficiary designation in effect; (2) The Participant's designated beneficiary has predeceased him; (3) The Participant's designated beneficiary cannot be found after what the Administrator determines, in his sole discretion, has been a reasonably diligent search; or (4) The Administrator determines, in his sole discretion, that a payment in such form is in the best interest of the Corporation. ARTICLE V. GENERAL PROVISIONS 5.1 Committee Membership. A Participant who is also a member of the Committee shall take no part in any decision pertaining to a request by such Participant under Sections 2.4, 4.1(c), 4.2, and 4.3 hereof. 5.2 Participant's Rights Unsecured. The right of any Participant to receive payments under the provisions of the Plan represents an unsecured claim against the general assets of CIGNA Corporation, or against the general assets of any successor company which assumes the liabilities of CIGNA Corporation. 5.3 Assignability. No right to receive payments hereunder shall be transferable or assignable by a Participant. Any attempted assignment or alienation of payments hereunder shall be void and of no force or effect. -8- 9 5.4 Administration. Except as otherwise provided herein, the Plan shall be administered by the Administrator who shall have the authority to adopt rules and regulations for carrying out the Plan, and who shall interpret, construe and implement the provisions of the Plan. 5.5 Amendment. The Plan may be amended, restated, modified, or terminated by the Board of Directors. No amendment, restatement, modification, or termination shall reduce the balance of a Participant's Deferred Compensation Account as of the Valuation Date immediately preceding such action. 5.6 Correction of Errors and Inconsistencies. The Committee upon its own motion, or at the request of the Administrator or of a Participant, shall have authority to effect consistency among deferral elections, payment elections, or hypothetical investment with respect to amounts deferred by a Participant under the Plan, so as to avoid or to rectify difficulties in Plan administration. In no event shall such action by the Committee reduce the dollar value of a Participant's Account balance existing on the Valuation Date immediately preceding such action, nor shall the Committee take action inconsistent with Section 3.3(b) hereof. The Committee may take such action with respect to a Participant's Account, regardless of whether such Participant may continue as a director of CIGNA Corporation, or whether he may have terminated service. Without limiting the generality of the foregoing, the Committee may take such action upon the request of the Administrator, in order to avoid deferral, or payment or other distribution of fractional shares of Stock. 5.8 Construction. The masculine gender where appearing in the Plan shall be deemed to include the feminine gender. The singular shall be deemed to include the plural; and the plural the singular. -9- EX-10.15 4 DEFERRED COMPENSATION PLAN OF CO. AND SUBSIDIARIES 1 EXHIBIT 10.15 DEFERRED COMPENSATION PLAN OF CIGNA CORPORATION AND PARTICIPATING SUBSIDIARIES (Amended and Restated as of January 1, 1996) ARTICLE I. DEFINITIONS The following are defined terms wherever they appear in the Plan. 1.1 "Administrator" shall mean the person, or committee, appointed by the Chief Executive Officer of CIGNA Corporation, and charged with responsibility for administration of the Plan. 1.2 "Board Committee" shall mean the People Resources Committee of the Board of Directors, or any successor Committee. 1.3 "Board of Directors" shall mean the Board of Directors of CIGNA Corporation. 1.4 "Change of Control" shall mean that: (a) a corporation, person or group acting in concert as described in Section 14(d)(2) of the Securities Exchange Act of 1934, as amended ("Exchange Act"), holds or acquires beneficial ownership within the meaning of Rule 13d-3 promulgated under the Exchange Act a number of preferred or common shares of CIGNA Corporation having voting power which is either (1) more than 50 percent of the voting power of the shares which voted in the election of directors of CIGNA Corporation at the shareholders' meeting immediately preceding such determination, or (2) more than 25 percent of the voting power of common shares outstanding of CIGNA Corporation, or (b) as a result of a merger or consolidation to which CIGNA Corporation is a party, either (1) CIGNA Corporation is not the surviving corporation, or (2) Directors of CIGNA Corporation immediately prior to the merger or consolidation constitute less than a majority of the Board of Directors of the surviving corporation, or (c) a change occurs in the composition of the Board at any time during any consecutive 24-month period such that the "Continuity Directors" cease for any reason to constitute a majority of the Board. For purposes of the preceding sentence, "Continuity Directors" shall mean those members of the Board who either: (1) were directors at the beginning of such consecutive 24-month period; or (2) were elected by, or upon nomination or recommendation of, at least a majority (consisting of at least nine directors) of the Board. 1.5 "CIGNA Common Stock", or "Common Stock" or "Stock" shall mean the common stock of CIGNA Corporation, par value of one dollar ($1.00) per share. 1.6 "Corporate Committee" shall mean the CIGNA Corporation Corporate Benefit Plan Committee, or any successor committee. 1.7 "Deferral Election" shall mean the instrument executed by a Participant which specifies amounts and items of compensation to be deferred. 2 1.8 "Deferred Compensation Account" or "Account" shall mean the separate account established under the Plan for each Participant, as described in Section 3.1. 1.9 "Participant" shall mean each individual who as an employee of a Participating Company elects to participate in the Plan in accordance with the terms and conditions of the Plan. 1.10 "Payment Election" shall mean the instrument executed by a Participant which specifies the method of payment of compensation deferred. 1.11 "Participating Company" shall mean: (a) CIGNA Corporation; and (b) each Related Company which has been authorized by the Chief Executive Officer of CIGNA Corporation to participate in the Plan and which, by resolution of the board of directors (or governing body if the Related Company is a partnership, joint venture or other unincorporated entity) of the Related Company, has adopted the Plan and has agreed to comply with the provisions of the Plan. 1.12 "Plan" shall mean the Deferred Compensation Plan of CIGNA Corporation and Participating Subsidiaries, as it may be amended or restated from time to time by the Board of Directors or the Board Committee. 1.13 "Related Company" shall mean a corporation of which more than 50% of the combined voting power of all classes of stock entitled to vote or equity interest is owned directly or indirectly by CIGNA Corporation or by a partnership, joint venture or other unincorporated entity of which more than 50% of the capital, equity or profits interest is owned directly or indirectly by CIGNA Corporation. 1.14 "Restatement Date" shall mean January 1, 1990, the effective date of the Plan, as amended and restated. 1.15 "Termination of Service" shall mean (a) termination of the employee-employer relationship between a Participant and either CIGNA Corporation or a Related Company, or (b) From and after the Restatement Date, occurrence of a transaction by which a Participant's employer ceases to be a Related Company, unless such company assumes liabilities and responsibilities under the Plan with respect to such Participant; however, (c) a Participant's transfer of employment among CIGNA Corporation and Related Companies will not be a termination of employment. 1.16 "Valuation Date" shall mean the close of business on the last business day of each month. 1.17 "Stock Plan" shall mean a plan or program which provides for payment of compensation in the form of shares of CIGNA Common Stock. 2 3 ARTICLE II. PARTICIPATION 2.1 Eligibility to Participate in the Plan. The individuals who are eligible to participate in the Plan are those salaried officers or other key employees of a Participating Company who: (a) occupy a position with the Participating Company which has been designated by the Corporate Committee as an eligible position for participation in the Plan, or (b) specifically have been authorized by the Corporate Committee to participate in the Plan. 2.2 Participation in the Plan. (a) A Participant may elect to defer receipt of all or a portion of his compensation for services as an employee of a Participating Company. The items or categories of compensation subject to deferral under the Plan shall be limited to those specified by the Administrator. (b) The election to defer is made by delivering a properly executed Deferral Election to the Administrator. The Deferral Election shall specify the item or items of compensation to be deferred, and the amount of such compensation to be deferred. The election for payment of compensation deferred is made by delivering a properly executed Payment Election to the Administrator. The Payment Election shall specify the method by which such deferred compensation is to be paid, and the date or dates for payment of such deferred compensation. (c) An election to defer compensation must be filed by the Participant prior to the commencement of a calendar year during which such compensation will be paid. (d) Notwithstanding Section 2.2(c), an election to defer compensation made by an individual who subsequently begins active employment with a Participating Company, by reason of initial employment, or reemployment, if filed prior to the date of such active employment, shall be effective according to Section 2.2(e)(2), hereof. (e) An election to defer compensation is effective: (1) for the year beginning after the election, and for subsequent years, unless modified or revoked; or, (2) if Section 2.2(d) applies, for the remainder of the first year of active employment, and for subsequent years, unless modified or revoked. 2.3 Elections Pertaining to Payments. In executing a Payment Election, the Participant shall elect among the methods of payment that are specified by the Corporate Committee. (a) If a method of payment provides for periodic payments, the payments shall be made at least annually, over a period not to exceed 15 years. 3 4 (b) If the payments are to commence after Termination of Employment, no payments may be made before the first day of January following the calendar year during which the Participant terminates employment. (c) The balance of a Participant's Account shall be paid, in all events, no later than January of the fifteenth (15th) year following Termination of Employment. (d) If there is not in effect as of a Participant's Termination of Employment a valid Payment Election, the Participant's Account shall be paid annually over a period of 15 years. 2.4 Modification of Elections Pertaining to Payments. With respect to payment of deferred compensation following Termination of Employment, a Participant may request modification of his existing Payment Election, for payment under another method among those specified by the Corporate Committee. Any request for modification of such Payment Election shall be made before the Participant terminates employment. The Corporate Committee shall consider any such modification request. In determining whether the request should be allowed, the Corporate Committee shall consider the Participant's financial needs, including any changed circumstances, as well as the projected financial needs of the Participating Company that is liable for such future payments. If the Corporate Committee determines that the request should be allowed, the requested modifications shall be made. The Participant shall effect the modifications through execution of a new Payment Election, which shall constitute the only Payment Election which is outstanding and effective. 2.5 Reduction or Termination of Future Deferral. (a) A Participant may elect to reduce or to revoke his deferral of compensation, but such election shall have effect only prospectively. A Participant shall effect an election to reduce his deferral of compensation by execution of a new Deferral Election, which shall constitute the only Deferral Election which is outstanding and effective. A Participant shall effect an election to revoke his deferral of compensation by informing the Administrator in writing. Only one election to reduce and one election to revoke may be made under this Section 2.5 by each Participant in a calendar year. (b) An election to reduce or to revoke deferral of compensation shall become effective in the second calendar month following receipt of such election by the Administrator. ARTICLE III. COMPENSATION DEFERRED 3.1 Deferred Compensation Account. A Deferred Compensation Account shall be established for each employee when the employee becomes a Participant. Compensation deferred by a Participant under the Plan shall be credited to the Account on the date such compensation would have been paid to the Participant. Hypothetical income on deferred compensation shall be credited to the Account as provided in Section 3.3, hereof. 4 5 3.2 Balance of Deferred Compensation Account. The balance of each Participant's Deferred Compensation Account shall include compensation deferred by the Participant, plus income and gains credited with respect to hypothetical investment. Losses from hypothetical investment shall reduce the Participant's Account balance. The balance of each Participant's Account shall be determined as of each Valuation Date. 3.3 Hypothetical Investment. (a) Compensation deferred under the Plan which would have been paid in cash shall be assumed to be invested, without charge, in one or more hypothetical investment vehicles as are specified from time to time by the Corporate Committee. With respect to such hypothetical investment: (1) Cash compensation deferred shall be deemed to earn income under the hypothetical investment vehicle, which the Administrator shall credit to the Participant's Account, pursuant to Section 3.4, below. (2) The Corporate Committee, in its sole discretion, may provide that cash compensation deferred after the Restatement date is deemed invested in a different hypothetical investment vehicle or vehicles than the investment vehicle in which cash compensation deferred before the Restatement Date is deemed invested. (3) The Corporate Committee, in its sole discretion, may provide Plan Participants with options for one or more additional hypothetical investment vehicles for investment of cash compensation deferred under the Plan. A Participant who has a choice of more than one such hypothetical investment vehicle may, as frequently as once each quarter, modify his election of hypothetical investment through a written request to the Administrator. Such modifications will be in accordance with rules and procedures adopted by the Corporate Committee. (b) Compensation deferred under the Plan, which would have been paid in CIGNA Common Stock, shall be assumed invested, without charge, in the same number of shares of Common Stock (as adjusted to reflect stock dividends, splits and reclassification in accordance with the terms of the applicable Stock Plan) as would have been paid but for such deferral, and such compensation may not be deemed invested in any other hypothetical investment vehicle. In addition, an amount equal to dividends which otherwise would have been paid on such hypothetically-invested Common Stock shall be deemed paid and hypothetically invested pursuant to Section 3.3(a), above. (c) In the event of a Change of Control, the annual income earned on at least one hypothetical fixed return guaranteed principal investment must be not less than fifty (50) basis points over the Ten-year Constant Treasury Maturity Yield as reported by the Federal Reserve Board, based upon the November averages for the preceding year. 5 6 3.4 Time of Hypothetical Investment. The balance of each Participant's Deferred Compensation Account shall be deemed invested in one or more hypothetical investment vehicles on each Valuation Date, and income shall accrue on such balance upon such date, from the previous Valuation Date. Compensation which would have been paid in CIGNA Common Stock shall be deemed hypothetically invested in Common Stock, pursuant to Section 3.3(b) hereof, as of the date on which the number of shares comprising the compensation deferred was determined in accordance with the applicable Stock Plan. 3.5 Prior Plans. If a Participant participated in a deferred compensation plan or agreement of a Related Company immediately before this Plan became effective, or immediately before the Restatement Date of this Plan, or immediately before becoming an employee of a Participating Company, the balance of his deferred compensation account under such prior plans or agreements shall, if the prior plan or agreement so provides, be transferred to his Deferred Compensation Account under this Plan. 3.6 Statement of Account. The Administrator shall provide each Participant a statement of his Deferred Compensation Account in least annually. ARTICLE IV. PAYMENT OF DEFERRED COMPENSATION 4.1 Payment of Deferred Compensation. (a) The Administrator shall pay amounts from the Participant's Account, according to the Participant's Payment Election. (b) Compensation which, but for deferral, would have been paid in CIGNA Common Stock shall be paid in Common Stock. Notwithstanding the foregoing, upon the application of a Participant, the Corporate Committee may direct that all or a portion of the Participant's distribution otherwise payable in Common Stock be paid in cash. 4.2 Financial Necessity Payment. Notwithstanding any other provision of the Plan, if the Corporate Committee, after consideration of a Participant's application, determines that the Participant has a financial necessity which is beyond the Participant's control, and of such a substantial nature that immediate payment of compensation deferred under the Plan is warranted, the Committee in its sole and absolute discretion may direct that all or a portion of the balance of the Participant's Deferred Compensation Account, including that portion hypothetically invested in Common Stock, be paid to the Participant in cash or in such other form as may be specified by the Corporate Committee. The amount of any such distribution shall be limited to the amount deemed necessary by the Corporate Committee to alleviate or remedy the hardship. The payment shall be made in the manner and at the time specified by the Corporate Committee. A Participant receiving a Financial Necessity Payment is deemed to have revoked his 6 7 election for deferral of compensation under the Plan, as of the time of the Financial Necessity Payment. Any subsequent deferral of compensation under the Plan shall require that the Participant execute a new Deferral Election, subject to terms of Section 2.2(e)(1) hereof. 4.3 Certain Payments Upon Termination of Service. If a Participant terminates employment under circumstances which are such that the Corporate Committee deems it in the best interests of the Participant and of a Participating Company that payment of the Participant's Deferred Compensation Account be accelerated, then the Corporate Committee, upon its own motion and in its sole discretion, may direct that the Participant's Account balance be paid to him immediately. 4.4 Payments of a Deceased Participant's Account. (a) If a Participant dies before his entire Account has been paid to him, the Administrator shall pay the Account balance in a single lump sum payment to the person(s) or trust(s) designated in writing by the Participant as his beneficiary(ies) under the Plan. The Administrator is authorized to establish rules and procedures for designation of beneficiaries and shall have the sole discretion to make determinations regarding the existence and identity of beneficiaries and the validity of beneficiary designations. (b) Notwithstanding Section 4.4(a), the Administrator shall pay the Account balance, as soon as administratively feasible, in a single lump sum payment to the Participant's estate if: (1) The Participant dies without having a valid beneficiary designation in effect; (2) The Participant's designated beneficiary has predeceased him; (3) The Participant's designated beneficiary cannot be found after what the Administrator determines, in his sole discretion, has been a reasonably diligent search; or (4) The Administrator determines, in his sole discretion, that a payment in such form is in the best interest of one or more Participating Companies. 4.5 Accelerated Payment. A Participant who is not entitled to a payment of his Account under any other provision of Article IV may make a written request of the Plan Administrator for an accelerated payment of his entire Account balance. If the Plan Administrator receives such a request, he shall make a final valuation of the Participant's Account and pay ninety per cent (90%) of the Account balance to the Participant. The Participant shall forfeit the remaining ten per cent (10%) of his Account balance to the applicable Participating Company. Payments under this Section 4.5 shall apply only to that portion of a Participant's Account, including hypothetical investment results, attributable to compensation deferred after 1995. 7 8 ARTICLE V. GENERAL PROVISIONS 5.1 Committee Membership. A Participant who is also a member of the Corporate Committee shall take no part in any decision pertaining to a request by such Participant under Sections 2.4, 4.1(b), 4.2, and 4.3 hereof. 5.2 Participant's Rights Unsecured. The right of any Participant to receive payments under the provisions of the Plan represents an unsecured claim against the general assets of the Participating Company employing the Participant at the time that the compensation deferred otherwise would have been paid, or against the general assets of any successor company which assumes the liabilities of any such Participating Company. No Participating Company guarantees or is liable for payments to any Participant employed by any other participating Company. 5.3 Assignability. No right to receive payments hereunder shall be transferable or assignable by a Participant. Any attempted assignment or alienation of payments hereunder shall be void and of no force or effect. 5.4 Administration. Except as otherwise provided herein, the Plan shall be administered by the Administrator who shall have the authority to adopt rules and regulations for carrying out the Plan, and who shall interpret, construe and implement the provisions of the Plan. 5.5 Amendment. The Plan may be amended, restated, modified, or terminated by the Board of Directors or the Board Committee. No amendment, restatement, modification, or termination shall reduce the balance of a Participant's Deferred Compensation Account as of the Valuation Date immediately preceding such action. 5.6 Corporate Reorganization In the event that a company which employs Plan Participants ceases to meet the definition of "Related Company" under Section 1.13, and such company assumes liabilities and responsibility under the Plan, then the Corporate Committee and Administrator shall have no liability or responsibility for administration of the Plan, as such administration might affect participants employed by such company or participants terminating employment with such company after the date upon which such company ceases to be a Related Company; nor shall the Corporate Committee or Administrator have any legal obligation toward such participants after such date. The company which ceases to be a Related Company shall designate a governing committee and plan administrator, as appropriate, which shall assume liability and responsibility for administration of the Plan, as such administration might affect participants employed by such company or participants terminating employment with such company after the date upon which such company ceases to be a Related Company. 8 9 5.7 Correction of Errors and Inconsistencies. The Corporate Committee upon its own motion, or at the request of the Administrator or of a Participant, shall have authority to effect consistency among deferral elections, payment elections, or hypothetical investment with respect to amounts deferred by a Participant under the Plan, so as to avoid or to rectify difficulties in Plan administration. In no event shall such action by the Committee reduce the dollar value of a Participant's Account balance existing on the Valuation Date immediately preceding such action, nor shall the Committee take action inconsistent with Section 3.3(b) hereof. The Committee may take such action with respect to a Participant's Account, regardless of whether such Participant may remain employed by a Participating Company or whether he may have terminated employment. Without limiting the generality of the foregoing, the Committee may take such action upon the request of the Administrator, in order to avoid deferral, or payment or other distribution of fractional shares of Stock. 5.8 Construction. The masculine gender where appearing in the Plan shall be deemed to include the feminine gender. The singular shall be deemed to include the plural; and the plural the singular. CIGNA Corporation herewith causes this Amended and Restated Plan to be executed on the 19th day of December, 1995, by its duly authorized officer. CIGNA CORPORATION Attest: By: _______________________ _______________________ Donald M. Levinson Carol J. Ward Executive Vice President Corporate Secretary 9 EX-10.26 5 SPECIAL RETENTION AGREEMENT 1 EXHIBIT 10.26 SPECIAL RETENTION AGREEMENT This Agreement is dated March 27, 1996, and is between Donald M. Levinson, who resides at 2107 Delancey Street, Philadelphia, Pennsylvania (referred to as "Executive") and CIGNA Corporation, 1650 Market Street, Philadelphia, Pennsylvania 19192, a Delaware corporation (referred to as "CIGNA"). Executive and CIGNA, intending to be legally bound and in consideration of the promises in this Agreement, mutually agree as follows: 1. RETENTION CONDITIONS. CIGNA shall provide Executive (or Executive's surviving spouse) with the benefits and payments described in paragraphs 2 or 3 below if Executive: (a) Complies with the provisions of paragraphs 4, 5 and 6 below; and (b) Remains continuously employed by CIGNA or one of its subsidiaries, affiliates or successors (collectively, the "Company") until the Executive's Vesting Date. (c) For purposes of this Agreement, Executive's "Vesting Date" shall be the first of the following dates: (1) The Executive's 55th birthday; (2) The date Executive dies; (3) The date Executive's employment with the Company terminates on account of his total and permanent disability; (4) The date Executive's employment with the Company terminates, if the termination is at the Company's initiative and is not a termination for Cause, as defined in the CIGNA Corporation Severance Benefits Plan for Members of the Executive Group (the "Executive Severance Plan"); or (5) The date Executive's employment with the Company otherwise terminates, but only if: (A) The People Resources Committee of CIGNA's Board of Directors (the "Committee") determines that, despite the Executive's termination, his right to the benefits and payments under this Agreement should vest; or 1 2 (B) The termination is a Termination Upon a Change of Control as described in subparagraph 1.10(ii) of the Executive Severance Plan. 2. SUPPLEMENTAL RETIREMENT BENEFITS. (a) If Executive meets the conditions in paragraph 1, CIGNA shall pay Executive a supplemental retirement benefit equal to the amount by which (1) exceeds (2), with: (1) equal to the benefits Executive would be entitled to receive under the CIGNA Pension Plan and the CIGNA Supplemental Pension Plan (the "Pension Plans") if: (A) the Pension Plans permitted the accrual of benefits up to a maximum of 35, instead of 30, Years of Credited Service (as that term is defined in the CIGNA Pension Plan); (B) Executive had 30 Years of Credited Service on his 55th birthday; and (C) the Pension Plans treated as Eligible Earnings (as defined in the CIGNA Pension Plan) any compensation payable to Executive but mandatorily deferred by the Committee in order to avoid nondeductibility under Section 162(m) of the Internal Revenue Code, to the extent that such compensation would have been Eligible Earnings under the CIGNA Supplemental Pension Plan had it been deferred under the Deferred Compensation Plan of CIGNA Corporation and Participating Subsidiaries; and (2) equal to the benefits Executive will actually be entitled to receive under the Pension Plans. (b) For purposes of determining Executive's Years of Credited Service under subparagraphs 2(a)(1), 2(d) and 2(e): (1) the Executive shall be deemed to have accrued 2% of his Final Average Eligible Earnings (as defined in the CIGNA Pension Plan) for each Year of Credited Service before reaching age 55; and 2 3 (2) the accrual of Credited Service from and after Executive's 55th birthday, shall be based on the U.S. Department of Labor's elapsed time rules, and Executive shall accrue one month of Credited Service for each month that he remains continuously employed by the Company. (c) Any supplemental retirement benefit payable to Executive under this paragraph 2 shall be paid at the same time and in the same manner as benefit payments to Executive under the CIGNA Supplemental Pension Plan. (d) In the event of a termination of Executive's employment under subparagraph 1(c)(4), the amount computed under subparagraph 2(a)(1) will be based upon the assumption that Executive had accrued 35 Years of Credited Service as of his termination of employment date. (e) In the event of a termination of Executive's employment under subparagraphs 1(c)(2), (3) or (5), the amount computed under subparagraph 2(a)(1) will be based upon these assumptions: (1) Executive had 30 Years of Credited Service on his 55th birthday; (2) Executive accrued additional Credited Service under subparagraph 2(b) after his 55th birthday; and (3) If Executive's termination of employment occurs before he reaches age 55, then Executive will be deemed to have 30 Years of Credited Service on his termination of employment date. 3. SUPPLEMENTAL SURVIVING SPOUSE BENEFITS. (a) If Executive (1) meets the conditions set forth in subparagraphs 1(a) and (b); (2) dies while employed by the Company; and (3) is survived by a spouse to whom he has been married for at least the 12-month period ending on his date of death (his "Spouse"), then CIGNA shall pay his Spouse a supplemental surviving spouse benefit as described in subparagraphs 3(b) or (c) below. Any supplemental surviving spouse benefit payable to Executive's Spouse under this paragraph 3 shall be paid at the same time and in the same manner as any benefit payments to the Spouse under the CIGNA Supplemental Pension Plan. 3 4 (b) If Executive dies before his 55th birthday, then CIGNA shall pay his Spouse a supplemental surviving spouse benefit equal to the amount, if any, by which (1) exceeds (2), with: (1) equal to the pre-retirement surviving spouse benefits his Spouse would receive under the Pension Plans if Executive had accrued 30 Years of Credited Service on the date of his death (in accordance with subparagraph 2(f)(3)); and (2) equal to the pre-retirement surviving spouse benefits his Spouse will actually be entitled to receive under the Pension Plans. (c) If Executive dies on or after his 55th birthday and has not made an election to receive his CIGNA Supplemental Pension Plan benefits in the optional, annuity form, then CIGNA shall pay his Spouse a supplemental surviving spouse benefit equal to the amount, if any, by which (1) exceeds (2), with: (1) equal to the benefits Executive would receive under the Pension Plans and paragraph 2 of this Agreement if (A) Executive had retired from the Company on the day before he died and (B) his retirement date had been a Vesting Date; and (2) equal to the benefits the Spouse will actually be entitled to receive under the Pension Plans. 4. NON-DISCLOSURE. (a) Executive shall not at any time during or after the term of his employment with the Company (other than in the good faith performance of the duties and responsibilities of his position with the Company) reveal or make known to any person (other than the Company) or use for his own benefit (or for the benefit of any other person or entity unrelated to the Company) any Company Information made known (whether or not with the knowledge and permission of the Company) to Executive by reason of his employment by the Company; provided however, that after such knowledge, information and materials have become public knowledge, Executive shall have no further obligation under this paragraph 4 with respect to same so long as Executive was in no manner responsible, directly or indirectly, for permitting such information to become public knowledge without the consent of the Company. 4 5 (b) For purposes of subparagraph 4(a) the term "Company Information" shall mean any knowledge, information or materials about the Company's products, services, know-how, customers, business plans, or confidential information about financial, marketing, pricing, compensation and other proprietary matters relating to the Company, whether or not subject to trademark, copyright, trade secret or other protection, whether or not developed, devised or otherwise created in whole or in part by the efforts of Executive, and whether or not a matter of public knowledge (unless as a result of authorized disclosure). (c) Executive shall retain all Company Information which he may acquire or develop during the term of his employment with the Company in trust for the sole benefit of the Company. 5. COVENANT TO REPORT. All written materials, records and documents made by Executive or coming into his possession during the term of his employment with the Company and concerning the business or affairs of the Company or any of its affiliates shall be and remain the property of the Company and, upon the termination of Executive's employment with the Company or upon the request of the Company, Executive shall promptly deliver the same to the Company. Executive agrees to render to the Company such reports of the activities undertaken by Executive or conducted under Executive's direction pursuant hereto during the term of his employment as the Company may request. 6. COVENANT NOT TO COMPETE. (a) Executive agrees that, during the term of his employment with the Company and, if he meets the conditions in subparagraphs 1(c)(1), (3), (4) or (5), for a period of twenty-four (24) months following the termination of his employment with the Company, he will not, within any part of the United States where the Company is doing business or has, within the twelve (12) month period before the termination of his employment, been actively planning to do business: (1) engage directly or indirectly, in any capacity (including but not limited to owner, sole proprietor, partner, shareholder (unless his holding is for investment purposes only and is limited to less than 1% of the total combined voting power of all shares), employee, agent, 5 6 consultant, officer or director) in any business which competes with the Company; (2) solicit or attempt to solicit any customers of the Company on behalf of such competing businesses, without prior written consent of the President of the Company; or (3) employ, engage for hire, solicit the employment or engagement for hire, or otherwise attempt to employ or engage for hire, by or on behalf of any such competing businesses, without the prior written consent of the Company, any person who within the prior twelve (12) month period has been an officer or employee of the Company, unless such officer or employee has been terminated by the Company. (b) The provisions of subparagraph 6(a) will be of no force or effect in the event of Executive's Termination upon a Change of Control, as defined in the CIGNA Corporation Severance Benefits Plan for Members of the Executive Group. 7. JUDICIAL REMEDIES. (a) Executive acknowledges that the Company or its affiliates will have no adequate remedy at law if Executive violates the terms of paragraphs 4, 5 and 6. In such event, the Company shall have the right, in addition to any other rights it may have, to obtain in any court of competent jurisdiction injunctive relief to restrain any breach or threatened breach of specific performance of this Agreement. (b) If the scope of the restrictions on the Executive under paragraph 6 are found by a court of competent jurisdiction to be unreasonably broad and unenforceable, it is the intent of the parties that the court not void the restrictions but reformulate them so they are reasonable and enforceable, while adhering as closely as possible to the original scope of the restrictions. 8. RECOVERY. If the Executive violates any of the provisions of paragraphs 4, 5 or 6: (a) CIGNA shall have no obligation to pay Executive (or Executive's surviving spouse) any amounts described in paragraphs 2 or 3 of the Agreement; and 6 7 (b) If Executive has already received any payments under paragraph 2, Executive agrees that the amount of such payments shall be repaid to CIGNA as follows: (1) CIGNA shall immediately offset such amounts from any payments which may be owing to the Executive; and (2) If such offset is insufficient, Executive agrees to repay any remaining amounts to CIGNA within thirty (30) days of receipt of CIGNA's written demand for such repayment. If CIGNA must commence any arbitration or other legal action to enforce Executive's obligations under this subparagraph 8(b), Executive further agrees to pay CIGNA its costs and attorneys' fees in such action. 9. LIMITED SCOPE. This Agreement is not a contract of employment for any specified term, and nothing herein is intended to, nor shall be construed as, changing the nature of Executive's employment from an at-will relationship. This Agreement is limited to the terms and conditions set forth herein and does not otherwise address Executive's compensation or benefits, the duties and responsibilities of his position, or any of the Company's other rights as employer. 10. The Agreement is made and entered into in the Commonwealth of Pennsylvania, and at all times and for all purposes shall be interpreted, enforced and governed under its laws. 11. Without in any way affecting the terms of paragraph 7 above, it is agreed that any controversy or claim arising out of or relating to this Agreement shall be settled exclusively by arbitration in Philadelphia, Pennsylvania, in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the Arbitrator(s) may be entered in any court having jurisdiction thereof. 12. References in this Agreement to the Executive Severance Plan shall mean such plan as amended through March 1, 1996, and shall not mean any subsequent versions of such plan, or any successor plan, unless the Executive agrees in writing that such subsequent version or successor shall be applicable. 7 8 13. CIGNA's rights and obligations under this Agreement will inure to the benefit of and be binding upon CIGNA's successors and assigns. 14. The Company's obligations under this Agreement shall be unfunded and unsecured and shall be paid when due out of the general assets of the Company. However, the Company's obligations may be funded through the CIGNA Corporation Benefits Protection Trust or other "rabbi trust" arrangement which is a grantor trust the assets of which are not subject to the claims of creditors of the Company, except in the case of bankruptcy or insolvency of the Company. 15. This Agreement contains the entire agreement between Executive and CIGNA with respect to the matters addressed herein and fully replaces and supersedes any and all prior agreements or understandings between them related to such matters. Any amendment to this Agreement must be in writing and signed by both CIGNA and Executive. IN WITNESS WHEREOF, the persons named below have signed this Agreement and Release on the dates shown below. CIGNA Corporation 3-27-96 /s/ W. H. Taylor - -------------------------- ---------------------------- By Wilson H. Taylor Date President and Chief Executive Officer 3-27-96 /s/ D. M. Levinson - -------------------------- ---------------------------- Date Donald M. Levinson 8 EX-11 6 COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11 CIGNA CORPORATION COMPUTATION OF EARNINGS PER SHARE (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
FOR THE YEAR ENDED DECEMBER 31, -------------------------------------- 1995 1994 1993 ---------- ---------- ---------- PRIMARY EARNINGS PER SHARE Net income available to common shares.................. $ 211 $ 554 $ 234 ========== ========== ========== Common shares.......................................... 73,405,432 72,218,299 71,933,241 Common share equivalents applicable to stock options... 313,492 98,548 88,710 ---------- ---------- ---------- Total................................................ 73,718,924 72,316,847 72,021,951 ========== ========== ========== PRIMARY................................................ $ 2.86 $ 7.66 $ 3.25 ========== ========== ========== FULLY DILUTED EARNINGS PER SHARE Net income............................................. $ 211 $ 554 $ 234 Adjusted for: Interest expense (net of tax) on convertible subordinated debentures........................... -- 13 * ---------- ---------- ---------- Net income available to common shares.................. $ 211 $ 567 $ 234 ========== ========== ========== Common shares.......................................... 73,405,432 72,218,299 71,933,241 Common share equivalents applicable to stock options... 380,956 115,185 97,177 Assumed conversion of convertible subordinated debentures........................................... -- 3,625,956 * ---------- ---------- ---------- Total................................................ 73,786,388 75,959,440 72,030,418 ========== ========== ========== FULLY DILUTED.......................................... $ 2.86 $ 7.47 $ 3.25 ========== ========== ==========
- --------------- * Anti-dilutive; therefore, amounts have been excluded. EX-12 7 COMP. OF RATIOS OF EARNINGS TO FIXED CHARGES 1 EXHIBIT 12 CIGNA CORPORATION COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES (DOLLARS IN MILLIONS)
YEAR ENDED DECEMBER 31, ---------------------------------------------- 1995 1994 1993 1992 1991 ------ ------ ------ ------ ------ Income from continuing operations before income tax............................................. $ 251 $ 805 $ 165 $ 179 $ 584 ------ ------ ------ ------ ------ Fixed charges included in income: Interest expense................................ 120 121 124 100 106 Interest portion of rental expense.............. 99 102 114 113 123 ------ ------ ------ ------ ------ Total fixed charges included in income..... 219 223 238 213 229 ------ ------ ------ ------ ------ Income available for fixed charges................ $ 470 $1,028 $ 403 $ 392 $ 813 ------ ------ ------ ------ ------ Ratio of earnings to fixed charges................ 2.1 4.6 1.7 1.8 3.6 ====== ====== ====== ====== ======
EX-13 8 PORTIONS OF 1995 ANNUAL REPORT TO SHAREHOLDERS 1 Exhibit 13 Portions of Registrant's 1995 Annual Report to Shareholders 2 EXHIBIT 13 HIGHLIGHTS
- ----------------------------------------------------------------------------------------------------------------------- (Dollars in millions, except per share amounts) 1995 1994 1993 1992 1991 - ----------------------------------------------------------------------------------------------------------------------- REVENUES: Premiums and fees $ 13,914 $ 13,912 $ 13,712 $ 13,924 $ 14,295 Net investment income and other revenues 4,808 4,438 4,408 4,493 4,373 Realized investment gains 233 42 282 165 82 - ----------------------------------------------------------------------------------------------------------------------- Total $ 18,955 $ 18,392 $ 18,402 $ 18,582 $ 18,750 - ----------------------------------------------------=================================================================== NET INCOME (LOSS): Employee Life and Health Benefits $ 597 $ 548 $ 589 $ 337 $ 329 Employee Retirement and Savings Benefits 194 190 159 191 167 Individual Financial Services 151 136 110 49 76 Property and Casualty (673) (235) (530) (195) (7) Other Operations (58) (85) (94) (71) (116) - ----------------------------------------------------------------------------------------------------------------------- Total $ 211 $ 554 $ 234 $ 311 $ 449 - ----------------------------------------------------=================================================================== Per share: Net income $ 2.86 $ 7.66 $ 3.25 $ 4.34 $ 6.28 Common dividends declared $ 3.04 $ 3.04 $ 3.04 $ 3.04 $ 3.04 Total assets $ 95,903 $ 86,102 $ 84,975 $ 78,034 $ 74,573 Long-term debt $ 1,066 $ 1,389 $ 1,235 $ 929 $ 848 Shareholders' equity $ 7,157 $ 5,811 $ 6,575 $ 5,744 $ 5,863 Per share $ 93.76 $ 80.46 $ 91.30 $ 80.09 $ 81.93 Common shares outstanding (thousands) 76,332 72,225 72,015 71,720 71,563 Shareholders of record 15,131 16,408 17,491 18,581 19,380 Employees 44,707 48,603 50,624 52,255 55,961 - -----------------------------------------------------------------------------------------------------------------------
Net income for 1992 includes a net charge of $26 million, or $.36 per share, for the net cumulative effect of accounting changes for income taxes, as well as postemployment and postretirement benefits other than pensions. Net income for 1991 includes a charge of $4 million, or $.06 per share, for an extraordinary loss from early extinguishment of debt. See Notes to the Financial Statements, including Note 2 for information regarding the effect of adopting accounting pronouncements. 3 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONSOLIDATED RESULTS OF OPERATIONS
(In millions) - ------------------------------------------------------------------------------------------ FINANCIAL SUMMARY 1995 1994 1993 - ------------------------------------------------------------------------------------------ Premiums and fees $ 13,914 $ 13,912 $ 13,712 Net investment income 4,296 3,946 3,902 Other revenues 512 492 506 Realized investment gains 233 42 282 -------- ------- -------- Total revenues 18,955 18,392 18,402 Benefits and expenses 18,704 17,587 18,237 -------- ------- -------- Income before taxes 251 805 165 Income taxes (benefits) 40 251 (69) -------- ------- -------- Net income $ 211 $ 554 $ 234 - ----------------------------------------------------====================================== Realized investment gains, net of taxes $ 178 $ 28 $ 224 - ----------------------------------------------------======================================
CIGNA's consolidated net income decreased 62% in 1995, compared with 1994. Results for 1995 included third quarter charges of $774 million after-tax ($1.2 billion pre-tax) in the Property and Casualty segment, primarily for asbestos-related and environmental pollution exposures, and a $75 million after-tax ($115 million pre-tax) charge associated with cost reduction initiatives in the Property and Casualty and Employee Life and Health Benefits segments. Excluding these charges and after-tax realized investment gains, income for 1995 was $882 million. Results for 1994 included a third quarter charge of $27 million after-tax, primarily related to property and casualty reinsurance. Excluding this charge and after-tax realized investment gains, results were $553 million. Earnings for 1995, compared with 1994, excluding the items previously noted, increased 59%, primarily reflecting improved results in the Property and Casualty segment. After-tax realized investment gains for 1995 increased significantly, compared with 1994, reflecting higher gains on sales of equity securities, resulting from a restructuring of a portion of CIGNA's investment portfolio into fixed income securities. Net income for 1994 increased significantly compared with 1993. Results for 1993 included a $244 million after-tax charge for legal and associated expenses for reported claims related to asbestos, environmental pollution and other long-term exposures and $107 million in after-tax cost reduction charges. In addition, CIGNA's results for 1993 reflected a benefit of $48 million, resulting from the effect on CIGNA's net deferred tax asset of an increase in the federal income tax rate. Excluding these items and after-tax realized investment gains, income for 1994 of $553 million increased significantly from $313 million for 1993, due primarily to improved results in the Property and Casualty and Employee Life and Health Benefits segments. After-tax realized investment gains for 1994 decreased, compared with 1993, primarily due to lower gains on sales of equity securities and fixed maturities and a higher effective tax rate in 1994 than in 1993. Partially offsetting these factors were decreases in new loss reserves, primarily for mortgage loan and real estate investments, and higher gains on sales of real estate. Consolidated revenues, excluding realized investment gains, were $18.7 billion, $18.4 billion and $18.1 billion for 1995, 1994 and 1993, respectively. The 1995 increase reflects higher net investment income, due primarily to growth in interest-sensitive products and the favorable effects of the portfolio restructuring discussed above. The 1994 increase primarily reflects higher premiums and fees for the Employee Life and Health Benefits segment due to growth in HMO and life premiums, partially offset by lower Property and Casualty premiums and fees, due to intense price competition. Earnings are expected to improve in 1996, excluding the effects of realized investment results and the third quarter 1995 charges, previously discussed. However, such improvement could be adversely affected by the factors noted in the cautionary statement on page 23. OTHER MATTERS During the third quarter of 1995, CIGNA announced its plan to restructure its domestic property and casualty businesses into two separate operations. The plan was approved by regulators in February 1996, and is effective as of December 31, 1995. One operation will manage ongoing business (ongoing operations) and the other will manage run-off policies and related claims, including those for asbestos-related and environmental pollution exposures (run-off operations). The plan is designed to create business structures that enhance management's focus on its specialist strategy and to position the ongoing business for future profitable growth, while at the same time providing dedicated, specialized resources to manage each operation separately and effectively. In addition, by placing substantially all exposures associated with the run-off businesses in a legal entity separate from the ongoing operations, CIGNA enhanced the claims paying rating for its ongoing operations. - ------------------------------------------------------------------------------ 8 4 MANAGEMENT'S DISCUSSION AND ANALYSIS As part of its overall restructuring plan, CIGNA contributed $375 million of additional capital to the run-off operations. This contribution, which is reflected in the run-off operations' statutory surplus as of December 31, 1995, was funded in 1996 through internal sources. Also, the ongoing operations will contribute an additional $50 million to the run-off operations by December 31, 2001. In addition, the ongoing operations assumed $125 million of liabilities, primarily related to employee benefits of the run-off operations, and will reinsure up to $800 million of claims of the run-off operations in the unlikely event that the statutory capital and surplus of the run-off operations falls below $25 million. As a result of this restructuring, the domestic run-off operations had statutory capital and surplus of approximately $245 million, pro forma investment assets of approximately $4.3 billion and insurance liabilities of approximately $4.2 billion, as of December 31, 1995. CIGNA continues to conduct strategic and financial reviews of its businesses in order to deploy its capital most effectively. Such reviews could result in future actions; however, no determinations have been made at this time. During 1995, CIGNA implemented cost reduction initiatives in the Domestic Property and Casualty operations and the Employee Life and Health Benefits segment, which resulted in charges of $85 million ($55 million after-tax) and $30 million ($20 million after-tax), respectively. The cost reduction initiatives, when fully implemented, are estimated to result in annual after-tax savings of approximately $55 million and $40 million, respectively, primarily based on the elimination of certain payroll and payroll-related costs and, to a lesser extent, lease costs. The savings in the near term for the Employee Life and Health Benefits segment are expected to be partially offset by increased investments in business growth and service initiatives. In addition, in 1993, CIGNA implemented cost reduction initiatives in the Property and Casualty segment, which resulted in a charge of approximately $150 million ($97 million after-tax). CIGNA estimates that this cost reduction initiative has resulted in annual after-tax savings of approximately $50 million, primarily based on the elimination of certain payroll and payroll-related costs and, to a lesser extent, lease costs. See Note 18 to the Financial Statements for additional information. In connection with federal tax audits for the years 1982 through 1990, an issue is being contested by CIGNA that could result in assessments totaling approximately $200 million. Although the outcome is uncertain, management believes that CIGNA should prevail. See Note 9 to the Financial Statements for additional information. CIGNA's businesses are subject to a changing social, economic, legal, legislative and regulatory environment that could affect them. Some of the changes include initiatives to: revise the system of funding cleanup of environmental damages; reform the federal tax system; reinterpret insurance contracts long after the policies were written to provide coverage unanticipated by CIGNA; restrict insurance pricing and the application of underwriting standards; reform health care; and expand regulation. Some of the more significant issues are discussed below. Legislation is expected to be considered by Congress that is likely to limit, and eventually substantially eliminate, the tax deductibility of policy loan interest for corporate-owned life insurance. The outcome of such legislation is uncertain and, although it could have a material adverse effect on results of operations for the Individual Financial Services segment, it is not expected to be material to CIGNA's consolidated results of operations, liquidity or financial condition. Proposed legislation for Superfund reform remains under consideration by Congress. Any changes in Superfund relating to 1) allocating responsibility, 2) funding cleanup costs or 3) establishing cleanup standards could affect the liabilities of potentially responsible parties and insurers. Due to uncertainties associated with the timing and content of any future Superfund legislation, the effect on CIGNA's results of operations, liquidity or financial condition cannot be reasonably estimated at this time. CIGNA expects proposals for federal and state legislation seeking some health care insurance reforms and limitations on formation and operation of efficient health care networks. Due to uncertainties associated with the timing and content of any health care legislation, the effect on CIGNA's future results of operations, liquidity or financial condition cannot be reasonably estimated at this time. As of December 31, 1995, CIGNA's life insurance and property and casualty insurance subsidiaries that were not exempt from the National Association of Insurance Commissioners' (NAIC) risk-based capital rules were adequately capitalized under such rules. The NAIC is currently addressing risk-based capital guidelines for health maintenance organizations (HMOs). CIGNA does not expect such guidelines to have a material adverse effect on its future results of operations, liquidity or financial condition. - ------------------------------------------------------------------------------ 9 5 During 1996, A.M. Best Company, Inc. (Best) reviewed CIGNA's restructured domestic property and casualty operations and rated the ongoing operations A- (Excellent) and rated the run-off operations B+ (Very Good), the second-highest rating available for run-off companies. In addition, during 1996, Moody's Investors Service rated the principal insurance companies of the ongoing operations Baa1 (Adequate) and rated the principal insurance companies of the run-off operations Ba1 (Questionable). During 1995, Standard & Poor's upgraded the outlook for CIGNA's corporate debt ratings from negative to stable. The eventual effect on CIGNA of the changing environment in which it operates remains uncertain. For additional information, see Note 19 to the Financial Statements. ACCOUNTING PRONOUNCEMENTS In 1993, CIGNA implemented Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities." During the fourth quarter of 1995, the Financial Accounting Standards Board (FASB) issued a guide to implementation of SFAS No. 115, which permits a one-time opportunity to reclassify securities subject to SFAS No. 115. Consequently, CIGNA reclassified all held-to-maturity securities to available-for-sale as of December 31, 1995. The non-cash reclassification of these securities, which had an aggregate amortized cost of $11.8 billion and fair value of $12.8 billion, resulted in an increase of approximately $300 million, net of policyholder-related amounts and deferred income taxes, in net unrealized appreciation included in Shareholders' Equity as of December 31, 1995. See Note 2(B) to the Financial Statements for a detailed discussion of certain accounting pronouncements and their effect on CIGNA. EMPLOYEE LIFE AND HEALTH BENEFITS
(In millions) - ------------------------------------------------------------------------------------------ FINANCIAL SUMMARY 1995 1994 1993 - ------------------------------------------------------------------------------------------ Premiums and fees $ 8,135 $ 7,844 $ 7,438 Net investment income 574 515 503 Other revenues 336 272 286 Realized investment gains 122 19 165 ------- ------- ------- Total revenues 9,167 8,650 8,392 Benefits and expenses 8,307 7,821 7,541 ------- ------- ------- Income before taxes 860 829 851 Income taxes 263 281 262 ------- ------- ------- Net income $ 597 $ 548 $ 589 - -----------------------------------------------------===================================== Realized investment gains, net of taxes $ 104 $ 17 $ 126 - -----------------------------------------------------=====================================
Net income for the Employee Life and Health Benefits segment increased 9% in 1995, compared with a decrease of 7% in 1994. Results for 1995 included an after-tax charge of $20 million related to cost reduction initiatives. See Other Matters for additional information. Excluding the cost reduction charge and after-tax realized investment gains, income for 1995 was $513 million, compared with $531 million for 1994 and $463 million for 1993. After-tax earnings for 1995 in the segment's indemnity operations, excluding the cost reduction charge of $9 million and realized investment results, were $311 million, a decrease of $16 million, compared with 1994. The 1995 decrease reflects competitive pressures on rates and adverse claim experience resulting from higher medical costs in the group medical operations, as well as higher claims in the group life operations. These factors were partially offset by an improvement of $9 million in earnings for long-term disability (LTD) business. The segment's HMO operations' after-tax earnings, excluding the cost reduction charge of $11 million and realized investment results, were $202 million for 1995, a decrease of $2 million, compared with 1994. This decrease reflects the effects of lower margins resulting from higher than expected medical care costs and higher operating expenses associated with business growth and investments in service initiatives. Partially offsetting these factors were the effects of membership growth, as well as the favorable effects of $30 million for 1995 resulting from the net change of reserve reviews between respective years. Earnings for 1994 reflect improvements of $62 million and $6 million in the segment's HMO and indemnity operations, respectively, compared with 1993. The HMO improvement reflects approximately $42 million attributable to membership growth, with the balance primarily attributable to rate increases - ------------------------------------------------------------------------------ 10 6 MANAGEMENT'S DISCUSSION AND ANALYSIS and favorable medical cost experience. The increase in indemnity earnings reflects an $8 million improvement in group universal life business, primarily due to sales. The increase also reflects, to a lesser extent, favorable claim experience and rate increases for other lines. Partially offsetting the indemnity improvements was a decline in LTD earnings due to unfavorable claim experience. Premiums and fees increased 4% in 1995 and 5% in 1994. The 1995 improvement reflects higher premiums and fees for HMOs of $263 million, primarily due to membership growth. Group indemnity premiums increased $28 million, reflecting higher medical premiums due to new sales and rate increases, partially offset by declines in life and LTD premiums. The 1994 improvement reflects increased premiums and fees for HMOs of $115 million, primarily reflecting membership growth and rate increases, and an increase of $291 million in group indemnity business (life, $186 million; medical, $66 million; all other, $39 million), primarily reflecting sales and rate increases. Growth in premiums is expected to continue to be constrained by competitive pressures in both the medical indemnity and HMO markets. Total HMO membership increased 11% in 1995, compared with a 25% increase in 1994. Approximately 73% of membership growth for 1995 has been in HMO alternative funding programs under which the customer assumes all or a portion of the responsibility for funding claims. Such programs generally have lower margins than traditional HMO plans. Management believes that adding premium equivalents to premiums and fees (adjusted premiums and fees) produces a more meaningful measure of business volume. Premium equivalents generally represent paid claims and are additional premiums that would have been earned under alternative funding programs, such as minimum premium and administrative services only (ASO) plans, if these coverages had been written as traditional indemnity and HMO programs. ASO plans generally do not involve the assumption of insurance or significant credit risks; therefore, profit margins for such plans are often lower than for traditional programs. Adjusted premiums and fees were $17.8 billion in 1995, compared with $17.5 billion in both 1994 and 1993. The 1995 increase, compared to 1994, reflects the factors noted above for premiums and fees, and growth in HMO alternative funding programs, partially offset by declines in medical premium equivalents reflecting cancellations and conversions to HMOs. Premium equivalents, as a percentage of total adjusted premiums and fees, were 54% in 1995, 55% in 1994 and 57% in 1993. ASO plans accounted for 45%, 46% and 45% of total adjusted premiums and fees in 1995, 1994 and 1993, respectively. The adjusted premium mix in 1995 was approximately 45% medical insurance, 32% prepaid health and dental care, 10% life insurance, 8% dental insurance, 3% long-term disability insurance and 2% other insurance coverages. Indemnity claims paid for insured plans and claims paid for alternative funding programs, including ASOs, for the year ended December 31 were as follows:
- ------------------------------------------------------------------------------------------ (In millions) 1995 1994 1993 - ------------------------------------------------------------------------------------------ Insured plans $ 3,720 $ 3,706 $ 3,465 Alternative funding programs 9,748 9,725 9,917 - ------------------------------------------------------------------------------------------ Total $ 13,468 $ 13,431 $ 13,382 - ----------------------------------------------------======================================
In early January 1996, CIGNA completed the sale of certain assets of its Los Angeles staff model HMO, while retaining access to the provider network which will continue to serve membership in this area. The effects of the sale are not expected to be material to CIGNA's results of operations. Earnings for this segment for 1996 are expected to be constrained in both the Indemnity and HMO operations as a result of competitive rate pressures and, for Indemnity, continued conversions to HMOs. EMPLOYEE RETIREMENT AND SAVINGS BENEFITS
(In millions) - ------------------------------------------------------------------------------------------ FINANCIAL SUMMARY 1995 1994 1993 - ------------------------------------------------------------------------------------------ Premiums and fees $ 258 $ 201 $ 296 Net investment income 1,722 1,722 1,846 Realized investment gains (losses) 3 12 (31) ------- ------- ------- Total revenues 1,983 1,935 2,111 Benefits and expenses 1,699 1,648 1,888 ------- ------- ------- Income before taxes 284 287 223 Income taxes 90 97 64 ------- ------- ------- Net income $ 194 $ 190 $ 159 - -----------------------------------------------------===================================== Realized investment gains (losses), net of taxes $ 2 $ 6 $ (23) - -----------------------------------------------------=====================================
Net income for the Employee Retirement and Savings Benefits segment increased 2% in 1995, compared with an increase of 19% in 1994. Included in the results for 1994 was an unfavorable tax adjustment resulting from IRS audits of $3 million (including a $1 million charge related to realized investment results), compared with favorable tax adjustments of $3 million (including a $3 million charge related to realized investment results) in 1993. - ------------------------------------------------------------------------------ 11 7 Excluding after-tax realized investment results and the tax adjustments, income for 1995 was $192 million, compared with $186 million for 1994 and $176 million in 1993. The 1995 increase principally reflects the favorable effects on earnings from asset growth. The 1994 increase primarily reflects improved interest margins on defined contribution business. Premiums and fees increased 28% in 1995 and decreased 32% in 1994. The change in both years reflects the variability of annuity sales. Net investment income for 1995 was level with 1994, while 1994 decreased 7% compared with 1993. The 1994 decrease reflects the effects of lower yields and customers' redirection of investments to separate accounts. Assets under management is generally a key determinant of earnings for this segment. For the year ended December 31, assets under management and related activity, including amounts attributable to separate accounts, were as follows:
- --------------------------------------------------------------------------- (In millions) 1995 1994 - --------------------------------------------------------------------------- Balance -- January 1 $ 33,882 $ 34,469 Premiums and deposits 3,624 3,032 Investment results 2,860 2,320 Increase (decrease) in fair value of assets 3,237 (1,250) Customer withdrawals (2,092) (2,037) Benefit payments and other (3,328) (2,652) - --------------------------------------------------------------------------- Balance -- December 31 $ 38,183 $ 33,882 - ----------------------------------------------------=======================
Premiums and deposits increased 20% in 1995, compared with 1994, reflecting higher sales. Approximately 60% and 56% of the premiums and deposits for 1995 and 1994, respectively, were from new customers. The increase in investment results for 1995, compared with 1994, reflects higher realized gains from the sales of separate account assets and asset growth. The changes in the fair value of assets for 1995 and 1994 primarily reflect market value fluctuations for fixed maturities and equity securities. The increase for 1995 also reflects approximately $525 million from SFAS No. 115 as discussed under Accounting Pronouncements. The increase in benefit payments and other is primarily due to an increase in annuity payments of $350 million and the payment of benefits of $175 million for several large contracts that matured in 1995. Management expects asset growth to continue to be constrained, resulting from decisions by plan sponsors to diversify assets and fund management. In addition, assets under management will continue to be affected by market value fluctuations for fixed maturities and equity securities. INDIVIDUAL FINANCIAL SERVICES
(In millions) - ------------------------------------------------------------------------------------------ FINANCIAL SUMMARY 1995 1994 1993 - ------------------------------------------------------------------------------------------ Premiums and fees $ 881 $ 824 $ 814 Net investment income 968 741 583 Other revenues 70 64 65 Realized investment gains (losses) 1 8 (15) ------- ------- ------- Total revenues 1,920 1,637 1,447 Benefits and expenses 1,689 1,427 1,283 ------- ------- ------- Income before taxes 231 210 164 Income taxes 80 74 54 ------- ------- ------- Net income $ 151 $ 136 $ 110 - -----------------------------------------------------===================================== Realized investment gains (losses), net of taxes $ 1 $ 5 $ (13) - -----------------------------------------------------=====================================
Net income for the Individual Financial Services segment increased 11% and 24% in 1995 and 1994, respectively. Excluding after-tax realized investment results, income for 1995 was $150 million, compared with $131 million for 1994 and $123 million for 1993. The increase for 1995 reflects higher earnings from interest-sensitive products, primarily due to business growth. The 1994 increase reflects higher earnings of $14 million from interest-sensitive products, primarily due to improved interest margins and business growth, partially offset by the absence of $5 million of favorable tax adjustments recorded in 1993. In 1995 and 1994, premiums and fees increased 7% and 1%, respectively, reflecting growth in business of interest-sensitive products, principally corporate-owned life insurance. Net investment income increased 31% and 27% in 1995 and 1994, respectively, reflecting growth of interest-sensitive and annuity products. Deposits, which are not included in revenues, totaled $3.2 billion, $3.0 billion and $2.5 billion in 1995, 1994 and 1993, respectively. These increases primarily reflect higher annuity sales. See Other Matters for additional information on corporate-owned life insurance. - ------------------------------------------------------------------------------ 12 8 MANAGEMENT'S DISCUSSION AND ANALYSIS PROPERTY AND CASUALTY
(In millions) - ------------------------------------------------------------------------------------------ FINANCIAL SUMMARY 1995 1994 1993 - ------------------------------------------------------------------------------------------ Premiums and fees $ 4,640 $ 5,043 $ 5,136 Net investment income 794 756 753 Other revenues 216 223 254 Realized investment gains 85 8 185 ------- ------- ------- Total revenues 5,735 6,030 6,328 Benefits and expenses 6,795 6,447 7,290 ------- ------- ------- Loss before tax benefits (1,060) (417) (962) Income tax benefits (387) (182) (432) ------- ------- ------- Net loss $ (673) $ (235) $ (530) - -----------------------------------------------------===================================== Realized investment gains, net of taxes $ 54 $ 4 $ 150 - -----------------------------------------------------=====================================
Net losses for the Property and Casualty segment increased significantly, compared with 1994, primarily reflecting third quarter 1995 charges associated with reserve strengthening for asbestos-related and environmental pollution (A&E) claims of $686 million after-tax and uncollectible reinsurance for non-A&E exposures of $88 million after-tax, and charges for cost reduction initiatives of $55 million after-tax. See Other Matters for additional information. The Property and Casualty segment's after-tax results for the year ended December 31 included the following:
(In millions) 1995 1994 1993 - ------------------------------------------------------------------------------------------ Underlying operations $ 347 $ 210 $ 20 Realized investment gains 54 4 150 Prior year development: Asbestos and environmental (787) (179) (367) Unrecoverable reinsurance (116) (19) (18) Other (70) (152) (128) Catastrophe losses (46) (98) (94) Cost reduction charges (55) (9) (97) Other -- 8 4 - ------------------------------------------------------------------------------------------ Net loss $ (673) $ (235) $ (530) - -----------------------------------------------------=====================================
The improvements in "Underlying operations" for 1995 and 1994 reflect lower current accident year underwriting losses due to improved claim experience and rate increases on certain lines of business and, for 1995, higher net investment income for the international operations. Also, the improvements reflect expense savings of approximately $40 million after-tax in 1994 and an additional $10 million in 1995, primarily due to lower employee-related costs resulting from cost reduction initiatives. Although results are improving, they continue to reflect the highly competitive pricing environment. Premiums and fees decreased 8% in 1995, compared with 1994, primarily reflecting reduced premiums of $444 million in CIGNA's domestic commercial business. The decrease in the domestic commercial business reflects continued competition, the application of stricter underwriting standards and, to a lesser extent, conversions of workers' compensation business from standard risk transfer to high-deductible policies, and a ratings downgrade by Best late in 1994. In addition, the overall decline reflects a decrease in premiums and fees from the reinsurance business of $224 million due to CIGNA's withdrawal from this business late in 1994, as discussed below. Growth in international lines of business of $320 million, approximately half of which resulted from changes in foreign currency translations, partially offset the overall decline in premiums and fees. Based on a strategic assessment, CIGNA decided in the third quarter of 1994 to substantially withdraw from the property and casualty reinsurance business. For 1993, the portion of the business affected by the withdrawal had international and domestic revenues of approximately $500 million, and results of operations that were not material to CIGNA. In connection with the withdrawal, CIGNA sold renewal opportunities for a significant portion of its international reinsurance business and discontinued writing most other property and casualty reinsurance coverages. These actions have not had a material effect on CIGNA's results of operations. Premiums and fees are expected to continue to be constrained by competition in 1996. Premiums and fees decreased 2% in 1994, compared with 1993. This decrease reflects a decline of $388 million for CIGNA's domestic commercial business and reinsurance business resulting from price competition, strengthened underwriting standards and domestic agency force reduction in certain lines of business. Growth in international lines of business of $315 million, approximately 25% of which resulted from changes in foreign currency translations, partially offset the overall decline in premiums and fees. Net investment income for 1995 increased 5%, compared with 1994, primarily reflecting growth in business for the international operations, partially offset by negative cash flows in the domestic property and casualty operations. Net investment income for 1994 was level with 1993. - ------------------------------------------------------------------------------ 13 9 Pre-tax catastrophe losses, before reinsurance (Gross) and net of reinsurance (Net), for the year ended December 31 were as follows:
- ------------------------------------------------------------------------------------------ (In millions) 1995 1994 1993 - ------------------------------------------------------------------------------------------ Gross catastrophe losses $ 80 $ 158 $ 308 Net catastrophe losses $ 71 $ 151 $ 145 - ------------------------------------------------------------------------------------------
Net catastrophe losses included $29 million for Texas hail storms in 1995; $87 million for the Los Angeles earthquake and $27 million for the severe winter weather in 1994; and $36 million for the East Coast blizzard in 1993. The effect of reinsurance on these catastrophe losses was not material. Also, 1993 included $41 million, net (gross, $173 million) for the World Trade Center bombing. CIGNA's principal property catastrophe reinsurance program provides, on a combined basis, approximately 95% recovery of losses between $70 million and $400 million for its domestic operations and approximately 95% recovery of losses between $40 million and $300 million for international operations. CIGNA's future results of operations could be volatile, depending on the frequency and severity of future catastrophes. LOSS RESERVES AND REINSURANCE RECOVERABLES CIGNA's reserving methodology and significant issues affecting the estimation of loss reserves are described in its Form 10-K, and additional information is included in Note 17 to the Financial Statements. In summary, CIGNA's property and casualty loss reserves of $17.0 billion and $16.8 billion as of December 31, 1995 and 1994, respectively, are an estimate of future payments for reported and unreported claims for losses and related expenses with respect to insured events that have occurred. The basic assumption underlying the many traditional actuarial and other methods used in the estimation of property and casualty loss reserves is that past experience is an appropriate basis for predicting future events. However, current trends and other factors that would modify past experience are also considered. The process of establishing loss reserves is subject to uncertainties that are normal, recurring and inherent in the property and casualty business. CIGNA continually attempts to improve its loss estimation process by refining its process of analyzing 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 estimating losses have grown because of changes in social and legal trends that expand the liability of insureds, establish new liabilities and reinterpret insurance contracts long after the policies were written to provide coverage unanticipated by CIGNA. Such changes from past experience significantly affect the ability of insurers to estimate liabilities for unpaid losses and related expenses. CIGNA changed its methodology for estimating asbestos-related and environmental pollution reserves in the third quarter of 1995, as discussed below. CIGNA's reserves for asbestos-related and environmental pollution claims are a reasonable estimate of its ultimate liability for these claims, based on currently known facts, reasonable assumptions where the facts are not known, current law and methodologies currently available. Reserving for all property and casualty claims continues to be a complex and uncertain process, requiring the use of informed estimates and judgments. As additional experience and other data become available and are reviewed or, in the case of asbestos-related and environmental pollution reserves, as new or improved methodologies are developed or as current law changes, CIGNA's estimates and judgments may be revised. Any such revisions could result in future changes in estimates of losses or reinsurance recoverables, and would be reflected in CIGNA's results of operations for the period in which the estimates are changed. While the effect of any such changes in estimates of losses or reinsurance recoverables could be material to future results of operations, CIGNA does not expect such changes to have a material effect on its liquidity or financial condition. CIGNA manages its loss exposure through the use of reinsurance. While reinsurance arrangements are designed to limit losses from large exposures and to permit recovery of a portion of direct losses, reinsurance does not relieve CIGNA of liability to its insureds. Accordingly, CIGNA's loss reserves represent total gross losses, and reinsurance recoverables represent anticipated recoveries of a portion of these losses. In management's judgment, information currently available has been appropriately considered in estimating CIGNA's loss reserves and reinsurance recoverables. - ------------------------------------------------------------------------------ 14 10 MANAGEMENT'S DISCUSSION AND ANALYSIS The following table shows CIGNA's gross losses for incurred claims and claim adjustment expenses (Gross), amounts ceded to reinsurers (Reinsurance) and net losses for incurred claims and claim adjustment expenses (Net) for the year ended December 31. The table also categorizes those amounts as they relate to insured events of the current year and of prior years (prior year development).
- ---------------------------------------------------------------------------------------------------------------------------------- 1995 1994 1993 - ---------------------------------------------------------------------------------------------------------------------------------- (In millions) Gross Reinsurance Net Gross Reinsurance Net Gross Reinsurance Net - ---------------------------------------------------------------------------------------------------------------------------------- Current year $ 3,304 $ (918) $ 2,386 $ 4,280 $ (1,187) $ 3,093 $ 5,021 $ (1,495) $ 3,526 - ---------------------------------------------------------------------------------------------------------------------------------- Prior year development: Asbestos-related 298 (43) 255 64 (4) 60 303 (132) 171 Environmental pollution 1,265 (310) 955 280 (65) 215 482 (88) 394 Assumed reinsurance exposures 73 (41) 32 70 (11) 59 84 (15) 69 Unrecoverable reinsurance -- 179 179 -- 29 29 -- 28 28 Other 7 70 77 (46) 221 175 380 (253) 127 - ---------------------------------------------------------------------------------------------------------------------------------- Total prior year development 1,643 (145) 1,498 368 170 538 1,249 (460) 789 - ---------------------------------------------------------------------------------------------------------------------------------- Total incurred claims and claim adjustment expenses $ 4,947 $ (1,063) $ 3,884 $ 4,648 $ (1,017) $ 3,631 $ 6,270 $ (1,955) $ 4,315 - -------------------------=========================================================================================================
Declines in gross and net losses for insured events of the current year for 1995 and 1994 reflect improvements in the quality of underwriting and reduced premium volume in certain lines of business. CIGNA expects that strengthened underwriting will result in continued reductions in losses for insured events of current years, relative to premiums. CIGNA historically was not able to estimate its ultimate liabilities for asbestos-related and environmental pollution claims because of the significant uncertainties associated with them that are not generally present for other types of claims. Traditional actuarial techniques were not adequate for estimating these liabilities because of the lack of developed case law and adequate claim history. However, as industry experience in dealing with these exposures has accumulated, various industry-related parties have evaluated newly emerging methods for estimating asbestos-related and environmental pollution liabilities, and these methods have attained growing credibility. In addition, outside actuarial firms and others have developed data bases to supplement the information that can be derived from a company's claim files. CIGNA evaluated these methods and expanded its data bases of asbestos-related and environmental pollution claims. Using these recent developments, CIGNA completed a comprehensive review of its asbestos-related and environmental pollution exposures during the third quarter of 1995 and increased asbestos-related reserves by $255 million ($194 million, net of reinsurance) and environmental pollution reserves by $1.2 billion ($861 million, net of reinsurance). These amounts are included in the 1995 gross asbestos-related losses of $298 million ($255 million, net of reinsurance) and gross environmental pollution losses of $1.3 billion ($955 million, net of reinsurance) as shown in the above table. CIGNA's methodology, which was reviewed by an outside actuarial firm, consisted of a detailed analysis of its reported claims, using a stratified sampling approach. Reported claims representing approximately 50% of CIGNA's estimated asbestos-related exposure and approximately 75% of its estimated environmental pollution exposure were analyzed individually, with the results of the claim reviews extrapolated to the remainder of the reported claim population. Each claim review involved analyzing various characteristics of the applicable policies, including their related attachment points, limits of liability, terms, conditions and exclusions. For environmental pollution claims, the reviews also evaluated damages per site using CIGNA's claim files and information from a site data base obtained from external and internal sources. The possible effects of Superfund reform were not considered. The claim reviews considered specific coverage defenses and the allocation and spreading of losses across policy periods and among other insurers and the policyholder. The previous history of payments and the type of business conducted by the policyholder were also considered. Based on this work, additional reserves for reported claims were established. - ------------------------------------------------------------------------------ 15 11 Also, CIGNA estimated reserves for incurred but not reported (IBNR) claims by using the recent developments described above. For environmental pollution claims, the IBNR reserve was based on estimates of future development for sites yet to be identified, of additional claims related to currently identified sites and of third-party liability. For asbestos-related claims, the IBNR reserve was based on estimates of additional claims against known policyholders as well as claims against policyholders that have not yet asserted claims against CIGNA. In addition to CIGNA's own reserve review, a state insurance department retained an outside actuarial consulting firm to review CIGNA's reserves in conjunction with a quadrennial NAIC zone examination of certain of CIGNA's property and casualty subsidiaries. That firm applied its methods, including its proprietary model, a loss development approach and a market share approach, for estimating possible outcomes of asbestos-related and environmental pollution liabilities. The results of the firm's work, which was statistically based, corroborated, in the aggregate, the results of CIGNA's work, which was largely based on the judgment of experienced claims professionals in reviewing claim files, as described above. This corroboration between two different approaches to estimating CIGNA's asbestos-related and environmental pollution liabilities provided confidence in the results and supported CIGNA's decision to increase its reserves in 1995. In 1993, following a re-evaluation, reserves of $489 million ($375 million, net of reinsurance; $244 million after-tax) were recorded for future legal and associated expenses for reported asbestos-related claims ($72 million, net of reinsurance), environmental pollution claims ($268 million, net of reinsurance) and long-term exposure claims ($35 million, net of reinsurance). Losses for "assumed reinsurance exposures" for 1995 primarily reflect $31 million ($17 million, net of reinsurance) for London reinsurance exposures. For 1994, losses for "assumed reinsurance exposures" primarily reflect $48 million ($40 million, net of reinsurance) resulting from a review of reserves for certain reinsurance lines of business (principally closed books of business) other than London reinsurance exposures. For 1993, losses for "assumed reinsurance exposures" primarily reflect $55 million ($31 million, net of reinsurance) for London reinsurance exposures. Losses for "unrecoverable reinsurance" are principally due to the failure of reinsurers to indemnify CIGNA, primarily because of reinsurer insolvencies and disputes under reinsurance contracts. Reinsurance disputes have increased in recent years, particularly on larger and more complex claims such as those related to professional liability, asbestos and London reinsurance exposures. Reinsurance disputes may increase in the future, and are likely to include disputes related to environmental pollution. Allowances have been established for amounts deemed uncollectible. In the third quarter of 1995, CIGNA increased the allowance for uncollectible reinsurance by $210 million pre-tax, including $75 million, which is reported as asbestos-related and environmental pollution prior year development in the table on page 15. The remainder of the increase ($135 million) relates to CIGNA's assumed reinsurance business that it previously exited and domestic commercial business. While future charges for unrecoverable reinsurance may materially affect results of operations in future periods, such amounts are not expected to have a material adverse effect on CIGNA's liquidity or financial condition. Gross and net losses for "other" prior year development in 1995 reflect unfavorable development on workers' compensation ($114 million, net of reinsurance) and long-term exposures ($34 million, net of reinsurance), partially offset by favorable loss reserve development on commercial packages, commercial fire, and general and excess liability lines of business. For 1994, "other" prior year development was primarily attributable to workers' compensation ($74 million, net of reinsurance), long-term exposures ($31 million, net of reinsurance) and the general and excess liability line of business. In addition, in 1994 CIGNA performed an actuarial review of certain businesses, including captives, that are substantially reinsured. Such review resulted in a reduction in gross loss reserves of approximately $250 million, with a corresponding decrease in reinsurance recoverables. In 1993, other prior year development was primarily attributable to losses for long-term exposures ($76 million, net of reinsurance), including the $35 million previously discussed, and the commercial packages line of business. CIGNA's reinsurance recoverables were approximately $6.7 billion and $7.1 billion as of December 31, 1995 and 1994, net of allowances for unrecoverable reinsurance of approximately $700 million and $435 million, respectively. CIGNA recognized significant recoveries in 1995, 1994 and 1993 from reinsurance arrangements as shown in the table on page 15. Reinsurance recoveries for all periods presented, including recoveries for asbestos-related and environmental pollution claims, increased or decreased as a result of comparable changes in gross losses. Reinsurance recoveries are also affected by the factors previously noted for "unrecoverable reinsurance". CIGNA expects to continue to have significant recoveries from its reinsurance arrangements, including recoveries of asbestos-related and environmental pollution losses. However, the extent of recoveries in the aggregate, including for asbestos-related and environmental pollution losses, will depend on future gross loss experience and the particular reinsurance arrangements to which future losses relate. - ------------------------------------------------------------------------------ 16 12 MANAGEMENT'S DISCUSSION AND ANALYSIS At December 31, 1995 and 1994, approximately 12% of CIGNA's reinsurance recoverables related to paid claims. The timing and collectibility of such recoverables have not had, and are not expected to have, a material adverse effect on CIGNA's liquidity. OTHER OPERATIONS Other Operations primarily includes unallocated investment income, expenses (principally debt service) and taxes. Also included in Other Operations are the results of CIGNA's settlement annuity business and non-insurance operations engaged primarily in investment and real estate activities. Losses for Other Operations were $58 million, $85 million and $94 million for 1995, 1994 and 1993, respectively. After-tax realized investment results included in these amounts were gains of $17 million in 1995, compared with losses of $4 million and $16 million in 1994 and 1993, respectively. Excluding after-tax realized investment results, losses were $75 million for 1995, $81 million for 1994 and $78 million for 1993. Losses for all three years are comparable, excluding, for 1994, a gain of $20 million after-tax from the sale of a California personal automobile and homeowners insurance business, a charge of $16 million after-tax resulting from reserve strengthening in the settlement annuity business and an $8 million after-tax loss for an oil and gas divestiture. LIQUIDITY AND CAPITAL RESOURCES
(In millions) - ------------------------------------------------------------------------------------------ FINANCIAL SUMMARY 1995 1994 1993 - ------------------------------------------------------------------------------------------ Short-term investments $ 1,113 $ 853 $ 1,357 Cash and cash equivalents 1,559 1,693 1,211 Short-term debt 414 271 351 Long-term debt 1,066 1,389 1,235 Shareholders' equity 7,157 5,811 6,575 - ------------------------------------------------------------------------------------------
CIGNA's operations have liquidity requirements that vary among the principal product lines. Life insurance and pension plan reserves are primarily long-term liabilities. Property and casualty, as well as accident and health reserves, including long-term disability, consist of both short-term and long-term liabilities. Life insurance and pension plan reserve requirements are usually stable and predictable, and are supported primarily by long-term, fixed-income investments. Property and casualty claim demands are less predictable in nature, requiring greater liquidity in the investment portfolio. Accident and health claim demands are stable and predictable but generally shorter term, requiring greater liquidity. Generally, CIGNA has met its operating requirements by maintaining appropriate levels of liquidity in its investment portfolio and utilizing overall positive cash flows. Overall cash flows have been constrained by negative cash flows in the property and casualty business, resulting from operating losses and claim payments related to insurance reserves established in prior periods. Liquidity for CIGNA and its insurance subsidiaries has remained strong, as evidenced by significant amounts of short-term investments and cash and cash equivalents, which totaled $2.7 billion and $2.5 billion as of December 31, 1995 and 1994, respectively. During 1995, cash and cash equivalents decreased $134 million to $1.6 billion as of December 31, 1995. This decrease primarily reflects net investment purchases ($3.6 billion) and payments of dividends on CIGNA common stock ($222 million). The decrease was partially offset by deposits and interest credited, net of withdrawals, to contractholder deposit funds ($2.6 billion), proceeds from the issuance of long-term debt ($88 million), and cash flows from operating activities ($1.1 billion) resulting from earnings and the timing of cash receipts and cash disbursements. Cash flow from operating activities was constrained by negative cash flow of approximately $400 million from the property and casualty business, reflecting claim payments related to insurance reserves established in prior periods. During 1994, cash and cash equivalents increased $482 million from $1.2 billion as of December 31, 1993. This increase primarily reflects the issuance of long-term debt ($158 million); deposits and interest credited, net of withdrawals, to contract-holder deposit funds ($2.2 billion); and cash flows from operating activities ($475 million) resulting from earnings and the timing of cash receipts and cash disbursements. The increase was partially offset by net investment purchases ($2.0 billion), payments of dividends on CIGNA common stock ($219 million) and debt repayments ($46 million). Cash flow from operating activities was constrained by negative cash flow from the property and casualty business of approximately $200 million resulting from operating losses. The 1993 increase in cash and cash equivalents primarily reflects deposits and interest credited, net of withdrawals, to contractholder deposit funds; issuance of long-term debt; and cash flows from operating activities resulting from earnings and the timing of cash receipts and cash disbursements. The increase was partially offset by net investment purchases and payments of dividends on CIGNA common stock. - ------------------------------------------------------------------------------ 17 13 Funds provided from premiums and fees, investment income and maturities of investment assets are reasonably predictable and normally exceed liquidity requirements for payments of claims, benefits and expenses. However, since the timing of available funds cannot always be matched precisely to commitments, imbalances may arise when demands for funds exceed those on hand. Also, a demand for funds may arise as a result of CIGNA taking advantage of current investment opportunities. CIGNA's insurance subsidiaries are subject to various regulatory restrictions that can limit the amount of internal dividends and other distributions, including loans, that can be utilized to manage liquidity needs. However, CIGNA's size and diversity generally provide the flexibility to manage liquidity needs, either internally or externally, through short-term borrowings. At December 31, 1995, CIGNA had available approximately $650 million of committed and uncommitted lines of credit with banks. CIGNA's capital resources represent funds available for long-term business commitments and primarily consist of retained earnings and proceeds from the issuance of long-term debt and equity securities. Capital resources provide protection for policyholders and the financial strength to support the underwriting of insurance risks, and allow for continued business growth. The amount of capital resources that may be needed is determined by CIGNA's senior management and Board of Directors, as well as by regulatory requirements. The allocation of resources to new long-term business commitments is designed to achieve an attractive return, tempered by considerations of risk and the need to support CIGNA's existing businesses. CIGNA's financial strength provides the capacity and flexibility to enable it to raise funds in the capital markets through the issuance of long-term debt and equity securities. CIGNA continues to be well capitalized, with sufficient borrowing capacity to meet the anticipated needs of its businesses. CIGNA had $1.1 billion of long-term debt outstanding at December 31, 1995, compared with $1.4 billion at December 31, 1994. The decrease in long-term debt primarily reflects the reclassification of $150 million of CIGNA's 8% Notes due September 1996 to short-term, and conversions of $248 million of CIGNA's 8.2% Convertible Debentures into 3.6 million shares of CIGNA common stock. The decline in long-term debt was partially offset by the issuance of $25 million of 7.17% Notes due in 2002, $25 million of 8.16% Notes due in 2000 and $36 million of medium-term notes. The proceeds from these issuances were used for general corporate purposes. At December 31, 1995, CIGNA had approximately $800 million remaining under an effective shelf registration statement filed with the Securities and Exchange Commission that may be issued as debt, equity securities or both, depending upon market conditions and CIGNA's capital requirements. CIGNA contributed approximately $250 million and $150 million of capital during 1994 and 1993, respectively, to the domestic property and casualty operations, as a result of continued losses. Also, in connection with the domestic property and casualty restructuring, CIGNA contributed $375 million of additional capital to the run-off operations. This contribution, which is reflected in the run-off operations' statutory surplus as of December 31, 1995, was funded in 1996 through internal sources. See Other Matters for additional information. INVESTMENT ASSETS
(In millions) - --------------------------------------------------------------------------- FINANCIAL SUMMARY 1995 1994 - --------------------------------------------------------------------------- Fixed maturities: at fair value $ 36,241 $ 18,521 Fixed maturities: at amortized cost -- 12,296 Equity securities 661 1,806 Mortgage loans 11,010 9,970 Real estate 1,283 1,747 Other, primarily policy loans 8,515 6,579 - --------------------------------------------------------------------------- Total investment assets $ 57,710 $ 50,919 - ----------------------------------------------------=======================
CIGNA's investment strategy is to manage the characteristics of investment assets, such as liquidity, currency, yield and duration, to reflect the underlying characteristics of the related insurance and contractholder liabilities, which vary among CIGNA's principal product lines. In connection with this investment strategy, CIGNA uses derivative instruments through hedging applications to manage market risk. Additional information regarding CIGNA's investment assets and related accounting policies is included in Notes 2, 4, 5 and 20 to the Financial Statements and in CIGNA's Form 10-K. Significant amounts of CIGNA's investment assets are attributable to experience-rated contracts with policyholders (policyholder contracts). Approximate percentages of investments attributable to policyholder contracts as of December 31 were as follows:
- --------------------------------------------------------------------------- 1995 1994 - --------------------------------------------------------------------------- Fixed maturities 30% 32% Mortgage loans 58% 57% Real estate 57% 55% - ---------------------------------------------------------------------------
Under the experience-rating process, net investment income and gains and losses on assets related to policyholder contracts generally accrue to the policyholders. Consequently, write-downs, changes in valuation reserves and non-accruals on investments attributable to policyholder contracts do not affect CIGNA's net income, except under unusual circumstances. - ------------------------------------------------------------------------------ 18 14 MANAGEMENT'S DISCUSSION AND ANALYSIS FIXED MATURITIES Investments in fixed maturities (bonds) include publicly traded and private placement debt securities; asset-backed securities, including collateralized mortgage obligations (CMOs); and redeemable preferred stocks. As of December 31, 1995, fixed maturities classified as available-for-sale had an aggregate fair value, including policyholder share, that was greater (less) than amortized cost by $3.0 billion, compared with approximately ($378) million as of December 31, 1994. The increase in unrealized appreciation primarily reflects the downward movement in interest rates since December 31, 1994. Quality Ratings As of December 31, 1995, $34.7 billion, or 96%, of bonds were investment grade, and $1.5 billion, or 4%, were below investment grade (BA and below, or equivalent). The quality ratings of CIGNA's below investment grade bonds are concentrated toward the higher end of the non-investment grade spectrum. Approximately 29% of below investment grade securities relate to policyholder contracts. All private placement investments are made after credit analysis, and are diversified by industry and issuer. Private placement investments are generally less marketable than public bonds, and yields are generally higher for comparable credit risk. Further, private placement investments generally contain financial and other covenants that allow CIGNA to monitor the debtor for early signs of deteriorating financial strength so it can take remedial actions, if warranted. As a result of the higher yields and the inherent risk associated with below investment grade securities, gains or losses could significantly affect future results of operations, although such effects are not expected to be material to CIGNA's liquidity or financial condition. Potential Problem Bonds Potential problem bonds are fully current but judged by management to have certain characteristics that increase the likelihood of problem classification. Potential problem bonds, including amounts attributable to policyholder contracts, were $137 million as of December 31, 1995, compared with $141 million as of December 31, 1994. There were no cumulative write-downs for potential problem bonds as of December 31, 1995 and 1994. Potential problem bonds attributable to policyholder contracts represented 29% and 17% of total potential problem bonds at December 31, 1995 and 1994, respectively. Problem Bonds Bonds that are delinquent or restructured as to terms, typically interest rate and, in certain cases, maturity date, are considered problem bonds. As of December 31, 1995 and 1994, problem bonds, including amounts attributable to policyholder contracts, were $196 million and $307 million, net of related cumulative write-downs of $140 million and $119 million, respectively. Problem bonds attributable to policyholder contracts represented 33% and 37% of total problem bonds at December 31, 1995 and 1994, respectively. Cumulative Write-downs For Bonds Cumulative write-downs for bonds as of December 31, 1995 and 1994 were $144 million and $123 million, respectively, including $55 million and $50 million attributable to policyholder contracts. Also, cumulative write-downs as of December 31, 1995 and 1994 included $4 million for bonds no longer classified as problem or potential problem bonds. During 1995 and 1994, write-downs of $75 million and $50 million, respectively, were established for problem bonds. Such amounts included $26 million and $22 million attributable to policyholder contracts for 1995 and 1994, respectively. The adverse after-tax effect of write-downs on CIGNA's net income was $32 million, $19 million and $18 million for 1995, 1994 and 1993, respectively. In 1995 and 1994, certain bonds were restructured into equity securities. Accordingly, assets of $3 million and $27 million, which were net of cumulative write-downs of $3 million and $6 million, respectively, were transferred from bonds to equity securities. In addition, during 1995 and 1994, write-downs of $5 million and $12 million, respectively, were established for equity securities. Such amounts included $2 million and $1 million attributable to policyholder contracts for 1995 and 1994, respectively. As of December 31, 1995 and 1994, CIGNA had $34 million and $57 million, respectively, of cumulative write-downs for equity securities, including $5 million and $14 million attributable to policyholder contracts. - ------------------------------------------------------------------------------ 19 15 Effect Of Non-accruals For Bonds Interest income is recognized on problem bonds only when payment is received. The adverse effect of non-accruals for bonds on policyholder contracts and on CIGNA's net income for the year ended December 31 is shown in the following table:
- ----------------------------------------------------------------------------------------------------------------------------------- 1995 1994 1993 - ----------------------------------------------------------------------------------------------------------------------------------- Policyholder Policyholder Policyholder (In millions) Contracts CIGNA Contracts CIGNA Contracts CIGNA - ----------------------------------------------------------------------------------------------------------------------------------- Net investment income under original contract terms $ 20 $ 37 $ 23 $ 40 $ 35 $ 46 Less net investment income received 8 16 11 15 19 27 ---- ---- ---- ---- ---- ---- Forgone investment income 12 21 12 25 16 19 Tax effect -- (8) -- (9) -- (7) - ----------------------------------------------------------------------------------------------------------------------------------- Net effect of non-accruals $ 12 $ 13 $ 12 $ 16 $ 16 $ 12 - --------------------------------------------------------===========================================================================
MORTGAGE LOANS
- --------------------------------------------------------------------------- As of December 31, 1995 1994 - --------------------------------------------------------------------------- Mortgage loans (in millions) $ 11,010 $ 9,970 Property type: Retail facilities 42% 39% Office buildings 35 37 Apartment buildings 12 11 Hotels 6 7 Other 5 6 - --------------------------------------------------------------------------- Total 100% 100% - ----------------------------------------------------=======================
CIGNA's investment strategy requires diversification of the mortgage loan portfolio. This strategy includes guidelines relative to property type, location and borrower to reduce its exposure to potential losses. CIGNA routinely monitors and evaluates the status of its mortgage loans through the review of loan and property-related information, including cash flows, expiring leases, financial health of the borrower and major tenants, loan payment history, occupancy and room rates for hotels and, for all commercial properties, significant new competition. CIGNA evaluates this information in light of current economic conditions as well as geographic and property type considerations. Adverse conditions in real estate markets and more stringent lending practices by financial institutions have affected scheduled maturities of mortgage loans. During 1995, approximately $796 million of mortgage loans was scheduled to mature, of which $207 million was paid in full, $146 million was extended at existing loan rates for a weighted average of 11 months and $369 million was refinanced at current market rates. Mortgage loan extensions and refinancings are loans in good standing. The remaining scheduled maturities were problem mortgage loans ($46 million -- foreclosed; $18 million -- restructured; and $10 million -- delinquent). The effect of not receiving timely cash payments on maturing mortgage loans is not expected to have a material adverse effect on CIGNA's future results of operations, liquidity or financial condition. - ------------------------------------------------------------------------------ 20 16 MANAGEMENT'S DISCUSSION AND ANALYSIS Potential Problem Mortgage Loans Potential problem mortgage loans include: 1) fully current loans that are judged by management to have certain characteristics that increase the likelihood of problem classification, 2) fully current loans for which the borrower has requested restructuring and 3) loans that are 30 to 59 days delinquent with respect to interest or principal payments. Potential problem mortgage loans, including amounts attributable to policyholder contracts, were $211 million as of December 31, 1995, compared with $350 million as of December 31, 1994, net of related valuation reserves of $29 million and $55 million, respectively. Potential problem mortgage loans attributable to policyholder contracts represented 59% and 57% of total potential problem mortgage loans at December 31, 1995 and 1994, respectively. As discussed in Note 2 to the Financial Statements, CIGNA adopted SFAS Nos. 114 and 118. Implementation of these standards as of January 1, 1995 resulted in a decline of $29 million in valuation reserves for potential problem mortgage loans, $16 million attributable to policyholder contracts and $13 million attributable to CIGNA. Problem Mortgage Loans CIGNA's problem mortgage loans include delinquent and restructured mortgage loans. Delinquent mortgage loans include those on which payment is overdue generally 60 days or more. Restructured mortgage loans are those whose basic financial terms have been modified, typically to reduce the interest rate or extend the maturity. As of December 31, 1995, restructured mortgage loans with a carrying value of approximately $347 million had their original maturity date extended, with an average extension of approximately four years. Restructured mortgage loans generated annualized cash returns averaging approximately 7 1/2% as of December 31, 1995. During 1995, approximately $70 million of restructured mortgage loans were reclassified to loans in good standing since they were performing under the terms of the restructured loan agreement and, at the time of restructure, such terms were generally equivalent to terms that CIGNA was willing to accept for a comparable new loan. As of December 31, 1995 and 1994, problem mortgage loans, including amounts attributable to policyholder contracts, were $575 million and $796 million, net of valuation reserves of $59 million and $124 million, respectively. Problem mortgage loans attributable to policyholder contracts represented 56% and 57% of total problem mortgage loans at December 31, 1995 and 1994, respectively. As of December 31, problem mortgage loans by property type and by geographic region, including amounts attributable to policyholder contracts, were as follows:
- --------------------------------------------------------------------------- (In millions) 1995 1994 - --------------------------------------------------------------------------- PROPERTY TYPE: Office buildings $ 294 $ 393 Hotels 138 190 Retail facilities 59 87 Apartment buildings 35 50 Other 49 76 - --------------------------------------------------------------------------- Total $ 575 $ 796 - -------------------------------------------------------==================== GEOGRAPHIC REGION: Middle Atlantic $ 210 $ 228 Central 101 215 Pacific 99 117 New England 69 114 South Atlantic 41 70 Other 55 52 - --------------------------------------------------------------------------- Total $ 575 $ 796 - -------------------------------------------------------====================
Valuation Reserves For Mortgage Loans Valuation reserves for mortgage loans at December 31, 1995 and 1994 were $88 million and $179 million, respectively, including $61 million and $95 million attributable to policyholder contracts. Valuation reserves established for problem and potential problem mortgage loans during 1995 and 1994 were $13 million and $32 million, respectively. Such amounts included $10 million and $24 million attributable to policyholder contracts for 1995 and 1994, respectively. The adverse after-tax effect of the net increase in valuation reserves on CIGNA's results was $2 million, $5 million and $40 million for 1995, 1994 and 1993, respectively. - ------------------------------------------------------------------------------ 21 17 Effect Of Non-accruals For Mortgage Loans Interest income is recognized on problem mortgage loans only when payment is received. The adverse effect of non-accruals for mortgage loans on policyholder contracts and on CIGNA's net income for the year ended December 31 is shown in the following table:
- ----------------------------------------------------------------------------------------------------------------------------------- 1995 1994 1993 - ----------------------------------------------------------------------------------------------------------------------------------- Policyholder Policyholder Policyholder (In millions) Contracts CIGNA Contracts CIGNA Contracts CIGNA - ----------------------------------------------------------------------------------------------------------------------------------- Net investment income under original contract terms $ 47 $ 28 $ 76 $ 46 $ 96 $ 54 Less net investment income received 41 27 52 29 68 30 ---- ---- ---- ---- ---- ---- Forgone investment income 6 1 24 17 28 24 Tax effect -- -- -- (6) -- (8) - ----------------------------------------------------------------------------------------------------------------------------------- Net effect of non-accruals $ 6 $ 1 $ 24 $ 11 $ 28 $ 16 - --------------------------------------------------------===========================================================================
REAL ESTATE Investment real estate includes real estate held for the production of income and real estate held for sale, primarily properties acquired as a result of foreclosure of mortgage loans (foreclosure properties). As of December 31, investment real estate, including amounts attributable to policyholder contracts, and related cumulative write-downs and valuation reserves, were as follows:
- --------------------------------------------------------------------------- (In millions) 1995 1994 - --------------------------------------------------------------------------- Real estate held for sale (primarily foreclosure properties) $1,050 $1,228 Less cumulative write-downs 272 281 Less valuation reserves 58 55 ------ ------ 720 892 ------ ------ Real estate held for the production of income 614 904 Less valuation reserves 51 49 ------ ------ 563 855 - --------------------------------------------------------------------------- Investment real estate $1,283 $1,747 - ------------------------------------------------------=====================
Foreclosure properties attributable to policyholder contracts represented 58% and 59% of total foreclosure properties at December 31, 1995 and 1994, respectively. As of December 31, real estate held for sale, primarily foreclosure properties, by property type and by geographic region, including amounts attributable to policyholder contracts, were as follows:
- --------------------------------------------------------------------------- (In millions) 1995 1994 - --------------------------------------------------------------------------- PROPERTY TYPE: Office buildings $ 609 $ 629 Hotels 34 173 Retail facilities 29 52 Other 48 38 - --------------------------------------------------------------------------- Total $ 720 $ 892 - -------------------------------------------------------==================== GEOGRAPHIC REGION: Central $ 260 $ 180 Pacific 148 219 Middle Atlantic 122 145 South Atlantic 86 213 New England 61 63 Other 43 72 - --------------------------------------------------------------------------- Total $ 720 $ 892 - -------------------------------------------------------====================
- ------------------------------------------------------------------------------ 22 18 MANAGEMENT'S DISCUSSION AND ANALYSIS Real Estate Write-downs And Valuation Reserves Cumulative write-downs and valuation reserves for real estate at December 31, 1995 and 1994 were $381 million and $385 million, respectively, including $199 million and $212 million attributable to policyholder contracts. Write-downs and valuation reserves established for real estate during 1995 and 1994 were $27 million and $48 million, respectively. Such amounts included $18 million and $28 million attributable to policyholder contracts for 1995 and 1994, respectively. The adverse after-tax effect of write-downs and the net increase in valuation reserves on CIGNA's net income was $6 million, $13 million and $24 million for 1995, 1994 and 1993, respectively. SUMMARY The adverse effects of write-downs and changes in valuation reserves ("write-downs and reserves") as well as of non-accruals on policyholder contracts and on CIGNA's net income for the year ended December 31 were as follows:
- ----------------------------------------------------------------------------------------------------------------------------------- 1995 1994 1993 - ----------------------------------------------------------------------------------------------------------------------------------- Policyholder Policyholder Policyholder (In millions) Contracts CIGNA Contracts CIGNA Contracts CIGNA - ----------------------------------------------------------------------------------------------------------------------------------- Write-downs and reserves: Bonds $ 26 $ 32 $ 22 $ 19 $ 15 $ 18 Mortgage loans 10 2 24 5 48 40 Real estate 18 6 28 13 51 24 - ----------------------------------------------------------------------------------------------------------------------------------- Total $ 54 $ 40 $ 74 $ 37 $ 114 $ 82 - --------------------------------------------------------=========================================================================== Non-accruals: Bonds $ 12 $ 13 $ 12 $ 16 $ 16 $ 12 Mortgage loans 6 1 24 11 28 16 - ----------------------------------------------------------------------------------------------------------------------------------- Total $ 18 $ 14 $ 36 $ 27 $ 44 $ 28 - --------------------------------------------------------===========================================================================
Economic conditions, including real estate market conditions, have improved. However, additional losses from problem investments are expected to occur for specific investments in the normal course of business, particularly due to continuing weak conditions in certain office building markets. Assuming no significant deterioration in economic conditions, CIGNA does not expect additional non-accruals, write-downs and reserves to materially affect future results of operations, liquidity or financial condition, or to result in a significant decline in the aggregate carrying value of its assets. CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Except for historical information provided in this Management's Discussion and Analysis, statements made throughout this document are forward-looking and contain information about financial results, economic conditions, trends and known uncertainties. CIGNA cautions the reader that actual results could differ materially from those expected by CIGNA, depending on the outcome of certain factors (some of which are described with the forward-looking statements) including: 1) adverse catastrophe experience in CIGNA's property and casualty businesses; 2) adverse property and casualty loss development for events that CIGNA insured in prior years; 3) an increase in medical costs in CIGNA's health care operations, including increases in utilization and costs of medical services; 4) heightened competition, particularly price competition, reducing product margins in CIGNA's businesses; and 5) significant changes in interest rates. - ------------------------------------------------------------------------------ 23 19 CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
- ------------------------------------------------------------------------------------------ (In millions, except per share amounts) - ------------------------------------------------------------------------------------------ For the year ended December 31, 1995 1994 1993 - ------------------------------------------------------------------------------------------ REVENUES Premiums and fees $ 13,914 $ 13,912 $ 13,712 Net investment income 4,296 3,946 3,902 Other revenues 512 492 506 Realized investment gains 233 42 282 -------- ------- -------- Total revenues 18,955 18,392 18,402 -------- ------- -------- BENEFITS, LOSSES AND EXPENSES Benefits, losses and settlement expenses 13,855 12,926 13,419 Policy acquisition expenses 1,181 1,166 1,210 Other operating expenses 3,668 3,495 3,608 -------- ------- -------- Total benefits, losses and expenses 18,704 17,587 18,237 -------- ------- -------- INCOME BEFORE INCOME TAXES 251 805 165 -------- ------- -------- Income taxes (benefits): Current 258 224 413 Deferred (218) 27 (482) -------- ------- -------- Total taxes 40 251 (69) -------- ------- -------- NET INCOME 211 554 234 Common dividends declared (222) (219) (219) Retained earnings, beginning of year 4,052 3,717 3,702 - ------------------------------------------------------------------------------------------ RETAINED EARNINGS, END OF YEAR $ 4,041 $ 4,052 $ 3,717 - ----------------------------------------------------====================================== EARNINGS PER SHARE $ 2.86 $ 7.66 $ 3.25 - ----------------------------------------------------======================================
The Notes to Financial Statements are an integral part of these statements. - ------------------------------------------------------------------------------ 24 20 CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------------------------------------- (In millions, except per share amounts) - --------------------------------------------------------------------------------------------------------------- As of December 31, 1995 1994 - --------------------------------------------------------------------------------------------------------------- ASSETS Investments: Fixed maturities: Available-for-sale, at fair value (amortized cost, $33,275; $18,899) $ 36,241 $ 18,521 Held-to-maturity, at amortized cost (fair value, $12,276) -- 12,296 Equity securities, at fair value (cost, $565; $1,651) 661 1,806 Mortgage loans 11,010 9,970 Policy loans 7,107 5,355 Real estate 1,283 1,747 Other long-term investments 295 371 Short-term investments 1,113 853 -------- -------- Total investments 57,710 50,919 Cash and cash equivalents 1,559 1,693 Accrued investment income 908 835 Premiums, accounts and notes receivable 4,268 3,986 Reinsurance recoverables 7,120 7,486 Deferred policy acquisition costs 1,109 1,128 Property and equipment, net 864 914 Deferred income taxes, net 1,866 2,264 Other assets 1,149 1,161 Goodwill 1,118 1,165 Separate account assets 18,232 14,551 - --------------------------------------------------------------------------------------------------------------- Total $ 95,903 $ 86,102 - --------------------------------------------------------------------------------------========================= LIABILITIES Contractholder deposit funds $ 30,055 $ 27,000 Unpaid claims and claim expenses 19,303 19,246 Future policy benefits 12,007 10,453 Unearned premiums 2,176 2,575 -------- -------- Total insurance and contractholder liabilities 63,541 59,274 Accounts payable, accrued expenses and other liabilities 5,408 4,726 Current income taxes 187 156 Short-term debt 414 271 Long-term debt 1,066 1,389 Separate account liabilities 18,130 14,475 - --------------------------------------------------------------------------------------------------------------- Total liabilities 88,746 80,291 - --------------------------------------------------------------------------------------------------------------- CONTINGENCIES -- NOTE 19 SHAREHOLDERS' EQUITY Common stock (shares issued, 87; 83) 87 83 Additional paid-in capital 2,536 2,248 Net unrealized appreciation (depreciation), fixed maturities 1,025 (122) Net unrealized appreciation, equity securities 73 141 Net translation of foreign currencies (27) (27) Retained earnings 4,041 4,052 Less treasury stock, at cost (578) (564) - --------------------------------------------------------------------------------------------------------------- Total shareholders' equity 7,157 5,811 - --------------------------------------------------------------------------------------------------------------- Total $ 95,903 $ 86,102 - --------------------------------------------------------------------------------------========================= SHAREHOLDERS' EQUITY PER SHARE $ 93.76 $ 80.46 - --------------------------------------------------------------------------------------=========================
The Notes to Financial Statements are an integral part of these statements. - ------------------------------------------------------------------------------ 25 21 CONSOLIDATED STATEMENTS OF CASH FLOWS
- ---------------------------------------------------------------------------------------------------------------------------------- (In millions) - ---------------------------------------------------------------------------------------------------------------------------------- For the year ended December 31, 1995 1994 1993 - ---------------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 211 $ 554 $ 234 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Insurance liabilities 550 (853) 575 Reinsurance recoverables 362 862 380 Premiums, accounts and notes receivable (184) (10) 94 Accounts payable, accrued expenses, other liabilities and current income taxes 589 (119) 608 Deferred income taxes, net (218) 27 (482) Realized investment gains (233) (42) (282) Gain on sale of subsidiaries and other equity interests -- (28) (29) Other, net 27 84 22 --------- --------- --------- Net cash provided by operating activities 1,104 475 1,120 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from investments sold: Fixed maturities--available-for-sale 6,492 4,868 -- Fixed maturities--held-to-maturity -- 12 1,012 Equity securities 1,668 681 2,259 Mortgage loans 430 601 1,182 Other (primarily short-term investments) 16,969 16,076 19,317 Investment maturities and repayments: Fixed maturities--available-for-sale 1,144 1,946 -- Fixed maturities--held-to-maturity 2,177 2,624 5,162 Mortgage loans 389 194 210 Investments purchased: Fixed maturities--available-for-sale (9,906) (7,809) -- Fixed maturities--held-to-maturity (1,790) (2,477) (8,553) Equity securities (348) (606) (1,587) Mortgage loans (1,829) (953) (1,005) Other (primarily short-term investments) (18,957) (17,109) (21,133) Proceeds from sale of subsidiaries and other equity interests -- 58 36 Other, net (152) (198) (111) --------- --------- --------- Net cash used in investing activities (3,713) (2,092) (3,211) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Deposits and interest credited to contractholder deposit funds 7,346 6,424 7,565 Withdrawals and benefit payments from contractholder deposit funds (4,733) (4,217) (5,166) Net change in commercial paper (13) (38) (48) Issuance of long-term debt 88 158 327 Repayment of debt (9) (46) (148) Issuance of common stock 21 5 6 Common dividends paid (222) (219) (219) --------- --------- --------- Net cash provided by financing activities 2,478 2,067 2,317 --------- --------- --------- Effect of foreign currency rate changes on cash (3) 32 (26) - ---------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents (134) 482 200 Cash and cash equivalents, beginning of year 1,693 1,211 1,011 - ---------------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents, end of year $ 1,559 $ 1,693 $ 1,211 - --------------------------------------------------------------------------------------============================================ Supplemental Disclosure of Cash Information: Income taxes paid, net of refunds $ 233 $ 531 $ 121 Interest paid $ 123 $ 117 $ 116 - ----------------------------------------------------------------------------------------------------------------------------------
The Notes to Financial Statements are an integral part of these statements. - ------------------------------------------------------------------------------ 26 22 NOTES TO FINANCIAL STATEMENTS NOTE 1 -- DESCRIPTION OF BUSINESS CIGNA Corporation's subsidiaries provide insurance and related financial services throughout the United States and in many locations worldwide. Principal products and services include group life and health insurance, managed care products and related services, individual life and health insurance and annuity products, retirement and investment products and services, and property and casualty insurance. NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A) BASIS OF PRESENTATION: The consolidated financial statements include the accounts of CIGNA Corporation and all significant subsidiaries (CIGNA). These consolidated financial statements have been prepared in conformity with generally accepted accounting principles, and reflect management's estimates and assumptions, such as those regarding medical costs and interest rates, that affect the recorded amounts. Significant estimates used in determining insurance and contractholder liabilities and related reinsurance recoverables, and valuation allowances for investment assets and deferred tax assets are discussed throughout the Notes to the Financial Statements. Certain reclassifications have been made to prior years' amounts to conform with the 1995 presentation. B) RECENT ACCOUNTING PRONOUNCEMENTS: In 1993, CIGNA implemented Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities." SFAS No. 115 required that debt and equity securities be classified into different categories and carried at fair value if they are not classified as held-to-maturity. During the fourth quarter of 1995, the Financial Accounting Standards Board (FASB) issued a guide to implementation of SFAS No. 115, which permits a one-time opportunity to reclassify securities subject to SFAS No. 115. Consequently, CIGNA reclassified all held-to-maturity securities to available-for-sale as of December 31, 1995. The non-cash reclassification of these securities, which had an aggregate amortized cost of $11.8 billion and fair value of $12.8 billion, resulted in an increase of approximately $300 million, net of policyholder-related amounts and deferred income taxes, in net unrealized appreciation included in Shareholders' Equity as of December 31, 1995. In 1993, the FASB issued SFAS No. 114, "Accounting by Creditors for Impairment of a Loan," which provides guidance on the accounting and disclosure for impaired loans. In 1994, the FASB issued SFAS No. 118, "Accounting by Creditors for Impairment of a Loan - - Income Recognition and Disclosures," which eliminates the income recognition requirements of SFAS No. 114. CIGNA adopted SFAS Nos. 114 and 118 in the first quarter of 1995, which resulted in an $8 million increase in net income. In 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 121 requires write-down to fair value when long-lived assets to be held and used are impaired. Long-lived assets to be disposed of, including real estate held for sale, must be carried at the lower of cost or fair value less costs to sell. Depreciation of assets to be disposed of is prohibited. CIGNA will adopt this standard in the first quarter of 1996. The effect on CIGNA's results of operations, liquidity and financial condition is not expected to be material. In 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation," effective for 1996 financial statements. This statement provides guidance on the prospective accounting and reporting for the cost of stock-based compensation. Cost related to stock options is permitted to be recorded or disclosed, and such cost must be measured at the grant date based upon estimated fair values using option pricing models. CIGNA will disclose the effect of stock-based compensation in its 1996 financial statements. C) FINANCIAL INSTRUMENTS: In the normal course of business, CIGNA enters into transactions involving various types of financial instruments, including investments such as fixed maturities and equity securities; debt; and off-balance-sheet financial instruments such as investment and loan commitments and financial guarantees. These instruments have credit risk and also may be subject to risk of loss due to interest rate and market fluctuations. CIGNA evaluates and monitors each financial instrument individually and, where appropriate, uses certain derivative instruments or obtains collateral or other forms of security to minimize risk of loss. See Note 20 for additional information on the fair value of financial instruments. D) INVESTMENTS: Investments in fixed maturities include bonds; asset-backed securities, including collateralized mortgage obligations (CMOs); and redeemable preferred stocks. Fixed maturities classified as available-for-sale are carried at fair value, with unrealized appreciation or depreciation included in Share-holders' Equity, and those classified as held-to-maturity are carried at amortized cost, net of impairments. Fixed maturities are considered impaired and written down to fair value when a decline in value is considered to be other than temporary. Mortgage loans are carried principally at unpaid principal balances, net of valuation reserves. Mortgage loans are considered impaired when it is probable that CIGNA will be unable to collect all amounts according to the contractual terms of the loan agreement. If impaired, a valuation reserve is utilized when a decline in the fair value of the underlying collateral is below the carrying value. - ------------------------------------------------------------------------------ 27 23 Fixed maturities and mortgage loans that are delinquent or restructured to modify basic financial terms, typically to reduce the interest rate and, in certain cases, extend the term, are placed on non-accrual status, and thereafter interest income is recognized only when payment is received. Real estate investments are either held for the production of income or held for sale. Real estate investments held for the production of income are carried at depreciated cost less valuation reserves when a decline in value is other than temporary. Depreciation is generally calculated using the straight-line method based on the estimated useful lives of the assets. Real estate investments held for sale are generally those which are acquired through the foreclosure of mortgage loans. These assets are valued at their fair value at the time of foreclosure. The fair value is established as the new cost basis and the asset acquired is reclassified from mortgage loans to real estate held for sale. Subsequent to foreclosure, these investments are carried at the lower of depreciated cost or current fair value less estimated costs to sell. Adjustments to the carrying value as a result of changes in fair value subsequent to foreclosure are recorded as valuation reserves, and reported in realized investment gains and losses. CIGNA considers several methods in determining fair value for real estate acquired through foreclosure, with greater emphasis placed on the use of discounted cash flow analyses and, in some cases, the use of third-party appraisals. Assets held for sale are depreciated using the straight-line method based on the estimated useful lives of the assets. Equity securities, which include common and non-redeemable preferred stocks, are carried at fair value. Short-term investments are carried at fair value, which approximates cost. Equity securities and short-term investments are classified as available-for-sale. Policy loans generally are carried at unpaid principal balances. Realized investment gains and losses result from sales, investment asset write-downs and changes in valuation reserves, after deducting amounts attributable to experience-rated pension policyholders' contracts and participating life policies (policyholder share). Generally, realized investment gains and losses are based upon specific identification of the investment assets. Unrealized investment gains and losses, after deducting policyholder-related amounts and net of deferred income taxes, if applicable, for investments carried at fair value are included in Shareholders' Equity. See Note 4(F) for a discussion of CIGNA's accounting policies for derivative financial instruments. E) CASH AND CASH EQUIVALENTS: Short-term investments with a maturity of three months or less at the time of purchase are reported as cash equivalents. F) REINSURANCE RECOVERABLES: Reinsurance recoverables are estimates of amounts to be received from reinsurers. Allowances are established for amounts estimated to be uncollectible. G) DEFERRED POLICY ACQUISITION COSTS: Acquisition costs consist of commissions, premium taxes and other costs, which vary with, and are primarily related to, the production of revenues. Property and casualty, group life and a portion of group health insurance business acquisition costs are deferred and amortized over the terms of the insurance policies. Acquisition costs related to universal life products and contractholder deposit funds are deferred and amortized in proportion to total estimated gross profits over the expected life of the contracts. Acquisition costs related to annuity and other life insurance businesses are deferred and amortized, generally in proportion to the ratio of annual revenue to the estimated total revenues over the contract periods. Acquisition costs related to prepaid health and dental products are expensed as incurred. Deferred acquisition costs are reviewed to determine if they are recoverable from future income, including investment income. If such costs are estimated to be unrecoverable, they are expensed. If such costs are estimated to be unrecoverable as a result of treating unrealized investment gains and losses as though they had been realized, a deferred acquisition cost valuation allowance may be established or adjusted, with a comparable offset in net unrealized appreciation (depreciation). H) PROPERTY AND EQUIPMENT: Property and equipment are carried at cost less accumulated depreciation. When applicable, cost includes interest and real estate taxes incurred during construction and other construction-related costs. Depreciation is calculated principally on the straight-line method based on the estimated useful lives of the assets. Accumulated depreciation was $1.1 billion and $977 million at December 31, 1995 and 1994, respectively. I) OTHER ASSETS: Other Assets consists of various insurance-related assets, principally ceded unearned premiums and reinsurance deposits. J) GOODWILL: Goodwill represents the excess of the cost of businesses acquired over the fair value of their net assets. These costs are amortized on systematic bases over periods, not exceeding 40 years, that correspond with the benefits estimated to be derived from the acquisitions. CIGNA evaluates the carrying amount of goodwill by analyzing historical and estimated future income and undiscounted estimated cash flows of the related businesses. Goodwill is written down when impaired. Amortization periods are revised if it is estimated that the remaining period of benefit of the goodwill has changed. Accumulated amortization was $909 million and $862 million at December 31, 1995 and 1994, respectively. - ------------------------------------------------------------------------------ 28 24 K) SEPARATE ACCOUNTS: Separate account assets and liabilities are principally carried at market value, with less than 5% carried at amortized cost, and represent policyholder funds maintained in accounts having specific investment objectives. The investment income, gains and losses of these accounts generally accrue to the policyholders and, therefore, are not included in CIGNA's net income. L) CONTRACTHOLDER DEPOSIT FUNDS: Contractholder Deposit Funds are liabilities for investment-related and universal life products, which were $20.1 billion and $10.0 billion, respectively, as of December 31, 1995, compared with $18.9 billion and $8.1 billion, respectively, as of December 31, 1994. These liabilities consist of deposits received from customers and investment earnings on their fund balances, less administrative charges and, for universal life fund balances, mortality charges. M) UNPAID CLAIMS AND CLAIM EXPENSES: Liabilities for unpaid claims and claim expenses are estimates of payments to be made on property and casualty and health insurance and on prepaid health and dental claims for reported losses and estimates of losses incurred but not reported. Estimated amounts of salvage and subrogation are deducted from the liability for unpaid claims. N) FUTURE POLICY BENEFITS: Future policy benefits are liabilities for life, health and annuity products. Such liabilities are established in amounts adequate to meet the estimated future obligations of policies in force. These liabilities are computed using premium assumptions for group annuity policies and the net level premium method for individual life and annuity policies, and are based upon estimates as to future investment yield, mortality and withdrawals that include provisions for adverse deviation. Future policy benefits for individual life insurance and annuity policies are computed using interest rates ranging from approximately 2% to 11%, generally graded down after 10 to 30 years. Mortality, morbidity and withdrawal assumptions are based on either CIGNA's own experience or various actuarial tables. O) UNEARNED PREMIUMS: Premiums for property and casualty and group life, accident and health insurance are reported as earned on a pro-rata basis over the contract period. The unexpired portion of these premiums is recorded as Unearned Premiums. P) OTHER LIABILITIES: Other Liabilities consists principally of postretirement and postemployment benefits and various insurance-related liabilities, including amounts related to reinsurance contracts, the present value of obligations related to a closed book of reinsurance business acquired in 1984, and guaranty fund assessments that can be reasonably estimated. Q) TRANSLATION OF FOREIGN CURRENCIES: Foreign operations primarily utilize the local currencies as their functional currencies, and assets and liabilities are translated at the rates of exchange as of the balance sheet date. The translation gain or loss on such functional currencies, net of applicable taxes, is generally reflected in Shareholders' Equity. Revenues and expenses are translated at average rates of exchange prevailing during the year. R) PREMIUMS AND FEES, REVENUES AND RELATED EXPENSES: Premiums for property and casualty insurance, group life, accident and health insurance, and prepaid health and dental coverages are recognized as revenue on a pro-rata basis over their contract periods. Premiums for individual life and health insurance as well as individual and group annuity products, excluding universal life and investment-related products, are recognized as revenue when due. Benefits, losses and expenses are matched with premiums. Revenues for universal life products consist of net investment income and mortality, administration and surrender fees assessed against the fund values during the period. Benefit expenses for universal life products consist of benefit claims in excess of fund values and interest credited to fund values. Revenues for investment-related products consist of net investment income and contract charges assessed against the fund values during the period. Benefit expenses for investment-related products primarily consist of interest credited to the fund values after deduction for investment and risk fees. S) PARTICIPATING BUSINESS: Certain life insurance policies contain dividend payment provisions that enable the policyholder to participate in the earnings of the life insurance subsidiaries of CIGNA. The participating insurance in force accounted for 6.0%, 4.6% and 3.2% of total insurance in force at December 31, 1995, 1994 and 1993, respectively. T) INCOME TAXES: CIGNA and its domestic subsidiaries file a consolidated United States federal income tax return. Included in tax returns for domestic subsidiaries are the taxable income and taxes paid for certain foreign subsidiaries. Entities included within the consolidated group are segregated into either a life insurance or non-life insurance company subgroup. The consolidation of these subgroups is subject to certain statutory restrictions on the percentage of eligible non-life tax losses that can be applied to offset life company taxable income. Deferred income taxes are generally recognized when assets and liabilities have different values for financial statement and tax reporting purposes. See Note 9 for additional information. - ------------------------------------------------------------------------------ 29 25 NOTE 3 -- ACQUISITIONS AND DISPOSITIONS During 1994, CIGNA sold the California personal automobile and homeowners insurance business that it had retained from the 1989 sale of its Horace Mann insurance subsidiaries. A gain on the sale of approximately $20 million after-tax was recognized in 1994. CIGNA had other acquisitions and dispositions during 1995, 1994 and 1993, including the substantial withdrawal from the property and casualty reinsurance business in 1994, the effects of which were not material to the financial statements. NOTE 4 -- INVESTMENTS A) FIXED MATURITIES: Fixed maturities are net of cumulative write-downs of $144 million and $123 million, including policyholder share, as of December 31, 1995 and 1994. As of December 31, 1995, all fixed maturities are classified as available-for-sale and are carried at fair value. See Note 2(B) for additional information. The amortized cost and fair value by contractual maturity periods for available-for-sale fixed maturities (carried at fair value), including policyholder share, as of December 31, 1995 were as follows:
- --------------------------------------------------------------------------- Amortized Fair (In millions) Cost Value - --------------------------------------------------------------------------- Due in one year or less $ 1,767 $ 1,813 Due after one year through five years 9,152 9,670 Due after five years through ten years 9,087 9,884 Due after ten years 5,456 6,620 Asset-backed securities 7,813 8,254 - --------------------------------------------------------------------------- Total $ 33,275 $ 36,241 - ----------------------------------------------------=======================
Actual maturities could differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Also, CIGNA may extend maturities in some cases. Gross unrealized appreciation (depreciation) for fixed maturities, including policyholder share, by type of issuer was as follows:
- -------------------------------------------------------------------------------------------------------- December 31, 1995 - -------------------------------------------------------------------------------------------------------- Amortized Fair (In millions) Cost Appreciation Depreciation Value - -------------------------------------------------------------------------------------------------------- AVAILABLE-FOR-SALE (CARRIED AT FAIR VALUE) Federal government bonds $ 1,307 $ 344 $ (1) $ 1,650 State and local government bonds 1,594 226 (4) 1,816 Foreign government bonds 2,354 161 (7) 2,508 Corporate securities 20,207 1,905 (99) 22,013 Asset-backed securities 7,813 500 (59) 8,254 - -------------------------------------------------------------------------------------------------------- Total $ 33,275 $ 3,136 $(170) $36,241 - ----------------------------------------------------====================================================
- -------------------------------------------------------------------------------------------------------- December 31, 1994 - -------------------------------------------------------------------------------------------------------- AVAILABLE-FOR-SALE (CARRIED AT FAIR VALUE) Federal government bonds $ 1,323 $ 53 $ (47) $ 1,329 State and local government bonds 1,396 171 (55) 1,512 Foreign government bonds 1,950 24 (69) 1,905 Corporate securities 9,455 149 (426) 9,178 Asset-backed securities 4,775 143 (321) 4,597 - -------------------------------------------------------------------------------------------------------- Total $ 18,899 $ 540 $ (918) $ 18,521 - ----------------------------------------------------==================================================== HELD-TO-MATURITY (CARRIED AT AMORTIZED COST) State and local government bonds $ 82 $ 5 $ (3) $ 84 Foreign government bonds 59 1 (2) 58 Corporate securities 9,862 349 (299) 9,912 Asset-backed securities 2,293 55 (126) 2,222 - -------------------------------------------------------------------------------------------------------- Total $ 12,296 $ 410 $ (430) $ 12,276 - ----------------------------------------------------====================================================
Asset-backed securities include investments in CMOs as of December 31, 1995 of $3.3 billion carried at fair value (amortized cost, $3.2 billion). As of December 31, 1994, investments in CMOs consisted of $2.5 billion carried at fair value (amortized cost, $2.7 billion) and $162 million carried at amortized cost (fair value, $172 million). Certain of these securities are backed by Aaa/AAA-rated government agencies. All other CMO securities have high quality standards through use of credit - ------------------------------------------------------------------------------ 30 26 NOTES TO FINANCIAL STATEMENTS enhancement provided by subordinated securities or mortgage insurance from an Aaa/AAA-rated insurance company. CMO holdings are concentrated in securities with limited prepayment, extension and default risk, such as planned amortization class bonds. CIGNA's investments in interest-only and principal-only CMOs, which are also subject to interest rate risk resulting from accelerated prepayments, represented approximately 1% and 5% of total CMO investments at December 31, 1995 and 1994, respectively. At December 31, 1995, contractual fixed maturity investment commitments approximated $266 million. The majority of investment commitments are for the purchase of investment grade fixed maturities, bearing interest at a fixed market rate, and require no collateral. These commitments are diversified by issuer and maturity date, and it is estimated that the full amount will be disbursed in 1996, with the majority occurring within the first three months. B) SHORT-TERM INVESTMENTS AND CASH EQUIVALENTS: Short-term investments and cash equivalents, in the aggregate, included debt securities, principally corporate securities of $1.4 billion and $1.3 billion, federal government securities of $159 million and $74 million, and foreign government securities of $19 million and $29 million, at December 31, 1995 and 1994, respectively. C) MORTGAGE LOANS AND REAL ESTATE: CIGNA's mortgage loans and real estate investments are diversified by property type and location and, for mortgage loans, by borrower. Mortgage loans are collateralized by the related property and generally approximate 80% of the property's value at the time the original loan is made. At December 31, the carrying values of mortgage loans and real estate investments, including policyholder share, were as follows:
- --------------------------------------------------------------------------- (In millions) 1995 1994 - --------------------------------------------------------------------------- Mortgage loans $ 11,010 $ 9,970 -------- -------- Real estate: Held for sale 720 892 Held for production of income 563 855 -------- -------- Total real estate 1,283 1,747 - --------------------------------------------------------------------------- Total $ 12,293 $ 11,717 - ----------------------------------------------------=======================
Valuation reserves and cumulative write-downs related to real estate, including policyholder share, were $381 million and $385 million as of December 31, 1995 and 1994, respectively. During 1995, 1994 and 1993, non-cash investing activities included real estate acquired through foreclosure of mortgage loans, which totaled $146 million, $169 million and $460 million, respectively. At December 31, mortgage loans and real estate investments comprised the following property types and geographic regions:
- --------------------------------------------------------------------------- (In millions) 1995 1994 - --------------------------------------------------------------------------- PROPERTY TYPE: Office buildings $ 4,804 $ 4,638 Retail facilities 4,696 4,372 Apartment buildings 1,392 1,135 Hotels 731 839 Other 670 733 - --------------------------------------------------------------------------- Total $ 12,293 $ 11,717 - ----------------------------------------------------======================= GEOGRAPHIC REGION: Central $ 3,815 $ 3,534 Pacific 2,772 2,902 Middle Atlantic 2,063 1,835 South Atlantic 1,813 1,794 New England 1,252 1,108 Other 578 544 - --------------------------------------------------------------------------- Total $ 12,293 $ 11,717 - ----------------------------------------------------=======================
At December 31, 1995, scheduled mortgage loan maturities were as follows: 1996 -- $1.2 billion; 1997 -- $1.0 billion; 1998 -- $789 million; 1999 -- $1.4 billion; 2000 -- $1.7 billion; and $4.9 billion thereafter. Actual maturities could differ from contractual maturities because borrowers may have the right to prepay obligations, with or without prepayment penalties, and loans may be refinanced. During 1995 and 1994, CIGNA refinanced approximately $400 million and $600 million of its mortgage loans relating to borrowers that were unable to obtain alternative financing. At December 31, 1995, CIGNA's total investment in impaired mortgage loans was $874 million, including $474 million, before valuation reserves totaling $88 million, and $400 million, which had no valuation reserves. During 1995, valuation reserves for mortgage loans, including policyholder share, decreased from $179 million as of December 31, 1994 to $88 million as of December 31, 1995. The net decrease for the year reflects 1) $54 million of mortgage loan reserves transferred to foreclosed real estate, 2) $50 million of charge-offs, and 3) a $13 million net increase in valuation reserves. During 1995, the average total investment in impaired mortgage loans, before valuation reserves, was approximately $1 billion, and interest income recorded and cash received on these loans was approximately $75 million. At December 31, 1995, contractual commitments to extend credit under commercial mortgage loan agreements amounted to approximately $615 million, all of which were at a fixed market rate of interest. These commitments expire within three months, and are diversified by property type and geographic region. - ------------------------------------------------------------------------------ 31 27 D) NET UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENTS: Unrealized appreciation (depreciation) for investments carried at fair value as of December 31 were as follows:
- --------------------------------------------------------------------------- (In millions) 1995 1994 - --------------------------------------------------------------------------- Unrealized appreciation: Fixed maturities $ 3,136 $ 540 Equity securities 151 320 ------- ------- 3,287 860 ------- ------- Unrealized depreciation: Fixed maturities (170) (918) Equity securities (55) (165) ------- ------- (225) (1,083) ------- ------- 3,062 (223) Less policyholder-related amounts 1,408 (169) ------- ------- Shareholder net unrealized appreciation (depreciation) 1,654 (54) Less deferred income taxes (benefits) 556 (73) - --------------------------------------------------------------------------- Net unrealized appreciation $ 1,098 $ 19 - ----------------------------------------------------=======================
Net unrealized appreciation (depreciation) for investments carried at fair value is included as a separate component of Shareholders' Equity, net of policyholder-related amounts and deferred income taxes. The net unrealized appreciation (depreciation) for these investments, primarily fixed maturities, during 1995, 1994 and 1993 was $1.1 billion, ($1.2) billion and $835 million, respectively. During 1995, 1994 and 1993, the net unrealized appreciation (depreciation) for fixed maturities that were carried at amortized cost in the financial statements was $20 million, ($1.5) billion and ($657) million, respectively. E) NON-INCOME PRODUCING INVESTMENTS: At December 31, the carrying values of investments that were non-income producing during the preceding 12 months, including policyholder share, were as follows:
- --------------------------------------------------------------------------- (In millions) 1995 1994 - --------------------------------------------------------------------------- Fixed maturities $ 102 $ 99 Mortgage loans 17 88 Real estate 288 330 Other long-term investments 8 2 - --------------------------------------------------------------------------- Total $ 415 $ 519 - -------------------------------------------------------====================
F) DERIVATIVE FINANCIAL INSTRUMENTS: CIGNA's investment strategy is to manage the characteristics of investment assets, such as liquidity, currency, yield and duration, to reflect the underlying characteristics of the related insurance and contract-holder liabilities, which vary among CIGNA's principal product lines. In connection with this investment strategy, CIGNA uses derivative instruments through hedging applications to manage market risk. Generally, CIGNA uses interest rate swap contracts to create, when combined with cash flows from variable rate bonds, fixed rate cash flows that meet its portfolio investment strategy. Currency swaps are used to match the currency of individual investments to that of the associated liabilities. Interest rate futures are used to temporarily hedge against changes in market values of bonds and mortgage loans to be purchased or sold, and stock index futures may be used to hedge the temporary cash position of equity accounts. Interest rate futures also are used to hedge interest rate risk associated with withdrawals by contractholders over a scheduled time period. Cash requirements arise as a result of CIGNA's derivative activities. Under interest rate swaps, CIGNA agrees with other parties to exchange, at specified intervals, the difference between fixed rate and variable rate interest amounts calculated by reference to an agreed-upon notional principal amount. Under futures contracts, initial margin requirements are settled with cash or other instruments and changes in the contract values are settled in cash daily with the exchange on which the instrument is traded. Under currency swaps, the parties generally exchange a principal amount in the two relevant currencies, agreeing to re-exchange principal amounts at a specified future date using an agreed-upon exchange rate, and agreeing to periodically exchange amounts equal to interest payments using the agreed-upon exchange rate. Because CIGNA's use of derivatives is limited to hedging applications, changes in the market value of the derivatives are substantially offset by changes in the market value of the hedged assets or underlying liabilities, minimizing market risk. CIGNA routinely monitors, by individual counterparty, exposure to credit risk associated with swap contracts. Futures contracts are exchange-traded and, therefore, credit risk is limited since the exchange assumes the obligations. CIGNA manages legal risks by following industry standardized documentation procedures, by monitoring legal developments and, consistent with its credit exposure policies, by limiting risks associated with counterparty failure by diversifying the swaps portfolio among approved dealers of high credit quality. - ------------------------------------------------------------------------------ 32 28 NOTES TO FINANCIAL STATEMENTS Changes in the market value of futures contracts that qualify for hedge accounting are deferred and recorded as adjustments to the carrying value of the related bond or mortgage loan. Deferred gains and losses are amortized into net investment income over the life of the investments purchased or recognized in full as realized investment gains and losses in the event that the investment or futures contract is sold prior to maturity. Futures contracts totaled $22 million and $142 million as of December 31, 1995 and 1994, respectively, and were accounted for as hedges. At December 31, 1995, gains and losses on futures contracts deferred in anticipation of investment purchases were $4 million and $1 million, respectively. At December 31, 1994, gains and losses on futures contracts deferred in anticipation of investment purchases were $1 million and $3 million, respectively. Net interest received or paid on an interest rate swap contract is recognized currently as an adjustment to net investment income. The fair value of interest rate swap contracts is reported as an adjustment to the fair value of the related investment. Underlying notional principal amounts associated with interest rate swap contracts outstanding were $601 million and $770 million at December 31, 1995 and 1994, respectively. The interest payment cash flows received in U.S. dollars from currency swaps related to foreign currency denominated investment securities (primarily Canadian dollars, pounds sterling, Swiss francs and Japanese yen) are recognized as net investment income when received. The fair value of currency swaps is reported as an adjustment to the fair value of the related investment. Underlying principal amounts associated with currency swap contracts outstanding were $371 million and $414 million at December 31, 1995 and 1994, respectively. As of December 31, 1995 and 1994, CIGNA's variable rate investments consisted of approximately $1.4 billion and $1.2 billion of fixed maturities, respectively. As of December 31, 1995 and 1994, CIGNA's fixed rate investments consisted of $34.8 billion and $29.6 billion, respectively, of fixed maturities, and $11 billion and $10 billion, respectively, of mortgage loans. Net investment income on bonds and mortgage loans was increased by $10 million and $1 million, respectively, in 1995 as a result of recognizing amortization of deferred market value changes in futures contracts. Net investment income on bonds and mortgage loans was increased by $7 million and $1 million, respectively, in 1994 as a result of recognizing amortization of deferred market value changes in futures contracts. In addition, the increase in net investment income for bonds resulting from interest rate swap contracts was $9 million, $17 million and $26 million for 1995, 1994 and 1993, respectively. G) OTHER: As of December 31, 1995 and 1994, CIGNA had no concentration of investments in a single investee exceeding 10% of Shareholders' Equity. NOTE 5 -- INVESTMENT INCOME AND GAINS AND LOSSES A) NET INVESTMENT INCOME: The components of net investment income, including policyholder share, for the year ended December 31 were as follows:
- ------------------------------------------------------------------------------------------ (In millions) 1995 1994 1993 - ------------------------------------------------------------------------------------------ Fixed maturities $ 2,587 $ 2,465 $ 2,257 Equity securities 47 67 80 Mortgage loans 932 892 1,006 Policy loans 511 371 255 Real estate 317 327 287 Other long-term investments 77 73 62 Short-term investments 183 128 291 ------- ------- -------- 4,654 4,323 4,238 Less investment expenses 358 377 336 - ------------------------------------------------------------------------------------------ Net investment income $ 4,296 $ 3,946 $ 3,902 - -----------------------------------------------------=====================================
Net investment income attributable to policyholder contracts, which is included in CIGNA's revenues and is primarily offset by amounts included in Benefits, Losses and Settlement Expenses, was approximately $1.8 billion for 1995, $1.5 billion for 1994 and $1.6 billion for 1993. Net investment income for separate accounts, which is not reflected in CIGNA's revenues, was $885 million, $699 million and $611 million for 1995, 1994 and 1993, respectively. As of December 31, 1995, fixed maturities and mortgage loans on non-accrual status, including policyholder share, were $196 million and $575 million, including restructured investments of $139 million and $494 million, respectively. As of December 31, 1994, fixed maturities and mortgage loans on non-accrual status, including policyholder share, were $307 million and $796 million, including restructured investments of $205 million and $605 million, respectively. If interest on these investments had been recognized in accordance with their original terms, net income would have been increased by $14 million, $27 million and $28 million in 1995, 1994 and 1993, respectively. B) REALIZED INVESTMENT GAINS AND LOSSES: Realized gains and losses on investments, excluding policyholder share, for the year ended December 31 were as follows:
- ------------------------------------------------------------------------------------------ (In millions) 1995 1994 1993 - ------------------------------------------------------------------------------------------ Realized investment gains (losses): Fixed maturities $ 26 $ (6) $ 50 Equity securities 187 38 257 Mortgage loans (3) (1) (51) Real estate 19 10 (46) Other 4 1 72 ------ ------ ------ 233 42 282 Less income taxes 55 14 58 - ------------------------------------------------------------------------------------------ Net realized investment gains $ 178 $ 28 $ 224 - -------------------------------------------------------===================================
- ------------------------------------------------------------------------------ 33 29 Impairments in the value of investments, net of recoveries, that are included in realized investment gains and losses were $46 million, $50 million and $100 million in 1995, 1994 and 1993, respectively. Realized investment gains (losses) for separate accounts, which are not reflected in CIGNA's revenues, were $412 million, ($51) million and $612 million for 1995, 1994 and 1993, respectively. Realized investment gains (losses) attributable to policyholder contracts, which also are not reflected in CIGNA's revenues, were ($7) million, $5 million and $3 million for 1995, 1994 and 1993, respectively. Sales of available-for-sale fixed maturities and equity securities, including policyholder share, for the year ended December 31 were as follows:
- --------------------------------------------------------------------------- (In millions) 1995 1994 - --------------------------------------------------------------------------- Proceeds from sales $ 8,160 $ 5,549 Gross gains on sales $ 426 $ 232 Gross losses on sales $ (205) $ (222) - ---------------------------------------------------------------------------
Prior to the SFAS No. 115 reclassification described in Note 2(B), $218 million of fixed maturities classified as held-to-maturity, including policyholder share, were transferred to the available-for-sale category in 1995 resulting in the recognition in Shareholders' Equity of unrealized depreciation of $11 million, net of policyholder-related amounts and deferred income taxes. During 1994, CIGNA sold $14 million of held-to-maturity fixed maturities, including policyholder share, resulting in gross proceeds of $12 million and a pre-tax realized loss of $2 million. In addition, in 1994, $102 million of fixed maturities classified as held-to-maturity, including policyholder share, were transferred to the available-for-sale category at fair value, which was not significantly different from the carrying value. The sales of fixed maturities classified as held-to-maturity and the transfer of such securities to the available-for-sale category were the result of significant credit deterioration of the issuers of the affected investments. Prior to the adoption of SFAS No. 115, proceeds from voluntary sales of investments in fixed maturities, including policyholder share, were $1.0 billion in 1993. Such sales resulted in gross realized gains and gross realized (losses), including policyholder share, of $44 million and ($22) million in 1993. These amounts exclude the effects of sales of fixed maturities that, prior to the implementation of SFAS No. 115, were classified as short-term investments. NOTE 6 -- DEBT Short and long-term debt consisted of the following at December 31:
- --------------------------------------------------------------------------- (In millions) 1995 1994 - --------------------------------------------------------------------------- SHORT-TERM Commercial paper $ 253 $ 266 Current maturities of long-term debt 161 5 - --------------------------------------------------------------------------- Total short-term debt $ 414 $ 271 - ----------------------------------------------------======================= LONG-TERM Unsecured Debt: 8.2% Convertible Subordinated Debentures due 2010 $ -- $ 248 8% Notes due 1996 -- 150 8.16% Notes due 2000 25 -- 8 3/4% Notes due 2001 100 100 7.17% Notes due 2002 25 -- 7.4% Notes due 2003 100 100 6 3/8% Notes due 2006 100 100 8 1/4% Notes due 2007 100 100 7.65% Notes due 2023 100 100 8.3% Notes due 2023 100 100 Medium-term Notes 242 215 Secured Debt (principally by real estate) 174 176 - --------------------------------------------------------------------------- Total long-term debt $ 1,066 $ 1,389 - ----------------------------------------------------=======================
CIGNA issues commercial paper primarily to manage imbalances between operating cash flows and existing commitments, to meet working capital needs and to take advantage of current investment opportunities. Commercial paper borrowing arrangements are supported by various lines of credit. As of December 31, 1995 and 1994, the weighted average interest rate on commercial paper was approximately 6%. Medium-term notes have original maturity dates ranging from approximately five to ten years and interest rates ranging from 5 3/4% to 9 3/4%. As of December 31, 1995 and 1994, the weighted average interest rate on medium-term notes was 8.5% and 8.6%, respectively. During 1995, CIGNA's 8.2% Convertible Subordinated Debentures due in 2010 were converted through non-cash transactions into approximately 3.6 million shares of CIGNA common stock. In 1995, CIGNA issued $25 million of unsecured 8.16% Notes due in 2000, $25 million of unsecured 7.17% Notes due in 2002 and $36 million in medium-term notes. The proceeds from these issues were used for general corporate purposes. - ------------------------------------------------------------------------------ 34 30 NOTES TO FINANCIAL STATEMENTS In 1994, CIGNA issued $100 million of unsecured 6 3/8% Notes due in 2006 and $12 million in medium-term notes. The proceeds from these issues were used for general corporate purposes. As of December 31, 1995, CIGNA had available approximately $650 million in committed and uncommitted lines of credit provided by U.S. and foreign banks. These lines of credit generally have terms ranging from one to three years and are paid for using a combination of fees and bank balances. Interest that CIGNA would be charged for usage of these lines of credit is based upon negotiated arrangements. As of December 31, 1995, CIGNA had approximately $800 million remaining under an effective shelf registration statement filed with the Securities and Exchange Commission that may be issued as debt, equity securities or both, depending upon market conditions and CIGNA's capital requirements. Maturities of long-term debt for each of the next five years are as follows: 1996 -- $161 million; 1997 -- $43 million; 1998 -- $86 million; 1999 - -- $60 million; and 2000 -- $57 million. Interest expense was $120 million, $121 million and $124 million in 1995, 1994 and 1993, respectively. NOTE 7 -- COMMON AND PREFERRED STOCK
- ------------------------------------------------------------------------------------------ (Shares in thousands) 1995 1994 1993 - ------------------------------------------------------------------------------------------ Common: Par value $1 200,000 shares authorized Outstanding -- January 1 72,225 72,015 71,720 Issued for stock option and other benefit plans 504 210 295 Issued upon conversion of 8.2% Convertible Subordinated Debentures 3,603 -- -- ------ ------ ------ Outstanding -- December 31 76,332 72,225 72,015 Treasury shares 11,014 10,844 10,615 - ------------------------------------------------------------------------------------------ Issued -- December 31 87,346 83,069 82,630 - ------------------------------------------------------====================================
Stock issued under stock option and other benefit plans resulted in increases in Additional Paid-in Capital of $41 million, $26 million and $16 million in 1995, 1994 and 1993, respectively. Such stock issuances also resulted in net increases in Treasury Stock of $14 million, $19 million and $8 million in 1995, 1994 and 1993, respectively. In 1995, conversion of CIGNA's 8.2% Convertible Subordinated Debentures resulted in an increase in Common Stock and Additional Paid-in Capital of $4 million and $247 million, respectively. Under CIGNA's shareholder rights plan, Preferred Stock Purchase Rights (Rights) attach to all outstanding shares of CIGNA common stock. The Rights, which expire in 1997, trade with the stock until the Rights become exercisable. They are exercisable only if a party acquires, or announces a tender offer to acquire, 20% or more of the outstanding common stock. Each Right entitles the shareholder to buy for a $200 exercise price 1/100 of a share of Junior Participating Preferred Stock Series D, having dividend and voting rights approximately equal to one share of common stock. Under certain circumstances, including the acquisition of 20% or more of the outstanding common stock by an acquirer, all Rights holders except the acquirer may purchase shares of common stock worth twice the exercise price. If CIGNA is acquired in a merger after the acquisition of 20% of outstanding common stock, Rights holders may purchase the acquirer's shares at a similar discount. CIGNA may redeem the Rights for five cents each at any time before an acquirer acquires 20% of its outstanding common stock, and thereafter under certain circumstances. CIGNA has authorized a total of 25 million shares of $1 par value preferred stock. No shares of preferred stock were outstanding at December 31, 1995, 1994 and 1993. NOTE 8 -- SHAREHOLDERS' EQUITY AND DIVIDEND RESTRICTIONS The insurance departments of various jurisdictions in which CIGNA's insurance subsidiaries are domiciled recognize as net income and surplus (shareholders' equity) those amounts determined in conformity with statutory accounting practices prescribed or permitted by the departments, which differ in certain respects from generally accepted accounting principles. As of December 31, 1995, certain of CIGNA's insurance subsidiaries discounted certain asbestos-related and environmental pollution liabilities, which resulted in an increase to statutory surplus of approximately $260 million for the property and casualty insurance companies. As part of its overall restructuring plan, CIGNA contributed $375 million of additional capital to certain property and casualty insurance companies. See Note 18 for additional information on the restructuring. The amounts of statutory net income (loss) for the year ended, and surplus as of, December 31 were as follows:
- ------------------------------------------------------------------------------------------ (In millions) 1995 1994 1993 - ------------------------------------------------------------------------------------------ LIFE INSURANCE COMPANIES: Net income $ 471 $ 514 $ 571 Surplus $ 2,672 $ 2,564 $ 2,630 PROPERTY AND CASUALTY INSURANCE Companies: Net income (loss) $ (201) $ 51 $ (331) Surplus $ 1,589 $ 1,565 $ 1,575 - ------------------------------------------------------------------------------------------
As a result of property and casualty losses, CIGNA contributed $250 million and $150 million of capital in 1994 and 1993, respectively, to enhance the capital base of the domestic property and casualty operations. Also during 1993, manage- - ------------------------------------------------------------------------------ 35 31 ment 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. CIGNA's insurance subsidiaries are subject to various regulatory restrictions that limit the amount of annual dividends or other distributions, such as loans or cash advances, available to shareholders without prior approval of the insurance regulatory authorities. The maximum dividend distribution that may be made by CIGNA's insurance subsidiaries during 1996 without prior approval is approximately $770 million. The amount of restricted net assets as of December 31, 1995 was approximately $6.4 billion. NOTE 9 -- INCOME TAXES CIGNA's net deferred tax asset of $1.9 billion and $2.3 billion as of December 31, 1995 and 1994, respectively, reflects management's belief that CIGNA's taxable income in future years will be sufficient to realize the net deferred tax asset based on CIGNA's earnings history and its future expectations. In determining the adequacy of future taxable income, management considered the future reversal of its existing taxable temporary differences and available tax planning strategies that could be implemented, if necessary. CIGNA's deferred tax asset is net of valuation allowances of $48 million and $47 million as of December 31, 1995 and 1994, respectively. The valuation allowance reflects management's assessment, based on available information, that it is more likely than not that a portion of the deferred tax asset for certain foreign operations will not be realized. Adjustments to the valuation allowance will be made if there is a change in management's assessment of the amount of the deferred tax asset that is realizable. During 1995, 1994 and 1993, the valuation allowance was increased (decreased) by $1 million, ($6) million and ($29) million, respectively, to reflect management's assessment of changes related to certain foreign operations. As of December 31, 1995 and 1994, the net deferred tax asset included a benefit of $287 million and $125 million, respectively, resulting from tax basis net operating loss carryforwards of $819 million and $357 million, respectively. Subject to statutory limitations, these carryforwards are available to offset taxable income through the year 2010. In accordance with the Life Insurance Company Income Tax Act of 1959, a portion of CIGNA's life insurance companies' statutory income was not subject to current income taxation but was accumulated in an account designated Policyholders' Surplus Account. Under the Tax Reform Act of 1984, no further additions may be made to the Policyholders' Surplus Account for tax years ending after December 31, 1983. The balance in the account of approximately $450 million at December 31, 1995 would result in a tax liability of $158 million only if distributed to shareholders or if the account balance exceeded a prescribed maximum. No income taxes have been provided on this amount because, in management's opinion, the likelihood that these conditions will be met is remote. CIGNA's federal income tax returns are routinely audited by the Internal Revenue Service (IRS), and provisions are made in the financial statements in anticipation of the results of these audits. The IRS has completed audits of the years 1982 through 1990. During 1995, one of two outstanding issues for those years was resolved with no effect on CIGNA's results of operations. The remaining issue, which relates only to years prior to 1989, could result in an assessment of approximately $200 million. CIGNA is contesting this issue in court. Although the outcome is uncertain, management believes that CIGNA should prevail. In management's opinion, adequate tax liabilities have been established for all years. The tax effect of temporary differences which give rise to deferred income tax assets and liabilities as of December 31 were as follows:
- --------------------------------------------------------------------------- (In millions) 1995 1994 - --------------------------------------------------------------------------- DEFERRED TAX ASSETS: Loss reserve discounting $ 741 $ 700 Other insurance and contractholder liabilities 718 752 Employee and retiree benefit plans 433 446 Investments, net 211 279 Operating loss carryforwards 287 125 Bad debt expense 123 77 Unrealized depreciation on investments -- 73 Other 195 144 ------- ------- Deferred tax assets before valuation allowance 2,708 2,596 Valuation allowance for deferred tax assets (48) (47) ------- ------- Deferred tax assets, net of valuation allowance 2,660 2,549 ------- ------- DEFERRED TAX LIABILITIES: Policy acquisition expenses 52 60 Depreciation 129 140 Unrealized appreciation on investments 556 -- Other 57 85 ------- ------- Total deferred tax liabilities 794 285 - --------------------------------------------------------------------------- Deferred income taxes, net $ 1,866 $ 2,264 - -----------------------------------------------------======================
- ------------------------------------------------------------------------------ 36 32 NOTES TO FINANCIAL STATEMENTS The components of income taxes (benefits) for the year ended December 31 were as follows:
- ------------------------------------------------------------------------------------------ (In millions) 1995 1994 1993 - ------------------------------------------------------------------------------------------ CURRENT TAXES: U.S. income $ 185 $ 182 $ 373 Foreign income 73 42 40 ------- ------- ------ 258 224 413 ------- ------- ------ DEFERRED TAXES (BENEFITS): U.S. income (212) 22 (499) Foreign income (6) 5 17 ------- ------- ------ (218) 27 (482) - ------------------------------------------------------------------------------------------ Total income taxes (benefits) $ 40 $ 251 $ (69) - -----------------------------------------------------=====================================
Total income taxes (benefits) for the year ended December 31 were less than the amount computed using the nominal federal income tax rate of 35% for the following reasons:
- ------------------------------------------------------------------------------------------ (In millions) 1995 1994 1993 - ------------------------------------------------------------------------------------------ Tax expense at nominal rate $ 88 $ 282 $ 58 Tax-exempt interest income (34) (37) (45) Realized investment gains (24) (5) (63) Dividends received deduction (8) (10) (14) Amortization of goodwill 16 30 43 Interest on provisions 10 10 9 Resolved federal tax audit issues (7) (7) (3) Other foreign (1) (4) 24 Valuation allowance 1 (6) (29) Federal tax rate change -- -- (48) Other (1) (2) (1) - ------------------------------------------------------------------------------------------ Total income taxes (benefits) $ 40 $ 251 $ (69) - ------------------------------------------------------====================================
Temporary and other differences which resulted in the deferred taxes (benefits) for the year ended December 31 were as follows:
- ------------------------------------------------------------------------------------------ (In millions) 1995 1994 1993 - ------------------------------------------------------------------------------------------ Operating loss carryforwards $ (162) $ (28) $ (10) Loss reserve discounting (41) 16 (71) Other insurance and contractholder liabilities 34 86 (284) Realized investment gains (24) (5) (63) Policy acquisition expenses (8) (11) (65) Bad debt expense (46) (15) (17) Investments, net 68 (121) 4 Other foreign (24) 61 80 Cost reduction initiatives (5) 25 (41) Valuation allowance 1 (6) (29) Other (11) 25 14 - ------------------------------------------------------------------------------------------ Deferred taxes (benefits) $ (218) $ 27 $ (482) - ------------------------------------------------------====================================
NOTE 10 -- PENSION AND OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS PLANS A) PENSION PLANS: CIGNA and certain of its subsidiaries provide retirement benefits to eligible employees and agents. These benefits are provided through a plan covering most domestic employees (the Plan) and by several separate pension plans for various subsidiaries, agents and foreign employees. The Plan is a non-contributory, defined benefit, trusteed plan available to eligible domestic employees. Benefits are based on employees' years of service and compensation during the highest three or, if service commenced after December 31, 1988, five consecutive years of employment, offset by a portion of the Social Security benefit for which they are eligible. CIGNA funds at least the minimum amount required by the Employee Retirement Income Security Act of 1974. The following table summarizes the status as of December 31 of pension plans for which assets exceeded accumulated benefit obligations:
- --------------------------------------------------------------------------- (In millions) 1995 1994 - --------------------------------------------------------------------------- Actuarial present value of benefit obligations: Vested benefit obligation $ 1,877 $ 1,513 ------- ------- Accumulated benefit obligation $ 1,913 $ 1,546 ------- ------- Pension liability included in Other Liabilities: Projected benefit obligation $ 2,318 $ 1,896 Less plan assets at fair value 2,071 1,775 ------- ------- Plan assets less than projected benefit obligation 247 121 Unrecognized net loss from past experience (225) (117) Unrecognized prior service cost (28) (66) Unamortized SFAS 87 transition asset 58 69 - --------------------------------------------------------------------------- Pension liability $ 52 $ 7 - -----------------------------------------------------======================
At December 31, 1995 and 1994, plans under which accumulated benefits exceeded assets had projected benefit obligations of $246 million and $179 million, respectively, and related assets at fair value of $37 million and $27 million for 1995 and 1994, respectively. The accumulated benefit obligation as of December 31, 1995 and 1994 related to these plans was $187 million and $135 million, respectively. The pension liability included in Other Liabilities related to these plans was $157 million and $108 million, respectively. - ------------------------------------------------------------------------------ 37 33 Components of net pension cost for the year ended December 31 were as follows:
- ------------------------------------------------------------------------------------------ (In millions) 1995 1994 1993 - ------------------------------------------------------------------------------------------ Service cost -- benefits earned during the year $ 83 $ 104 $ 94 Interest accrued on projected benefit obligation 163 151 138 Actual return on assets (392) (26) (194) Net amortization and deferral 231 (121) 55 - ------------------------------------------------------------------------------------------ Net pension cost $ 85 $ 108 $ 93 - ------------------------------------------------------====================================
Determination of the projected benefit obligation was based on an estimated discount rate of 7.1% and 8.1% for 1995 and 1994, respectively, and an estimated long-term rate of compensation increase of 4.7% for both 1995 and 1994. The estimated long-term rate of return on assets was 9% for both 1995 and 1994. Substantially all Plan assets are invested in either the separate accounts of Connecticut General Life Insurance Company (CGLIC), which is a CIGNA subsidiary, or immediate participation guaranteed investment contracts issued by CGLIC. Plan assets also include 297,500 shares of CIGNA common stock at both December 31, 1995 and 1994, with a market value of $31 million and $19 million at December 31, 1995 and 1994, respectively. B) OTHER POSTRETIREMENT BENEFITS PLANS: In addition to providing pension benefits, CIGNA and certain of its subsidiaries provide certain health care and life insurance benefits to retired employees, spouses and other eligible dependents through various plans. A substantial portion of CIGNA's employees may become eligible for these benefits upon retirement. CIGNA's contributions for health care benefits depend upon a retiree's date of retirement, age, years of service and cost-sharing features, such as deductibles and coinsurance. Under the terms of the benefit plans, benefit provisions and cost-sharing features can be adjusted. In general, retiree health care benefits are not funded and are paid as covered expenses are incurred. Retiree life insurance benefits are paid from plan assets or as covered expenses are incurred. An employer's postretirement benefit liability is primarily measured by determining the present value of the projected future costs of health benefits based on an estimate of health care cost trend rates. The following table summarizes the underfunded plans' benefit obligations reconciled with the other postretirement benefit liability included in Other Liabilities as of December 31:
- --------------------------------------------------------------------------- (In millions) 1995 1994 - --------------------------------------------------------------------------- Actuarial present value of benefit obligations: Retirees $ 446 $ 456 Other fully eligible plan participants 27 34 Other active plan participants 170 178 ----- ----- Total accumulated benefit obligations 643 668 Less plan assets at fair value 54 46 ----- ----- Plan assets less than accumulated benefit obligations 589 622 Unrecognized prior service cost 156 167 Unrecognized net gain from past experience 158 105 - --------------------------------------------------------------------------- Other postretirement benefit liability $ 903 $ 894 - -------------------------------------------------------====================
At December 31, 1995 and 1994, plan assets of $54 million and $46 million, respectively, represented partial funding for retiree life insurance plans with accumulated benefit obligations of $131 million and $112 million, respectively, and such plan assets were invested in the general account assets of CGLIC, with an estimated long-term rate of return of 7% for both 1995 and 1994. Components of net other postretirement benefit cost for the year ended December 31 were as follows:
- ------------------------------------------------------------------------------------------ (In millions) 1995 1994 1993 - ------------------------------------------------------------------------------------------ Service cost -- benefits earned during the year $ 14 $ 23 $ 27 Interest accrued on benefit obligation 44 49 47 Actual return on assets (9) 2 (5) Net amortization and deferral (13) (16) (9) - ------------------------------------------------------------------------------------------ Net other postretirement benefit cost $ 36 $ 58 $ 60 - -------------------------------------------------------===================================
Determination of the accumulated other postretirement benefit obligations for 1995 and 1994 was based on an estimated discount rate of 7.2% and 8.2%, respectively, and an estimated long-term rate of compensation increase of 4.5% for both 1995 and 1994. The estimated rate of future increases in per capita cost of health care benefits (the health care cost trend rate) was 11.5% decreasing ratably to 5.0% over seven years, which reflects CIGNA's current claim experience and management's estimate that future rates of growth will decline. Increasing the health care cost trend rate by one percentage point for each future year would increase accumulated other postretirement benefit obligations by $80 million and the annual service and interest cost by $10 million, before taxes. Gains and losses that occur because actual experience differs from that estimated are amortized over the average future service period of employees. - ------------------------------------------------------------------------------ 38 34 NOTES TO FINANCIAL STATEMENTS C) OTHER POSTEMPLOYMENT BENEFITS: CIGNA and certain of its subsidiaries provide certain salary continuation (severance and disability), health care and life insurance benefits to inactive and former employees, spouses and other eligible dependents through various employee benefit plans. Although severance benefits accumulate with additional service, CIGNA recognizes severance expense when severance is probable and the costs can be reasonably estimated. Postemployment benefits other than severance generally do not vest or accumulate; therefore, the estimated cost of benefits are accrued when determined to be probable and estimable, generally upon disability or termination. See Note 18 for additional information regarding severance benefits accrued as part of cost reduction plans. D) CAPITAL ACCUMULATION PLANS: CIGNA sponsors various capital accumulation plans in which employee contributions on a pre-tax basis (401(k)) are supplemented by CIGNA matching contributions. Contributions are invested, at the election of the employee, in one or more of the following investments: CIGNA common stock fund, several non-CIGNA stock and bond portfolios, and a fixed-income fund. CIGNA's expense for such plans totaled $37 million for 1995, compared with $34 million for 1994 and $33 million for 1993. NOTE 11 -- EMPLOYEE INCENTIVE PLANS The People Resources Committee of the Board of Directors can award to key employees stock options, stock appreciation rights (SARs) only in tandem with stock options, restricted stock, dividend equivalent rights or common stock in lieu of cash payable under other incentive plans. As of December 31, 1995, 1994 and 1993, stock available for award aggregated 6,007,504 shares, 1,746,135 shares and 3,020,098 shares, respectively. The increase in 1995 was due to the adoption of a new plan. Grants of restricted shares of CIGNA common stock during 1995, 1994 and 1993 totaled 321,494 shares, 331,757 shares and 164,994 shares, respectively. Restricted stock grants of 747,397 shares for 1,418 employees were outstanding at December 31, 1995. Options to purchase CIGNA common stock are awarded at market price on the date of grant and expire no later than 10 years after that date. Certain outstanding options have a replacement option feature providing that when the underlying option is exercised by tendering stock a new option is granted covering shares equal to the number tendered. These options are exercisable at the market price on the date of the new grant and expire on the expiration date of the original option. SARs permit the holders to receive in cash or stock the excess of the current market price of the underlying stock over the option price. Either the stock option or the SAR, but not both, may be exercised. Options and SARs may be subject to vesting periods. For options with SARs, changes in the market price of the stock, to the extent it exceeds the option price, are reflected as an expense. The following table summarizes the changes in common stock options outstanding for the year ended December 31:
- ------------------------------------------------------------------------------------------ 1995 1994 1993 - ------------------------------------------------------------------------------------------ Outstanding -- January 1 1,611,949 745,614 776,617 Granted 536,823 1,095,200 183,550 Expired or canceled (30,350) (111,922) (25,895) Exercised (509,533) (116,943) (188,658) - ------------------------------------------------------------------------------------------ Outstanding -- December 31 1,608,889 1,611,949 745,614 - ---------------------------------------------------======================================= Average exercise price of options exercised $ 61.87 $ 52.46 $ 49.45 - ---------------------------------------------------=======================================
As of December 31, 1995, 683,376 options outstanding were exercisable. As of December 31, 1995, the exercise price for options outstanding (covering 1,608,889 shares of common stock held by 311 individuals) ranged from $48.00 to $112.44. NOTE 12 -- EARNINGS PER SHARE Earnings per share were based on net income divided by weighted average common shares, including common share equivalents, of 73.7 million, 72.3 million and 72.0 million for 1995, 1994 and 1993, respectively. There was no significant difference between earnings per share on a primary and a fully diluted basis. As discussed in Note 6, CIGNA's 8.2% Convertible Subordinated Debentures were converted into approximately 3.6 million shares of CIGNA common stock during 1995. If these conversions had taken place on January 1, 1995 and the related interest expense ($10 million after-tax) were excluded from net income for the year, earnings per share for 1995 would have been $2.89. NOTE 13 -- SEGMENT INFORMATION CIGNA operates principally in four segments: Property and Casualty, Employee Life and Health Benefits, Employee Retirement and Savings Benefits, and Individual Financial Services. Other Operations primarily includes unallocated investment income, expenses (principally debt service) and taxes. Also included in Other Operations are the results of CIGNA's settlement annuity business and non-insurance subsidiaries engaged primarily in investment and real estate activities. - ------------------------------------------------------------------------------ 39 35 CIGNA's Property and Casualty operations routinely insure various forms of property, including large property risks. A major catastrophe could have a material adverse effect on CIGNA's results of operations. However, because CIGNA, through its risk assessment and accumulation processes, monitors writings to avoid significant concentrations, it is not likely that such adverse effect would be material to the Company's liquidity or financial condition. CIGNA's operations are not materially dependent on one or a few customers, brokers or agents. Summarized financial information with respect to the business segments for the year ended and as of December 31 was as follows:
- ------------------------------------------------------------------------------------------ (In millions) 1995 1994 1993 - ------------------------------------------------------------------------------------------ REVENUES Property and Casualty: Domestic $ 2,571 $ 3,004 $ 3,396 International 2,968 2,610 2,365 Other, primarily reinsurance 196 416 567 ------- ------- ------- Total Property and Casualty 5,735 6,030 6,328 Employee Life and Health Benefits 9,167 8,650 8,392 Employee Retirement and Savings Benefits 1,983 1,935 2,111 Individual Financial Services 1,920 1,637 1,447 Other Operations 150 140 124 - ------------------------------------------------------------------------------------------ Total $18,955 $18,392 $18,402 - ----------------------------------------------------====================================== INCOME (LOSS) BEFORE INCOME TAXES Property and Casualty: Domestic $(1,093) $ (389) $ (876) International 153 76 5 Other, primarily reinsurance (120) (104) (91) ------- ------- ------- Total Property and Casualty (1,060) (417) (962) Employee Life and Health Benefits 860 829 851 Employee Retirement and Savings Benefits 284 287 223 Individual Financial Services 231 210 164 Other Operations (64) (104) (111) - ------------------------------------------------------------------------------------------ Total $ 251 $ 805 $ 165 - ----------------------------------------------------====================================== IDENTIFIABLE ASSETS Property and Casualty: Domestic $16,352 $16,445 $17,177 International 7,468 6,541 6,192 Other, primarily reinsurance 2,498 2,649 3,100 ------- ------- ------- Total Property and Casualty 26,318 25,635 26,469 Employee Life and Health Benefits 12,206 11,331 11,398 Employee Retirement and Savings Benefits 37,736 33,939 34,384 Individual Financial Services 15,913 12,195 9,368 Other Operations 3,730 3,002 3,356 - ------------------------------------------------------------------------------------------ Total $95,903 $86,102 $84,975 - ----------------------------------------------------======================================
NOTE 14 -- FOREIGN OPERATIONS CIGNA provides international property and casualty and life and health insurance coverages on a direct and reinsured basis, primarily in Europe, the Pacific region, Canada and Latin America. There was no change in Net Translation of Foreign Currencies for the year ended December 31, 1995. For the year ended December 31, 1994 and 1993, the change in Net Translation of Foreign Currencies reflects increases (decreases) of $47 million (including a tax benefit of $16 million) and ($28) million (net of tax benefit of $7 million), respectively. Summary financial data of CIGNA's foreign operations for the year ended and as of December 31 were as follows:
- ------------------------------------------------------------------------------------------ (In millions) 1995 1994 1993 - ------------------------------------------------------------------------------------------ Revenues $ 3,240 $ 2,991 $ 2,821 Income before income taxes $ 82 $ 32 $ 40 Identifiable assets $ 9,589 $ 8,742 $ 8,411 - ------------------------------------------------------------------------------------------
CIGNA's income before income taxes included aggregate foreign exchange transaction losses of $1 million, $5 million and $6 million in 1995, 1994 and 1993, respectively. NOTE 15 -- LEASES AND RENTALS Rental expenses for operating leases, principally with respect to buildings, amounted to $248 million, $255 million and $284 million in 1995, 1994 and 1993, respectively. As of December 31, 1995, future net minimum rental payments under non-cancelable operating leases were approximately $780 million, payable as follows: 1996 -- $160 million; 1997 -- $125 million; 1998 -- $105 million; 1999 - -- $88 million; 2000 -- $63 million; and $239 million thereafter. - ------------------------------------------------------------------------------ 40 36 NOTES TO FINANCIAL STATEMENTS NOTE 16 -- REINSURANCE In the normal course of business, CIGNA's insurance subsidiaries enter into agreements, primarily relating to short-duration contracts, to assume and cede reinsurance with other insurance companies. Reinsurance is ceded primarily to limit losses from large exposures and to permit recovery of a portion of direct losses, although ceded reinsurance does not relieve the originating insurer of liability. CIGNA evaluates the financial condition of its reinsurers and monitors concentrations of credit risk arising from similar geographic regions, activities or economic characteristics of its reinsurers. As of December 31, 1995 and 1994, approximately 8% and 9%, respectively, of reinsurance recoverables were due from certain syndicates affiliated with Lloyd's of London. Failure of reinsurers to indemnify CIGNA, as a result of reinsurer insolvencies and disputes, could result in losses. Allowances for uncollectible amounts were $700 million and $435 million as of December 31, 1995 and 1994, respectively. During 1995, CIGNA increased the allowance for uncollectible reinsurance by $210 million pre-tax ($138 million after-tax) for asbestos-related and environmental pollution losses, for CIGNA's assumed reinsurance business that it previously exited and domestic commercial business. While future charges for unrecoverable reinsurance may materially affect results of operations in future periods, such amounts are not expected to have a material adverse effect on CIGNA's liquidity or financial condition. The effects of reinsurance on net earned premiums and fees for the year ended December 31 were as follows:
- ------------------------------------------------------------------------------------------ (In millions) 1995 1994 1993 - ------------------------------------------------------------------------------------------ SHORT-DURATION CONTRACTS PREMIUMS AND FEES: Direct $ 12,144 $ 12,281 $ 11,493 Assumed 1,881 2,039 2,564 Ceded (2,115) (2,236) (2,098) - ------------------------------------------------------------------------------------------ Net earned premiums and fees $ 11,910 $ 12,084 $ 11,959 - ----------------------------------------------------====================================== LONG-DURATION CONTRACTS PREMIUMS AND FEES: Direct $ 1,979 $ 1,983 $ 1,635 Assumed 162 154 216 Ceded (137) (309) (98) - ------------------------------------------------------------------------------------------ Net earned premiums and fees $ 2,004 $ 1,828 $ 1,753 - ----------------------------------------------------======================================
The effects of reinsurance on written premiums and fees for short-duration contracts were not materially different from the amounts shown in the above table. Benefits, losses and settlement expenses for 1995, 1994 and 1993 were net of reinsurance recoveries of $1.5 billion, $1.2 billion and $2.1 billion, respectively. NOTE 17 -- PROPERTY AND CASUALTY UNPAID CLAIMS AND CLAIM EXPENSE RESERVES AND REINSURANCE RECOVERABLES As described in Note 2(M), CIGNA establishes loss reserves, which are estimates of future payments of reported and unreported claims for losses and related expenses, with respect to insured events that have occurred. Activity in the reserve for unpaid claims and claim adjustment expenses for the year ended December 31 was as follows:
- ------------------------------------------------------------------------------------------ (In millions) 1995 1994 1993 - ------------------------------------------------------------------------------------------ Gross reserve -- January 1 $ 16,825 $ 17,764 $ 17,926 Less reinsurance recoverable 6,190 7,104 7,364 -------- -------- -------- Net reserve -- January 1 10,635 10,660 10,562 -------- -------- -------- Plus incurred claims and claim adjustment expenses: Provision for insured events of the current year 2,386 3,093 3,526 Increase in provision for insured events of prior years 1,498 538 789 -------- -------- -------- Total incurred claims and claim adjustment expenses 3,884 3,631 4,315 -------- -------- -------- Less payments for claims and claim adjustment expenses attributable to: Insured events of the current year 971 1,020 1,160 Insured events of prior years 2,389 2,636 3,057 -------- -------- -------- Total payments for claims and claim adjustment expenses 3,360 3,656 4,217 -------- -------- -------- Net reserve -- December 31 11,159 10,635 10,660 Plus reinsurance recoverable 5,864 6,190 7,104 - ------------------------------------------------------------------------------------------ Gross reserve -- December 31 $ 17,023 $ 16,825 $ 17,764 - ----------------------------------------------------======================================
The basic assumption underlying the many traditional actuarial and other methods used in the estimation of property and casualty loss reserves is that past experience is an appropriate basis for predicting future events. However, current trends and other factors that would modify past experience are also considered. The process of establishing loss reserves is subject to uncertainties that are normal, recurring and inherent in the property and casualty business. CIGNA changed its methodology for estimating asbestos-related and environmental pollution reserves in the third quarter of 1995, as discussed below. CIGNA's reserves for asbestos-related and environmental pollution claims are a reasonable estimate of its ultimate liability for these claims, based on currently known facts, reasonable assumptions where the facts are not known, current law and methodologies currently available. - ------------------------------------------------------------------------------ 41 37 Reserving for all property and casualty claims continues to be a complex and uncertain process, requiring the use of informed estimates and judgments. As additional experience and other data become available and are reviewed or, in the case of asbestos-related and environmental pollution reserves, as new or improved methodologies are developed or as current law changes, CIGNA's estimates and judgments may be revised. Any such revisions could result in future changes in estimates of losses or reinsurance recoverables, and would be reflected in CIGNA's results of operations for the period in which the estimates are changed. While the effect of any such changes in estimates of losses or reinsurance recoverables could be material to future results of operations, CIGNA does not expect such changes to have a material effect on its liquidity or financial condition. In management's judgment, information currently available has been appropriately considered in estimating CIGNA's loss reserves and reinsurance recoverables. CIGNA historically was not able to estimate its ultimate liabilities for asbestos-related and environmental pollution claims because of the significant uncertainties associated with them that are not generally present for other types of claims. Traditional actuarial techniques were not adequate for estimating these liabilities because of the lack of developed case law and adequate claim history. However, as industry experience in dealing with these exposures has accumulated, various industry-related parties have evaluated newly emerging methods for estimating asbestos-related and environmental pollution liabilities, and these methods have attained growing credibility. In addition, outside actuarial firms and others have developed data bases to supplement the information that can be derived from a company's claim files. CIGNA evaluated these methods and expanded its data bases of asbestos-related and environmental pollution claims. Using these recent developments, CIGNA completed a comprehensive review of its asbestos-related and environmental pollution exposures during the third quarter of 1995 and increased asbestos-related reserves by $255 million ($194 million, net of reinsurance) and environmental pollution reserves by $1.2 billion ($861 million, net of reinsurance). Charges to income for increases in the Property and Casualty segment's liability for insured events of prior years (prior year development) for asbestos-related and environmental pollution losses and charges for unrecoverable reinsurance in the aggregate were $1.4 billion, $304 million and $593 million for the years ended December 31, 1995, 1994 and 1993, respectively. Prior year development for 1995 reflects the asbestos-related and environmental pollution charge previously noted, as well as $135 million for unrecoverable reinsurance related to CIGNA's assumed reinsurance business that it previously exited and domestic commercial business. In 1993, CIGNA re-evaluated its reported asbestos-related, environmental pollution and other long-term exposure claims to determine if future legal expenses could be reasonably estimated and reserves established. Based on this review, CIGNA added $489 million ($375 million, net of reinsurance) to its reserves in the third quarter of 1993, which resulted in an after-tax charge of $244 million for future legal and associated expenses for reported claims. CIGNA's reserves for asbestos-related and environmental pollution exposure were $749 million ($457 million, net of reinsurance) and $1.7 billion ($1.3 billion, net of reinsurance), respectively, as of December 31, 1995, compared with $594 million ($281 million, net of reinsurance) and $707 million ($542 million, net of reinsurance) as of December 31, 1994. Prior year development other than for asbestos-related and environmental pollution claims and charges for unrecoverable reinsurance, was $109 million, $234 million and $196 million for the years ended December 31, 1995, 1994 and 1993, respectively. NOTE 18 -- RESTRUCTURING AND COST REDUCTION INITIATIVES During the third quarter of 1995, CIGNA announced its plan to restructure its domestic property and casualty businesses into two separate operations. The plan was approved by regulators in February 1996, and is effective as of December 31, 1995. One operation will manage ongoing business (ongoing operations) and the other will manage run-off policies and related claims, including those for asbestos-related and environmental pollution exposures (run-off operations). As part of its overall restructuring plan, CIGNA contributed $375 million of additional capital to the run-off operations. This contribution, which is reflected in the run-off operations' statutory surplus as of December 31, 1995, was funded in 1996 through internal sources. Also, the ongoing operations will contribute an additional $50 million to the run-off operations by December 31, 2001. In addition, the ongoing operations assumed $125 million of liabilities, primarily related to employee benefits of the run-off operations, and will reinsure up to $800 million of claims of the run-off operations in the unlikely event that the statutory capital and surplus of the run-off operations falls below $25 million. - ------------------------------------------------------------------------------ 42 38 NOTES TO FINANCIAL STATEMENTS As a result of this restructuring, the domestic run-off operations had statutory capital and surplus of approximately $245 million, pro forma investment assets of approximately $4.3 billion and insurance liabilities of approximately $4.2 billion, as of December 31, 1995. During 1995, CIGNA implemented cost reduction plans, which resulted in an $85 million pre-tax charge, included in Other Operating Expenses, for the Domestic Property and Casualty operations. The components of the charge were as follows: severance, $37 million, representing costs associated with nonvoluntary terminations of approximately 1,600 domestic employees in various functions and locations; real estate, $25 million, primarily related to vacated lease space; and other costs, $23 million, including $10 million of costs associated with exiting certain business and $6 million for fixed asset write-offs. The cash outlays associated with these initiatives began in the third quarter of 1995 and will continue through 1998, with most of the cash outlays expected to occur in 1996 and 1997. During 1995, $13 million of severance was paid to 700 terminated employees. CIGNA has funded, and will continue to fund, these costs through liquid assets, and such funding will not have a material adverse effect on its liquidity. During 1995, CIGNA recorded a $30 million pre-tax charge, included in Other Operating Expenses, for cost reduction initiatives in the Employee Life and Health Benefits segment. The charge consisted primarily of severance-related expenses representing costs associated with nonvoluntary employee terminations covering approximately 2,400 employees (approximately 45% in the indemnity operations and 55% in the HMO operations). The cash outlays associated with the restructuring initiatives began in the third quarter of 1995 and will continue through 1997, with most of the cash outlays expected to occur in 1996. During 1995, $5 million of severance was paid to 900 terminated employees. CIGNA has funded, and will continue to fund, these costs through liquid assets, and such funding will not have a material adverse effect on its liquidity. During 1993, CIGNA implemented cost reduction initiatives in the Property and Casualty segment (both the Domestic and International operations) and the Employee Life and Health Benefits segment. These actions were taken to reduce operating expenses. Results for 1993 reflected a pre-tax charge of $165 million for the estimated costs of these cost reduction actions, of which $80 million and $70 million related to Domestic and International Property and Casualty operations, respectively. The remaining $15 million related to the Employee Life and Health Benefits segment. The Property and Casualty cost reduction charges consisted of the following: severance, $75 million, representing costs associated with nonvoluntary employee terminations; real estate, $35 million, primarily related to office lease terminations; legal and consulting fees, $18 million, associated with completing cost reduction initiatives; and other costs, $22 million, primarily for employee relocation and outplacement services. The cash outlays associated with the cost reduction initiatives began in the fourth quarter of 1993 and were substantially completed in 1995. CIGNA funded these costs through liquid assets, and such funding has not had a material adverse effect on its liquidity. NOTE 19 -- CONTINGENCIES FINANCIAL GUARANTEES CIGNA, through its subsidiaries, is contingently liable for various financial guarantees provided in the ordinary course of business. These include guarantees for the repayment of industrial revenue bonds as well as other debt instruments. The contractual amounts of financial guarantees reflect CIGNA's maximum exposure to credit loss in the event of nonperformance. To limit CIGNA's exposure in the event of default of any guaranteed obligation, various programs are in place to ascertain the creditworthiness of guaranteed parties and to monitor this status on a periodic basis. Risk is further reduced through reinsurance and, in certain programs, use of letters of credit and other types of security. The industrial revenue bonds guaranteed directly by CIGNA have remaining maturities of up to 20 years. The guarantees provide for payment of debt service only as it becomes due; consequently, an event of default would not cause an acceleration of scheduled principal and interest payments. The principal amount of the bonds guaranteed by CIGNA at December 31, 1995 and 1994 was $266 million and $296 million, respectively. Revenues in connection with industrial revenue bond guarantees are derived principally from equity participations in the related projects and are included in Net Investment Income - ------------------------------------------------------------------------------ 43 39 as earned. During 1994, losses for industrial revenue bonds were $1 million. There were no such losses in 1995 and 1993. In addition, CIGNA is liable for guarantee business of $1.3 billion and $1.7 billion at December 31, 1995 and 1994, respectively, fully reinsured through a subsidiary of MBIA Inc., a corporation that guarantees the scheduled payment of principal and interest for many types of municipal obligations, including general obligation and special revenue bonds, which have maturities of up to 38 years. The nature of this guarantee business is similar to the reinsurance transactions described in Note 16. Municipal guarantees provide for payment of debt service only as it becomes due; consequently, an event of default would not cause an acceleration of scheduled principal and interest payments. Generally, premiums for insurance provided by guarantees are recognized as income ratably over the policy period. Amounts included in Unearned Premiums under these programs were approximately $1 million as of December 31, 1995 and 1994. Loss reserves for financial guarantees are established when a default has occurred or when CIGNA believes that a loss has been incurred. Loss reserves included in Unpaid Claims and Claim Expenses were $9 million and $3 million as of December 31, 1995 and 1994, respectively. CIGNA also guarantees a minimum level of benefits for certain separate account contracts and, in the event that separate account assets are insufficient to fund minimum policy benefits, CIGNA is obligated to fund the difference. As of December 31, 1995 and 1994, the amount of minimum benefit guarantees for separate account contracts was $5.1 billion and $4.8 billion, respectively. Reserves in addition to the separate account liabilities are established when CIGNA believes a payment will be required under one of these guarantees. As of December 31, 1994, reserves of $6 million were recorded. No such reserves were required as of December 31, 1995. Guarantee fees are part of the overall management fee charged to separate accounts and are recognized in income as earned. Although the ultimate outcome of any loss contingencies arising from CIGNA's financial guarantees may adversely affect results of operations in future periods, they are not expected to have a material adverse effect on CIGNA's liquidity or financial condition. REGULATORY AND INDUSTRY DEVELOPMENTS CIGNA's businesses are subject to a changing social, economic, legal, legislative and regulatory environment that could affect them. Some of the changes include initiatives to: revise the system of funding cleanup of environmental damages; reform the federal tax system; reinterpret insurance contracts long after the policies were written to provide coverage unanticipated by CIGNA; restrict insurance pricing and the application of underwriting standards; reform health care; and expand regulation. Some of the more significant issues are discussed below. Legislation is expected to be considered by Congress that is likely to limit, and eventually substantially eliminate, the tax deductibility of policy loan interest for corporate-owned life insurance. The outcome of such legislation is uncertain and, although it could have a material adverse effect on results of operations for the Individual Financial Services segment, it is not expected to be material to CIGNA's consolidated results of operations, liquidity or financial condition. Proposed legislation for Superfund reform remains under consideration by Congress. Any changes in Superfund relating to 1) allocating responsibility, 2) funding cleanup costs or 3) establishing cleanup standards could affect the liabilities of potentially responsible parties and insurers. Due to uncertainties associated with the timing and content of any future Superfund legislation, the effect on CIGNA's results of operations, liquidity or financial condition cannot be reasonably estimated at this time. CIGNA expects proposals for federal and state legislation seeking some health care insurance reforms and limitations on formation and operation of efficient health care networks. Due to uncertainties associated with the timing and content of any health care legislation, the effect on CIGNA's future results of operations, liquidity or financial condition cannot be reasonably estimated at this time. The National Association of Insurance Commissioners is currently addressing risk-based capital guidelines for health maintenance organizations (HMOs). CIGNA does not expect such guidelines to have a material adverse effect on its future results of operations, liquidity or financial condition. - ------------------------------------------------------------------------------ 44 40 NOTES TO FINANCIAL STATEMENTS In recent years, the number of insurance companies that are impaired or insolvent has increased. This is expected to result in an increase in mandatory assessments by state guaranty funds of, or voluntary payments by, solvent insurance companies to cover losses to policyholders of insolvent or rehabilitated companies. Mandatory assessments, which are subject to statutory limits, can be partially recovered through a reduction in future premium taxes in some states. CIGNA's insurance subsidiaries recorded pre-tax charges of $29 million, $27 million and $28 million for 1995, 1994 and 1993, respectively, for guaranty fund assessments that can be reasonably estimated before giving effect to future premium tax recoveries. Although future assessments and payments may adversely affect results of operations in future periods, such amounts are not expected to have a material adverse effect on CIGNA's liquidity or financial condition. The eventual effect on CIGNA of the changing environment in which it operates remains uncertain. LITIGATION CIGNA is continuously involved in numerous lawsuits arising, for the most part, in the ordinary course of business, either as a liability insurer defending third-party claims brought against its insureds or as an insurer defending coverage claims brought against it by its policyholders or other insurers. One such area of litigation involves policy coverage and judicial interpretation of legal liability for asbestos-related and environmental pollution claims. While the outcome of all litigation involving CIGNA, including insurance-related litigation, cannot be determined, litigation (including that related to asbestos and environmental pollution claims) is not expected to result in losses that differ from recorded reserves by amounts that would be material to results of operations, liquidity or financial condition. Also, reinsurance recoveries related to claims in litigation, net of the allowance for uncollectible reinsurance, are not expected to result in recoveries that differ from recorded recoverables by amounts that would be material to results of operations, liquidity or financial condition. NOTE 20 -- FAIR VALUE OF FINANCIAL INSTRUMENTS Financial instruments that are subject to fair value disclosure requirements (insurance contracts, real estate, goodwill and taxes are excluded) are carried in the financial statements at amounts that approximate fair value, unless otherwise indicated in the following table. The fair values used for financial instruments are estimates that, in many cases, may differ significantly from the amounts that could be realized upon immediate liquidation. In cases where market prices are not available, estimates of fair value are based on discounted cash flow analyses which utilize current interest rates for similar financial instruments with comparable terms and credit quality. The fair value of liabilities for contractholder deposit funds was estimated using the amount payable on demand and, for those not payable on demand, discounted cash flow analyses. The following table presents carrying amounts and estimated fair values as of December 31 for CIGNA's financial instruments that are not carried in the financial statements at amounts approximating fair value.
- -------------------------------------------------------------------------------------------------------- 1995 1994 - -------------------------------------------------------------------------------------------------------- Carrying Fair Carrying Fair (In millions) Amount Value Amount Value - -------------------------------------------------------------------------------------------------------- ASSETS: Fixed maturities-- held-to-maturity $ -- $ -- $ 12,296 $ 12,276 Mortgage loans $ 11,010 $ 11,160 $ 9,970 $ 9,638 LIABILITIES: Contractholder deposit funds-- non-insurance products $ 20,092 $ 20,184 $ 18,866 $ 18,817 Long-term debt $ 1,066 $ 1,130 $ 1,389 $ 1,347 - --------------------------------------------------------------------------------------------------------
For additional information on fair values of fixed maturities, see Note 4(A). Fair values of off-balance-sheet financial instruments as of December 31, 1995 and 1994 were not material. - ------------------------------------------------------------------------------ 45 41 REPORT OF INDEPENDENT ACCOUNTANTS PRICE WATERHOUSE LLP THE BOARD OF DIRECTORS AND SHAREHOLDERS CIGNA CORPORATION FEBRUARY 13, 1996 In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income and retained earnings and of cash flows present fairly, in all material respects, the financial position of CIGNA Corporation and its subsidiaries at December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the years ended December 31, 1995, 1994 and 1993 in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PRICE WATERHOUSE LLP Philadelphia, Pennsylvania - ------------------------------------------------------------------------------ 46 42 QUARTERLY FINANCIAL DATA (unaudited) The following unaudited quarterly financial data are presented on a consolidated basis for each of the two years ended December 31, 1995 and 1994. Quarterly financial results necessarily rely heavily on estimates. This and certain other factors, such as the seasonal nature of portions of the insurance business, require caution in drawing specific conclusions from quarterly consolidated results.
- -------------------------------------------------------------------------------------------------------- (In millions, except per share amounts) Three Months Ended - -------------------------------------------------------------------------------------------------------- March 31 June 30 Sept. 30 Dec. 31 - -------------------------------------------------------------------------------------------------------- CONSOLIDATED RESULTS 1995* Total revenues $ 4,754 $ 4,753 $ 4,642 $ 4,806 Income (loss) before income taxes 402 304 (883) 428 Net income (loss) 290 205 (566) 282 Net income (loss) per share--primary** 4.00 2.82 (7.76) 3.69 1994 Total revenues $ 4,531 $ 4,538 $ 4,600 $ 4,723 Income before income taxes 170 204 178 253 Net income 114 135 123 182 Net income per share--primary** 1.58 1.86 1.70 2.52 STOCK AND DIVIDEND DATA 1995 Price range of common stock--high $ 76 3/8 $ 79 $ 106 $ 115 --low $ 62 1/4 $ 68 1/4 $ 77 1/2 $ 95 1/4 Dividends declared per common share $ .76 $ .76 $ .76 $ .76 1994 Price range of common stock--high $ 70 1/2 $ 74 $ 74 $ 69 3/8 --low $ 58 $ 57 $ 59 3/8 $ 59 Dividends declared per common share $ .76 $ .76 $ .76 $ .76 - --------------------------------------------------------------------------------------------------------
*The third quarter of 1995 includes after-tax charges totaling $849 million, reflecting $686 million for asbestos-related and environmental pollution claims, $88 million for unrecoverable reinsurance and $75 million for cost reduction initiatives. **Earnings per share for the three months ended March 31, 1995 on a fully diluted basis were $3.85. For all other periods presented, earnings per share on a fully diluted basis were not significantly different from amounts presented. - ------------------------------------------------------------------------------ 47 STOCK LISTING CIGNA's common shares are listed on the New York, Pacific and Philadelphia stock exchanges. The ticker symbol is CI. EX-21 9 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT Listed below are subsidiaries of CIGNA Corporation as of December 31, 1995 with their jurisdictions of organization shown in parentheses. Those subsidiaries not listed would not, in the aggregate, constitute a "significant subsidiary" of CIGNA Corporation, as that term is defined in Rule 1-02(v) of Regulation S-X. CIGNA Holdings, Inc. (Delaware) I. Connecticut General Corporation (Connecticut) A. CG Trust Company (Illinois) B. CIGNA Associates, Inc. (Connecticut) C. CIGNA Benefits Processing Ireland Ltd. (Delaware) D. CIGNA Dental Health, Inc. (Florida) (1) CIGNA Dental Health of California, Inc. (California) (2) CIGNA Dental Health of Colorado, Inc. (Colorado) (3) CIGNA Dental Health of Delaware, Inc. (Delaware) (4) CIGNA Dental Health of Florida, Inc. (Florida) (5) CIGNA Dental Health of Illinois, Inc. (Illinois) (6) CIGNA Dental Health of Kansas, Inc. (Kansas) (7) CIGNA Dental Health of Kentucky, Inc. (Kentucky) (8) CIGNA Dental Health of Maryland, Inc. (Delaware) (9) CIGNA Dental Health of New Jersey, Inc. (New Jersey) (10) CIGNA Dental Health of New Mexico, Inc. (New Mexico) (11) CIGNA Dental Health of North Carolina, Inc. (North Carolina) (12) CIGNA Dental Health of Ohio, Inc. (Ohio) (13) CIGNA Dental Health of Pennsylvania, Inc. (Pennsylvania) (14) CIGNA Dental Health of Texas, Inc. (Texas) (15) CIGNA Dental Health Plan of Arizona, Inc. (Arizona) E. CIGNA Financial Advisors, Inc. (Connecticut) F. CIGNA Financial Partners, Inc. (Connecticut) G. CIGNA Financial Services, Inc. (Delaware) H. CIGNA Health Corporation (Delaware) (1) CIGNA HealthCare of Arizona, Inc. (Arizona) (a) CIGNA Community Choice, Inc. (Arizona) (2) CIGNA HealthCare of California, Inc. (California) (3) CIGNA HealthCare of Colorado, Inc. (Colorado) (4) CIGNA HealthCare of Connecticut, Inc. (Connecticut) (5) CIGNA HealthCare of Delaware, Inc. (Delaware) (6) CIGNA HealthCare of Florida, Inc. (Florida) (7) CIGNA HealthCare of Georgia, Inc. (Georgia) (8) CIGNA HealthCare of Illinois, Inc. (Delaware) (99.6%) (9) CIGNA HealthCare of Kansas/Missouri, Inc. (Kansas) (10) CIGNA Healthplan of Louisiana, Inc. (Louisiana) (11) CIGNA HealthCare of Massachusetts, Inc. (Massachusetts) (12) CIGNA HealthCare Mid-Atlantic, Inc. (Maryland) (13) CIGNA HealthCare of New Jersey, Inc. (New Jersey) (14) CIGNA HealthCare of New York, Inc. (New York) (15) CIGNA HealthCare of North Carolina, Inc. (North Carolina) (16) CIGNA HealthCare of North Louisiana, Inc. (Louisiana) (17) CIGNA HealthCare of Northern New Jersey, Inc. (New Jersey) (18) CIGNA HealthCare of Ohio, Inc. (Ohio)
2 (19) CIGNA HealthCare of Oklahoma, Inc. (Oklahoma) (20) CIGNA HealthCare of Pennsylvania, Inc. (Pennsylvania) (21) CIGNA HealthCare of St. Louis, Inc. (Missouri) (22) CIGNA HealthCare of Tennessee, Inc. (Tennessee) (23) CIGNA HealthCare of Texas, Inc. (Texas) (24) CIGNA HealthCare of Utah, Inc. (Utah) (25) CIGNA HealthCare of Virginia, Inc. (Virginia) (26) Lovelace Health Systems, Inc. (New Mexico) (27) Temple Insurance Company Limited (Bermuda) I. CIGNA RE Corporation (Delaware) J. Connecticut General Life Insurance Company (Connecticut) (1) CIGNA Life Insurance Company (Connecticut) (2) ICO, INC. (Delaware) (3) Quebec Street Investments, Inc. (Delaware) K. Connecticut General Pension Services, Inc. (Connecticut) L. INA Life Insurance Company of New York (New York) M. International Rehabilitation Associates, Inc. d/b/a Intracorp (Delaware) N. Life Insurance Company of North America (Pennsylvania) (1) CIGNA Life Insurance Company of Canada (Canada) (2) CIGNA Private Equities, Inc. (Delaware) (3) CIGNA Road & Travel Club, Inc. (Texas) (4) INA Life Insurance Co., Ltd. (Japan) (90%) O. MCC Behavioral Care, Inc. (Minnesota) (1) MCC Behavioral Care of California, Inc. (California) P. TEL-DRUG, INC. (South Dakota) II. INA Corporation (Pennsylvania) A. CIGNA International Holdings, Ltd. (Delaware) (1) AFIA CIGNA Corporation (Delaware) (2) AFIA (INA) Corporation, Limited (Delaware) (3) Afia Finance Corporation (Delaware) (a) CIGNA Reinsurance New Zealand Limited (New Zealand) (b) P.T. Asuransi CIGNA Indonesia (Indonesia) (4) CIGNA Argentina Compania de Sequros S.A. (Argentina) (5) CIGNA Brasil Empreendimentos Ltda. (Brazil) (a) CIGNA Seguradora S.A. (Brazil) (85.8% with 13.792% owned by other CIGNA subsidiaries) (6) CIGNA Compania de Seguros (Chile) S.A. (Chile) (45.20% with balance owned by other CIGNA subsidiaries) (7) CIGNA G.B. Holdings, Ltd. (Delaware) (a) CIGNA Reinsurance Company (UK) Limited (United Kingdom) (b) Insurance Company of North America (U.K.) Limited (United Kingdom) (8) CIGNA Insurance Asia Pacific Limited (Australia) (9) CIGNA Insurance Company (Hellas) S.A. (Greece) (99.58% with balance owned by another CIGNA subsidiary) (10) CIGNA Insurance Company Limited (Rep. of South Africa) (11) CIGNA Insurance Company of Puerto Rico (Puerto Rico) (12) CIGNA Insurance New Zealand Limited (New Zealand) (a) CIGNA Life Insurance New Zealand Limited (New Zealand) (13) CIGNA International Corporation (Delaware) (14) CIGNA Overseas Insurance Company Ltd. (Bermuda) (a) CIGNA Insurance Company of Europe S.A.-N.V. (Belgium) (i) CIGNA Life Insurance Company of Europe S.A.-N.V. (Belgium) (ii) CIGNA SICAV I (France)
3 (15) CIGNA Worldwide Insurance Company (Delaware) (a) P.T. Asuransi Niaga CIGNA Life (Indonesia) (16) Delpanama S.A. (Panama) (a) CIGNA Compania de Seguros de Panama S.A. (Panama) (17) ESIS International, Inc. (Delaware) (18) INACAN Holdings, Ltd. (a) Insurance Company of Canada (19) Inversiones INA Limitada (Chile) (98.603% with balance owned by another CIGNA subsidiary) (a) CIGNA Compania de Seguros de Vida (Chile) S.A. (Chile) (98.64% with balance owned by non-affiliate) (b) CIGNA Salud Isapre S.A. (Chile) (99.20% with balance owned by another CIGNA subsidiary) (20) LATINA Holdings, Ltd. (Delaware) (a) CIGNA Seguros de Colombia S.A. (Colombia) (85.763% with balance owned by other CIGNA subsidiaries and non-affiliate) (b) Colina Insurance Company Limited (Bahamas) (c) Empresa Guatemalteca CIGNA de Seguros, Sociedad Anonima (Guatemala) (21) Seguros CIGNA, S.A. (Mexico) (49%) B. INA Financial Corporation (Delaware) (1) Brandywine Holdings Corporation (a) CIGNA International Reinsurance Company, Ltd. (Bermuda) (b) Century Indemnity Company (Pennsylvania) (i) Century Reinsurance Company (Pennsylvania) (ii) CIGNA Reinsurance Company (Pennsylvania) (a) CIGNA Reinsurance Company, S.A.-N.V. (Belgium) (c) Cravens, Dargan & Company, Pacific Coast (Delaware) (d) Trans Asian Insurance Services, Inc. (2) INA Holdings Corporation (a) Bankers Standard Insurance Company (Pennsylvania) (i) Bankers Standard Fire & Marine Company (Texas) (b) CIGNA Property and Casualty Insurance Company (Connecticut) (i) ALIC Incorporated (a) CIGNA Lloyds Insurance Company (ii) CIGNA Fire Underwriters Insurance Company (Pennsylvania) (iii) CIGNA Insurance Company (a) Pacific Employers Insurance Company (i) CIGNA Insurance Company of Texas (ii) Illinois Union Insurance Company (iv) CIGNA Insurance Company of the Midwest (v) CIGNA Real Estate, Inc. (a) 2525 East Arizona Biltmore Circle Corporation (b) Congen Properties, Inc. (c) ESIS, Inc. (California) (d) INAC Corp. (Delaware) (e) INAC Corp. of California (California)
4 (f) Insurance Company of North America (a) Atlantic Employers Insurance Company (New Jersey) (b) CIGNA Employers Insurance Company (Pennsylvania) (c) CIGNA Insurance Company of Ohio (d) Coast to Coast Corporation (e) INA County Mutual Insurance Company (f) Indemnity Insurance Company of North America (Pennsylvania) (i) Allied Insurance Company (ii) CIGNA Indemnity Insurance Company(Pennsylvania) (iii) CIGNA Insurance Company of Illinois (g) INA Surplus Insurance Company (Pennsylvania) (g) Marketdyne International, Inc. (Delaware) (h) Recovery Services International, Inc. (Delaware) III. CIGNA Investment Group, Inc. (Delaware) A. CIGNA International Finance Inc. (Delaware) (1) CIGNA International Investment Advisors, Ltd. (Delaware) (a) CIGNA International Investment Advisors Australia Limited (Australia) (b) CIGNA International Investment Advisors K.K. (Japan) B. CIGNA Investment Advisory Company, Inc. (Delaware) C. CIGNA Investments, Inc. (Delaware) (1) CIGNA Advisory Partners, Inc. (Delaware) (2) CIGNA Leveraged Capital Fund, Inc. (Delaware) D. Philadelphia Investment Corporation of Delaware (Delaware)
EX-23 10 CONSENT OF PRICE WATERHOUSE LLP 1 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 2-91972, No. 2-97899, No. 33-39269, and No. 33-65396) and Form S-8 (No. 2-76445, No. 2-76444, No. 33-44371, No. 33-51791 and No. 33-60053) of CIGNA Corporation, of our report dated February 13, 1996 appearing on Page 46 of the 1995 Annual Report to Shareholders of CIGNA Corporation which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference in such Registration Statements of our report on the Financial Statement Schedules, which appears on page FS-2 of this Form 10-K. /s/ PRICE WATERHOUSE LLP Philadelphia, Pennsylvania March 29, 1996 EX-24.1 11 POWERS OF ATTORNEY 1 EXHIBIT 24.1 POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director of CIGNA Corporation, a Delaware corporation ("CIGNA"), hereby makes, designates, constitutes and appoints THOMAS J. WAGNER, CAROL J. WARD and ROBERT A. LUKENS, and each of them (with full power to act without the other), as the undersigned's true and lawful attorneys-in-fact and agents, with full power and authority to act in any and all capacities for and in the name, place and stead of the undersigned (A) in connection with the filing with the Securities and Exchange Commission pursuant to the Securities Act of l933 or the Securities Exchange Act of l934, both as amended, of: (i) CIGNA's Annual Report on Form l0-K and all amendments thereto (collectively, "CIGNA's Form l0-K"); (ii) any and all registration statements pertaining to employee benefit or director compensation plans of CIGNA or its subsidiaries or pertaining to the secondary offering of CIGNA securities by its officers and directors, and all amendments thereto, including, without limitation, CIGNA's registration statements on Form S-8 (Registration Numbers 2-76444, 2-76445, 33-51791, 33-44371 and 33-60053); and its registration statements on Form S-3 (Registration Numbers 2-91972 and 2-97899); (iii) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 33-65396) relating to $900 million of debt securities, Preferred Stock and Common Stock; (iv) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 33-39269) relating to $300 million of debt securities; and (B) in connection with the preparation, delivery and filing of any and all registrations, amendments, qualifications or notifications under the applicable securities laws of any and all states and other jurisdictions with respect to securities of CIGNA, of whatever class or series, offered, sold, issued, distributed, placed or resold by CIGNA, any of its subsidiaries, or any other person or entity. Such attorneys-in-fact and agents, or any of them, are also hereby granted full power and authority, on behalf of and in the name, place and stead of the undersigned, to execute and deliver all such registration statements, registrations, amendments, qualifications and notifications, and CIGNA's Form l0-K, to execute and deliver any and all such other documents, and to take further action as they, or any of them, deem appropriate. The powers and authorities granted herein to such attorneys-in-fact and agents, and each of them, also include the full right, power and authority to effect necessary or appropriate substitutions or revocations. The undersigned hereby ratifies, confirms, and adopts, as his own act and deed, all action lawfully taken by such attorneys-in-fact and agents, or any of them, or by their respective substitutes, pursuant to the powers and authorities herein granted. This Power of Attorney expires by its terms and shall be of no further force and effect on May l5, l997. IN WITNESS WHEREOF, the undersigned has executed this document as of the 22nd day of February, l996. /s/ Robert P. Bauman -------------------------- Robert P. Bauman 2 POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director of CIGNA Corporation, a Delaware corporation ("CIGNA"), hereby makes, designates, constitutes and appoints THOMAS J. WAGNER, CAROL J. WARD and ROBERT A. LUKENS, and each of them (with full power to act without the other), as the undersigned's true and lawful attorneys-in-fact and agents, with full power and authority to act in any and all capacities for and in the name, place and stead of the undersigned (A) in connection with the filing with the Securities and Exchange Commission pursuant to the Securities Act of l933 or the Securities Exchange Act of l934, both as amended, of: (i) CIGNA's Annual Report on Form l0-K and all amendments thereto (collectively, "CIGNA's Form l0-K"); (ii) any and all registration statements pertaining to employee benefit or director compensation plans of CIGNA or its subsidiaries or pertaining to the secondary offering of CIGNA securities by its officers and directors, and all amendments thereto, including, without limitation, CIGNA's registration statements on Form S-8 (Registration Numbers 2-76444, 2-76445, 33-51791, 33-44371 and 33-60053); and its registration statements on Form S-3 (Registration Numbers 2-91972 and 2-97899); (iii) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 33-65396) relating to $900 million of debt securities, Preferred Stock and Common Stock; (iv) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 33-39269) relating to $300 million of debt securities; and (B) in connection with the preparation, delivery and filing of any and all registrations, amendments, qualifications or notifications under the applicable securities laws of any and all states and other jurisdictions with respect to securities of CIGNA, of whatever class or series, offered, sold, issued, distributed, placed or resold by CIGNA, any of its subsidiaries, or any other person or entity. Such attorneys-in-fact and agents, or any of them, are also hereby granted full power and authority, on behalf of and in the name, place and stead of the undersigned, to execute and deliver all such registration statements, registrations, amendments, qualifications and notifications, and CIGNA's Form l0-K, to execute and deliver any and all such other documents, and to take further action as they, or any of them, deem appropriate. The powers and authorities granted herein to such attorneys-in-fact and agents, and each of them, also include the full right, power and authority to effect necessary or appropriate substitutions or revocations. The undersigned hereby ratifies, confirms, and adopts, as his own act and deed, all action lawfully taken by such attorneys-in-fact and agents, or any of them, or by their respective substitutes, pursuant to the powers and authorities herein granted. This Power of Attorney expires by its terms and shall be of no further force and effect on May l5, l997. IN WITNESS WHEREOF, the undersigned has executed this document as of the 22nd day of February, l996. /s/ Robert H. Campbell -------------------------- Robert H. Campbell 3 POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director of CIGNA Corporation, a Delaware corporation ("CIGNA"), hereby makes, designates, constitutes and appoints THOMAS J. WAGNER, CAROL J. WARD and ROBERT A. LUKENS, and each of them (with full power to act without the other), as the undersigned's true and lawful attorneys-in-fact and agents, with full power and authority to act in any and all capacities for and in the name, place and stead of the undersigned (A) in connection with the filing with the Securities and Exchange Commission pursuant to the Securities Act of l933 or the Securities Exchange Act of l934, both as amended, of: (i) CIGNA's Annual Report on Form l0-K and all amendments thereto (collectively, "CIGNA's Form l0-K"); (ii) any and all registration statements pertaining to employee benefit or director compensation plans of CIGNA or its subsidiaries or pertaining to the secondary offering of CIGNA securities by its officers and directors, and all amendments thereto, including, without limitation, CIGNA's registration statements on Form S-8 (Registration Numbers 2-76444, 2-76445, 33-51791, 33-44371 and 33-60053); and its registration statements on Form S-3 (Registration Numbers 2-91972 and 2-97899); (iii) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 33-65396) relating to $900 million of debt securities, Preferred Stock and Common Stock; (iv) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 33-39269) relating to $300 million of debt securities; and (B) in connection with the preparation, delivery and filing of any and all registrations, amendments, qualifications or notifications under the applicable securities laws of any and all states and other jurisdictions with respect to securities of CIGNA, of whatever class or series, offered, sold, issued, distributed, placed or resold by CIGNA, any of its subsidiaries, or any other person or entity. Such attorneys-in-fact and agents, or any of them, are also hereby granted full power and authority, on behalf of and in the name, place and stead of the undersigned, to execute and deliver all such registration statements, registrations, amendments, qualifications and notifications, and CIGNA's Form l0-K, to execute and deliver any and all such other documents, and to take further action as they, or any of them, deem appropriate. The powers and authorities granted herein to such attorneys-in-fact and agents, and each of them, also include the full right, power and authority to effect necessary or appropriate substitutions or revocations. The undersigned hereby ratifies, confirms, and adopts, as his own act and deed, all action lawfully taken by such attorneys-in-fact and agents, or any of them, or by their respective substitutes, pursuant to the powers and authorities herein granted. This Power of Attorney expires by its terms and shall be of no further force and effect on May l5, l997. IN WITNESS WHEREOF, the undersigned has executed this document as of the 22nd day of February, l996. /s/ Alfred C. DeCrane, Jr. -------------------------- Alfred C. DeCrane, Jr. 4 POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director of CIGNA Corporation, a Delaware corporation ("CIGNA"), hereby makes, designates, constitutes and appoints THOMAS J. WAGNER, CAROL J. WARD and ROBERT A. LUKENS, and each of them (with full power to act without the other), as the undersigned's true and lawful attorneys-in-fact and agents, with full power and authority to act in any and all capacities for and in the name, place and stead of the undersigned (A) in connection with the filing with the Securities and Exchange Commission pursuant to the Securities Act of l933 or the Securities Exchange Act of l934, both as amended, of: (i) CIGNA's Annual Report on Form l0-K and all amendments thereto (collectively, "CIGNA's Form l0-K"); (ii) any and all registration statements pertaining to employee benefit or director compensation plans of CIGNA or its subsidiaries or pertaining to the secondary offering of CIGNA securities by its officers and directors, and all amendments thereto, including, without limitation, CIGNA's registration statements on Form S-8 (Registration Numbers 2-76444, 2-76445, 33-51791, 33-44371 and 33-60053); and its registration statements on Form S-3 (Registration Numbers 2-91972 and 2-97899); (iii) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 33-65396) relating to $900 million of debt securities, Preferred Stock and Common Stock; (iv) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 33-39269) relating to $300 million of debt securities; and (B) in connection with the preparation, delivery and filing of any and all registrations, amendments, qualifications or notifications under the applicable securities laws of any and all states and other jurisdictions with respect to securities of CIGNA, of whatever class or series, offered, sold, issued, distributed, placed or resold by CIGNA, any of its subsidiaries, or any other person or entity. Such attorneys-in-fact and agents, or any of them, are also hereby granted full power and authority, on behalf of and in the name, place and stead of the undersigned, to execute and deliver all such registration statements, registrations, amendments, qualifications and notifications, and CIGNA's Form l0-K, to execute and deliver any and all such other documents, and to take further action as they, or any of them, deem appropriate. The powers and authorities granted herein to such attorneys-in-fact and agents, and each of them, also include the full right, power and authority to effect necessary or appropriate substitutions or revocations. The undersigned hereby ratifies, confirms, and adopts, as his own act and deed, all action lawfully taken by such attorneys-in-fact and agents, or any of them, or by their respective substitutes, pursuant to the powers and authorities herein granted. This Power of Attorney expires by its terms and shall be of no further force and effect on May l5, l997. IN WITNESS WHEREOF, the undersigned has executed this document as of the 21st day of February, l996. /s/ James F. English, Jr. -------------------------- James F. English, Jr. 5 POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director of CIGNA Corporation, a Delaware corporation ("CIGNA"), hereby makes, designates, constitutes and appoints THOMAS J. WAGNER, CAROL J. WARD and ROBERT A. LUKENS, and each of them (with full power to act without the other), as the undersigned's true and lawful attorneys-in-fact and agents, with full power and authority to act in any and all capacities for and in the name, place and stead of the undersigned (A) in connection with the filing with the Securities and Exchange Commission pursuant to the Securities Act of l933 or the Securities Exchange Act of l934, both as amended, of: (i) CIGNA's Annual Report on Form l0-K and all amendments thereto (collectively, "CIGNA's Form l0-K"); (ii) any and all registration statements pertaining to employee benefit or director compensation plans of CIGNA or its subsidiaries or pertaining to the secondary offering of CIGNA securities by its officers and directors, and all amendments thereto, including, without limitation, CIGNA's registration statements on Form S-8 (Registration Numbers 2-76444, 2-76445, 33-51791, 33-44371 and 33-60053); and its registration statements on Form S-3 (Registration Numbers 2-91972 and 2-97899); (iii) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 33-65396) relating to $900 million of debt securities, Preferred Stock and Common Stock; (iv) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 33-39269) relating to $300 million of debt securities; and (B) in connection with the preparation, delivery and filing of any and all registrations, amendments, qualifications or notifications under the applicable securities laws of any and all states and other jurisdictions with respect to securities of CIGNA, of whatever class or series, offered, sold, issued, distributed, placed or resold by CIGNA, any of its subsidiaries, or any other person or entity. Such attorneys-in-fact and agents, or any of them, are also hereby granted full power and authority, on behalf of and in the name, place and stead of the undersigned, to execute and deliver all such registration statements, registrations, amendments, qualifications and notifications, and CIGNA's Form l0-K, to execute and deliver any and all such other documents, and to take further action as they, or any of them, deem appropriate. The powers and authorities granted herein to such attorneys-in-fact and agents, and each of them, also include the full right, power and authority to effect necessary or appropriate substitutions or revocations. The undersigned hereby ratifies, confirms, and adopts, as his own act and deed, all action lawfully taken by such attorneys-in-fact and agents, or any of them, or by their respective substitutes, pursuant to the powers and authorities herein granted. This Power of Attorney expires by its terms and shall be of no further force and effect on May l5, l997. IN WITNESS WHEREOF, the undersigned has executed this document as of the 22nd day of February, l996. /s/ Bernard M. Fox -------------------------- Bernard M. Fox 6 POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director of CIGNA Corporation, a Delaware corporation ("CIGNA"), hereby makes, designates, constitutes and appoints THOMAS J. WAGNER, CAROL J. WARD and ROBERT A. LUKENS, and each of them (with full power to act without the other), as the undersigned's true and lawful attorneys-in-fact and agents, with full power and authority to act in any and all capacities for and in the name, place and stead of the undersigned (A) in connection with the filing with the Securities and Exchange Commission pursuant to the Securities Act of l933 or the Securities Exchange Act of l934, both as amended, of: (i) CIGNA's Annual Report on Form l0-K and all amendments thereto (collectively, "CIGNA's Form l0-K"); (ii) any and all registration statements pertaining to employee benefit or director compensation plans of CIGNA or its subsidiaries or pertaining to the secondary offering of CIGNA securities by its officers and directors, and all amendments thereto, including, without limitation, CIGNA's registration statements on Form S-8 (Registration Numbers 2-76444, 2-76445, 33-51791, 33-44371 and 33-60053); and its registration statements on Form S-3 (Registration Numbers 2-91972 and 2-97899); (iii) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 33-65396) relating to $900 million of debt securities, Preferred Stock and Common Stock; (iv) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 33-39269) relating to $300 million of debt securities; and (B) in connection with the preparation, delivery and filing of any and all registrations, amendments, qualifications or notifications under the applicable securities laws of any and all states and other jurisdictions with respect to securities of CIGNA, of whatever class or series, offered, sold, issued, distributed, placed or resold by CIGNA, any of its subsidiaries, or any other person or entity. Such attorneys-in-fact and agents, or any of them, are also hereby granted full power and authority, on behalf of and in the name, place and stead of the undersigned, to execute and deliver all such registration statements, registrations, amendments, qualifications and notifications, and CIGNA's Form l0-K, to execute and deliver any and all such other documents, and to take further action as they, or any of them, deem appropriate. The powers and authorities granted herein to such attorneys-in-fact and agents, and each of them, also include the full right, power and authority to effect necessary or appropriate substitutions or revocations. The undersigned hereby ratifies, confirms, and adopts, as his own act and deed, all action lawfully taken by such attorneys-in-fact and agents, or any of them, or by their respective substitutes, pursuant to the powers and authorities herein granted. This Power of Attorney expires by its terms and shall be of no further force and effect on May l5, l997. IN WITNESS WHEREOF, the undersigned has executed this document as of the 29th day of February, l996. /s/ Frank S. Jones -------------------------- Frank S. Jones 7 POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director of CIGNA Corporation, a Delaware corporation ("CIGNA"), hereby makes, designates, constitutes and appoints THOMAS J. WAGNER, CAROL J. WARD and ROBERT A. LUKENS, and each of them (with full power to act without the other), as the undersigned's true and lawful attorneys-in-fact and agents, with full power and authority to act in any and all capacities for and in the name, place and stead of the undersigned (A) in connection with the filing with the Securities and Exchange Commission pursuant to the Securities Act of l933 or the Securities Exchange Act of l934, both as amended, of: (i) CIGNA's Annual Report on Form l0-K and all amendments thereto (collectively, "CIGNA's Form l0-K"); (ii) any and all registration statements pertaining to employee benefit or director compensation plans of CIGNA or its subsidiaries or pertaining to the secondary offering of CIGNA securities by its officers and directors, and all amendments thereto, including, without limitation, CIGNA's registration statements on Form S-8 (Registration Numbers 2-76444, 2-76445, 33-51791, 33-44371 and 33-60053); and its registration statements on Form S-3 (Registration Numbers 2-91972 and 2-97899); (iii) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 33-65396) relating to $900 million of debt securities, Preferred Stock and Common Stock; (iv) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 33-39269) relating to $300 million of debt securities; and (B) in connection with the preparation, delivery and filing of any and all registrations, amendments, qualifications or notifications under the applicable securities laws of any and all states and other jurisdictions with respect to securities of CIGNA, of whatever class or series, offered, sold, issued, distributed, placed or resold by CIGNA, any of its subsidiaries, or any other person or entity. Such attorneys-in-fact and agents, or any of them, are also hereby granted full power and authority, on behalf of and in the name, place and stead of the undersigned, to execute and deliver all such registration statements, registrations, amendments, qualifications and notifications, and CIGNA's Form l0-K, to execute and deliver any and all such other documents, and to take further action as they, or any of them, deem appropriate. The powers and authorities granted herein to such attorneys-in-fact and agents, and each of them, also include the full right, power and authority to effect necessary or appropriate substitutions or revocations. The undersigned hereby ratifies, confirms, and adopts, as his own act and deed, all action lawfully taken by such attorneys-in-fact and agents, or any of them, or by their respective substitutes, pursuant to the powers and authorities herein granted. This Power of Attorney expires by its terms and shall be of no further force and effect on May l5, l997. IN WITNESS WHEREOF, the undersigned has executed this document as of the 28th day of February, l996. /s/ Gerald D. Laubach -------------------------- Gerald D. Laubach 8 POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director of CIGNA Corporation, a Delaware corporation ("CIGNA"), hereby makes, designates, constitutes and appoints THOMAS J. WAGNER, CAROL J. WARD and ROBERT A. LUKENS, and each of them (with full power to act without the other), as the undersigned's true and lawful attorneys-in-fact and agents, with full power and authority to act in any and all capacities for and in the name, place and stead of the undersigned (A) in connection with the filing with the Securities and Exchange Commission pursuant to the Securities Act of l933 or the Securities Exchange Act of l934, both as amended, of: (i) CIGNA's Annual Report on Form l0-K and all amendments thereto (collectively, "CIGNA's Form l0-K"); (ii) any and all registration statements pertaining to employee benefit or director compensation plans of CIGNA or its subsidiaries or pertaining to the secondary offering of CIGNA securities by its officers and directors, and all amendments thereto, including, without limitation, CIGNA's registration statements on Form S-8 (Registration Numbers 2-76444, 2-76445, 33-51791, 33-44371 and 33-60053); and its registration statements on Form S-3 (Registration Numbers 2-91972 and 2-97899); (iii) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 33-65396) relating to $900 million of debt securities, Preferred Stock and Common Stock; (iv) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 33-39269) relating to $300 million of debt securities; and (B) in connection with the preparation, delivery and filing of any and all registrations, amendments, qualifications or notifications under the applicable securities laws of any and all states and other jurisdictions with respect to securities of CIGNA, of whatever class or series, offered, sold, issued, distributed, placed or resold by CIGNA, any of its subsidiaries, or any other person or entity. Such attorneys-in-fact and agents, or any of them, are also hereby granted full power and authority, on behalf of and in the name, place and stead of the undersigned, to execute and deliver all such registration statements, registrations, amendments, qualifications and notifications, and CIGNA's Form l0-K, to execute and deliver any and all such other documents, and to take further action as they, or any of them, deem appropriate. The powers and authorities granted herein to such attorneys-in-fact and agents, and each of them, also include the full right, power and authority to effect necessary or appropriate substitutions or revocations. The undersigned hereby ratifies, confirms, and adopts, as her own act and deed, all action lawfully taken by such attorneys-in-fact and agents, or any of them, or by their respective substitutes, pursuant to the powers and authorities herein granted. This Power of Attorney expires by its terms and shall be of no further force and effect on May l5, l997. IN WITNESS WHEREOF, the undersigned has executed this document as of the 26th day of February, l996. /s/ Marilyn W. Lewis -------------------------- Marilyn W. Lewis 9 POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director of CIGNA Corporation, a Delaware corporation ("CIGNA"), hereby makes, designates, constitutes and appoints THOMAS J. WAGNER, CAROL J. WARD and ROBERT A. LUKENS, and each of them (with full power to act without the other), as the undersigned's true and lawful attorneys-in-fact and agents, with full power and authority to act in any and all capacities for and in the name, place and stead of the undersigned (A) in connection with the filing with the Securities and Exchange Commission pursuant to the Securities Act of l933 or the Securities Exchange Act of l934, both as amended, of: (i) CIGNA's Annual Report on Form l0-K and all amendments thereto (collectively, "CIGNA's Form l0-K"); (ii) any and all registration statements pertaining to employee benefit or director compensation plans of CIGNA or its subsidiaries or pertaining to the secondary offering of CIGNA securities by its officers and directors, and all amendments thereto, including, without limitation, CIGNA's registration statements on Form S-8 (Registration Numbers 2-76444, 2-76445, 33-51791, 33-44371 and 33-60053); and its registration statements on Form S-3 (Registration Numbers 2-91972 and 2-97899); (iii) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 33-65396) relating to $900 million of debt securities, Preferred Stock and Common Stock; (iv) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 33-39269) relating to $300 million of debt securities; and (B) in connection with the preparation, delivery and filing of any and all registrations, amendments, qualifications or notifications under the applicable securities laws of any and all states and other jurisdictions with respect to securities of CIGNA, of whatever class or series, offered, sold, issued, distributed, placed or resold by CIGNA, any of its subsidiaries, or any other person or entity. Such attorneys-in-fact and agents, or any of them, are also hereby granted full power and authority, on behalf of and in the name, place and stead of the undersigned, to execute and deliver all such registration statements, registrations, amendments, qualifications and notifications, and CIGNA's Form l0-K, to execute and deliver any and all such other documents, and to take further action as they, or any of them, deem appropriate. The powers and authorities granted herein to such attorneys-in-fact and agents, and each of them, also include the full right, power and authority to effect necessary or appropriate substitutions or revocations. The undersigned hereby ratifies, confirms, and adopts, as his own act and deed, all action lawfully taken by such attorneys-in-fact and agents, or any of them, or by their respective substitutes, pursuant to the powers and authorities herein granted. This Power of Attorney expires by its terms and shall be of no further force and effect on May l5, l997. IN WITNESS WHEREOF, the undersigned has executed this document as of the 22nd day of February, l996. /s/ Paul F. Oreffice -------------------------- Paul F. Oreffice 10 POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director of CIGNA Corporation, a Delaware corporation ("CIGNA"), hereby makes, designates, constitutes and appoints THOMAS J. WAGNER, CAROL J. WARD and ROBERT A. LUKENS, and each of them (with full power to act without the other), as the undersigned's true and lawful attorneys-in-fact and agents, with full power and authority to act in any and all capacities for and in the name, place and stead of the undersigned (A) in connection with the filing with the Securities and Exchange Commission pursuant to the Securities Act of l933 or the Securities Exchange Act of l934, both as amended, of: (i) CIGNA's Annual Report on Form l0-K and all amendments thereto (collectively, "CIGNA's Form l0-K"); (ii) any and all registration statements pertaining to employee benefit or director compensation plans of CIGNA or its subsidiaries or pertaining to the secondary offering of CIGNA securities by its officers and directors, and all amendments thereto, including, without limitation, CIGNA's registration statements on Form S-8 (Registration Numbers 2-76444, 2-76445, 33-51791, 33-44371 and 33-60053); and its registration statements on Form S-3 (Registration Numbers 2-91972 and 2-97899); (iii) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 33-65396) relating to $900 million of debt securities, Preferred Stock and Common Stock; (iv) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 33-39269) relating to $300 million of debt securities; and (B) in connection with the preparation, delivery and filing of any and all registrations, amendments, qualifications or notifications under the applicable securities laws of any and all states and other jurisdictions with respect to securities of CIGNA, of whatever class or series, offered, sold, issued, distributed, placed or resold by CIGNA, any of its subsidiaries, or any other person or entity. Such attorneys-in-fact and agents, or any of them, are also hereby granted full power and authority, on behalf of and in the name, place and stead of the undersigned, to execute and deliver all such registration statements, registrations, amendments, qualifications and notifications, and CIGNA's Form l0-K, to execute and deliver any and all such other documents, and to take further action as they, or any of them, deem appropriate. The powers and authorities granted herein to such attorneys-in-fact and agents, and each of them, also include the full right, power and authority to effect necessary or appropriate substitutions or revocations. The undersigned hereby ratifies, confirms, and adopts, as his own act and deed, all action lawfully taken by such attorneys-in-fact and agents, or any of them, or by their respective substitutes, pursuant to the powers and authorities herein granted. This Power of Attorney expires by its terms and shall be of no further force and effect on May l5, l997. IN WITNESS WHEREOF, the undersigned has executed this document as of the 28th day of February, l996. /s/ Charles R. Shoemate -------------------------- Charles R. Shoemate 11 POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director of CIGNA Corporation, a Delaware corporation ("CIGNA"), hereby makes, designates, constitutes and appoints THOMAS J. WAGNER, CAROL J. WARD and ROBERT A. LUKENS, and each of them (with full power to act without the other), as the undersigned's true and lawful attorneys-in-fact and agents, with full power and authority to act in any and all capacities for and in the name, place and stead of the undersigned (A) in connection with the filing with the Securities and Exchange Commission pursuant to the Securities Act of l933 or the Securities Exchange Act of l934, both as amended, of: (i) CIGNA's Annual Report on Form l0-K and all amendments thereto (collectively, "CIGNA's Form l0-K"); (ii) any and all registration statements pertaining to employee benefit or director compensation plans of CIGNA or its subsidiaries or pertaining to the secondary offering of CIGNA securities by its officers and directors, and all amendments thereto, including, without limitation, CIGNA's registration statements on Form S-8 (Registration Numbers 2-76444, 2-76445, 33-51791, 33-44371 and 33-60053); and its registration statements on Form S-3 (Registration Numbers 2-91972 and 2-97899); (iii) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 33-65396) relating to $900 million of debt securities, Preferred Stock and Common Stock; (iv) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 33-39269) relating to $300 million of debt securities; and (B) in connection with the preparation, delivery and filing of any and all registrations, amendments, qualifications or notifications under the applicable securities laws of any and all states and other jurisdictions with respect to securities of CIGNA, of whatever class or series, offered, sold, issued, distributed, placed or resold by CIGNA, any of its subsidiaries, or any other person or entity. Such attorneys-in-fact and agents, or any of them, are also hereby granted full power and authority, on behalf of and in the name, place and stead of the undersigned, to execute and deliver all such registration statements, registrations, amendments, qualifications and notifications, and CIGNA's Form l0-K, to execute and deliver any and all such other documents, and to take further action as they, or any of them, deem appropriate. The powers and authorities granted herein to such attorneys-in-fact and agents, and each of them, also include the full right, power and authority to effect necessary or appropriate substitutions or revocations. The undersigned hereby ratifies, confirms, and adopts, as his own act and deed, all action lawfully taken by such attorneys-in-fact and agents, or any of them, or by their respective substitutes, pursuant to the powers and authorities herein granted. This Power of Attorney expires by its terms and shall be of no further force and effect on May l5, l997. IN WITNESS WHEREOF, the undersigned has executed this document as of the 27th day of February, l996. /s/ Louis W. Sullivan, M.D. -------------------------- Louis W. Sullivan, M.D. 12 POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director and Executive Officer of CIGNA Corporation, a Delaware corporation ("CIGNA"), hereby makes, designates, constitutes and appoints THOMAS J. WAGNER, CAROL J. WARD and ROBERT A. LUKENS, and each of them (with full power to act without the other), as the undersigned's true and lawful attorneys-in-fact and agents, with full power and authority to act in any and all capacities for and in the name, place and stead of the undersigned (A) in connection with the filing with the Securities and Exchange Commission pursuant to the Securities Act of l933 or the Securities Exchange Act of l934, both as amended, of: (i) CIGNA's Annual Report on Form l0-K and all amendments thereto (collectively, "CIGNA's Form l0-K"); (ii) any and all registration statements pertaining to employee benefit or director compensation plans of CIGNA or its subsidiaries or pertaining to the secondary offering of CIGNA securities by its officers and directors, and all amendments thereto, including, without limitation, CIGNA's registration statements on Form S-8 (Registration Numbers 2-76444, 2-76445, 33-51791, 33-44371 and 33-60053); and its registration statements on Form S-3 (Registration Numbers 2-91972 and 2-97899); (iii) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 33-65396) relating to $900 million of debt securities, Preferred Stock and Common Stock; (iv) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 33-39269) relating to $300 million of debt securities; and (B) in connection with the preparation, delivery and filing of any and all registrations, amendments, qualifications or notifications under the applicable securities laws of any and all states and other jurisdictions with respect to securities of CIGNA, of whatever class or series, offered, sold, issued, distributed, placed or resold by CIGNA, any of its subsidiaries, or any other person or entity. Such attorneys-in-fact and agents, or any of them, are also hereby granted full power and authority, on behalf of and in the name, place and stead of the undersigned, to execute and deliver all such registration statements, registrations, amendments, qualifications and notifications, and CIGNA's Form l0-K, to execute and deliver any and all such other documents, and to take further action as they, or any of them, deem appropriate. The powers and authorities granted herein to such attorneys-in-fact and agents, and each of them, also include the full right, power and authority to effect necessary or appropriate substitutions or revocations. The undersigned hereby ratifies, confirms, and adopts, as his own act and deed, all action lawfully taken by such attorneys-in-fact and agents, or any of them, or by their respective substitutes, pursuant to the powers and authorities herein granted. This Power of Attorney expires by its terms and shall be of no further force and effect on May l5, l997. IN WITNESS WHEREOF, the undersigned has executed this document as of the 22nd day of February, l996. /s/ Wilson H. Taylor -------------------------- Wilson H. Taylor 13 POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director of CIGNA Corporation, a Delaware corporation ("CIGNA"), hereby makes, designates, constitutes and appoints THOMAS J. WAGNER, CAROL J. WARD and ROBERT A. LUKENS, and each of them (with full power to act without the other), as the undersigned's true and lawful attorneys-in-fact and agents, with full power and authority to act in any and all capacities for and in the name, place and stead of the undersigned (A) in connection with the filing with the Securities and Exchange Commission pursuant to the Securities Act of l933 or the Securities Exchange Act of l934, both as amended, of: (i) CIGNA's Annual Report on Form l0-K and all amendments thereto (collectively, "CIGNA's Form l0-K"); (ii) any and all registration statements pertaining to employee benefit or director compensation plans of CIGNA or its subsidiaries or pertaining to the secondary offering of CIGNA securities by its officers and directors, and all amendments thereto, including, without limitation, CIGNA's registration statements on Form S-8 (Registration Numbers 2-76444, 2-76445, 33-51791, 33-44371 and 33-60053); and its registration statements on Form S-3 (Registration Numbers 2-91972 and 2-97899); (iii) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 33-65396) relating to $900 million of debt securities, Preferred Stock and Common Stock; (iv) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 33-39269) relating to $300 million of debt securities; and (B) in connection with the preparation, delivery and filing of any and all registrations, amendments, qualifications or notifications under the applicable securities laws of any and all states and other jurisdictions with respect to securities of CIGNA, of whatever class or series, offered, sold, issued, distributed, placed or resold by CIGNA, any of its subsidiaries, or any other person or entity. Such attorneys-in-fact and agents, or any of them, are also hereby granted full power and authority, on behalf of and in the name, place and stead of the undersigned, to execute and deliver all such registration statements, registrations, amendments, qualifications and notifications, and CIGNA's Form l0-K, to execute and deliver any and all such other documents, and to take further action as they, or any of them, deem appropriate. The powers and authorities granted herein to such attorneys-in-fact and agents, and each of them, also include the full right, power and authority to effect necessary or appropriate substitutions or revocations. The undersigned hereby ratifies, confirms, and adopts, as her own act and deed, all action lawfully taken by such attorneys-in-fact and agents, or any of them, or by their respective substitutes, pursuant to the powers and authorities herein granted. This Power of Attorney expires by its terms and shall be of no further force and effect on May l5, l997. IN WITNESS WHEREOF, the undersigned has executed this document as of the 21st day of February, l996. /s/ Carol Cox Wait -------------------------- Carol Cox Wait 14 POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director of CIGNA Corporation, a Delaware corporation ("CIGNA"), hereby makes, designates, constitutes and appoints THOMAS J. WAGNER, CAROL J. WARD and ROBERT A. LUKENS, and each of them (with full power to act without the other), as the undersigned's true and lawful attorneys-in-fact and agents, with full power and authority to act in any and all capacities for and in the name, place and stead of the undersigned (A) in connection with the filing with the Securities and Exchange Commission pursuant to the Securities Act of l933 or the Securities Exchange Act of l934, both as amended, of: (i) CIGNA's Annual Report on Form l0-K and all amendments thereto (collectively, "CIGNA's Form l0-K"); (ii) any and all registration statements pertaining to employee benefit or director compensation plans of CIGNA or its subsidiaries or pertaining to the secondary offering of CIGNA securities by its officers and directors, and all amendments thereto, including, without limitation, CIGNA's registration statements on Form S-8 (Registration Numbers 2-76444, 2-76445, 33-51791, 33-44371 and 33-60053); and its registration statements on Form S-3 (Registration Numbers 2-91972 and 2-97899); (iii) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 33-65396) relating to $900 million of debt securities, Preferred Stock and Common Stock; (iv) all amendments to CIGNA's registration statement on Form S-3 (Registration Number 33-39269) relating to $300 million of debt securities; and (B) in connection with the preparation, delivery and filing of any and all registrations, amendments, qualifications or notifications under the applicable securities laws of any and all states and other jurisdictions with respect to securities of CIGNA, of whatever class or series, offered, sold, issued, distributed, placed or resold by CIGNA, any of its subsidiaries, or any other person or entity. Such attorneys-in-fact and agents, or any of them, are also hereby granted full power and authority, on behalf of and in the name, place and stead of the undersigned, to execute and deliver all such registration statements, registrations, amendments, qualifications and notifications, and CIGNA's Form l0-K, to execute and deliver any and all such other documents, and to take further action as they, or any of them, deem appropriate. The powers and authorities granted herein to such attorneys-in-fact and agents, and each of them, also include the full right, power and authority to effect necessary or appropriate substitutions or revocations. The undersigned hereby ratifies, confirms, and adopts, as his own act and deed, all action lawfully taken by such attorneys-in-fact and agents, or any of them, or by their respective substitutes, pursuant to the powers and authorities herein granted. This Power of Attorney expires by its terms and shall be of no further force and effect on May l5, l997. IN WITNESS WHEREOF, the undersigned has executed this document as of the 22nd day of February, l996. /s/ Ezra K. Zilkha -------------------------- Ezra K. Zilkha EX-24.2 12 CERTIFIED RESOLUTIONS 1 EXHIBIT 24.2 [CIGNA LOGO] Certified to be a true and correct copy of the resolutions adopted by the Board of Directors of CIGNA Corporation at a meeting held on February 28, 1996, a quorum being present, and such resolutions are still in full force and effect as of this date of certification, not having been amended, modified or rescinded since the date of their adoption. - ------------------------------------------------------------------------------- RESOLVED, That the Officers of the Corporation, and each of them, are hereby authorized to sign CIGNA Corporation's Annual Report on Form 10-K for the year ended December 31, 1995, and any amendments thereto, (the "Form 10-K") in the name and on behalf of and as attorneys for the Corporation and each of its Directors and Officers. RESOLVED, That each Officer and Director of the Corporation who may be required to execute (whether on behalf of the Corporation or as an Officer or Director thereof) the Form 10-K, is hereby authorized to execute and deliver a power of attorney appointing such person or persons named therein as true and lawful attorneys and agents to execute in the name, place and stead (in any such capacity) of any such Officer or Director said Form 10-K and to file any such power of attorney together with the Form 10-K with the Securities and Exchange Commission. Date: March 14, 1996 /s/ Carol J. Ward --------------------------- ---------------------------- Carol J. Ward EX-27 13 FINANCIAL DATA SCHEDULE
7 EXHIBIT 27 CIGNA CORPORATION FINANCIAL DATA SCHEDULE THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS INCORPORATED BY REFERENCE IN ITEM 8 OF PART II TO CIGNA'S REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 36,241 0 0 661 11,010 1,283 57,710 1,559 7,120 1,109 95,903 12,007 2,176 19,303 30,055 1,480 0 0 87 7,070 95,903 13,914 4,296 233 512 13,855 1,181 3,668 251 40 211 0 0 0 211 2.86 0 10,635 2,386 1,498 971 2,389 11,159 1,498 AMOUNT INCLUDES RECOVERABLES ON PAID AND UNPAID LOSSES. AMOUNTS ARE NET OF REINSURANCE RECOVERABLES.
EX-28.1 14 RECON. OF SCHEDULE P TO TOTAL STATUTORY RESERVES 1 EXHIBIT 28.1 CIGNA CORPORATION PROPERTY AND CASUALTY STATUTORY RESERVES RECONCILIATION OF SCHEDULE P TO TOTAL STATUTORY RESERVES 1995
(DOLLARS IN MILLIONS) --------------------- Schedule P: Part 1, Column 34, Line 12................................. $ 5,821 Part 1, Column 35, Line 12................................ 1,402 -------- Total statutory reserves as reported in consolidated annual statement balance sheet......................................... 7,223 Reconciliation to amounts reported in Form 10-K: Foreign subsidiaries not included in consolidated domestic annual statement............................................................. 2,389 Other................................................................... 92 -------- Total statutory reserves as reported in Form 10-K....................... $ 9,704 =================
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